Closing Bell - Closing Bell Overtime: Flexport CEO On Surging Shipping Costs; Siemens CEO On Automation In Manufacturing 5/31/24

Episode Date: May 31, 2024

Stocks surge into the close but major averages ended May lower. RBC’s Lori Calvasina on the path forward for the markets. Flexport CEO Ryan Petersen on shipping costs surging and how transports are impacting inflation. Siemens CEO Roland Busch on automation in manufacturing and how the European giant is positioning its portfolio mix.  

A pretty big push higher into the close, sending the Dow up more than 550 points, erasing earlier steep losses for the Nasdaq. That is the scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. Well, coming up this hour, the CEO of supply chain and logistics company Flexport joins us with an inflationary warning about global freight prices, which he says are hitting levels not seen since the pandemic supply chain crunch. And the hard truth on software. MongoDB sinking more than 20 percent today, following a big drop for Salesforce earlier in the week. We're going to hear from the CEO of one name in this space. There I am. That's moving the other way. Up more than 8 percent today on results. But first, let's get to the market action. And this big

push higher into the close, erasing much of the losses of the week, pushing the averages further into the green for the month of May, which just wrapped up here. Joining us now, Lori Calvacina of RBC Capital Markets and Warren Pies of 314 Research. Great to have you both here. Warren, I'm going to start with you. The fact that we saw such a stark reversal here in the last hour of trading, I mean, at 3 o'clock, the Nasdaq was down something like one percent. We basically finished flat on the day. Is this just end of the month sort of last minute positioning? How does this set us up looking to to June? Yeah, thanks for having me. I would probably say that's the case. You know um there is a lot of reinvestment flow

that comes into the market at the end of the month and we've been in a lot low volatility kind of environment and so this is kind of the path of least resistance that's kind of the message market 60 of all months are higher and may ended up being another one of those months it looks like so that's just kind of what's going on i think as we turn to june the big news is what's going to happen with the fed they've been dovish despite the data. And I think today's data was actually less dovish than the market reacted to it. But I think it's keen off the Fed's posture. So we go to June and we see what the Fed, how the Fed plays the next SEP, in my view. OK. Lori, I want to get your thoughts on the markets at these levels right now,

because, yes, we've seen a little bit of softness. We've seen some churn in the S&P 500. We finished today higher. We're lower on the week, but we're still at four point eight percent on the month. And when you put it in context before this week, the five weeks prior, the S&P gained five and a half percent and basically regained almost all of the ground lost in that recent pullback. Fairly valued here, or is there more opportunity to run? All right. So thanks for having me as always. And look, I think you hit the nail on the head, Morgan. I think we're fairly valued in here. We have a valuation model that lets us assign fair value of the index at the end of the year based on assumptions about inflation, the Fed and 10 year yields. And that model,

the most optimistic scenario I can give you if I use consensus earnings of about 245, it's pointing to just under 5300 on the S&P at the end of the year. And that's based on a pretty rosy scenario of getting one to two Fed cuts, some pretty significant moderation on PCE and some relief on 10 year yields from where we are right now, getting a little bit closer to 4%. And I think there are plenty of people out there who would tell you that those estimates, those assumptions on the macro are maybe a little bit too optimistic. And if we're looking to maybe dial those down a bit, there could be some modest downside risk in the market. I'm not looking for anything major in terms of downside, but it does feel like we just really need to get beyond this Fed narrative, maybe start looking ahead to 2025 to justify higher gains in the market from here. Warren, I want to go back to something you just said. Some would say the PCE

numbers show that we're getting closer to the Fed's target than some feared. So why less dovish? Yeah, I think it really comes down to base effects as we get into the second half of the year. And so month over month, we were up basically 0.25% in today's reading. And when you spin that forward, in order to get, so the Fed pegged their end of the year estimate in Q1 at 2.6% on CorePCE. In order to hit that number, we would have to print down to 0.15% gains the rest of the year. It's like there's a number we haven't seen in almost a year now on core PCE. So you have to have some belief that there's just going to be the bottom that falls out of these month over month numbers. And I don't see it. So what does that translate to? It translates to a Fed that's going to have to mark up if they're attached to reality, they're going to have to mark up their core PCE numbers or estimates in next month's SEP. And so if they mark that up to 3%, which implies a two-tenths of a gain every month on core PCE, if they mark that up to 3%, exit 2024, can they still justify the one to two cuts that are consensus in the market right now?

I think that's really where the rubber meets the road. And we're going to find out come June 12th. Okay, Lori, you said, I think the market is fairly valued in your mind. What's the lesson then from Salesforce and MongoDB? And I mean, Salesforce pretty strong into the close here. Did the market learn whatever the lesson was? So, look, I can't comment on individual companies, John, but what I will tell you is that when you're at a market that's really, you know, just sort of, I don't want to say price for perfection, but something close to that, there's really very little room for error. And

when we think about the secular growth trade and how strong some of these growth segments of the market have been, and when we look at valuations, that is really where there is no room for error. And I think, you know, one of the stats that I talk to my clients about a lot is that if you look at the top 10 market cap names in the S&P, you've been trading around, depending on when you update the data, like 25 to 28 times forward earnings, kind of bumping up against pre-COVID highs. The rest of the market's trading a little bit above average, around 16 times forward earnings. I talked to a lot of investors that even if they like those secular growers and they're not necessarily dumping them, that they're looking to the rest of the market saying if the economy

continues to hold in, that there's just a lot of stuff out there that looks like a better bargain right now. Energy, the best performing sector in the S&P 500, which maybe speaks to some of these parts of the market where we're seeing these bigger, broader debates. Lori Calvacina and Warren Pies, thanks for joining us today. Let's get to Seema Modi now for more on the biggest winners and losers in the month of May. Seema. Morgan, a winning month for the Bulls, as you were just discussing. Tech was a top performing sector in the month of May, gaining about 8 percent. Best month since November of last year, helped in part by better than expected earnings and led by NVIDIA. It saw its shares

surge by another 25 percent following the chipmaker's stellar report and bullish commentary from CEO Jensen Wong. Other winners include HP and First Solar after a rough start to the year. Apple recouping some of its losses with a 12% pop in the month of May. And gold also rung in its third consecutive month of gains, now trading about at around $2,300. While volatile oil prices and some major M&A news sent energy stocks in the opposite direction. That was the worst performing sector, and some of the big laggards include ConocoPhillips, EOG Resources, and Occidental. Guys?

All right, Seema, thanks. Well, anxiety popping up again about the market's narrow leadership, but ConSignor Markets commentator Mike Santoli cooled down those worries. Does he want to? Mike, what do you say? I usually do want to, especially when the worries are not necessarily that well grounded. Let's take a look at the S&P 500, John, relative to its equal weighted version.

This is a two-year chart. As you can see, it's not always the case that the mega cap driven S&P 500 leaves behind the average stock, but it has been the case in the last year, year and a half. What's happened then? Well, you had the regional bank crisis, which really sent people into these secular growth stocks.

And then, of course, also the AI boom. But what I think is relevant here is in both cases, the general trend is higher. And you've still kind of kept on. You hold on to the majority of the rallies from the October lows and then even from the April pullback. So looks OK. It's a difference in magnitude as opposed to kind. Now, here is a little closer to what people are worried about, which is a smaller percentage of S&P 500 stocks actually in an uptrend on a 50 day basis. So this is the percentage of S&P 500 stocks that are above

their 50-day moving average. You see it kind of waxes and wanes as rallies come and pullbacks come. But you see this lower highs. It looks like kind of a faltering trend there, fewer and fewer stocks working even as the index has gone higher. However, look at last year. We actually had something very similar in the middle part of last year. Everyone was very worried about breadth. Everyone said it's only six stocks in the market that are working. And then it kind of healed itself. And we actually had a re-expansion of breadth in bull markets. This often gets resolved to the upside. That got us into the late July highs. Obviously, we had a correction leader that year. But I don't think there's any one conclusion, John, that you would draw from the fact that,

you know, most stocks have been pulling back relative to the index. And what about the the seasonal comparisons? Q4, I think if I recall, you were telling us Q4 behaved almost exactly like a Q4 is supposed to. We're we're heading into the last month of the first half of the year. How overall is the market behaving on that score? It's a little bit less conclusive in terms of what the market, quote, normally does in the middle of a year, in the summer months or anything like that. It breaks down significantly differently, let's say, in election years or if the market has already been in an uptrend. So when the market has been in an uptrend, what we know is June, July, more positive than average. But I wouldn't say it's similar to the fourth quarter where

there is this textbook model of if you've had an autumn correction and you get an October low and a really broad rally off of that and you have strength into the club, that's a little more of a defined playbook, I would say, than what we face here in this muddled middle part of the year, Morgan. All right. Mike Santoli, thank you. We'll see you later this hour. We got much more ahead on this late day surge higher to end the month of May. And after the break, Moody's chief economist, Mark Zandi, joins us with his first reaction to today's key inflation print. And if it could signal rate cuts sooner than the market thinks. Plus, we're going to talk about the massive moves this week for software stocks, including today's big pop for search and data firm Elastic.

We'll hear from that company's CEO when Overtime comes right back. and some dramatic post earnings moves in enterprise software mongo db down about 24 on weaker than expected consumption and light guidance. Enterprise search and security firm Elastic, like an elastic band, snapped higher, up 11.5% on a strong beat and guide. I spoke with Elastic CEO Ash Kulkarni today about the part of his business that helps customers see and respond to security threats. And I mentioned consolidation, including that deal between IBM and Palo Alto Networks that we brought you in a first on overtime interview just a couple weeks ago. That's exactly what's happening, John. What we're seeing across the board is customers are demanding ways in which, you know, providers, technology providers like us can help them take all of the more manual processes and find ways to automate them. That reduces error, that makes things more efficient, that allows, you know, the security analysts to really focus on the attacks, not the

alerts. And we launched some, you know, patent pending capabilities that we announced at the RSA Security Conference called Attack Discovery that lets you do just that. It uses AI to quickly correlate, enrich all of the information and tell you, here are the three attacks that are going on right now. This is what you need to do about it. And it awards you having to look through thousands of alerts. So interesting, Morgan. AI for documentation within tech. So not only for helping you code, but also for helping you debug situations and focus on the technical work, not just the documentation. That's really fascinating, especially that what we've seen

in terms of just the dramatic market moves or stock moves for different companies that reported earnings this week in both directions, really kind of speaking to the debate that seems to be out there in the market around this widening divide between software and hardware in this new AI era. Yeah, if you look at Elastic, it had been down quite a bit. So I think there was some skepticism about the growth story, but it popped back up. Well, turning back to the broader market, stocks finishing the month with a whoosh higher into the close. Earlier, we got the Fed's preferred inflation measure, PCE, in line with forecasts for April. So will the Fed be satisfied with this reading or are rate cuts still far away? Joining us now is Moody's Analytics Chief Economist, Mark Zandi. Mark, welcome. Happy Friday. Guest earlier, Warren,

told us that he thought that maybe the market was reading this PCE report too dovishly. What do you say? Well, that was a good report, John. You know, it indicates that inflation is on track to get back to the Fed's target in a, I'd say by the end of the year, you know, within spitting distance of the Fed's target by the end of the year. So it felt pretty good to me, you know, particularly after the kind of disappointing numbers we've been getting since the beginning of the year, you know, within spitting distance of the Fed's target by the end of the year. So it felt pretty good to me, you know, particularly after the kind of disappointing numbers we've been getting since the beginning of the year. And I think all the trend lines here look pretty good with respect to inflation. So I took a lot of solace in the number. So where do you need to look from here for confirmation of that,

the next strong data signal that we get? Well, we need more of the same. I mean, the Fed's focused primarily on the inflation statistics. And so I think there'll be another couple, three before. I think they'll probably cut in September. So they'll get two, three more inflation statistics before then. So we need, you know, 0.2 on a month to month basis. I'd be great if we can throw in a 0.1. That would be nice. But I think we'll get that or something close enough to that that the Fed will be able to start cutting rates at the September meeting. We know inflation data is backward looking. We know

the shelter component, this is particularly true on the CPI side of things, is outsized and also lagging by quite a number of months. I mean, how real is the risk here that the Fed is behind the ball? Well, you know, Morgan, if I were on the Fed, I'd be cutting rates. You know, I think they've achieved their goals of full employment, the 4 percent unemployment rate, some 4 percent now for more than two years and feels like we're there. And I think inflation is close enough to target. And as you point out, if you exclude the cost of home ownership, the so-called owner's equivalent rent, which is very difficult to measure in good times, but in a time like this when the housing market's topsy-turvy, all but impossible.

But if you exclude that and you go to so-called harmonized inflation, that's at target. I mean, I think we just did the calculation for harmonized consumer expenditure deflator. I think it came in at 1.7% year over year for the month of April. It's been below 2% now for, I think, almost six months. So I think we're there. And if you've achieved your goals, you've got to ask yourself the question, well, why do we need such a high rate of five and a half percent rate? You know, the economy is resilient and strong. Yeah, I get it. But, you know, why take the chance? You know, things can change pretty quickly. So I'd be arguing for for for cutting right now. I was arguing for cutting earlier in the year. Yeah. Harmonized core PCE. We're start using that a little bit more. I even as we're talking about the Fed holding steady right now and wanting to see several at least probably several more months of better improving inflation data. We have an ECB

that is poised to potentially cut as soon as next week. How does that divergence now play out here globally whether it comes to the dollar and what we potentially see in the currency markets when you talk about the global bond complex when you talk about the impact uh here in the u.s as well well i think the markets are anticipating what you just said that the ecb is going to be cutting rates very shortly. The Bank of England, not too far behind. Bank of Canada, also not too far behind. That's in the markets. Investors expect that. So if that's the end of the divergence, I don't think it's any big deal. Currency markets will be stable.

But, you know, again, if the Fed holds on tight here, higher for longer, the divergence is going to continue to grow. And at some point, that will become an issue and one more reason why the Fed may want to start cutting rates sooner rather than later. Yeah, I mean, things being as strong as they are, I'm still surprised, you know, you're saying September. Tell me more. Why not later? Just a little. Well, by September, I think they get the data.

I mean, look, I think there's the debate about full employment that's been settled. We're there. They've achieved that target. The real debate is, are we at the 2% inflation target so that they can feel like they've satisfied their objective to everyone's satisfaction, particularly in an election year? You know, I think the bar is a little bit higher. And I think they need a couple, three more numbers to be able to definitively say that. Now, having said that, you know, things are moving around and will continue to move around. So we could see the economy start to soften a little bit.

We could see some cracks in the financial system. We could see some problems in the currency market like we were just talking about. And that would be, you know, or the equity stock market could correct. I mean, the market's highly valued, feels a little vulnerable, so that could correct. So there's other variables that could change that could change their mind and start for them to start cutting earlier than that. But assuming none of that stuff, assuming everything, the status, roughly the status quo and everything kind of sticks to script here, I think they'll probably need two, probably three more inflation numbers that are consistent with their target before they actually pull the trigger and cut those rates. Okay. Mark Zandi, thank you. Of course, we get a flurry of labor data next week,

including the jobs report next Friday. Appreciate it. We have a news alert on Autodesk. Contessa Brewer has those details. Yeah, and Morgan, we're seeing those shares bounce around a bit for two reasons. One on earnings. Let's get to this this piece of news the revenue coming in at 1.48 billion uh versus well i'm sorry this is the outlook the preliminary results revenue 1.42 billion versus 1.39 billion which was the consensus and eps 1.87 versus the consensus of 1.74 expected the outlook here revenue of 1.48 to 1.49, a little higher than consensus. And the adjusted EPS outlook also just a bit higher than consensus, coming in at $1.98 to $2.04, where the expectation was $1.97 for the current quarter. Finally, for the full-year outlook,

it's pretty strong with revenue up 9% to 11%. The estimate was about 6%. The other piece of news on Autodesk is that the audit committee has completed an investigation looking at free cash flow and the way that they bill their customers up front, multi-year billing arrangements that would have led into meeting their free cash flow targets. Basically, the audit committee says, look, we've reviewed it. We're going to start reporting it differently, but we're not going to go back and revise any of our results from the years past. And there you can see what the shares are doing up six and a half percent. John? All right. Hopefully that's all cleared up.

Contessa, thank you. Up next, we're going to tackle a different part of the inflation picture, the rise in global shipping costs, with the CEO of logistics and supply chain management firm Flexport. And later, we are going to talk to the CEO of $150 billion industrial giant Siemens about the economic signals he's seeing from a wide range of customers around the world. Welcome back to Overtime. The rise in global ocean freight costs adding more pressure to the inflation picture. Our next guest says prices are surging to levels not seen since the pandemic. Joining us exclusively is Flexport CEO Ryan

Peterson. Ryan, good to see you. So, you know, Red Sea, bad weather, some other stuff combining with this spike. How long do you think these high costs are going to last? Hey, it's great to be here. Well, now you're asking me a question nobody could know the answer to. Those are the fun questions. You've got more insight than most. So maybe you've got some idea. Yeah, well, you know what? We can say that there's plenty of new ships being built that are currently under construction or getting deployed over the next 12 to 24 months. You're going to see a lot more capacity and ultimately the price of ocean freight driven by supply and demand. So I think in the medium term, let's call it 12 months from now, we can be pretty sure that the prices will come back down. Short term right now, it's

one thing to have a lot of ships, but you also need plenty of containers, chassis. Those are the trailers that hold the containers around. And then these ships and these containers and chassis need to be in the right place at the right time where the cargo needs to move. And we're seeing a lot of cases where there aren't enough containers or the ships are having trouble getting an appointment. And a lot of this is caused by the Red Sea. You know, we had this these missile attacks and drone attacks in the Red Sea, and it's caused all the container ships to route around Africa. And that's just created all kinds of congestion and scheduling issues with the with the ships. And it's made it hard for customers to get cargo where they need it to be.

So I know it sounds early for this, but I got to ask, what's the impact then on the holiday season? Because, you know, it's about five or so months away, and it takes a while to get stuff from there to here. Are your customers having to prepare differently even now for Q4? Yeah, and that's what you see right now. I mean, Flexport's one of the largest shipping companies in the world helping brands manage. There's a lot of e-commerce brands and a lot of companies that sell consumer goods.

And they are starting to pull goods in early. And that's part of what's driving this surge is people are worried about the holiday season. They saw what happened during COVID where they didn't have enough inventory. So anyone who can is trying to get those goods in now in the event that it's difficult in the peak season, in the holiday season. So we've actually got like an early peak ocean freight season. And one of the concerns that people have is that the ILA, that's the name of the union that represents the dock workers on the East Coast. Their contract ends on September 30th this year. And so there's a lot of fear if they can't get a good negotiated settlement and they go on strike or a slowdown, that it'll be very hard to bring goods into an East Coast port right ahead of the Christmas season.

So I think people are worried about that and starting to pull goods in early. Interesting. In light of that, I am curious what you're seeing in terms of the trade dynamics between the U.S. and China, because we know that Mexico has surpassed China as the top trade partner for the U.S. We know supply chains are being rethought and regrouped and rebuilt in other parts of the world, including Mexico. But we also know that you have some of the fastest growing retailers like Shein coming out of China, which the Information wrote an article about regarding Flexport as well. So your comments on that article and your comments on what we're seeing in terms of those trade dynamics. Well, you know, China is still the manufacturing center for the world. And as many companies are shifting some volumes in certain product categories out of China to lower cost locations. And they've been doing

that for a decade. Some of that is driven by tariffs, but a lot of it's just driven by lower labor costs. But for the higher end manufacturing, it's still the best place to produce goods. And it's been very hard for customers to, or for brands, the companies to shift manufacturing for a lot of things like electronics and other products. Even the apparel, fast moving apparel. China's still China's still the leader in that. So, you know, you'll see volume shift to other countries. You are seeing a lot in Latin America, Southeast Asia, Vietnam's grown volumes like 30 or 40 percent annually of containerized freight out of Vietnam for the last few years. So pretty, pretty incredible growth around the world.

But China's still going pretty strong in a lot of categories. All right. Ryan Peterson, I'd love you back to talk about that Shopify transaction you did. We just passed an anniversary on it. But for now, happy Friday. It's great to see you. Yeah, great to be here. Thanks for having me. We have a news alert on Starbucks. Let's get to Contessa Brewer. Microsoft CEO Satya Nadella says he is stepping away from the Starbucks board. He writes, quote, I have the most I have the utmost confidence in Laxman and our senior leadership team. Their unwavering commitment and strategic acumen assure me that Starbucks is in capable hands, poised for a future filled with innovation and success. It's been seven years he

joined the board in 2017, and there amid questions about Laxman's leadership of Starbucks and where the company is right now, he gets a vote of confidence from Microsoft CEO stepping away from the board. John? Kind of. Kind of a vote of confidence. So, yeah. Contessa, thanks. Fed watchers closely monitoring inflation headlines today, but there's a different indicator that could support a more dovish Fed.

Mike Santoli is going to come back and explain. And Boeing near the top of the Dow today as the company gets set to once again attempt its first crude launch of its Starliner spacecraft. Will this finally be the moment that this costly project gets off the ground? We're going to discuss that when Overtime returns. Well, she's already brought us Autodesk and Starbucks news, but now Contessa Brewer is back with some updates not about business. I am just trying to be all things to all people right now. So here's the news. Congressional leaders have now invited Israeli Prime Minister Benjamin Netanyahu to address lawmakers in Washington. The invitation was bipartisan with Senate and House leaders extending it jointly. No date has been set.

The congressional leaders say the invite is meant to highlight America's solidarity with Israel. Rudy Giuliani is a step closer to being disbarred today after the Professional Responsibility Board in Washington recommended he lose his law license over his involvement in a 2020 election fraud lawsuit. His license already suspended over his work with former President Trump asserting false claims about the election. The final decision now up to the D.C. Court of Appeals. And following the Mediterranean diet may cut your risk of death by almost 25 percent. That's according to a new study published in an American Medical Association journal today. Researchers examined more than 25,000 women over 25 years and also found decreased risks of cardiovascular

disease and cancer mortality. The Mediterranean diet is rich in fruits and veggies, fish, legumes, nuts, and whole grains. It would be even better if it was full of Mediterranean's. I don't know. That just made me pretty hungry, all that video. Contessa Brewer, thank you. Okay. Plenty of attention focused on inflation today. But Mike Santoli is looking at a different market indicator that the Fed is also watching closely. Mike. Yeah, Morgan, of course, the Fed monitors financial conditions broadly defined, essentially see how markets are metabolizing monetary policy in the economy as a whole. So here's a standard version of a financial conditions index.

This one from Goldman Sachs. When this is low on the chart, as it is right now, conditions are loose. This means things like public stock markets, credit spreads are all very generous, showing a lot of liquidity, basically showing not that much risk or restriction on activity. And this would suggest, and some are suggesting this, that just the Fed hinting of rate cuts is keeping financial conditions loose, which maybe is working against the Fed hinting of rate cuts is keeping financial conditions loose, which maybe is working against the Fed's purpose of reducing inflation. I think it's a little bit of a stretch when you look at something like this, which is something probably the Fed pays more attention to,

which is the credit channel in the economy from banks and other lenders into small businesses or all businesses, for that matter, just not public markets. And what it shows here is the percentage of credit of the GDP, a credit extended to business. So essentially, what's the credit impulse into the economy? You see, it's quite low. This is from JP Morgan. Mike Furley, these gray areas are recessions. You see it starts to decline into recession. So what it says is there's not a much as much willingness to lend into the economy or demand for credit at current high rates. And something like this will feed the idea of Fed officials saying that policy,

at least on some level, in their estimation, is still restrictive. And so they lean toward a potential cut, Morgan. I mean, it's really fascinating looking at this chart because it's non-financial. It's a non-financial sector and it's down. Yet we've had so many guests who have come on and said hey you know like we're stepping in as banks pull back but i guess to your point it speaks to the fact that it's just a very sluggish deal environment anyway and you have a lot of companies that are well capitalized from a time where you did have lower rates well they're well

capitalized but also if you look at things like commercial real estate, nobody is actually extending more credit into that part of the economy. By the way, Mike Feroli, the economist at JPMorgan, also had a chart showing including private credit. It kind of doesn't change the story very much, even though private credit is growing fast, still a relatively small percentage of the overall financing world. All right. Good luck, Mike. Thanks. Up next, the CEO of industrial giant Siemens on how he plans to turn around weakness in automation and whether he is seeing signs of slowing inflation. And here's a look at the names that helped push the Dow to its best day of the year. Salesforce, UnitedHealth, McDonald's and Goldman Sachs having the biggest point

impact as the Dow finished up one and a half percent today. We will be right back. Welcome back to overtime. Shares of industrial technology giant Siemens falling around six percent since reporting earnings earlier this month. But investors are focusing on the weakness in the digital industries sector, which includes the automation business. The company cutting the sector's revenue forecast, projecting it will fall 4% to 8% year over year in 2024.

But joining us here on set is Siemens CEO, Roland Bush. Roland, it's so great to have you here. And that is where I really want to start. The fact that you are an industrial tech company, on the one hand, you're benefiting from, and we saw this in your most recent earnings too, you're benefiting from this AI infrastructure build-out, particularly here stateside. On the other hand, you are seeing some headwinds, at least in recent months, on the automation side. Walk me through it. Well, I mean, the weakness in automation comes from China. This is a market which is really picking up slowly. And you have to have in mind that we are comparing ourselves with an all-year high prior year. So there's also really a boost in overstocking, so to speak. We are eating now into the stock as we go, and this comes back. At the same time, we have a huge demand for any kind of digitalization, but also automation,

but also electr, but also electrification. So our smart infrastructure business is growing very well, also in the United States, more than 12% in the quarter. So therefore, we see a strong momentum for automation, digitalization, but also electrification and sustainability. And that's what we are serving. Have you had to think differently or invest differently for this generative AI era when we are talking about automation, we are talking about digitized manufacturing and factories of the future? Well we are working with large language models in AI for many many years. The thing that large language models are now really boosted by opening up to the

public and then see a strong run is really spilling over to the industry. What we do is we have these large language models really hitting the ground in the industrial space. I'll give you one example, a couple of examples. Together with Microsoft, we develop a co-pilot, which allows shop floor workers to program robots with a natural language. We're using AWS Bedrock large language models in order to really bring it to our simulation and low-code software platform. So what we built together with NVIDIA, we built the industrial metaverse, which is really a digital twin physics-based, which you can optimize in the digital world, and then you build it, driving all the productivity, shortening cycle

times, and eventually also saving resources. How are you handling the competitive risks? Because whenever there's a sea change in technology, new technology coming in, somebody's trying to eat your market share, right? And you've gotten pieces of the industrial equipment arena that are getting networked that haven't been networked in the past. We're going to talk a little more about that later. So what's your maybe aggressive defense strategy? It's more offense. So I mean number one is obviously we are spending more in

R&D than our peers in the market which is 8% of revenue, six and a half billion number one. This is not good enough. You need so many technologies. We are building a very strong ecosystem which is is unique. And we are talking about the big tech companies, but also smaller ones. We are integrating this technology faster than anybody else. And then you have another element. I mean, we are here since more than 176 years. Our customer relationship and our domain know-how helps us really talk customer language and bringing technology on the shop floor because we know how to do that. So, I mean, you service so many different industries across so many different parts of the world. A more macro question for you. What are you seeing in terms of the economic landscape?

Is inflation abating? Are supply chain challenges abating? What's happening in real time? So if it comes to inflation, obviously it's a question of interest rates. But at the same time, I do believe we do have embedded inflation in our system. Why that? Number one is we have an aging society and we have less and less labor on the market. Labor prices is increasing, number one. Number two, the trend to go green in our energy system is basically pulling investments forward, which is embedded inflation. Resilience increase.

If you really relocate manufacturing along the globe, first and foremost, this increases your price because the world was optimized to offshore and arbitrage of low labor, but now you pull it back. And the point is, how can you fight it? It's technology. If you bring technology to the space, that you take less labor and make

technology do the trick and the work, then you can still manufacture with a low lot size with competitive costs. So technology is the answer. But I do believe for a while we see we have an embedded inflation in our system. Yeah. And just sticking with technology for a moment, we've been talking about across the industrial landscape more broadly what I will call portfolio simplification. Siemens has been very engaged in that in recent years as well, whether it's the spinoff of Health and Ears, whether it's the energy business, whether it's another sale you did recently as well. Do you feel comfortable with your portfolio here? We have a very strong portfolio, which is geared really for what we call the mega trends, aging societies, urbanization, globalization, digitalization.

And what we try now is that we build a technology platform which scales. This is the basic idea of all the big tech companies, that you say, what is a kind of technology where you can build foundation models, package it, so we can productize this for different applications. The ReliGenX is a platform which we drive the productivity of our service with trains. We can maintain and run our trains with availability of almost 100%. The very same software which we see there drives the optical inspection of quality in welding or for stamping robots. So rolling in technology, rolling in large language models, technologies, automation technologies into various markets is a strength of ours,

and we can leverage that strength towards our partners, suppliers, but also for our customers. Roland Busch of Siemens, thanks for joining us here on set. It's great to have you. Thank you. Good to see you. Up next, the CEO of Nokia. We're going to stay on industrials for a bit while the growth opportunities in telecom are shifting away from carriers toward manufacturers. Be right back. As the traditional telecom equipment space remains sluggish, tech providers are looking to other buyers for opportunity. Today, John takes time out with a CEO who is selling networking gear directly to businesses. Yeah, Pekka Lundmark is the CEO of Nokia, the Finland-based company that,

in a time before smartphones ruled the cell phone market, now Nokia's focus is on making networking gear and technology. So early in his career, Lundmark spent a decade at Nokia and left in the year 2000 just as its cell phone heyday was peaking. He returned as CEO at the peak of the pandemic in 2020 to lead a turnaround. Even though communication technology is important, Linmark says gathering in person in a turnaround is still essential. We are, of course, providing all these networks that you need to connect the virtual meeting. So it would be easy for me to say that you can do all virtually, but that is absolutely Meillä on kaikki näköjärjestelmät, jotka tarvitsevat yhteyden virtuaaliseen keskusteluun. Olisi helppo sanoa, että kaikki voisi tehdä virtuaalisesti, mutta se ei ole totta kai.

Minä olen huomannut paljon henkilökohtaisen yhteyden. Nyt kun voit käydä ja keskustella ihmisiä ylös, näet taustan arvoa. Olen erityisesti huolissani nuorista, jotka ovat yhdistyneet yritykseen. join the company during or after the pandemic. And I know that not only Nokia, but in many other companies, there is a big challenge to get people back to the office. So how do you, as a young person who is in the early stages of your career, how do you learn? From who do you learn if you do not meet people? And that's why we are doing everything we can to encourage as many people to get back to the office as possible. Now, traditionally, Nokia mainly sold equipment to big carriers like AT&T, Verizon, T-Mobile. But in the time after 5G and pandemic build-outs,

Linmark's turnaround strategy has been rooted in selling directly to the enterprise. So how much networking gear do individual companies really need? Well, if you believe in an AI-assisted future where software helps make better real-time decisions about manufacturing and operations, we're just talking to Siemens about that, that means all kinds of equipment that hasn't been plugged into advanced networks will soon need to be. Without forgetting carriers, we are shifting a lot of focus now to enterprise networks, mission-critical networks for ja saamme kärjää. Meidät on nyt muuttamassa paljon fokkereita erityisnäkymme ja missiivisnäkymme erityisnäkymme, kun ihmiset luovat yhä enemmän kärjäämään heidän

toimintateknologioitaan ja kärjäämään kärjäämään maatalouteen kriittisiä koneita muun muassa perinteisen IT-näkymisen lisäksi. Se on täysin uusia haasteita kärjäämiseen. Joten kyllä, me edistämme

kärjäämisen ja erityisnäkymalla ja myös erilaisista want to connect things like digital twins or drones or moving machines like robots or warehouse equipment and so on or cranes in a container port, you are going to need fundamentally improved capabilities compared to Wi-Fi, and that's where 5G comes in. So the timeout takeaway, private growth. There's going to be a continuing push to securely network more equipment in every type of business. But at the same time, the very nature of network design is changing. And companies like Nokia are pushing to serve hyperscaler cloud providers, industrial customers with a more software-centric networking approach while holding on, they hope, to that core carrier

business as well. Wow. Big transition from the red Nokia flip phones I was carrying two decades ago. Really fascinating. John, thank you. Up next, what's at stake for Boeing? Not the commercial jet business, but with spaceflight. As the company looks to transport astronauts for the first time in its long-delayed Starliner capsule this weekend.

Well, Boeing is poised to finally send people to space. The company's Starliner capsule is back on its launch pad in Florida, rolled out yesterday atop the United Launch Alliance rocket. Liftoff set for 12.25 p.m. Eastern tomorrow. And if all goes according to plan, the crew flight test, CFT, will mark the first ever human spaceflight for both Starliner and ULA's Workhorse Atlas V. Starliner will carry two NASA astronauts, Barry Butch Wilmore and Sunita Sunny Williams, to the International Space Station for a week-long visit before making its way back to Earth for a ground landing in the New Mexican desert.

Now, if successful, NASA will certify Boeing for routine trips to the ISS, giving the agency its long-awaited second option to SpaceX's Dragon capsule, which since 2020 has been conducting or has conducted 13 manned missions. Starliner's launch was originally scheduled for May 6th. That was an attempt called off mere hours before launch due to an issue on the rocket. That was followed by the discovery of a small helium leak in Starliner's own propulsion system, a, quote, stable leak that continues even now, even as this mission proceeds. At a news briefing last week, Boeing and NASA officials said they were confident they could manage that leak, that it does not pose a safety issue. Now, Starliner has been rife with issues and delays. The commercial business gets most of the attention, but Starliner has contributed

to Boeing's financial woes as well. The company has taken some $1.5 billion in charges tied to it in recent years. Meantime, as soon as next Wednesday, pending FAA approval, SpaceX will conduct its fourth uncrewed test flight of its mega spaceflight system, Starship, which will eventually carry astronauts to the lunar surface and to Mars. So for more on all things space related, check out my podcast, Manifest Space. Scan the QR code or download wherever you get your podcasts. A lot of human space flight, or I should say rocket type activity in focus over these next couple of days, John. All right, Morgan, thanks. And then we look ahead to next week where chips, hardware and AI are

going to be in focus and Computex in Taiwan. But for now, that does it for overtime. Fast money starts now.