Closing Bell - Closing Bell Overtime: First Republic Tumbles After Earnings; Monster Tech Earnings Week Ahead 4/24/23

Episode Date: April 24, 2023

Stocks mixed in volatile session ahead of huge week of earnings. Bowersock Capital’s Emily Hill and 3Fourteen Research’s Warren Pies break down the action. Evercore’s Krishna Guha gives the inside story on the real debate going on inside the Fed right now. First Republic reported its earnings in a closely watched report; Unlimited’s Bob Elliott on what numbers are most important. Zscaler and Rubrik are teaming up on a new cyber security partnership; the CEOs join to discuss investment in the sector. Plus, RBC’s Brad Erickson on the monster week ahead in tech earnings. 

See you in a bit, Mike. Well, that's the scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I am John Fort with Morgan Brennan. Coming up this hour, the earnings report Wall Street has been waiting for. First Republic numbers are due any moment, and investors are looking for clues about the future of the embattled bank. We're going to bring you those results, instant analysis, as soon as they cross. And while we wait for those earnings to come through, let's get to today's action. Joining us are Warren Pies from 314 Research and Emily Hill from Bowersot Capital Partners. She joins us on set. Emily, Warren, great to have you guys.

Warren, I want to go to you first on this one. You think the market could still go below where we were in October. You're recommending 45% stocks, 30 to 40 bonds, I think, and 15% cash. Why is that where investors at home should be positioned? Yeah, well, thank you for having me. That's our overall strategic asset allocation recommendations is basically underweight stocks and overweight cash and bills. And our thesis is that at this point, six months post the October lows, if you're a bull here, you're basically arguing that we've seen the lows for this cycle. So we can look at the last six months and really triangulate. Does this look like a post-bottom environment? I would say absolutely not. There are obviously some technical factors we can get into that that I think are keeping the market bid right here. But let's just take

the big picture. What's going on with earnings? Basically, you should see earnings bottom two to four months after the market does and start stabilizing and heading higher. We haven't seen that this time. Earnings have ground lower across market caps, across sectors. There's absolutely zero angle you can take where you say earnings look like they've bottomed, forward earnings, that is, for the market. So to me, this does not look like a post-bottom environment, and earnings are square one there. Emily, you're not bullish either. You have some specific names that you like, Lamb Research, Corning, though admittedly they've run up quite a bit. Why do you like those kind of stocks? Well, we're looking for value stocks that have a cash flow. So in the

tech sector, I consider Corning somewhat tech adjacent or value tech. And so we're looking for parts of the market. And I do agree with Warren, by the way, we're looking for parts of the market that have not run up dramatically like you've seen with these large cap growth names and the big tech names that we're gonna see reporting this week you know I do think that I would be very surprised if the market has bottomed so I'm not going to take the other side of this one so so in light of that I mean is this a market that's not trading on fundamentals and if so what is booing it right now? Yeah, I think there are two things. Number one,

there's still a huge amount of liquidity in the economy. So the money supply is about 40 percent above higher than when it was in 2019. And so when you have that kind of liquidity sloshing around, you know, money, there is an alternative now, you know, where they're really in T-bills, whereas there wasn't, you know, a year ago or so. But the second reason is I think one unappreciated factor is that retail investors are providing critical support for the market. So we saw $80 billion in retail money flow into the market in the first quarter. And the volume is actually pretty high. You know, prior to the pandemic, retail trading volumes made up about 12.5% of total volumes. Now it's closer to a quarter of market volumes.

So that money, I think, has, you know, a lot of these people have not experienced a really prolonged bear market like the one we saw in the financial crisis. Yeah, I mean, I get what you're both saying. But Warren, I mean, the S&P is up. It rallied to start the year. And we have had some very big moves in some individual stocks as well. Maybe the bottom, the floor is going to is going to fall out and we're going to see this drop in the major averages to test those October lows. But in the meantime, if you're not invested, you're missing out on this move, at least in the near term. Well, yeah, I think that and that's kind of a little bit of muscle

memory from the last 10 years where we went through zero interest rate policy. And I would push back against that a little bit and say that you actually cash is not trash any longer. And so if you're getting 5 percent almost in a money market fund, you have a pretty big hurdle rate. You have to have a pretty optimistic view of the market, of the equity market, I think, to push your chips back in the table. Now, and I would agree with the guest that there are technical factors that probably keep us bid here in the near term. Like we look at hedge fund and CTA positioning, and that's just really the fast money in the stock market. By our measure, they're more short, hedge funds and CTAs,

than really at any time that we have data back to, and that goes back to 2007. So huge short position. This puts a bid under the market. At the same time, vol's falling. As vol falls, systematic funds are able to increase. If they're targeting a certain realized vol percentage, they're able to increase exposure incrementally. So I think you have a lot of technical factors that keep a little bit of

support in the market. So if you're going to be bearish, you got to look for catalysts. So then, Emily, what is the impact, you think, of the banking crisis so far? Aside from a few isolated banks, do we have kind of a larger impact? Is there enough of a signal that the banks in restricting credit are going to slow the economy down, bring inflation down perhaps on their own? I think that the numbers that we got out of the regional banks in the last week or so are a sign that basically this banking crisis has been contained. One of the things that we have our eye on, though, is the fact that the percentage of non-bank actors out there that own financial assets is much higher than it was during the financial crisis. Back then it was about 40 percent. Now it's 50 percent. And I'm talking

about pension funds, hedge funds. You know, look at the run on Silicon Valley Bank. That was driven basically in large part by VC firms. And so people are wondering what's the other shoe to drop here. And, you know, the concern is what non-bank actors out there, you know, there are cracks that appeared in the regulated banking system. Why do we think that we saw cracks in the regulated part of the system that they're not going to show up elsewhere? You know, most people are focusing on commercial real estate, and I think that we saw cracks in the regulated part of the system that they're not going to show up elsewhere? You know, most people are focusing on commercial real estate, and I think that's a concern, but that's known. Yeah.

I mean, what you're bringing up is a key point. We've had a number of very high-profile investors actually raise this point in recent weeks on our air. And certainly it dovetails with what we saw with Yellen and FSOC and some of the changes to designations or proposed changes to designations or proposed changes to designations around non-banks and the SIFI status as well late last week. Warren, the S&P closed basically flat today. We know we have a ton of earnings coming this week. We've got the Fed's preferred inflation measure this week, GDP reading. I could go on down the list. What are the key catalysts in this market right now to either

see through your thesis or actually change your mind on it? Yeah. So I think for us, earnings is the number one spot. If we're going to if we're going to acknowledge October as the low, then you need to start seeing earnings hook higher, stabilize and hook higher. So this would be a good start for earnings season to turn out better than expected. As I look ahead, I think the next catalyst for the market that we're watching is the CPI report next month. That to me is where we've been watching used car prices. If you're going to bet on disinflation, I think a lot of the long duration stocks that are higher are higher because of the interest rate movements we've seen this year. If you're going to make that bet, you need to see car prices continue to head lower. And if you look through the channels

and what's happening, I think there's going to be a headwind for car prices. Shelter inflation, in our view, has a long time to go before it comes down. So I think that CPI number is going to be a potential catalyst. The next two months, to me, are dangerous for the markets on those days. OK, just want to mention, as you can see on your screen, First Republic numbers are out. Our Dom Choo is going through them. This stock was up a little better than 12 percent during the session, and it's down about that much, at least initially after hours. So big moves in that stock.

And we'll get to those numbers in just a moment. Meanwhile, Emily, debt ceiling, are you thinking about it at all? Because it looks like that spread between T-bills between one month and three months indicates that some people are. No, I am thinking about it a lot. I think I've, well, I have not seen this in my career. You know, it's suddenly we're better off buying one month than three months. So, you know, I can't, I frankly cannot imagine that we're actually going to, that this is actually going to happen and that we're going to default on our debt. But I think that we have some people in Congress that are more interested in their own, you know, notoriety and building their own brand. And I'm not convinced they actually understand the full implications of this. So I think that you would be crazy not to watch it, frankly.

I'm not sure, you know, I frankly am not selling all of my three-month, six-month T-bills and buying one-month T-bills by any stretch. But I do think we need to keep an eye on it. Okay. We're continuing to monitor those results and we will bring them to you shortly for First Republic, which has crossed the tape. In the meantime, I mean, Emily, to go back to a point you made earlier, we have two, maybe even two and a half generations of money managers and people that are investing in this market that have never seen a high inflation

environment. And so when we talk about this idea, actually, we are going to go to Dom now. Dom Chu, you do have those results for First Republic. What are they? Okay, so Morgan, John, first of all, let me highlight the fact that the stock is down about 10% right now on roughly 4 million shares of after hours volume. The earnings and revenues actually came in better than expectations. Earnings per share coming in at $1.23. Expectations were for $0.85 per share. Revenues coming in at $1.21 billion. The expectation was a hair below $1.15 billion. But it was the deposit numbers, as we spoke about this past hour, that are getting a lot of the attention right now. Overall deposits at the end of this last quarter, as of March 31st, were $104 billion.

That represents a 40, almost 41 percent decline in deposits over the $176 odd billion that we saw at the end of December of last year. That $104 billion was also below the analyst estimates, calling for roughly $145 billion as of this past quarter end. It's also important to note that that $104 billion they report factors in the $30-some billion that was put in by the consortium of large U.S. banks to help shore up the deposit base at First Republic. We've also got some other headlines coming through with regard to future policies. We will see job cuts, unfortunately, at First Republic Bank, who say that they will cut, excuse me, in this current quarter,

between 20 to 25 percent of the workforce at First Republic, again, to try to control costs there. Also, some headlines coming out with regard to a reduction in the amount of executive compensation at senior manager levels for the firm, as well as a reduction in office space to right-size the bank for those operations. So again, an earnings and revenue beat, deposits coming in worse than what the estimates were for, amid signs that they will then cut 20 to 25 percent of their workforce and look to rein in executive compensation as well as reduce office space usage. Those are the current headlines right now. The shares are down roughly seven to eight percent. So off the pre or off the rafter aftermarket lows

will continue to go through here and see if there's any more color with regard to other aspects of the business. But for right now, that's what's John and Morgan driving the action to the downside right now. I would I would also point out that this is less volatile than some options traders were expecting. So we'll continue to monitor this. We'll bring you more as we know more, guys. All right. Dom Chiu, thank you. And, of course, shares of First Republic are now down about 5, almost 6 percent in the after-hours trade.

But it's moving a lot. So as soon as you say that, you get a different percentage. It's something. Warren, I want to get your response, especially $104 billion in deposits down about 40, almost 41%. And that includes, that number includes the $30 billion that we saw larger banks inject during the quarter as well. Yeah, I mean, I think it's part of the larger trend of kind of deposit flight that we're going to see. I mean, you see it in the money market fund numbers that you track or reverse repo at the Fed, you know, there's basically there's there are high interest rates out there and banks are going to have to compete

a little bit. And so you're seeing kind of I wouldn't call it a bank run, but maybe a bank jog or bank walk here. So, you know, that's this is kind of the ongoing slow motion car wreck that we've been seeing in the banking sector. All right. And of course, it's going to tee us up for PacWest, those results tomorrow as well, which is another one of those banks that has been very much, regional banks has been very much in focus. Worth noting as well, this is a stock, First Republic, that is down something like 90% since March 8th, since we saw all of this turmoil come to the banking sector. Let's get over to CNBC Senior Markets Commentator Mike Santoli at the New York Stock Exchange. He's taking a look at cyclical. Mike.

Yeah, Morgan, specifically at this whole question you guys were just talking about as to whether the stock market is sort of ignoring the fundamental picture or somehow disconnected from the macro environment. And this argues not really. This is from Goldman Sachs. And the blue line here is the performance of cyclical stocks relative to defensive stocks. It excludes commodity related. So it's kind of operating companies in cyclical sectors versus defensive. You see, it's come down, but it's right matched up with this three month U.S. current activity gauge, which come together at about a 1% real GDP pace. So it's arguing effectively that within the stock market, not at the headline index level, but within the stock market, there has been plenty of notice of the fact that we have a softening environment. Of course, a lot of folks talking about the heightened recession risk, which a lot of the leading indicators would suggest. So at least right here, John, not necessarily a case where the market is sort of oblivious to that possibility. Is it is it recognizing it in a way that seems to have the market alarmed or is it just sort of, you know, looking over its shoulder?

Is there enough of that to tell that in the data? arguably happening in a pretty orderly way because it's happening where defensive stocks are actually rising and supporting the indexes as opposed to what could otherwise be the case where everything is going down, but cyclicals are going down more. So I think it's maybe still kind of suggesting a more benign environment than a worst case. But it's definitely not the situation where where stocks are ignoring what's going on. All right. Thank you, Mike. And we also want to thank Emily Hill and Warren Pies for helping us kick off the hour. And up next, Evercore Vice Chairman Krishna Guha joins us with his latest read on credit conditions and the broader economy ahead of a huge week of potentially market

moving data. Plus, much more on all of today's after-hours action, including First Republic. There are a number of reports out. That's all when Overtime comes back. World pool earnings are out. Stocks up 3%. Contessa Brewer has the numbers. Contessa. John, we're seeing a beat here on the top and the bottom lines. The revenue is coming in at $4.65 billion when what was anticipated was $4.5 billion. And earnings per share coming in non-gap adjusted with $2.66 per share. The estimate was $2.28 per share. But the company, even with this strong beat, is just reaffirming its fiscal year guidance on both revenue and EPS at 1582 adjusted per share for the year. They say that North America has seen some bit of profit margin improvement, 10 percent, 400 basis points, sequential improvement, but not so much around the rest of the world, in part because inflation is still a factor there.

As you said, Whirlpool is up 3% in the extended trade. Morgan? All right. Katessa Brewer, thank you. Well, it's not just a busy week for earnings. We've got several key data points coming out, including Case-Shiller home prices tomorrow, Q1 first GDP reading on Wednesday, and, of course, the personal consumption expenditures on Friday. All of this data, of course, ahead of next week's Federal Open Market

Committee. Joining us now is Krishna Guha, Evercore ISI Vice Chairman and Head of Global Policy and Central Bank Strategy Team. Krishna, great to have you on the show. What are the key data that you're watching this week, especially given the fact that we do have this media blackout from the Fed, which kind of creates a little bit of a vortex in terms of how it's going to be analyzed, this data analyzed by the market? Yeah, for sure. So, look, we're looking at two tracks. You've got the macro track and you've got the credit track, both equally important right now since the bank stress began. On the macro side, obviously particularly focused on the PCE read, but also the employment cost index.

This is the gold standard measure of wages. And it's more important than ever right now because the other two higher frequency wage series are telling very different stories. Average hourly earnings cooling off nicely. Atlanta Fed wage track and not at all staying hot. So a lot of interest for me in where that ECI print comes in could be a little firm. Let's see. And then we're all pouring over the credit data. Now, remember here, the Fed has something we don't have. They have the senior loan officer opinion survey, the so-called sluice. They will be pouring all over that before the Fed meeting. We only get to see it after the Fed meeting.

So is it a foregone conclusion that next week we are going to see the Fed hike another 25 basis points? Is really the debate now about whether next week is the last hike we get and then we see a pause or whether we see more on the table potentially into the summer? Yeah, so it does feel very much as if the Fed officials have coalesced around the idea of doing one more 25 in May. And the sort of signaling that we had right up to the beginning of the blackout suggested that either they've seen a first cut of that senior loan officer's opinion, so it's not that bad, or they have enough comfort from the other data, including the private data from the bank supervisors, so as to feel that it's going to be OK to go forward with

one more hike, even if that sluice, that loan officer survey is pretty ugly. So as you say, the real debate inside the committee right now, it's not about 25 in May. It's about what signal do you send? OK. And how do you frame the outlook for hikes beyond that? Krishna, I want to ask you about the debt ceiling. So nobody can say that we didn't warm on this one. I mentioned earlier, there's a spread between one month and three month T-bills indicating that at least in that market, some people are starting to get concerned. Do you think the market overall is taking seriously either the possibility of default or the possibility of a lot of volatility around a potential default? And if you're an investor who's not so optimistic about Washington figuring this out, what do you buy? What do you sell? Yeah. So you guys have been all over this and rightly so. It's a very big risk

event ahead. Look, the market, I think, is approaching this right now as if this is a play where everyone acts their part. But at the end of the day, we don't get the default. I think that that's a reasonable baseline. But it does omit one key thing, which is the market has a role to play in this drama, too. Right. The politicians need the market to throw a tantrum at the last minute so that they have an excuse to compromise and climb down. And I worry that the market has been too sort of relaxed about this, too relaxed to want to throw that big tantrum, which, of course, makes it more likely that we would go over the cliff. So not a base case, but a real risk here. Interesting.

But you didn't tell us what to do. What do you do if you think there's a good chance that we'll throw the tantrum too late and therefore the tantrum has to be more extreme. Well, look, I mean, I think you're not going to want to be taking too much risk on that. I think the dollar is exposed potentially in a more durable way in that sort of situation has big effects on U.S. credibility over the medium to longer term. S&P, best guess, would do nothing until very little, until the very last minute, and then sell off pretty hard. So, you know, look, hiding out in safe places, staying in cash, trying to avoid those securities, those bills and so on that would be subject to direct default. You're going to see those behaviors, I think, kicking in at the very last moment, but not likely,

as I said, a lot of impact on the market until we get very close to the cliff edge. Okay. Krishna Guha, thanks for joining us. Thank you. Up next, we'll dive deeper into First Republic's results and the stock reaction with that earnings call just moments away. And later, we're going to get an inside look at the cybersecurity industry and the latest threats facing companies when we are joined by the CEOs of Zscaler and Rubrik. We'll be right back. Welcome back to Overtime. Let's get a CNBC News update with Seema Modi. Seema. John, here's the update at this hour. One person was killed and a suspected gunman was arrested following a shooting at Rose State College, about eight miles east of downtown Oklahoma City, on Monday.

A police representative said students and staff had just completed an active shooter exercise weeks before the incident. U.S. Ambassador Linda Thomas-Greenfield called on Russia to release detained Wall Street Journal reporter and former Marine Paul Whelan at the U.N. Security Council meeting today. Thomas-Greenfield said the administration would not stop, rest or relent until all wrongfully detained Americans were brought back safely. Whelan's sister was also in attendance at the meeting chaired by Russian Foreign Minister Sergei Lavrov. And Fort Lee in Virginia will soon be called Fort Greg Adams to honor two black officers who made significant contributions to the U.S. Army. According to an Army statement, this move is part of an effort to redesignate nine bases named after Confederate leaders. Morgan, back to you. All right, Seema Modi, thank you. First Republic shares under pressure in the post-market session.

Let's get back to Dom Chiu, who has been digging through the report. Dom. All right. So a couple of details to add to this, Morgan, John. With regard to wealth management, which is also a big component of First Republic's business, a lot of the relationship banking aspect, wealth management assets and fees did increase from quarter over quarter sequentially. Not a surprise given the rise in the stock market. However, what they did say was that they did see certain wealth management teams and advisors

leave. They were responsible for less than 20 percent of total wealth management assets. First Republic says that it has retained nearly 90 percent of its total wealth management professionals and anticipates retaining a portion of the wealth management assets also associated with those wealth managers who are leaving. Also want to bring you one more important detail with regard to the deposits at First Republic. During the course of this first few weeks of the month, they said that they saw an increase or a decrease, rather, of roughly two billion dollars worth of assets. It brings their total in terms of deposits overall to just around that. Just give me one second here. Just around one hundred and two hundred one point seven billion dollars.

I'm just making sure that that number is, in fact, correct. We are looking at that. And of course, with this particular move here, it said that they were down one point seven percent in total deposits, were $102.7 billion as of April 21st, 2023. So again, Morgan, John, that implies a roughly $2 billion deposit stabilization. The conference call is about to begin right now. I'll send things back over to you. OK, Dom Chiu, thank you. We'll be monitoring that closely. We may get more details when the earnings call does kick off for First Republic in just a few minutes. But joining us now in the meantime, Bob Elliott, co-founder, CEO and CIO at Unlimited. Bob, I want to get your thoughts on this. And I realize First Republic's been hit very, very hard by this crisis of confidence, if you will.

I mean, is this a bank that's still fighting for its life, or is it through the worst of it? BOB ELLIOTT, CEO, Unlimited, Well, I think the earnings report does give some indication that First Republic has seen the worst of it and has seen stability, as was just highlighted. After the first couple of weeks in March, deposits have largely stayed stable. That being said, at this point, First Republic is a zombie bank with deposits down almost $100 billion from the private sector, you know, if you exclude the amount of capital that was brought in by the big banks. And by and large, the balance sheet is

being supported by the Fed programs that it's borrowing from. And so First Republic, you know, what the Fed was able to do was to pause an aggressive or acute unwind of First Republic. But at this point, it's a zombie and the stock price reflects that. OK, so what so what happens to the zombie here? And is this really sort of the last bank that was in turmoil, that was troubled by everything we've seen play out over the past month for which we were waiting for results? Or are you watching some of the other ones that we're going to be getting this week, like PacWest, too, just as closely? Yeah, I think for the forward looking story for First Republic is that there's probably going to be an orderly unwind of the bank in one form or another. There's obviously business value in certain things like the wealth management

division, which was just talked about. They'll probably try to scrape together either a spinoff or particular sales of different pieces of the bank. But what we're probably talking about is, over time, a meaningful reduction in what First Republic looks like. I think the interesting thing and the thing that's actually what looks to be a bit of a positive overall is that the fact that First Republic's experience is so weak overall is that the fact that First Republic's experience is so weak is indicative of the fact that the broader banking system is not as bad as we might have thought. In fact, you know, almost 50 percent of the borrowings from the Fed through the end of March came from First Republic. On the margin, that's bad for First Republic, but actually pretty

good as you think about the broader banking system. And that's what I was going to try to get you to elaborate on. This reminds me of a home inspection report that doesn't look good. And you're trying to see, is somebody going to buy this house? Or are people just going to go in and buy the appliances? And they're going to go into foreclosure. It looks like this one's going into foreclosure. But that's so different from what we've seen from other regional banks that in a way, for the broader market, isn't this a good thing?

Yeah, I think from a macro perspective, this is actually about as good an outcome as one could expect. And the reason why that is, is it highlights the fact that most of most people suspected that a lot of the Fed borrowings, particularly through the discount window, were going to First Republic given their acute deposit squeeze. This confirms that, that the vast majority of that discount window borrowing was First Republic. What it means is that the pressure that exists in the rest of the regional and small banks is less than we might have expected. And then it also aligns with the broader data that we're seeing, which is after a short period of deposits, like deposits across the small banks across the U.S. has basically stabilized at slightly lower levels than if anything ticked up in recent weeks. And so overall, the idea that we're having an acute banking crisis here that some people were promoting a few weeks ago. It looks like it's mostly concentrated to a select few banks that are, you know, that face problems, but it's not a broader issue. All right, Bob, thanks. Bad news for First

Republic, but on the flip side, pretty good in a way for everybody else. Meanwhile, now we've got a news alert on Johnson & Johnson's health care spin-out. Contessa Brewer has it. Contessa. That's Kenview, John. It's the maker of Tylenol and Band-Aids and baby shampoo. And what we hear is that there will be an initial public offering, so it will be listed publicly on the New York Stock Exchange. 151 and change million shares of common stock to be sold between $20 and $23.

That's the anticipation. And Johnson & Johnson will continue to own 91.9% of the voting power even after it goes public. Here, this really kicks off the IPO process. They're going to kick the tire, so to speak, about whether we're ready to get back to some IPOs here. Again, Kenview, we're not seeing that Johnson & Johnson stock is changing much in the extended trade. John? All right. A very known name, but a test nonetheless.

Yeah. Contessa, thank you. Now, after the break, a wave of tech earnings is on the way, and there's one name in the group that's breaking out from the pack. Mike Santoli is going to, next. Welcome back to Overtime. The NASDAQ closing in the red just a bit today as investors await big tech earnings. Mike Santoli returns with a look at one stock in the sector that's near relative highs. Mike?

Yeah, John. Apple, have you heard of it? It's about 23%, 24% of the tech sector, the market cap weighted tech sector. This is Apple's performance relative to the equal weighted version of the S&P technology sector. You see, it's not too far from a peak. And the way it usually works is when the overall market is having a little bit of a struggle and when tech in general is not performing all that well, Apple has tended to do better. It's a safety trade. It's obviously the kind of big, steady name in the group. And so if you look right here, this is when Apple relative to the overall market peak. That was at the end of September last year. So that was when the overall market was selling off and people did not want part of any risk.

And right down here, well, that was the top of the S&P 500 year to date anyway in early February. So you see a little bit of the way the pendulum swings, by the way, that all time high of the Nasdaq. And so, again, other stocks falling more than Apple or Apple gaining in the absence of others. So this would be another sign here that investors have generally been grabbing for safety and predictability and not necessarily really grabbing for risk and things that are really tied to to the economy. I mean, this chart, the takeaway for me is the fact that you're very top heavy with the market and the rally we've seen recently. Well, that's another one. Yeah, exactly. So it has been very selective and some of the huge stocks have been supporting the S&P while the average stock has kind of wallowed. All right. It wouldn't be a week without you talking about Apple, Mike Santoli. Thank you.

Up next, we will discuss the outlook for cybersecurity stocks when the CEOs of Zscaler and Rubrik, after they announced a partnership to fight ransomware, join us. Welcome back to Overtime. Check out shares of Tenable Holdings, a big mover in the after hours, down 13.5% right now. The cybersecurity company falling hard after reporting results just moments ago. Revenue beating, but Q2 revenue guidance also missed estimates. And as I mentioned, the stock is moving dramatically in response to that. John? Meantime, cybersecurity firms Zscaler and Rubrik announcing today they're teaming up to strengthen data protection for their customers. The announcement comes as the RSA Security Conference kicks off in San Francisco. And joining us now exclusively from CNBC's San Francisco bureau, Zscaler CEO Jay Chaudhry and Rubrik CEO Bipul Sinha. Guys, welcome. I want to get to the news. But first, Jay, I want to ask

about some headlines that have dinged your stock over the last couple of weeks. A private company inched past you in Gartner's rankings. Palo Alto Networks reportedly doing some pretty heavy discounting, trying to catch you. How much of this is you holding the line, trying to protect your margins on pricing? Or is something else going on? So, John, first of all, Is you holding the line trying to protect your margins on pricing or is something else going on? So, John, first of all, thank you for the opportunity to have me back. ZSkiller is not a point product that's sold on pricing. We enable secure digital transformation. Our engagement happens at CIOC sole level. So we are doing well. We really, there is some pricing pressure in the market across the board because of macroeconomics. But some of the copycats coming from behind trying to offer cheap stuff doesn't really change the mind of the enterprise customers Zsckillr deal with. Our service is mission critical. If ZSkillr doesn't

work or if the zero trust exchange doesn't work, you can't do any business. So our customers like resilience, they like security, they like the ZSkillr experience. So we focus on delivering value to our customers, securing them, then some of the others who are trying to bring down the price. Okay. That says it. Bipol, you and I met for breakfast a couple weeks ago, and you were talking about, you called Jay up and said, let's do this partnership. Double extortion ransomware solution. How is this different from what you can do on your own? Thanks, John, for this opportunity. You know, ransomware and cyber extortion are the biggest threat to our digital economy. And what we saw was Rubrik has this data at rest intelligence and combined with data in motion intelligence and security that Zscaler had, combining the two,

we saw that a clear opportunity to help our customers who are really struggling with cyber attacks and ransomware to provide a full end-to-end cybersecurity solution around double extortion ransomware. Okay, Jay, I'm shocked at what is happening right now playing out in the government around security of secret information. It seems like, you know, we've got this service member around 21 years old who had access to these documents and was putting them out on the internet and nobody noticed. Isn't this the very sort of thing that a zero trust approach is supposed to prevent just because you have a certain clearance doesn't mean you're not being watched. And if your behavior is strange, it gets flagged. John, that's exactly right.

The unfortunate thing is while government is embracing zero trust, it's moving slowly. Here is the metaphor I'll give you. In the old world where before zero trust, you entered the building, you could go to any room you wanted to go to. Now, could the guards be watching you? Where have you gone? Where haven't you gone? That watching goes only so far. That's exactly what happened in this case. Had the government embraced zero trust in this situation, that individual will only have access to certain information, certain documents, not open access. In the old world, you start with open access and try to see, let me watch what's good,

what's bad. In the zero trust world, they shouldn't have access. I'm proud of the fact that 12 of the 15 Cabinet-level agencies are actually in a journey to embrace real zero trust. We're helping them. And most of the government journey to embrace real zero trust. We're helping them. And most of the government needs to embrace it. That's the only way to secure information. And we're proud to be partnering with government.

But things need to move at a faster pace. Yeah, which I think is always the case when you're talking about the government and contracting the government. Bipol, just whether it is the government, whether it's enterprises, whether it's consumers, I mean, just how big is this threat of ransomware and how is the landscape around this threat changing, especially when you start talking about vast amounts of data and the use of new types of AI where it's all concerned? I mean, if you look at situations around us, these AI technologies, these generative AI technology is just spawning new kinds of threats because people now can generate these new kind of attack vectors. And you combine that with large data growth and bad actors

understanding the value of data as the GDPR, SEC 17, HIPAA, and other regulatory efforts are around data, the attacks are only growing and only becoming more severe. Everybody is struggling, and zero trust is the answer. Zero trust is the answer because you cannot touch your data unless you are particularly authorized to do so. That has been the rubrics genesis. That has been the basis of our partnership with Zscaler. They are ensuring that at network layer, zero trust is enforced. We are ensuring that at the data layer, zero trust is enforced. And combination of the two is really the answer against ransomware and cyber extortion, which is the next generation data security threat. If I may add, Bipple.

I think we've got to leave it there, guys. But Bipple, Jay, thanks for joining us, and we'll see what you guys are able to come up with together. Thank you. Up next, the after-hours movers that need to be on your radar, plus what to expect from this week's huge slate of tech earnings. Some notable reports out in the past half hour. First Republic making fresh overtime lows after deposits came in 40 percent lower quarter over quarter.

You can see those shares are now down 21 percent. It's been very volatile after hours. But another name that is falling is Cleveland Cliffs. That's despite beating analysts' forecasts on revenue and is smaller than expected. Loss per share. Cleveland Cliffs is down about two and a half percent. This is a steel-related name. This is an infrastructure play, essentially. We're going to hear more from CEO Lorenzo Gonazalves. That is tomorrow morning on Squawk on the Street. Now, Alphabet and Microsoft kick off a huge week of tech earnings tomorrow. A top analyst is going to reveal his top tech picks when Overtime returns.

Welcome back to Overtime. We've got a big earnings week ahead for the mega caps. Names like Alphabet, Microsoft, Meta, Amazon, all reporting this week, starting with Alphabet and Microsoft tomorrow after the bell. So let's bring in RBC Capital Markets analyst Brad Erickson to talk about what he's watching. Brad, my initial question has to do with the cloud hyperscalers, Microsoft, Amazon, Alphabet, maybe particularly Amazon Alphabet for you. How much of this is going to be about top line growth in cloud, which we know is being pressured by customers who want to save money? Yeah, that is absolutely going to be the issue and not really on Q1 so much, but more on Q2,

where I think investors are actually thinking AWS growth in particular could dip as low as maybe 10 percent, which is kind of an unprecedented low in the history of that business. Yeah, pretty low. And so as they sort of work through that and message that, what people are really looking for is if that is the trough, that's actually going to be good enough, we think, on the quarter. You will have some margin pressure around that, but I think people are looking for that re-acceleration into the back half of the year. And that's where I think a lot of folks are feeling like Amazon actually sets up quite favorably into the print. So it wouldn't be a situation where you're seeing Amazon seed market share to some of these other companies. It would be a situation where it's really just

other companies tightening their belts. I wouldn't characterize it as so much seeding share. That sounds more defensive. I think what's going on actually is that they are reaching out to their customers more proactively to optimize, but in doing so, they're actually early renewing people. And so they're actually locking up share for longer, signing longer duration deals. There is a margin hit associated with that. And in a consumption type business like that, their customers are consuming less, i.e. they're growing slower. But I think when you think about the longer term, which is obviously always the game that Amazon tries to play,

I think they're actually doing something that's sort of underappreciated and more proactively positive, I would say, longer term. Now, Brad, tell me about meta. What's more important to investors in this quarter? More cost reduction color. We already know it's the year of efficiency or monetizing reels because I'm starting to see ads show up where they weren't there. So maybe they've got some color on how well they're monetizing. Yeah, I think the year of efficiency narrative is pretty well known now. I think my mom's actually aware of that one by now. So it's a top line story from here. You need reacceleration. Everyone knows that Q1 was a tough quarter. I think you're looking for pretty modest acceleration

in Q2, call it 100, 200 basis points. I think what bulls are pointing towards is getting back to a double digit type growth rate entering 2024. If you can do that, I think the stock's still trading well below a market multiple. And I think people think it continued to work. If you can do that, I think the stock's still trading well below a market multiple. And I think people think it continued to work. But you need a top line story from here. OK. And the fact that we do get Alphabet after the bell, we keep talking about these emerging AI wars. Is that what matters or is it something else? You know, everybody always evaluates the core business, which is which is the search business. And actually, our checks have been quite positive exiting the quarter even more so relative to meta so it's

actually kind of our preferred name heading into earnings but absolutely generative ai is going to be the topic du jour on the call tomorrow afternoon they're going to need to talk to to capex and the implied compute costs and the intensity there as well as some of these uh these latest controversies around how do they keep their search engine at the forefront? How do they keep Apple and Samsung from considering other default search providers? So yeah, management has a lot of, I don't want to call it explaining, but they have to look to control that narrative on the conference call tomorrow afternoon. Okay. We're going to be watching closely. Brad Erickson, thanks for teeing us up there with outperforming Amazon, Google, and Meta. Chipotle is also

reporting earnings after the bell tomorrow. And CEO Brian Nicol will join us in a first on CNBC interview to break down those results. We've got a big hour tomorrow. We do. Visa also reporting after the bell. And, you know, even though it's not a big traditional tech name, it is a fintech name, right? And they do have a lot of information about how money's moving, consumer behavior, all of that. So that's one we're going to keep our eyes on as well. Yeah. So there's going to be a lot of read-throughs on consumers between Chipotle and Visa. And then in the morning, we've got McDonald's, of course, Archer Daniels Midland. They're growing the food before it gets sold in the fast food restaurant.

Real look at a whole lot of different aspects of the economy tomorrow. Yeah, as well as some housing data in the morning. Well, the Dow finished the day higher, S&P basically flat, the Nasdaq down about a quarter of a percent. That's going to do it for us here at Overtime. Fast money begins right now.