Closing Bell - Closing Bell Overtime: Ford CEO On Where UAW Negotiations Stand; Adobe CEO On Monetizing Its AI Products 9/14/23

Episode Date: September 14, 2023

Stocks closed higher as investors cheered Arm’s successful IPO. Annandale Capital’s George Seay and Zevenbergen Capital’s Anthony Zachary break down the market action. Ahead of the midnight deadline for a new contract with UAW, Ford CEO Jim Farley on where negotiations stand. Adobe CEO Shantanu Narayen talks the company’s earnings and how it plans to monetize its AI offerings. Peter Oppenheimer, Goldman Sachs Chief Global Equity Strategist, on why AI is not a bubble and has more room to run. Jon and CNBC.com’s Hugh Son talk regional banks—and the new challenge they are facing. Seaport’s Ken Zener on Lennar’s earnings.

Thanks Scott. Well that is the scorecard on Wall Street, but winners stay late. Green across the board. Welcome to Closing Bell Overtime. I'm Jon Fort. Morgan Brennan is off today. Coming up this hour we will get signals from two very different parts of the market when software giant Adobe and home builder Lennar report results. We'll bring you all the numbers and an exclusive interview with Adobe CEO Shantanu narayan before he talks with wall street analysts on the earnings call plus a can't miss interview with ford ceo jim farley with just a few hours left to negotiate before a potential strike by the united auto workers but first as we await

adobe earnings let's get to the market action with solid gains across the board. Joining us now is George C. of Annandale Capital, founder and Anthony Zachary of Virtus Zevermberg. And guys, welcome. George, so I'm looking at the market now, and September traditionally is a bad month for equities. But as of today, we're about halfway through the month and almost exactly where we were at the end of August. So does that mean it's going to be a rough two weeks or does it mean that this market's just resilient? Hey, John, the market just doesn't want to go down. It just is proven to be very resilient. And I think the ARM IPO today was spectacular. It's a classic supply-demand imbalance situation where there's demand for

IPOs and there's very little supply. So when something as big as ARM comes out of the market, it's roughly 10 times oversubscribed and has such a dramatic rise in the first day. That shows a lot of health in the market. A lot of people who don't want to miss out on a year-end rally and are willing to risk September. It might be bad before they do get a year-end rally. And so far, it's not. So far, it's holding up quite well. Yeah, I wonder about that small float. Just leaving tech aside for the moment, Anthony, what is the broader truth you think that has driven the market higher and kept it here? And how are you maybe using that truth to figure out what's mispriced, what you should buy?

Yeah, absolutely. And in the short term, across sectors, it's an element of expectations of what would contribute to a stock moving up or moving down. And if we could rewind the clock to the second half of last year, many people had expected some sort of recession to happen in the first half of this year. And that recession hasn't played out to those expectations. And so George mentioned that the resilient consumer, we've had better than expected economic conditions, which have contributed to rising sentiment and therefore rising multiples in the market. And so we're long-term investors. We're trying to focus on what's going to happen next year, next three years, next five years, next 10 years. And we believe over time, it's going to be the fundamentals of the companies that will dictate the investment outcomes. Interesting. And George, you mentioned ARM,

the IPO we had today. I want to play a bit of sound. Here's what Masa-san, who still controls most of ARM through SoftBank, said about its future. I believed in the future of AI, and it's really now getting proved. And this is the beginning of big AI time. And ARM is going to have a big role in that. OK, but Arm's bread and butter, George, is still CPUs, not GPUs, not AI systems, which I know they're trying to argue that they have a strong play in. Do you really buy it longer term as a growth play or should investors just look at this first day pop as a smaller float thing? How are you sorting through that? Yeah, if I were him, I'd be talking about AI, AI, AI over and over and over again as well, because it's white hot.

It's trendy. It's a fad. Everybody's playing really hard right now. Nobody really knows how fast the growth rate is going to be on that. And he wildly overstated how the growth was going to be in the company. And it's interesting because anybody who got some stock on the IPO has done extremely well today. But he and his investors in the Vision Fund and SoftBank really have been disappointed by their returns on ARM so far. It's been a positive return, so you can't really wink at that too hard. But he still lagged the market in ARM since he bought it seven years ago. So it's a real different story. And I'd be promoting it like crazy if I were him too,

because he needs a better return going forward to make his investors happy. Yeah. And speaking of Arm, we're going to be talking about that a lot. If you want to figure out, should investors buy the stock now that it's public or stay away?

That's this week's debate in the latest installment of my On the Other Hand newsletter. You can sign up using the QR code there on your screen or go to cnbc.com slash OTOH. Kind of went through that on Squawk this morning as well. Anthony, what are your filters for finding value and how should investors think about IPOs? Because Arm, it was a big one today, but we got more coming next week. And overall, if you bought the last few IPOs, you haven't done that well. That's right.

And for ARM specifically, this is a deal that has been in the works for a while. It's a... Just want to pause right there for a second, Anthony. Sorry, I just want to let the viewers know Adobe's numbers are out and we are going through and we'll bring you those in just a moment. Sorry, go ahead. At $60 or wherever close today, it's trading around 16 to 17 times forward revenue, as well as 40 plus times forward earnings per share. So that puts Arm's valuation in the ballparks of electronic design automation companies like Cadence Design or NVIDIA. at this level, investors need to believe that ARM is bigger than the smartphone processor market, that they can evolve into a cloud computing and an automotive technology provider. And for long-term investors, you have to think about what could go right when you participate in these IPOs and rather than what could go wrong, because it's that optimism around technological change,

new behaviors and so forth that could dictate the success of a company like ARM. OK, I do want to mention Adobe stock is heading higher in overtime by about a percent. Don't miss the CEO coming up in just a few minutes. George, let's see. As a matter of fact, we've got the numbers in. EPS is a beat, $4.09 adjusted versus $3.98 expected. Revenue also beat, $4.89 billion in revenue versus $4.87 billion estimated. Also, take a look at the guide. It looks to be pretty strong total revenue, right around $5 billion at the midpoint. George, you're skeptical of Adobe based on the big run that it's had since the end of last year. What's it going to take to convince

you that it's still worth buying here? Well, that's the right question. We still own the stock, but we liked it an awful lot better under $300 a share less than a year ago than in the mid-500s. And with them barely, they did beat expectations, which is good, but they didn't trounce it. And so the guidance is going to be really, really important going forward. It's gotten swept up in all the AI mania and speculation, and it's a fabulous company. It's worth owning. Is it worth buying at these levels at this point in the cycle? I don't think so. I don't think necessarily sell your whole position, but probably be good to trim and hold a core position and watch it for a while. Okay. Well, I'll press Seanantanu with that in just a moment.

See what he says. George, Anthony, thank you both. And once again, Shantanu Narayan, the CEO of Adobe, will be with us in just moments to break down those results in an exclusive interview before he gets on the conference call with analysts. But before Shantanu, let's get to Senior Markets Commentator Michael Santoli from the New York Stock Exchange. Mike, what are you watching? Yeah, John, let's see where this little rally today in the S&P 500 has taken us. It's still been a relatively routine shakeout in August and September, kind of passing through the same levels on the S&P for a while, though it remains a somewhat split and top-heavy market. We have

here the S&P 500 along with the equal-weighted version of it. You see that return differential on a one-year basis, as well as the Russell 2000, which is really much more sluggish. It's up 1.5% over that period of time, but avoiding a breakdown. So if you look here, the equal weight basically is below where it was in February. Same thing with the Russell 2000. But the S&P 500 with those large caps got this nice little uptrend going. basically is below where it was in February. Same thing with the Russell 2000. But the S&P 500 with those large caps got this nice little uptrend going from the lows in August. So it's hard to really find too much fault or suggestion here that we have a lot of fragility,

at least in the moment. Right now, we've kind of prevented these breakdowns. Even the S&P can go down another few percent, still be in that uptrend. But we're watching. Of course, we know what the seasonal story is. Now, in terms of the character of this market, in terms of looking for cyclical and aggressive stocks relative to safer, lower volatility ones, still so far on a unit date basis, you have the high beta part of the S&P 500, the more volatile, aggressive stocks, as well as the transports still holding up with a lot more outperformance versus the low volatility ETF. And this is utilities. Now, utilities have actually had a nice run month to date.

So you can see just a little bit of hints of convergence or mean reversion there. You've got to watch it to see if this is going to actually represent a true defensive turn in the in the market and if it's going to basically be pricing in something a little more worrisome on the macro. So far, I still think the benefit of the doubt says that the outperformance by the more aggressive cyclical parts of the market is something we can lean on, John. Some of what the first chart you were showing is also telling is just the outperformance of mega caps, right? Yeah, 100%. When you're showing the equal weight and the Russell lagging. That's 100 percent right. So it's basically been those seven stocks,

however you want to slice it up. They have added on so much market cap that it has taken the market cap weighted S&P in that direction. I'd still say, though, you know, on a year to date or one year basis, if you're up five or six percent on the equal weight off the lows, you're up 17, 18 percent. It's not terrible, but you've been restrained by the fact that it does seem still like a late cycle economic expansion. You obviously have rates doing what they're doing. The Fed's not completely out of the game. Inflation, can we trust it? All the stuff we talk about all day has been restraining the average stock from having a true bull market run but uh the mega caps have managed to actually put up those better numbers it's kind of hard i wonder how the individual investor sort of uh shifts the bet away from uh the bigger stock part of the market toward the broader market. I mean, I guess you could just buy the equal weighted S&P like you show. But I wonder how you do that in a way that isn't too dramatic.

You know, it's funny because it's been a very common piece of advice is to actually emphasize equal weight or perhaps quality or perhaps dividend growth. These other ways of slicing the market that don't really create an outsized exposure to a handful of growth and technology themes. But so far, that hasn't necessarily been a formula for outperformance. Right now, we have valuation differentials from large to small caps pretty much as extreme as they ever get. So if you believe in long term mean reversion, it does make sense to do it. There's an ETF for any possible type of approach you want to take. You just have to look for it.

And I guess that's what I wonder, too, about this. As investors perhaps go outside of just the broader indices and start to look at more specific bets, there's now a lot of daylight between either just buying the S&P 500, just buying the Dow and buying an individual stock. You can buy kind of pieces of industries. Do you see that happening more and more and more action in those these days? I'm not sure if I see it happening too much more and more. I mean, there was a time a couple of years ago when everybody wanted, even right now, people are just looking to buy very short term rent, rent short-term exposure to some of the biggest, most exciting stocks through options, some of them that just expire in one day. That's the fast money.

Everybody else, I think, either is either indexing explicitly or closet indexing or picking a handful of stocks that catch their eye. And then you have people locked into these advisory platforms that are doing a lot of asset allocation across all these attributes of the market. And it seems like that that autopilot way of doing it is is kind of covering your bets. We are still expecting CEO of Adobe Shantanu Narayan in just a few minutes. We've got a couple of things before that as well. I mentioned that the stock's about flat now after hours. The guidance looks to me to be solid. But as we're just talking about with George C., this stock has run quite a bit all year. How has the market been treating companies like this? And I guess there are a few, certainly in the software category, that you could throw in that were beaten up at the end of last year,

you know, had a strong surge now. How what do they have to signal to get performance from here? Yeah, on balance, just through the core of the of the earnings reporting season, it was a pretty hostile reaction to almost all companies and those that had run had it worse. So I would say that's the big the general rule. You know, we obviously covered a lot of Oracle a while back. And I think that the main risk has come with an Oracle or something like that where, you know, the stock gets sort of miscast as a pure AI secular growth play. And then the numbers don't prove it in the real time. And you have to have a reset lower, although I'm not sure Adobe's in quite the same category. Now, this is a marathon dashboard. I love it. I'm getting everything I can out of you here. Finally, if we look at the S&P's performance in September, which is historically a rough month,

it's about flat, but it's been down and up and down and up again. Does that signal, perhaps, that it doesn't want to stay down, or does it signal that it doesn't want to stay up? You know, I don't know if it doesn't want to stay down. It shows signal that it doesn't want to stay up? You know, I don't know if it doesn't want to stay down. It shows you that some of the weakness was pulled forward into August. There also was a lot of work that said September is when the market is already up here today, tend not to have been that nasty in the past either. So maybe we're leaning on that.

All right. Mike Santoli, got an answer for everything. I appreciate that. Right now, a potential auto worker strike looking inevitable as the UAW and Detroit's big three automakers still at odds with the midnight deadline approaching. It would mark the first time in the union's history that it struck all three companies at once. And despite the labor disputes, Ford GM and Stellantis shares are in the green so far this week. Joining us now is Ford CEO Jim Farley with our own Phil LeBeau. Phil?

John, thank you very much. Jim, we're a little over seven hours away from the strike deadline. Where do things stand? You've made your most recent offer. What have you heard back from the UAW? Well, everyone imagines we're in some room squirreled away doing this final negotiation, and that's what we love for the last two weeks. But nothing's going on.

We've received no counteroffer from John Bain and the UAW. Nothing at all? No. How frustrated are you with this situation? Well, we've never seen it before. In 80 years, we've always been able to work through these differences because we're always on the side of labor at Ford. We have the highest UAW headcount.

We have more people than anyone, build more vehicles. We've never seen anything like this. It's frustrating because many of our team members have negotiated successfully on non-economic issues with the national negotiators. But somehow, when we get to these marquee money issues, everything stops. And it's a mystery. We've been putting contracts and negotiating with ourselves since the 29th for two weeks, and we still have not had any kind of counteroffer for all those major things, and we're on the eve of one of the largest strikes in our history. Do you believe Sean Fain is truly negotiating good faith,

or do you think this is a case of he's not even giving you a counteroffer here? He's made a decision. We're going on strike. Well, I think he's certainly planning when I when I read when I saw Facebook Live, he didn't even acknowledge our offer that Bill Ford, the chairman of the company, made two days ago until last night. And we still have not gotten an offer. I don't know what Sean Fain is doing, but he's not negotiating this contract with us as it expires. But I know he's busy planning a strike. We don't want it. I know he thinks this will be a historic strike with all three plants, all three companies. But we want to make history with a historic deal. We have talked to people familiar with their plans in terms of what they

might announce tonight. Livonia, your transmission plant, really the bread and butter in terms of putting the engines and the vehicles, everything together. That's going to be hit, according to what we understand. What would that do? What kind of chaos would that cause for your manufacturing? It's enormous. For a engine transmission or stamping plant, all the downstream assembly plants would be affected within hours or days. And what most Americans don't realize is that although that would disrupt the manufacturing and the assembly of vehicles, many of those workers may not be eligible for the strike fund or for even unemployment. So at a personal level, our employees get hurt. So how quickly would you have to potentially lay off people from a final assembly plant? Because you're not getting transmissions in and therefore there's no production? Well,

within hours or days, depending on the plant and how much float we have, we'll have to shut plants, assembly plants, hours or days. Quickly put in some perspective, the offer that they have, what they're demanding relative to where you are right now, how much damage would that do to the bottom line if you were to say, sure, we'll give you 40%? If we signed up for the UAW's request, instead of making money and distributing $75,000 in profit sharing in the last 10 years, we would have lost $15 billion and gone bankrupt by now. The average pay would be nearly $300,000 fully fringed for a four-day work week. There is no way.

Per UAW employee. Per UAW employee, yeah. This is our full tenured school teacher in the U.S. makes $66,000. Someone from the military or fireman makes mid-$50,000. This is four or five times, six times what they make. There's no way we can be sustainable as a company. That's why we put our proposal in two weeks ago to say, look, you want us to choose bankruptcy over supporting our workers? Here's our proposal.

Let's work through this. We've heard nothing. Last question. How worried are you that this could be an extended strike? Worried, but we're prepared. We're professionals, 120-year-old company. We've seen world wars. We've seen pandemics. We're prepared. We're professionals, 120-year-old company. We've seen world wars. We've seen pandemics.

We're prepared. My team is fantastic. But it's not necessary. We still have a few hours to go. Let's go. Let's get a historic deal done. Jim Farley, CEO of the Ford Motor Company. Just a few hours before the end of the current contract to the UAW.

Guys, we'll send it back to you. All right. Thank you, Phil LeBeau. And thanks to CEO of Ford, Jim Farley, as well. Meantime, Adobe shares have been bouncing around after hours after reporting earnings, beat Wall Street estimates for earnings and revenue, giving guidance that topped expectations. And joining us now in an exclusive interview is Adobe chairman and CEO, Shantanu Narayan. Shantanu, good to see you. It's my first time talking to you since the passing of Adobe co-founder John Warnock. So my condolences to you and the team.

Getting into the numbers here, I mentioned the beats. On enterprise, you had been cautious last quarter. You beat expectations this quarter. How did that trend, you know, toward the end? Was it stronger? And what does that mean? How did that influence your guide? Well, thanks, John, for having me on this show, as well as acknowledging, you know, the significant accomplishments that John Warnock had, you know, both at Adobe, as well as, honestly, his impact on the technology

industry. I know John's incredibly proud of all of the innovation that we've delivered. And when you see how that innovation has actually translated into a great quarter for Adobe, it was a really good quarter across the board. Digital media, digital experience, and as it relates to what you're referring to, namely the enterprise, we had a strong enterprise quarter as well because digital continues to be one of the key areas where IT investment continues, especially in customer experience management. Looking ahead, you guys also have a really good pulse on SMB, particularly in the e-commerce segment. You put out the numbers in Q4 about how e-commerce is trending year over year.

How does that look right now relative to your typical year? Are retailers seeming relatively confident? Are they cautious? How is that affecting the way you're looking at that segment? I think overall, as you look at it, John, actually both consumer as well as SMB resilience, I think, continues. And for a long time now, we've been talking about will this customer confidence continue? And I think we've all been pleasantly surprised by how much, you know, it's sustained. And I think as it relates to the spend specifically in digital, that will continue to be a key priority and an imperative for

all of those customer segments. Now, yesterday, you had an AI announcement on Firefly coming out of beta, and this is generative AI for images across Photoshop, Illustrator, some other programs. Up to this point, you've said that we shouldn't expect, investors shouldn't expect this to have a material impact even in the current quarter in Q4. Is that still the case? And then as we look ahead from there, should we expect perhaps after that quarter to start seeing that impact from this release? Well, first to put it in perspective, John, I mean, we had four significant announcements on the product side. As you point out, we announced that Firefly is now commercially available. That is a creative playground for creative expression. So people can come, they can enter the text prompt, the text prompt will enable them to deliver both images and vectors.

And we have a subscription offering for that. Adobe Express, which is the product, it's an all-in-one editor application for anybody who wishes to create any form of content. That has Firefly integrated and that's also now commercially available. I think where we've seen massive adoption within Photoshop and Illustrator, perhaps an unprecedented beta in terms of the adoption that we have, even Firefly and its ability to augment what you can do in Photoshop and Illustrator, that's available.

And last but certainly not least, what we've done with the Adobe Gen Studio, which is this vexing problem that every business has in terms of how they can significantly enhance creativity, as well as make all of their content production more automated. So I think it was a massive announcement in terms of our product roadmap. Max is coming up, as you know, where we'll announce a whole bunch of things. You know, as a relate, Shantanu, I really want to ask about the monetization piece of this, because I was talking to your SVP, general manager, Creative Cloud yesterday,

and the credits component of this, where even if you're not a subscriber to Adobe Creative Cloud, you can purchase credits and get some image generated. It seems like, and she confirmed, this is an on-ramp into more subscription services and perhaps getting people to upgrade. So given the participation unprecedented that you had in this beta, are you expecting that the introduction of generative AI is going to change how this funnel works and perhaps accelerate the amount of subscription adoption and maybe even the level of the tiers?

We absolutely expected to increase the subscription adoption because right now, as you know, John, we have this extensive offering. We had Creative Cloud. Now you can actually have a subscription, as you pointed out, whether it's just to Firefly or to Express. So the on-ramp is going to be there. As you know, we feel like the announcement that we made yesterday helps us more with new customer acquisition, as well as for existing customers, given we've introduced all of the significant new value. We've also announced an update to pricing.

And I think what Ashley probably mentioned to you was that because a lot of this only impacts subscribers when it comes time for renewal, that's why she was probably a little bit more muted in terms of, you know, what the revenue impact of that would be. But in terms of customer adoption, we're open for business right now across all of those four offerings. What's your early response to the price increase? Is it kind of a shrug because there's inflation and everybody expects it? Or have you had some natural pushback? And do you expect this AI addition to play a role in reducing churn, maintaining stickiness? Well, we have really our sort of pulse on what's

happening. And most of the feedback that we've seen right now is about the excitement of making sure that this is now available. As you know, one of the key things that we've seen right now is about the excitement of making sure that this is now available. As you know, one of the key things that we've also done in terms of making it commercially available is actually indemnify the usage of this. So I think the overwhelming response from our community has been excitement about what it does, about how it helps with creativity and productivity,

and the fact that it's ready to go right now that has really dominated the feedback that we've seen. Well, you know, we'll continue to track it along with the stock and of course, your progress in the business. Shantanu, thanks for joining us here on Overtime. Ahead of the call, we'll let you get ready for the analysts. Thanks for having me, John.

All right, up next, why AI is not a bubble perhaps despite huge runs for names like nvidia and c3 ai our next guest says this year's tech obsession is different from previous hype cycles and is giving stocks in the u.s an advantage over european rivals we will hear that case when overtime comes right back. Welcome back. This year, we've seen lots of excitement around AI driving massive gains for stocks like NVIDIA. Adobe, which just crossed the tape minutes ago, is up 64 percent. Our next guest says we're not in an AI bubble.

64 percent for the year, I should say, year to date. And that the surge in these names is driving outperformance for U.S. stocks versus European peers. Joining us now, Peter Oppenheimer, chief global equity strategist at Goldman Sachs. Peter, welcome. So right now, Adobe's flat after hours. They just had a big AI announcement yesterday. So in a way, it's a poster child for this. Why do you think that this excitement makes sense? And how should investors sort of rationalize what they believe in from here, especially if some

of these names have already had a nice run? Well, I think the first thing to say is that you have seen very strong performance in the companies that have seemed to be really at the epicenter of driving this technology. But that doesn't really mean to say that we have valuations consistent with a bubble. You know, when we look back at previous bubbles, obviously the tech bubble in the late 1990s and ones before that, the kinds of valuations that leading companies get to, and indeed the broader market, are higher than they are today. Hold on just a moment, just a moment. Lennar earnings are out. I want to get to those for a moment. Diana Olick has the numbers. Diana?

Well, John, another nice beat for Lennar in Q3. EPS at $3.87 a share versus estimates of $3.51. Revenue came in at $8.73 billion versus estimates of $1. Revenue came in at 8.73 billion versus estimates of 8.45. Home deliveries up 8% year over year and new orders up 37%. Now in the release, Lennar's chairman, Stuart Miller, noted the jump in interest rates over 7% during the quarter, but said short housing supply absorbed by strong primary and pent-up demand continued to define a strong sales environment. He added that homebuilders continued to use incentives, including buy-downs to offset rising interest rates and tighter capital, which of course limit affordability. Now, Lennar's average sales price was lower in Q3

at $448,000 compared with almost $500,000 the year before. It also raised Q4 guidance on deliveries. John. All right. Thank you, Diana. So far, that stock just down fractionally after hours. The call tomorrow, I believe. Peter, sorry to interrupt you there. I want to get back to you. You were making the point on AI. And even though valuations are rich, why there's still something there? Yeah, I think the main point here is the performance has been extraordinarily strong. You know, the top seven companies are up roughly 60 percent, the biggest 15 in the S&P up around 40 percent. The market ex-tech is up around 6 percent, not much more than cash. So, you know, selectivity has been important. But despite the strong performance, valuations have not risen

to the kinds of levels we've seen in other bubbles. You know, give you an example, the seven big tech stocks at the moment in the U.S., if you take a two-year forward PE, around 25 times, around a four and a half times EV to sales, that's about half the valuations you were seeing of the seven biggest tech stocks in the late 1990s. And similarly, if you compare to the bubble of the nifty 50 just before it burst in the early 70s. To clarify, though, you're comparing to ridiculous, not to rich. It's not to say that the valuations aren't rich. It's just that they're not at bubble levels, right? That's right. Exactly. And, you know, I think that we do feel that broader equity indices are

going to struggle to generate strong returns from here. We do have to acknowledge that the market, particularly in the U.S., has been very, very concentrated. As I said, if you look at the median stock, it's up around 5 percent year to date, no better than cash. Earnings in aggregate are relatively weak. And there is an important alternative. You know, bond yields are higher. Real yields are around 2 percent. So all of those will provide a constraint. But for the companies that can generate strong growth and on a consistent basis with strong balance sheets, I think the market will continue to reward and pay for those.

And I don't think— Yeah, underscore this point that you also make about the difference between U.S. equities and Europe and why some of these innovators in the U.S. have been outperforming? Yeah, I think that certainly there has been an unusual split in the valuation between tech companies in the U.S. and Europe. Of course, the U.S. has much more exposure to technology in the index than we have in Europe or indeed other regions. But this year, the big tech stocks have seen bigger rises in valuation in the U.S. than in other markets, particularly in Europe. And I think that does reflect the positioning that these dominant companies have in the AI ecosystem at the moment. It doesn't mean to

say there won't be opportunities in technology in other regions, and there are some very good innovators in Europe. But for now, the scale and the size and the ability to commercialize those opportunities for the dominant tech companies in the U.S. is very, very strong. It's also to just emphasize that if you look at the broader market, X technology, you know, Europe has been performing pretty much in line with the U.S. And Japan has been outperforming. So I think it really does make a difference what you look at. And diversification, I think, you know, does continue to make sense. Interesting. Interesting. Well, Peter Oppenheimer, chief global equity strategist at Goldman Sachs. Great perspective. Thank you. Thanks, John.

Time now for a CNBC News update with Pippa Stevens. Pippa? Hey, John. The Libyan Red Crescent reports more than 11,000 people have been killed in the recent flood in the country's coastal city of Derna. Local officials suspect the death toll will be much higher. An additional 10,000 are still missing. The health minister said the storm also killed 170 other people in different areas of eastern Libya. Former lawyer Alex Murdoch was back in court today for the first time since his conviction for killing his wife and son. He is now facing trial over alleged

financial crimes involving two co-conspirators. Prosecutors say Murdoch is facing more than 100 charges and allegedly caused victims to lose almost $9 million. And Delta Airlines is making it harder for some American Express cardholders to use airport lounges, and it is tightening restrictions on how customers earn frequent flyer status. Delta Medallion status will now be based solely on spending. Meanwhile, starting February of 2025, American Express Platinum and Platinum business card holders who spend less than $75,000 per year on the card will get six lounge visits per year. John, back over to you. Ah, Pippa, that death toll in Libya, just staggering. Oh, yes, of course. Yeah, thank you for bringing us that.

Up next, Mike Santoli returns with a long-term look at the chip space in honor of Arms IPO today and tells us the one key source of strength in that group over the last two years. And take a look at shares of Disney as we head to break, getting a boost mid-session after a report said Disney had held initial talks to sell ABC to Nexstar. We'll be right back. Welcome back to Overtime. It was a stellar debut for chip designer Arm, ending the day higher by almost 25 percent. But what would it take for the company to become a long term leader in its sector? Let's ask Michael Santoli. Mike. Yeah, John, if I had to construct really the ultimate bull case for the role that ARM might be able to play in its industry, it would be becoming what I would consider a kind of industry utility. This is a weird subcategory of companies

that were reflected here to some degree. S&P Global, Visa, Verisk Analytics, the latter two, by the way, Verisk is a property and casualty kind of database actuarial company used to be owned as a kind of consortium by the insurance industry, just as Visa used to be owning consortium by the banks. Not the case with S&P Global, but still kind of the standard for investment management information. So these are kind of everybody's got to pay them a little piece for every transaction. It's a network business. Obviously, many distinctions between that and what Arm does. But Arm does sort of have this industry standard status in a certain part of chip design, getting a royalty stream off of that. Now, that being said, the way the market has been treating the semiconductor group recently, it's as if they're anointing, as we know, NVIDIA as really the only source of visible growth in the

industry in this little phase of the cycle. This is a two-year. And the XSD ETF is a very balanced, more or less equal-weighted version of the semiconductor industry. So essentially, no movement on a two-year basis. Obviously, down big, then up big. And you see that NVIDIA got liberated from the rest of the sector at the beginning of this year. And it's kind of consuming most of the oxygen in the group. We'll see if that can change, John. Yeah, it's free for sure. Mike Santoli, thank you. Looking to trade financials. Well, up next, find out why big banks teaming up with fintech companies could be a challenge for regionals when overtime returns. Welcome back. Let's talk about the banks for investors thinking about putting money to work there. The KRE regional banking ETF is trading close to 44 bucks a share near the levels from

March when Silicon Valley Bank first collapsed. It was above 60 before then. If there's no contagion issue and the commercial real estate troubles are contained, well, what other hurdles are there? I've been poking around on this for a few months. There's something interesting happening. Large banks are increasingly using technology partnerships to try to capture the customer base of the regionals. We have a sizable one to share with you right now. JPMorgan Chase teaming up with fintech software provider Gusto. It's a startup to offer payroll to some of its five million small business customers. I spoke with Gusto CEO Josh Reeves. So payroll, as everyone's aware, is not just about money movement,

but it's also about all the different tax rules and tax compliance. And because you have local, state, and federal rules, you have over 10,000 different rules out there, right? So this can be at the county level, it could be at the state, city level, various different places, not just the IRS. And all these are calculations, but it's not just the calculation side. There's also lots of different documents, filings, reporting that has to be done as well. And small businesses typically are doing this by hand. So they get, you know, they make mistakes, they get fined, and it's just something much better done in software with modern technology. So what does this move mean for the regional banks? Will the larger banks, which have big tech budgets, steamroll them and force a wave of consolidation?

I asked another startup, Eric Gleiman, CEO of fintech spend management startup Ramp, which last month raised $300 million at a $5.8 billion valuation. Listen. We're still very early in doing it. And I think that's one of the large initiatives for us. And I think you're exactly right. When you look at regional and community banks, the budget that they can put into technology investment versus the JPMorgan Chase's, the Citi's, the Wells Fargo's of the world, which are billions to tens of billions per year in investment, I think it's a very challenging place. And when I think about just the United States at large, I think it's a scary thing if regional banks are not able to compete. So Reeves back at Gusto said the larger banks might spur the regionals to action here. I think this is a great catalyst. It's a good forcing function. But time is of the essence,

right? These experiences being made better, more modern, customers benefiting from having better user experience, easier to use systems. And again, a lot of these regional banking partners are not going to go build a lot of that tech in-house. So working with partners, whether it be Gusto or other parts of the stack, I think is very much the future. And the good news is there's companies like Gusto and others really focused on wanting to work with banking partners of all sizes, frankly. So it's important for investors to figure out how big is this trend? Could it affect whether regional bank stocks rebound from the March tumble or go even lower? Joining me to discuss, CNBC banking reporter Hugh Sun. Hugh, great to have you here. You talked to Josh, too. Yeah,

what do you think? Yeah, this is part, it is a great angle, John, because this is part of a bigger picture here. The regional banks face. Right. We know that post SVB collapse, they're going to face greater regulation. That's coming down the pipe. We know that they're already having this profit crunch because of the greater funding costs that they're that they're facing. And now they're facing JP Morgan in payroll processing. NowP. Morgan has a $15.3 billion tech budget. And, you know, it's impressive. It's a little bit inflated because half of that roughly is, you know, business as usual, like paying engineers to keep the lights going and part of the empire. But about half of that is innovation. And so, you know, they're really facing, you know, this incredible pressure coming from the folks of J.P. Morgan, other folks. And when you think about it, this is another story.

Another angle into the story is J.P. Morgan is doing this because why? Because the likes of Square and PayPal have created, have led the way with innovation. They've created these fully enclosed ecosystems for their merchants. And J.P. Morgan is saying, I'm going to be a fast follower. And by the way, we're going to still be years ahead of the regional banks. There's so many players here and investors can really think about what they expect to happen, who they expect to win. I'm used to the narrative of the big banks versus the fintechs. But now we've got a narrative of banks plus fintechs and who's going to be able to choose the right partnerships and integrate

most quickly. What's the impact of this, you think, on the smaller banks and the consolidation that so many expected to see after SVB? So it is another, they're getting it from both sides, John. They're getting it from the fintech players who can operate in any state in the country. They're getting it from the big banks. And so this is one of the reasons why the thesis out there is that there will be consolidation at some point. There's just too much pressure on them. Will it be immediate? No, because they need the green light from regulators. And there's still a lot of pressure from folks like Liz Warren, Senator Liz Warren, who's against these kinds of tie-ups. But the pressure is there, and I don't think it's going away. On the fintech side, you see any likely winners?

Well, you know, ADP is a legacy player, you know, into it. There's these huge players. They deal with corporates. You have smaller folks. You have Gusto. You know, you have a few other, you know, players in that space. I think those guys are going to be the winners. They're gaining share really fast. Yeah. And you mentioned Block and PayPal. We'll see how they do. Hugh, thank you. Okay, still ahead, much more on today's after hours earnings movers as we count you down to Adobe's earnings call, plus analyst reaction to Lenar's results.

Overtime, we'll be right back. Welcome back to Overtime. Check out shares of steelmaker Nucor taking a turn lower in overtime, just over 2.5%. The company giving its mid-quarter update, warning that Q3 earnings will miss Wall Street estimates, citing lower pricing and volumes. As I mentioned, shares down just over two and a half percent right now. Meanwhile, Adobe's earnings call just moments away after a print that CEO Shantanu Narayan told us was really great across the board. That stock fractionally lower and Lennar topped estimates on both lines as well. That stock fractionally, well, about flat. Up next, we will ask an analyst

what he wants to hear from Lennar management on the earnings call, which I believe is tomorrow morning. We'll be right back. Welcome back to Overtime. One of the nation's largest homebuilders, Lennar, reporting a nice beat on earnings and revenue for Q3, while home deliveries were up 8% year over year. New orders were up 37%, but with a lower average sales price. Stock's been bouncing around in overtime. The earnings call tomorrow morning. Joining us now is Seaport senior analyst Ken Zener. He has a buy rating and $137 price target on the stock. Ken, welcome. So it looks like they had more deliveries, but at lower prices and yet still managed to beat on gross margin.

What does that tell us about costs of either materials or labor or something? Right. I think the big issue here is, you know, they basically met guidance, but the fact gross margin came in higher than their guidance is very impressive because the 24.4 percent 3q is or compares from 22.5 in 2q so that's impressive fourth quarter guidance is for roughly 30 40 bits or so higher and that's important because they beat on the orders so essentially lennar's been very focused on steady production. So whatever they produce near term, they expect to translate to an order. But they exceeded that, their own guidance and expectations by about a thousand units there. So I think it's very good. The biggest question we get from investors, you know, is this the last inning of what is the recession

as the Fed tightens? Or in fact, do we have a no landing, soft landing scenario, in which case the buyers are out there? And that is our view. Well, let me ask a different question then, since you've already been asked that. How long can this weird situation continue where there's so little inventory, right, of existing homes because interest rates have gone so high, people don't want to move because they can't afford and afford another mortgage and so newer homes at these lower prices are actually a better deal how long does that continue they're dramatically better than that quote free market mortgage rate if they're buying down to five and a half percent that's the

builders and that is in these gross margin guidance that uh lenar is giving i would say and our thesis is history might not repeat but it rhymes so the low inventory level tied increase uh secular increase rise in rate happened and we point out 1965 actually early 60s to the late 70s where you had constrained supply, that does keep existing home supply limited, making new homes a greater share of those homes available for sale if you were to look at the two combined. And with the public builders having incentives, you know, five and a half, not seven or higher, that affords market share gains.

And we point this out. This happened before. We got to leave it there. Thank you, because we're out of show. Ken Zener, appreciate it. That's going to do it for overtime. Fast Money starts now.