Closing Bell - Closing Bell: Overtime: Former Ford CEO Mark Fields On UAW Negotiation Latest; Why Charter Subscribers May Miss The First Full Weekend Of College Football 9/1/23

Episode Date: September 1, 2023

Stocks started September off mostly higher. Ariel Investment’s Charlie Bobrinskoy and Ascent Private Capital’s Tom Hainlin break down the market action and positioning. Former Ford CEO Mark Fields talks why Tesla shares are lower today and how the EV transition is impacting labor negotiations for Detroit’s Big 3. Ginkgo Bioworks CEO Jason Kelly on its new partnership with Google Cloud. Samsara CEO Sanjit Biswas on the company’s first quarter of profitability. Plus, your September playbook with Paul Hickey and why Charter subscribers may miss the first full weekend of college football.

All right, well, stocks eking out gains this job Friday, at least the S&P and the Dow. The Nasdaq basically flat, but the major averages logging their best week since July. That's the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Fort, and coming up on today's show, biotech firm Ginkgo Bioworks. It's one of the biggest stealth winners of the week. It's up more than 30% after striking a deal with Google to work on, you guessed it, AI. We're going to talk to Ginkgo's CEO about that new partnership.

Plus, bespokes Paul Hickey joins us to lay out his September playbook in a month filled with market catalysts, including the Fed meeting now less than three weeks away. Let's kick it off now with our panel. Joining us are Charlie Rabrinskoy from Ariel Investments and Tom Hanlon from Ascent Private Capital Management at U.S. Bank. Guys, welcome. Happy Friday. Tom, you are advocating for a balanced portfolio and high yield municipal bonds, which is music to my ears. Given the PCE and jobs reports we just got, are you sticking with that? We're sticking with that. You know, it's pretty sanguine reports this week coming out of the economy. You know, the jobs report showed decelerating job gains, but they're not shrinking rapidly.

So things are heading back towards the Fed's target in terms of job gains and inflation. So, yeah, we're kind of standing pat with our recommendations of highly-earned munis and some other areas of the bond markets. Charlie, small and mid cap value is cheap. You say that's where you're focused, but I can't help but notice in enterprise tech, there are some big moves to the upside, even today during today's trading session. Nutanix, which we reported and heard from the CEO after the bell yesterday. Samsara, which we're going to talk to today as well. Are you perhaps missing out on some growth in other

areas? We've absolutely missed growth in other areas. Not owning NVIDIA and Amazon and Apple has been painful, but that's looking in the rearview mirror. We wished I owned Apple, but I don't. And now I got to look at what's valuable today. And what's valuable today is small and mid cap value stocks, which are trading at extremely attractive prices. And on days like today, we're outperforming. When it looks like the Fed may not do more damage, may not try and take us into a recession, we get great performance from housing-related names, from auto-related names, from financials. And so on days like today, we're outperforming and we're trying not to look back

in that rear view mirror. Yeah, Charlie, we've seen some pretty big moves in the bond market, not just recently, but all year. But if I just look at the 10 year yield, just a dramatic move lower over the past week, which certainly has reignited this risk on trade in stocks this week. Just want to get your thoughts on what the bond market is signaling here and how much equity investors should be taking their cues from it. Thank you for bringing this up, because this is a big point for me. There is this sense that the bond market is omniscient, that it can see the future, that an inverted yield curve means we're absolutely going to have a recession. That's nonsense. The stock market and people invested

in the stock market have crushed investors who have invested in just the bonds, not only the last 10 years, but 20 years, 100 years. The bond market has produced maybe 1% to 2% real returns, while the stock market is more like 7%. So yes, the bond market got extremely concerned that we were going to have a recession. We went into an inverted yield curve, a lot of that driven by the Fed driving short term rates up. But four percent 10 year is a normal rate. That's very close to the historic average. So I would say we've settled into a reasonable 10 year rate and short term rates are going to come down as the Fed decides it doesn't need to throw us into a recession. Tom, I want to get your thoughts on this, especially since you called us a chop

period right now. Yeah, we're in a gap now. We've just finished up second quarter corporate earnings. We don't have the Fed until the 19th, 20th of September. So we're kind of in this trading range. We think this broad range until we see how this all plays out with the consumer. We think of the consumer like being on this treadmill. The Fed's kind of raising interest rates, kind of increasing the steepness of that treadmill. And we're waiting to see if the consumer ultimately capitulates and gets fatigued from higher interest rates. So far this year, that hasn't played out. So far this year, the consumer has been very resilient. You've seen that in the retail sales numbers and strong second quarter GDP. So for now, the consumer is able to hold in. All right, Charlie, I want to

get back to you with some specifics. You like names in housing, auto supply, some financial, some energy. Which ones? I like things that are cheap. And everything you just said, they're great companies trading for less than 10 times earnings. So I love Apache trading at eight times earnings. I love Finia, which is the powertrain company for internal combustion engines, which are not going away. That's trading for about nine times earnings. BorgWarner, which makes electric vehicle powertrains, is trading for about 10 times earnings. And then Goldman Sachs trading at 1.1 times tangible book. It is sure it's had its issues. It made some mistakes in consumer finance, but the stock was 150 10 years ago. Today, it's 340. It's a wonderful company

trading at the value of its securities. Yeah, Tom, just to go back, I guess we're going to take this conversation full circle because you're talking about muni bonds earlier. But high yields, municipal bonds, non-agency mortgage-backed securities and reinsurance, these are areas where you see investment opportunities. Why here? I mean, is what's implied here a soft landing? What's implied here is that spreads between investment-grade corporates and treasuries are wider than history. So they're already kind of factoring in some recessionary risks. And we just think there's value that we think investors are getting paid to take that additional credit.

And reinsurance is just a differentiated income stream. And, you know, that's been well rewarded yet this year. OK, Charlie and Tom, thanks for kicking off this Friday with us. Thanks, Morgan. Let's dig deeper in today's jobs report. The U.S. added 187,000 jobs in August, while the unemployment rate rose unexpectedly to 3.8 percent. That was up from July. It was the highest since February of last year. Let's bring in senior markets commentator Michael Santoli with a closer look at a slowing jobs report,

but not slowing so much that we need to be worried about the economy, at least not yet. No, that's exactly right, Morgan. There was some moderation in wage growth as well on a 12-month basis, still, though, at a healthy level. And this measure bundles together the absolute change in payrolls, the number of people working, the average work week. So how long they're working and what they're earning per hour to get sort of an aggregate private sector earned income measure. And you see it's very, very healthy levels here. The three month annual rate of change is now up at seven and a half percent. The 12 month change closer to six percent, but both really well above where we were running pre-pandemic.

So it fits into that story that real wages are still actually have turned positive. And we have a lot of spending power in this economy. We can debate whether that means the Fed is going to have to do more or whether rates at this level might also bring things into balance on their own. Take a look at the performance of consumer discretionary stocks on an equal weighted basis relative to consumer staples. This is a three year chart. So here you have this sort of blast off in a reopened economy. But even since then, it's sort of maintained its advantage. The consumer discretionary group has over staples over the more defensive parts of this market shows you that cyclically market feels things are in a

decent spot. And again, it's really going to be about how it develops from here and whether that means inflation is going to be stickier or we can continue to have this almost painless trajectory of disinflation. Morgan, how much is Tesla adding to some of the noise here in the discretionary chart you just put up? Tesla and Amazon add a tremendous amount of noise to the regular consumer discretionary chart. But this is why I go with the equal weighted, because they no longer have, you know, that whole distortive effect. So that's one of the sectors, in fact, the sector where you almost can't look at the market cap weighted version. Arguably, communication services is like that, too, of course, when you have, you know, Alphabet and Meta and Netflix in there. But yeah, this is a cleaner view of the median stock in that group.

Of course. Leave it to Santoli to anticipate, anticipate some of the methodology. I couldn't have planted a follow up question better. Thank you, Mark. We'll see you later this hour. After the break, we are navigating a traffic jam of news in the auto world today. Speaking of, former Ford CEO Mark Fields will be with us to talk August auto sales, VUAW's new moves in its labor battle, and why Tesla just slashed prices on a number of vehicles, but that stock falling hard today, down 5%. Speaking of, overtime, back at 2.

Welcome back to Overtime. Tesla shares turning lower today after announcing some price changes. The Model S and X starting prices have been lowered in the U.S., but raised in China on its revamped Model 3 by about 12%. The new Model 3 has an increased range range up about 30 miles to 380. Shares finished the day down 5 percent. Joining us now is Mark Fields, former Ford CEO and a CNBC contributor. Mark, there's so much to talk to you about where the auto industry is concerned. We'll start here because Tesla is such a big mover and does have such an outsized impact on the

market and is certainly still seen as the leader in EVs. Your thoughts on the dynamic pricing that we see this company on a near daily or at least weekly basis employing? Well, I think what you're seeing with the latest moves, again, it's a situation where they're ramping up production and they obviously have a demand issue. And therefore, they're reducing prices here in the U.S. I mean, they were very strategic in the S and the X price reductions, where now they're going to be eligible for some of the federal incentives. So clearly they have a demand issue as you go from kind of early adopters to mass adopters of electric vehicles in the U.S. And you're seeing their pricing reflect that.

And I think that's what was reflected in their stock price today. If I expand this out more broadly to pricing, particularly here in the U.S., it almost feels like the auto industry is going through something kind of similar to the housing industry. It's a sector that tends to be more interest rate sensitive because people are taking out loans against new and used cars. You've had these supply demand imbalances with supply not there in recent years in the pandemic. And it seems to be holding up. Yes, prices are down if we look at Mannheim year on year, but still so elevated versus just a couple of years ago. Where do we go from here? And I guess how how does that factor in then to, let's just start there. Where do we go from here? Well, I think overall, Morgan, what you're seeing, you're still seeing a lot of pent-up demand in the marketplace. I mean, with the supply chain issues over the last

couple of years, inventories right now are still nowhere near where they're usually are at at this point in time of the year, although they're up 70 percent more or less from last year. And that's why you're seeing some of the automakers increase incentives. But I think to your point, when you look at what's happened with pricing, I mean, the average new car loan is over seven760, which is up about 30% to 35% versus where it was back in 2020. And the same thing for used cars. So you have a situation in which affordability, literally, you have to make over $100,000 a year just to afford a new car. And what you're seeing in the marketplace and what you started to see in just this past couple of months, you're seeing prices start to come down. The average transaction prices are off their highs that you saw in December and September of last year.

And I think you'll continue to see that. But it's all busterous by a lot of pent up demand that's still out there in the marketplace and will bleed off over time. Mark, zoom out for me here. Talk about the U.S. automakers. If I were an investor, I'd be afraid to buy the domestic automakers when EVs are the future, they take fewer people to make, but the United Auto Workers are pushing for a contract here that one might argue is going to create some structural challenges for the U.S.-based industry. What's the counterargument? Well, first off, again, when you look at these transitions to EVs and you look at the average age of what they call the vehicle park or the population of vehicles here in the U.S., it's over 12 and a half years old. So that will get turned over over time. Vehicles are getting

older. They need to be replaced. To your point, John, when you think about the UAW contract coming up, you know, labor represents plus or minus around 10 percent of the cost of a vehicle. That being said, these negotiations are pretty pivotal because when you look at the all in labor costs for let's call it the Detroit three, they're about $65 an hour versus the import non-union companies, which are about $55 an hour versus Tesla, which is about $45 an hour. So when you look at what the UAW has been asking for, which is over a 40 percent increase over the life of the contract, and when you add up some of the other things and benefits that they've come in with their opening position, I mean, you're looking at widening that disparity, you know, significantly. And the automakers cannot afford that.

Can they get half of what they want and it still pencil out? It'll still pencil out because when you think about it, John, the Detroit 3 sell a lot more large SUVs and full-size pickups than some of their import competitors. And those have quite nice profit margins on them. But at the end of the day, as this transition to EVs happens, I mean, let's face it, EVs right now, with the exception of Tesla, nobody's making money. And as the automakers, the legacy automakers ramp up, they're going to have to work down the piece costs to get those EVs to an acceptable margin. So you could argue there's, for a period of time, there's going to be a restructuring of their margins. And that's why every penny counts in building a car.

And that's why I think the automakers are going to be quite strong in pushing back on some of these demands from the UAW and their contract negotiations. We'll see how strong they can be. Mark Fields, thank you. Thanks, John. When we come back, we will talk to the CEO of one of the biggest stock winners of the week, Ginkgo Bioworks, which soared on the news of a new AI partnership with Google. We will discuss plans to use artificial intelligence for drug discovery and more next. And take a look at how Walgreens finished the day, closing down 7% on news that CEO Roz Brewer has abruptly stepped down after less than three years in the top job. Walgreens is by far the worst performing Dow stock this year.

And that was facilitated further today. We'll be right back. Welcome back to Overtime. Biotech firm Ginkgo Bioworks announcing this week it struck a five-year deal with Google Cloud to access its cloud computing and AI resources to develop its own AI models for drug development. Shares jumped more than 20 percent on Tuesday and more than 30 percent on the week. Gave back a few of those gains today, down about 4%. Still, the company is down 80% since going public via SPAC two years ago. Joining us now, Ginkgo Bioworks CEO Jason Kelly. Jason, it's great to have you on the show. Yeah, thanks for having me on, Morgan. All right, so walk me through this partnership that you struck with Google, because it looks like you're going to pay Google an escalating minimum amount over the course of five years. And then Google, based on undisclosed business milestones, has the possibility of putting money back into Ginkgo as well. So what is this going to enable? Yeah. So the number one thing it enables is it

gets us access to the infrastructure at Google. Right. And the reason this is exciting is, you know, folks have gotten to learn more and more about how these AI models work. And to give you an example, something like ChatGPT, basically this big computer brain, it was fed a bunch of English language books and other text, and it learned to speak English. And the idea behind our project with Google is to take that same kind of computer brain, instead of giving it books written in English, give it books written in DNA. So the genomes of all the organisms that are out there in nature, and the idea is it'll learn to speak DNA, just like chat GPT learned to speak English. And DNA is behind half of your therapeutic drugs, many of your foods, new materials and things like that.

And the hope is this model could ultimately do that job better than, you know, a scientist trying to write that DNA by hand. And that's the project with Google. And by doing this scale of deal where we are committing to $250 million of spend over the next five years, we build that asset for our customers here at Ginkgo and they can access it as a service. Yeah, I know you sit on quite a bit of data. It sounds very promising. We've had a number of investors who have come on and said biotech, for example, is one of those key near-term areas where you're going to see generative AI realized. So how quickly does this become a money-making endeavor for you? Yeah, so these models take a little bit of time to train, but not that long. Even these big

foundation models being trained on huge amounts of English language data are trained over three or six-month periods. So we do expect to be able to have models get out there. Ginkgo uniquely has a platform business model where we can go out and get service fees and ultimately get royalties from our customers. So we have the go-to-market channels for this already, which we think is pretty unique in biotech. So then is this a new revenue stream, or does this build on the revenue streams you have already? It should expand the ones we have already. Now, we are looking, and this is something we're really excited about, you know, Google has the ability to launch models in their sort of marketplace. And I think if that is successful, and we will be trying that out as part of this partnership. That would be a new type of revenue stream for Ginkgo. And that's just a new

area right now. Even on top of these sort of generative English language models, people are still trying to figure out what are the right business models. We're going to run that same experiment in the biotech industry through our partnership with Google. Okay. So as you make these investments, as you build out these models, how do you balance that against your current book of business? You've got the synthetic biology, but you had the biosecurity business, which grew strongly during the pandemic, but is now lapping some of those figures and has fallen off as we've seen demand for some of your products around that around that wane. You're not making money yet, but I know you're sitting on a cash pile. So how does all this play out? Yeah, so we ended last quarter with $1.1 billion in the bank.

So that's a good margin of safety for us to build all this stuff out over time. So biosecurity, just to bring it up, you know, we have a program with the CDC where we look at wastewater from planes. And then we read the DNA of what's in there to look for emerging pathogens. And we're expanding that internationally now as well. We have large programs in Qatar, a number of other countries as well. And so we see that as really a persistent, think of it like radar stations monitoring the weather and also looking for defense applications like military and so on. We should have similar bio radar stations. And absolutely, being able to interpret that DNA sequence data, one of the things that would run through is AI models like the ones we're talking about here

with Google. So we do think it's a nice fit for the biosecurity business as well. Okay. Jason Kelly of Ginkgo Bioworks. Thanks for joining us. Yeah. Thanks for having me, Maureen. Regulatory resistance is easing up this week. The FTC, potentially. The FTC announcing a deal today with drug giant Amgen, allowing the pharma company to purchase Horizon Therapeutics for $27.8 billion, with some restrictions. Amgen cannot, quote, bundle two of its blockbuster drugs, a practice that involves offering rebates or discounts to entice insurers and PBMs to

favor Horizon products. Meantime, the FTC also securing a settlement over Intercontinental Exchange's proposed $11.7 billion purchase of data provider Black Knight. The FTC initially raising concerns about combining two top mortgage tech providers. Under the terms of that settlement, Black Knight will divest its mortgage origination businesses and both companies will need the FTC's approval to buy back any divested asset

or to buy an interest in a similar business over the next 10 years. John, this gets back to the conversation we were having with one of our guests, our guest from Raymond James earlier this week. The fact that you've seen some of these, not necessarily these two deals specifically, but they're indicative of the broader landscape where companies have brought legal challenges against regulators like the FTC. The FTC has had some stumbles in the courts. And while the risk is that deals take longer to get done in general, some of these deals are getting done. Well, this is I mean, this is the push and pull of what we're used to seeing from the FTC. Like there are some conditions, but deals do happen. The muscular appearance of the FTC that they thought was going to keep deals from happening overall so far seems to be a bust.

Yeah, it's interesting, too, because Europe has been and the UK have been pretty aggressive as well as I guess perhaps to be expected when it comes to the M&A and specifically the tech M&A landscape. So I'd imagine Adobe Figma is going to be one of the key ones to watch moving forward. I mean, I've always thought that one was going to be tough. But look at look at the dog with the big bark rolling over on Activision. Right. I mean, it's happening. And arguably, I mean, people looking at, you know, it's it's not. It was hard to argue against it. All right. Time for a CNBC News update with Seema Modi. Seema. John, let's do it. Here's a CNBC News update at this hour.

A coalition of big private equity firms and hedge funds suing the Securities and Exchange Commission today in an attempt to block new rules designed to give investors more transparency and better terms. The lawsuit argues the SEC has overstepped its legal authority with the new regulations. The SEC has yet to comment on the suit. Kia is recalling some 320,000 cars in the U.S. to fix a problem with the truck that could leave people trapped inside. The recall affects some Optimas and Rios made from 2016 to 2018. Federal regulators say there's something wrong with a latch inside the trunk that keeps it from opening from the inside.

And fans of literature and basketball now have a chance to own something that hits the notes pretty soon here, a book owned by Michael Jordan. His copy of To Kill a Mockingbird, signed by the author, set up to go for auction with an estimated price tag of around $24,000. Get this, a message inside the book reads, To Michael Jordan, best wishes, Harper Lee. One of my favorite books. Morgan?

I mean, it's such a good book. This is interesting, too. Apparently he lost it in a divorce, then it got sold to a collector. Now it's going to auction, so there's a whole, I guess... There's a story there. Yeah. Sima Modi, thank you. Yeah.

Major moves in the treasury yields were a big part of the market narrative in August. Will that continue in this new month of September and what impact will it have on stocks? Mike Santoli breaks that down. And later, a triple dose of software CEOs who will hear from the heads of HashiCorp, Samsara and Elastic, all making major moves today on the back of earnings. We'll be right back. Welcome back to Overtime. The dynamic between stocks and bonds was a big theme in the market in August. Mike Santoli is back with a look at what has been playing out and if it will continue in the new month.

Mike. Yeah, Morgan, clearly the equity market sensitivity to new highs in bond yields is definitely on display. Last month actually been a theme if you go back even to the beginning of last year. But here is one the yield threshold that I think gets a little bit unnoticed. We're talking about the 10 year Treasury getting above four point two five. That was a little bit of a pain point. Here's the aggregate. The Barclays U.S. aggregate bond index. It's basically all kinds of investment grade bonds. Government, corporate mortgage backs, things like that. We breached 5 percent and also did so back last October. That was when the market really sold off to its bear market lows. And once we made a high

and came down from there, that's when we bottomed in stocks. Now, we hit that threshold again. But of course, we're coming from higher levels in equities. Take a look at the relationship between total stock market index ETF and the bond market ETF. So this is going from the beginning of last year, or actually it's a two year. What you see right here is stocks managing to outperform and get above what is going on in the bond market. This is the price of those bonds going down. So it's a little bit more of a jagged relationship than we saw last year. Why? Because this year, bond yields aren't going up because inflation is getting further out of hand and the Fed has to get much more hawkish. It's because rates are kind of normalizing based on better

economic growth. At some level, they're going to hurt. Stocks are going to have to make their peace with them. But we've been able to detach here, especially once the overall aggregate investment grade yield came below 5 percent again. And it gave a little bit of relief to equities. But we've got to watch this relationship, John. So, Mike, how should investors understand that kind of 5 percent bond yield ceiling, kind of the reasons behind it and the opportunities it presents? Right. So, of course, the Fed has taken short term rates to above 5 percent in terms of overnight federal funds rate. So on some level, the rest of the curve is going to be dragged higher along with it. It raises the cost of debt, obviously, for corporate borrowers. The issue is a lot of

companies really did get longer maturities baked in. They just turned out their debt. They refinanced while rates were very low. So it doesn't have a direct, intense impact in the moment. But over time, as bonds come due and they have to refinance or they have to find another solution to fund the business, it starts to act as a drag. And with inflation coming down, rates at five start to look a little bit restrictive in terms of the real rate being charged. So all that stuff is in the mix. Again, I keep pointing out, you know, back in the 90s, when stocks were more expensive than they are right now and did better over multiple years, rates were five, six, seven percent. So there's no one magic level that means stocks have to crash. But it's pressure. We got it. Mike, thanks.

Shares of connected operations company Samsara soaring after beating Wall Street's earnings estimates and issuing better than expected sales guidance. Up next, the company's CEO breaks down the quarter and his outlook for the IOT industry. Overtime returns. Welcome back. Don't let the flat NASDAQ fool you. It was a big day for enterprise tech stocks after a flurry of earnings. Some shot higher by double digits like Dell, Nutanix, and Elastic. Some sank like HashiCorp. If investors can understand why the different reactions, maybe you'll have a better idea what to do next. So let's dive in. In general, companies tied to more traditional data centers, CPUs, servers, and storage did worse. So did companies that signed customers up for long-term contracts. And that's in contrast with the pay-as-you-go models that many cloud providers have adopted. Here's what HashiCorp CEO Dave McJanet told me. The cloud providers have consumption models.

So when things slow down, they slow down immediately. When they recover, they recover immediately. And that is a bit atypical, actually, in the market. I think most companies are much more attuned to annual budgeting cycles. So where you buy an entitlement, that lasts for a year, and then you move up or down over the course of the renewal period. So I think most of us don't see it that quickly. And what we see is sort of the general sentiment, which feels pretty consistent

with what it was towards in the last quarter. But that's pretty different from where it was a few quarters ago. HashiCorp did beat and report better than expected guidance, but because it's on a contract model, it's taking longer for customers to open budgets backups, down 5%. Now, the companies that did better are getting a boost from artificial intelligence spending and consumption models. Here's Elastic's CEO, Ash Kulkarni. It's just a tremendous and massive interest in generative AI. And it's a C-level conversation, as you can imagine. And as I've been talking to customers, the thing that I've really appreciated is it cuts across all domains,

whether it's for e-commerce, because there's a real value associated with it. We have customers in e-commerce who are looking at how this can help them reduce the amount of returns that they experience, because customers are actually able to get exactly what they want. In customer support, where people are able to reduce the number of person hours involved in providing the right kind of support, because you can automate a bunch of things in summarization of legal documents and so on. What about Dell? It's got a lot of traditional data center gear and its model isn't primarily consumption. So why is it up 20% plus? Well, cost controls and low expectations. Dell's revenue was actually down 13% year over year, but margins are looking good. So the upgrade from Morgan Stanley got some traders playing catch up.

Morgan. Yeah, that upgrade was pretty interesting. Top pick, price target hiked to $70 and basically said the Gen AI story is officially here. We've been talking about this for a while. Dell confirming $2 billion of AI server backlog, more in the pipeline, according to this report, saying it's incremental and not cannibalistic yet. But as we were talking about yesterday, there's a difference between a company that's an AI play and a company that has an AI play. So investors need to keep in mind that Dell is really big, right? It's got a lot of storage.

It's got a lot of software. It's got a lot of PCs, a lot of stuff. So you've got to factor in how much of that AI momentum is going to benefit the company overall, but then also how cheap is it, right? So its PE is really close to 20. It's not that outrageous by today's standards. All right. Hence the move we saw higher.

Yeah. Here's another tech move where the connected operations company, Samsara, reporting second quarter results overnight. Revenue up 43 percent versus last year, adding 140 customers with more than $100,000 in annual recurring revenue, notching its first positive free cash flow margin quarter as well. The stock finishing up, you can see it there, 13 percent. Joining us now is Samsara CEO and co-founder Sanjit Biswas. Sanjit, good to see you. So how did you reach profitability faster than expected in this environment? Well, hi, John. Thanks for having me on. We saw continued momentum, as you just mentioned, with large customers. So the

revenue momentum has been there and the company has been on a path towards free cash flow break even. We just achieved it a few quarters earlier than what we've guided to because of that large customer and overall momentum we're seeing in the business. Now, I think it's interesting that fuel savings are such a big reason why customers are coming to you. But at the same time, a lot of your growth is coming from beyond transportation. So talk about equipment monitoring, some of those other areas beyond fuel savings that are fueling your growth. So what we're doing is connecting the world of physical operations to the cloud, helping them digitize, helping them modernize. Fuel savings is one of the values we're able to provide, but we can also help things with

areas like driver safety coaching, asset utilization, compliance, and more. So for our customers, they're getting value in a number of different areas, and that applies across industries, not just in transportation and logistics, but areas like construction. We've got large energy utilities. We just signed National Grid, for example, public service groups as well. So if you think about New Jersey Transit, the city of Memphis, the state of Tennessee, these are all customers on our connected operations platform. And they're saving money in areas that go just beyond fuel that include safety and others. Yeah, I mean, obviously, there's this large digitization and transformation that's happening and that's

secular. But you do sell into some more economically sensitive markets like transportation, like construction, like agriculture. Is there a point at which that cyclicality starts to play out in your business? Well, I would say that these are customers and markets that are used to economic cycles. So most of our customers have been around for decades, in many cases, 50 or even 100 years. So they're used to planning through different kinds of economic cycles, and they're in different industries as well. So while we know that there will be ebbs and flows in the business, we also know that these are core parts of the country and really the planet's infrastructure, and they're

going to be around. So that's what they're building towards, and that's what they're planning for. And we're helping them become more efficient. So it's really a vital tool as they think about how they can run their operations more efficiently. Sanjay, when we first talked a few years back, you were making the point that the types of companies that you are building this technology for aren't used to being really tech savvy. And so I wonder in this environment, when budgets are tight,

are the contract conversations getting dragged out like we're hearing from other enterprise technology companies? Or because this is a new sort of conversation, maybe it's a cost savings conversation. Are you finding that the momentum is different from what investors might be used to hearing from enterprise software companies? I think our buyer is fundamentally different. We're not selling to the IT department. We're selling to the head of operations, which again, for these businesses, for these industries is core to what they do.

So they're always trying to find ways to be safer and more efficient. For us, that conversation is around value and ROI. And as we talked about earlier, they can find savings in different parts of their organization very quickly with this data and with our platform. So it's been a very consistent conversation for the last several quarters for us. We're continuing to see that momentum. You see it reflected in the numbers. But this is a bigger

industry trend that we're seeing, which is these organizations are digitizing and they're doing it in a big way. And they're, again, 40 percent of the world's GDP. So it's just a massive number of different companies that are thinking about the same thing. What is your approach to AI models specifically for some of these industries where you're doing work, transportation, equipment monitoring, etc.? To what degree are you planning to develop your own? To what degree are you partnering with other firms to try to serve that customer to use the data that they're getting out of your system? So AI is something we've been investing in now for several years, and really it comes down to making sense of this massive volume of data that's coming from these physical operations out in the field. If you think about the number of data points that comes from thousands

of trucks operating at once, it's too much for any person to look at. So we've been investing in AI since really the early days of the company. We've had AI-enabled products for a few years, and that's what unlocks the value in all this data. It's not just data or technology for technology's sake. It's about finding value and finding ROI. So that's where we're investing, is in more AI models to help surface those insights, help folks be safer out on the roads, help with areas like fuel consumption. Maintenance is another area we're seeing a lot of interest in, as well as compliance.

So these are all areas that really have data at their core. And if we can help surface insights from that data using AI and do it in real time, we unlock a lot of value for our customers. Such an important insight why IoT and AI are joined at the hit.

Sanjit, thank you. Thanks, John. Is the pay TV model broken? That's what Charter Communications is saying as its carriage fight with Disney leads to network blackouts. And Charter just fired off its latest rebuttal to Disney's claims moments ago.

We've got those new details next. And check out oil and energy stocks, both jumping today. Crude touching seven-month highs as Saudi Arabia is expected to extend its voluntary production cut and the U.S. draws down inventories. Strong China data also helping the demand picture. Take a look at that. WTI crude just below 86 today. We'll be right back. Welcome back to Overtime. Disney and Charter Communications among the worst performers in the S&P 500 today as their battle over carriage fees has resulted in customers losing access to networks such as ABC, ESPN and FX. Julie Borson has the details, the latest details.

The latest details of Morgan. Disney and Charter are trading barbs amidst their standoff over this carriage dispute. And there doesn't seem to be any sign of progress as Disney's channels, including ABC and ESPN, remain dark for Charter's nearly 15 million Spectrum TV subscribers. Now, here is the latest in the back and forth. This afternoon, Disney saying, quote, Tarter has refused to enter into a new agreement with us that reflects market-based terms. Also saying that Disney has proposed creative ways to make Disney's D2C services available to Spectrum TV subscribers. Disney also noting that, quote, their linear channel and direct-to-consumer services are not one and the same. Saying, quote, we offered Charter an extension in the negotiations to keep our networks up, and they declined. Charter

responding to this, saying, quote, Disney knows this is not the case, but we'll leave it at that so we can get back to more productive conversations for the benefit of our mutual customers. Those customers are likely to be frustrated this weekend if they can't watch the U.S. Open or college football. And some analysts are projecting that that will push some subscribers to look to make a switch to another provider or to cut the cord. Guys, that's exactly where I was going with this, Julia. I mean, is that is that the reason that we saw media stocks in general, whether it was Warner Brothers Discovery or Paramount or Fox or even our parent company, Comcast, just take such a beating in the market today? Such a beating in the market. And I don't know if we could pull up some of these stocks.

But I think the reason we saw the whole media sector trade lower is because this battle and the fact that Charter said for the first time ever, they said we would consider permanently losing ABC and ESPN, that raises questions about the underlying assumptions that everyone has about the broadcast TV business. The fact that they would be willing to go forward without these networks that were so essential to the TV bundle and then simply charge their subscribers less raises a lot of questions. So I think there are concerns that maybe they or other distributors might not be willing to pay for as many channels or pay as much for channels as they have in the past. Overall ratings have declined, John. How's the CEO of Charter trying to change the very nature of the bundle and streaming. What's this proposal?

Well, he made this proposal to Disney that said, hey, Disney, you are offering content very similar to the content we have on TV, direct to consumer. We want you, Disney, to give us access to your direct to consumer, your apps, and we would offer them to our subscribers. So effectively, Charter is asking for Disney to give away their D2C streaming services to Charter or Spectrum subscribers because it's all part of the same family of content. They're saying that this would only be the ad-supported versions of these streaming apps. But Disney is saying, hey, the content we have on Disney Plus or Hulu is different from the content that you have on linear TV. So there's a debate here about what content exactly it would be fair to give away to those charter subscribers. But the charter CEO is saying, hey, the market has changed and you changed it by starting to have your own direct-to-consumer apps. You changed the rules. So now we want to change the rules again and participate in the upside. All right. Even the corporates have labor disputes. Julia

Borsten, thank you. Will the bulls or bears rule September, which is historically a volatile month for stocks? The spokes Paul Hickey unveils his investing playbook when overtime returns. Welcome back. September is typically a weak month for stocks with the S&P 500 up 17 percent so far this year. Could there be more upside ahead? Joining us now is Paul Hickey from Bespoke Investment Group. Paul, does historical precedent even matter at a time like this after last year and then this year and what's happening with interest rates? Can we even look at historical precedent? John, you would think given everything that's going on right now that you shouldn't. But if you actually compare the way the S&P 500 has performed this year, it's really actually

followed the seasonal trends almost to a T. Like the correlation of the S&P this year, it's really actually followed the seasonal trends almost to a T. Like the correlation of the S&P this year to the composite of the average performance is remarkably similar. So that's one thing to keep in mind. So now we're coming to September, and September, as everybody knows, is the scariest month of the calendar. So that causes people to be a little bit more concerned coming into September. But two things what you have to remember about September is, one,

historically, the declines in September have been back-end loaded. As late as the middle of the month, on an average basis, September is usually flat mid-month, going all the way back through history. Secondly, when you have a strong year like we've had, September isn't nearly as scary. When you're up 10% year-to-date in the S&P 500, September has actually been a positive month. And all of the declines in September typically come during those years when you're already down year eight. That's very interesting and very contrarian.

OK, so if I look past September, say September is not an up month, say it follows the more common historical pattern. Do you buy here? Is October usually a good month? Do you usually see a rally or rebound? Yes. So, I mean, historically, October is actually a positive month. It tends to be the most volatile month of the year. But for the rest of the year, like you're asking, Morgan, including September, in the typical year, the returns are positive. Again, they're much more positive when you're already having a strong year. So September, up over 10 percent. You've got much stronger average returns for already having a strong year. So September up over 10 percent. You've got much stronger average returns for the rest of the year versus the alternative when we're either down or flat. And then when you look into the sectors, it's a very similar

pattern. You see much stronger returns in sectors, individual sectors, when the market is already up to date, at least 10 percent versus all those other years. And you've seen enormous spreads where energy, financials and industrials have performed really well. And actually, one of the sectors that doesn't tend to do well in September, even when it's been a strong year, is technology, which it's one of the weaker sectors, but it still averages the last game. Okay. Consumer discretionary healthcare and industrials, you say, particularly tend to do well at the end of the year when the S&P was already up 10%. So you expect that to play out? Yeah. So, I mean, those are some sectors, especially if you look at a sector like the

industrials. We just finished an earnings season where we had 142 what we call triple plays, where companies report better than expected earnings and revenues and also raise guidance. More companies in the industrial sector reported triple plays than in the technology sector. So where everyone thinks it's all tech all the time, you're seeing some good underlying strength and more importantly, a comfort with their business going forward from companies in the industrial sector. All right, Paul Hickey, thanks. Have a good Labor Day weekend. You too. Thanks, Kim. Thanks, Morgan. And it is a Labor Day weekend, so the markets will be dark on Friday. So finishing out this week,

the Dow finished higher, the S&P higher, the Nasdaq basically flat. Worth noting, though, John, the S&P, the Nasdaq 100 and the Russell 2K all putting in their best weekly performances since June. And when we get further into September, lots of AI software announcements. I mean, it's going to be nonstop. So investors need to be ready for that, along with more earnings. Yeah. And of course, we got a lot of Fed speak next week. Beige book, ISM services. That's going to do it for us here at Overtime. Fast money starts now.