Closing Bell - Closing Bell Overtime: Former Palo Alto CEO On Earnings; Globalfoundries CEO On Chips Act Allotment 2/20/24

Episode Date: February 20, 2024

It’s another earnings bonanza after the bell rings for overtime with Palo Alto Networks, Diamondback Energy, Chesapeake Energy, Caesars and Toll Brothers all reporting. We have you covered with the numbers and analysis. Vital Knowledge’s Adam Crisfulli on what he makes of earnings season so far while Morgan Stanley’s Lisa Shalett on her favorite sectors and emerging markets. Former Palo Alto CEO Lane Bess on what he makes of the company’s latest earnings. Globalfoundries CEO Thomas Caulfield on his company’s allocation from the CHIPS Act. Zelman & Associates Co-Founder Ivy Zelman makes sense of the housing market as investors wait on the Fed. 

Well, stocks falling today as we start the holiday shortened week in the red, extending Friday's losses. Big tech, the biggest culprit. 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. Coming up, we've got a big hour of earnings ahead. Palo Alto, Caesars, Diamondback Energy, Toll Brothers and more are all gearing up to report. We will bring you those numbers and instant analysis. Plus, we're going to hear from the CEO of Global Foundries following the news that his company is going to receive one and a half billion dollars from the Biden administration to expand U.S. production.

You'll join us exclusively later on in the show. As we await those earnings, let's get to today's action with our first guest. Joining us now is Vital Knowledge founder Adam Christofoli. Adam, it's great to have you on. It was an interesting day for the markets, very risk off. Nonetheless, Consumer Staples was the one S&P sector that finished higher in the green, largely because some of the retail earnings we got this morning with Walmart. What is the read through there? How does that set us up for more earnings in this hour and through the rest of the week? Yeah, so you saw bias today towards kind of value groups, so Staples being a big one, utilities traded decently as

well. You know, I think for the Staples specifically on the Walmart call, there wasn't as much food disinflation as I think some people feared. Actually, Walmart management on their call noted that disinflation in their fiscal fourth quarter was not as intense as they were modeling. You still did see a pretty notable pullback in prices. So prices are easing in multiple categories, but it wasn't as much as anticipated. You also have a big industry conference for the Staples with the Cagney event that's going on. And companies came out and mostly reiterated their guidance. So there wasn't any incremental downward adjustment to their outlook. I think that's a relief, too. You've had some negative staples numbers out of the last couple

of weeks. Treehouse Foods on Friday being a big notable one. So the sector is encountering some difficulties. I think today was more just a little bit of a relief rally given some of those developments. Yeah. And of course, a lot of talk about NVIDIA earnings, which are going to cross about 24 hours from now as the last MAG7 name to report. Huge move in that stock year to date after such a big 2023. We can talk about what that's going to mean for the broader market. I mean, is that really sort of the catalysts for stocks here at these levels this week? Yeah, I think it's a huge event for tech in general. You know, I think today you saw the equal weight S&P holding decently versus tech. Tech does seem to be undergoing an adjustment, a correction process. It seems to be mostly positioning

driven and sentiment. So it's technical, not really fundamental. You know, NVIDIA is still enjoying extremely strong demand. The question is, are expectations impossibly elevated? And I think that's what tech is grappling with. You've had a huge run. News has been very positive, but the group is very crowded. It's extended price action wise. You know, there's an article in the Journal this morning just talking about how NVIDIA has overtaken Tesla as the market's most popular stock. And it's just become, you know, it's become extraordinarily proud. And I think that's the risk. So it's more of an adjustment for tech. And obviously, the capitalization weighted S&P will not be able to withstand a further adjustment lower in tech. But it'll be interesting if you do see a further adjustment

in tech. The Ethelweight S&P, I think, should be able to hold in well. OK, hold tight. Caesars earnings are out. That stock's ticking lower in overtime, about two and a half percent. Kate Rogers has the numbers. Kate. Hi, John. Yeah, let's take you through the quarter. So Caesars entertainment revenues missed here, two point eight three billion for the quarter versus estimates of two point eight five billion adjusted. Excuse me. A loss here of $0.34. Now, the consensus was for a $0.04 loss, but we are not comparing that because there's a big disparity there. Vegas revenues, $1.09 billion versus estimates of $1.11 billion. Adjusted EBITDA here,

$930 million versus $943 million. Vegas adjusted EBITDA, also a miss here, $930 million versus $943 million. Vegas adjusted EBITDA also a miss here, $489 million versus estimates of $501 million. The company's CEO said these results were driven by a 28% year-over-year increase in Caesars digital net revenue that generated a 10% adjusted EBITDA margin in the quarter. But as you can see, the stock is moving lower by about 3.5%, John. Back over to you. Yeah, a whole point lower while you were describing what was happening there, Kate. Thanks. Adam, back to you.

I actually want to ask about Walmart here, which reported this morning, you know, I think it's, let's see, Roth MKM points out that their ad revenue at about $3.5 billion is catching up to their ad spend at around $4.3 billion. So given the inflationary environment that we're still sort of in, based on the latest numbers that we've gotten in, the strength of Walmart as a platform, what's the read on how companies are handling the economy? Yeah, I think, you know, these enormous companies, they talk a lot on their call about share gains. So they're gaining share not only within their core demographic, but they continue to move into upper income demographics as well. And so it was really a

volume driven report. If you look at kind of their average ticket, it fell, but transaction volume increased. So they're doing they're gaining a lot of share online is doing well for them. And now they're this advertising business, which they bolstered today with that acquisition, that's a high margin revenue stream. And that's something that's helping their gross margins. So gross margins and operating margins were both pretty healthy at Walmart. So I think it's a share gain in the core retail business and then bringing in some of these more ancillary higher margin revenue streams that's bolstering margins and earnings. And I think it'll be interesting as we get further into the other January end retailers

like Target and the dollar stores, if that share gain at Walmart is showing up in those other companies on the negative side. Okay. I want to point out Palo Alto Network's results are out. We are going through them, and we'll bring them to you as soon as we have a sense of them. That stock is lower by more than 12% right now in overtime. So we'll see what that's about. Meantime, Adam, tell me about the effect of rates on CoStar and housing,

particularly not just housing but commercial realStar and housing, particularly not just housing, but commercial real estate and office, because that's resurfaced as a question people are asking more. Yeah, it's interesting. You obviously had that recent New York community bank report, which was really bad and kind of brought that back to the surface, the whole commercial real estate aspect, the whole commercial real estate risk. But, you know, going back to the banks, the bank earning season in January, you know, the numbers were relatively decent. And then we actually just had CBRE, which is one of the largest leasing companies on the planet for commercial real estate. And they had a relatively sanguine outlook as far as just leasing activity is concerned.

You still have a lot of stranded buildings that aren't economical and that will probably never recover these kind of class B and C properties. But overall, leasing for commercial real estate does seem to have turned a corner. At least it's stabilizing. And so it'll be interesting to kind of see what the post-star messaging is on that. But it does seem like New York community is a somewhat isolated risk or issue. And overall, leasing activity for commercial real estate is, again, it's stabilizing at least. It doesn't seem to be deteriorating any further. Okay. We got Palo Alto earnings out.

Kate Rogers has those numbers. Kate. Hi again, Morgan. So here, a beat on the top and bottom lines. EPS adjusted $1.46. That's higher than the estimate of $1.30 per share. Q2 revenues, $1.98 billion, a little bit higher than the estimate of $1.30 per share. Q2 revenues, $1.98 billion, a little bit higher than the estimate of $1.97 billion for the quarter. The company, though, giving some guidance here, it sees its Q3 revenues in a range of $1.95 billion to $1.98 billion. That is a bit

light compared to the $2.04 billion that analysts were looking for here. And as you can see, the stock is moving lower by just under 13 percent now. Back over to you. All right. Kate, thank you. Don't miss the Palo Alto CEO on Mad Money tonight. Adam, I want to get your thoughts on this, because cybersecurity in general has just been these stocks have been on fire lately as we've seen the threat landscape continue to grow and evolve. And in an election year, it seems almost parabolic in terms of what the demand is for companies like Palo Alto. So perhaps a little surprising to see revenue for Q3, the current quarter, come in a bit soft. No, definitely. And Palo Alto is the marquee name in the space. So it'll be interesting to dig down into the details.

I would just note that they've had some evolution in the last couple of quarters in some of the metrics that they emphasize or that they encourage investors to watch versus kind of just reported revenue or billings even. So I'll be interested to kind of look through some of the details and to see if there's been a shift in underlying demand for them. But, you know, it's been a very mixed January and earnings season so far. You know, you had Cisco and DR cut guidance. AMAT was very strong. Walmart was decent today. Home Depot was a little bit more mixed. And now you have this Palo Alto disappointment. So we get analog devices tomorrow morning and then NVIDIA. It'll be interesting to see how these companies come in. But, you know, for Palo Alto, like you said,

cybersecurity has been a very strong area of the market. Risk factors continue to go up every single day. And this is, like I said, the marquee name in the group. Well, at these levels in overtime, Palo Alto is back at early-mid-January levels. Meantime, over to Energy. Chesapeake Energy and Diamondback earnings are out. Pippa Stevens has those numbers. Pippa. Hey, John.

Well, Chesapeake beating EPS estimates, earning $1.31 adjusted for the quarter against estimates for $0.73. The company also did lower its prior CapEx guidance for 2024 and said it expects its merger with Southwestern to target. It's targeting a closing date of the 466 expected, revenue coming in at 2.23 billion. That stock has been on a tear since the company announced its deal to buy Endeavor, unchanged here after hours. Morgan? All right.

Pippa Stevens, thank you. Teladoc earnings are out. Bertha Coombs has those numbers. Bertha Coombs has those numbers. Bertha. We're in a mixed quarter from Teladoc on the bottom line, posting a smaller loss of 17 cents a share versus an expectation of a 21 cent loss. But on the top line, coming up short, coming in at 661 million in revenues. The street had been looking for 671.4 million. Guidance is also below expectation. You can see shares are down. For the first quarter, it is predicting a loss of between 45 and 55 cents a share. The street had been looking for 43 cents. And revenues, 630 to 645 million. In terms of membership, also coming up short. For Teladoc Health Integrated Care. 90.3 members is what the street was looking for.

They came in with 89.6 million as far as BetterHelp. This is the online therapy which the company has really been trying to tout. They are one of the largest advertisers on podcasts behind Amazon in order to tout this BetterHelp therapy. It came in with 425,000 members. The revenues there also coming in a little bit below. And it's chronic care management, 1.15 million members. The street had been looking for 1.18 million members. So overall, coming up short on a number of estimates there back over to you okay bertha coombs thanks stocks down 10 right now adam want to get your thoughts on uh the parade of reports we just put in front of you and perhaps i'll start with energy because what's so notable about both

of those names uh that pippa just broke down is is they're both involved and engaged in m&a right now how much does that speak to the current energy dynamics? How much does it speak to a broader market dynamic, especially on a day where you saw another deal? You saw the Capital One-Discover Financial deal. Well, I guess that was announced Monday night, but you saw that play out in the market, too. In general, it seems like there's an uptick here. No, absolutely. There's definitely been an uptick in M&A, and I suspect you're going to see that going forward. You know, I think for energy specifically, you're having, especially for U.S. natural gas prices are at multi-year lows right now. So I think companies are looking to consolidate,

bring out efficiencies on the operating expense front and the capital expenditure front. You have a little bit of regulatory uncertainty that's been injected into U.S. natural gas recently, where the White House put a moratorium on approving new export facility construction. That wouldn't have a near-term effect, but I think it kind of does create a little bit of uncertainty over the next, you know, five to 10 years about what the outlook for exports will be. But I think companies, you know, in energy, most acutely, it's a question of finding synergies and efficiencies. And I think in a lot of other industries, that's going to be dominating or motivated M&A as well. You know, the regulatory environment, though, is relatively inhospitable to some of these deals.

You already saw a couple of key people in Washington come out in opposition to that Capital One deal. There was a report today that the Kroger-Albertsons deal will be sued next week for the FTC to block it. So, you know, these companies, as they consider M&A, you know, it's a much different regulatory landscape than it was even just a couple of years ago. And I think that factors in as well. All right. Adam Cusifulli, thank you. And as we get ready to head to Brady, I want to point out Palo Alto Networks again. That is down considerably around 13 percent. The EPS guidance was also am miss, $1.25. The street was looking for $1.29. And the full year revenue and EPS guidance also missed.

The street was looking for $5.51. The midpoint is $5.50. And the revenue guide, the top of the range is $8 billion. The street was looking for closer to $8.2. We're gonna hear from the former Palo Alto CEO, Lane Best, with his first take on those numbers after this break. Plus, we're going to have more earnings coming from Toll Brothers. Overtime's back at 2.

As we've been showing you, Palo Alto Network's under some serious pressure in overtime, down a little more than 12.5% at the moment. Joining us now is Lane Best, former CEO of Palo Alto. He's now CEO at cybersecurity firm Deep Instinct. Lane, to put this into perspective, before this report, Palo Alto had more than doubled in the past 12 months. So, you know, a little 12, 13% here or there isn't going to hurt too much for people who have been in the name for a while. But I wonder what you think this moment represents for cybersecurity, which is one of those have to haves, but where the valuations have gotten lofty. Yes, yes. Well, first of all, I'm in Palo Alto from the beginning, so I still remain bullish.

As you've pointed out, the market has priced a lot of the cyber stocks to perfection, and now they're going to have to perform. And the slightest deviation from expectations could impact them. But the truth is this category continues to increase. And if you look at the sales pipelines in Palo Alto and in my former company, Zscaler, they're burgeoning because of the demand. But I believe the game's going to need to change a little bit. In the past, I think, four years ago, I was on this show and I recommended that acquisitions for growing the bundle of services that the platform players such as Palo Alto and Zscaler offer needed to expand. Now they need to up the game on AI. And that's going to be the next thing that's going to lift these companies to the next

level. Okay. Well, let me go back to that M&A point, though. Has enough of that happened? Because you talk about the platform companies, Palo Alto, Zscaler, it throws CrowdStrike in there as well, which has done amazingly well. But I expect all of those stocks, or both of them that aren't Palo Alto, could get some blowback from these results. And so might some smaller names that might be targets. That's true. But again, the strategy for those platform players you mentioned is to go broad in terms of their coverage in all of the potential points of vulnerability. It's a bundling strategy. So a large part of their growth to this point has come out of providing more and more services to cover more of the vulnerability threat vectors. Now they're going to have to go deeper. And I do

think the acquisitions will continue. But I do believe they need to be more acquisitive in the AI area. Not all machine learning, which everybody claims they have, is the same. And that's what's going to be needed to fight the generative AI threats that we're going to be seeing in the next few years. So I would say that they're going to have to continue to acquire, but they're going to have to go deeper into value that's going to prevent threats, not detect and help remediate. They have to get into a prevention stance. Certainly, the stock is moving lower because of the miss on guidance, both current quarter and full year here. But when you look at non-gap operating margin, it actually grew 580 basis points year over year to 29 percent in this last quarter. When you talk about going deeper on AI,

what is that going to mean in terms of investing to achieve those capabilities? Yeah, well, again, it's about developing the same kind of AI and technology, which we use at Deep Instinct called deep learning. essentially leverage their platforms even greater and get more wallet share and more dollars per customer as they go further into the market. Both of these platform players, or all three of them, Palo Alto, Zscaler, and CrowdTrack, have enormous customer bases that require and need continued attention. So the expansion of the product line, but more importantly, being able to leverage technology such as what we do at Deep Instinct called deep learning and need continued attention. So the expansion of the product line, but more importantly, being able to leverage technology such as what we do at Deep Instinct called deep learning, will help them now prevent. The call from the boardroom has been, how do we detect and remediate these threats? But the idea now is going to be, how do we predict and prevent these

threats? It's the only way that these companies are going to be of meaningful value to customers as generative AI threats heighten. Okay. Lane, thanks for joining us on the heels of these earnings results. We should note shares of Palo Alto are down double digits right now, and Zscaler and CrowdStrike are both trading lower in overtime and sympathy, too. Well, SolarEdge earnings are out. Pippa Stevens has those numbers. Pippa. Hey, Morgan.

The stock tumbling 16% on very weak guidance. But starting here with the fourth quarter, SolarEdge reporting a smaller-than-expected adjusted loss of $0.92 per share. Revenue coming in at $316 million. That missed expectations and was also down 56% year over year. But it really does seem to be this guidance for Q1 revenue. They see between $175 and $215 million. That was well short of the $406 million that Wall Street was looking for.

They also see margins, non-GAAP gross margins, to be within a range of negative 3% to positive 1%. That compares to 3.3 percent during the fourth quarter. The company said that after record installations during the first half of last year, there was a shift in the second half of the year thanks to higher rates and lower power prices. Morgan. All right. Pippa Stevens, thank you. Shares down 18 percent right now. Coming up, one and a half billion dollars. That's how much the Biden administration is awarding to chip company Global Foundries as part of the Chips Act grants. And

there's more attached to that, too. We're going to hear exclusively from the company's CEO after this quick break. Welcome back to Overtime, the U.S. government announcing its first major award from the CHIPS Act. It's actually the third, but it's the largest by dollar amount to date. It is giving Global Foundry's $1.5 billion to expand and create new manufacturing capacity at three facilities. Two that exist, one that's coming online in New York and Vermont. Joining us now to discuss in a CNBC exclusive is Global Foundry's CEO, Tom Caulfield. Tom, we were just speaking to you a week ago. I asked you about this a week ago. So the fact that we're getting this news today, it's $1.5 billion from the Commerce Department in grants. It's another $1.6 billion in federal loans. And then

there's funding coming from New York State for some of this investment as well. How meaningful is this to Global Foundries? How quickly can you bring all of this production capability online? Well, first, thanks for having me and joining in our celebration. This is a big deal. This is a big deal for Global Foundries. This is a big deal for our semiconductor industry. This is a big deal for our global teams in upstate New York and Vermont and the rest of the world. So your question is, you know, how does this capacity come online? Let's talk about the three elements of our CHIPS funding. The first one is to expand within our existing four walls in Fab 8 and Malta, New York, meaning to create new capacity there as well as more differentiated technology platforms that we have around the world. So when our customers truly want to source

in a resilient global footprint, we can give them solutions in our facilities around the world that are the same. The second investment that will come later in time is to actually double the scale of our Fab 8 facility in Malta, New York. And that will come as our industry rebounds and the demand from our customers is there. Look, it's about what you believe. And I certainly believe by the end of this decade, our industry will double and we will need that capacity. And then the third leg of this investment is taking our facility, 200 millimeter facility in Vermont and modernizing it.

That's a fab that's been online for almost 60 years. And we're going to modernize that. We're going to bring in new technologies, things in the advancement of wide band gap materials that allow for high power capabilities as well as high frequency communications. Yeah. I know in my interviews with the Commerce Secretary and some of my own reporting over the months that so much of the funding decisions that are being made through the CHIPS Act is happening through a national security lens, either directly or indirectly. Looking at the press release, I mean, there are so many people quoted here, from Lisa Su at AMD to Jim Taklett at Lockheed, General Motors, Qualcomm. I could go down the

list here. In terms of the types of semiconductors that you're going to be manufacturing, why they are crucial to national security and how they fit into the broader ecosystem at a time when we are continuously talking about supply chain normalization and realization coming out of the pandemic? Yes, I think the breadth of that list of supporters is really representative of the breadth of all the markets we serve, including aerospace and defense. You know, Global Foundries is designated as a trusted founder for the US government to make sure that we can produce the most sensitive semiconductors for their use.

But I think what you're really seeing here is what we call the essential chips, serving a broad range of markets from secure paid transactions in smart mobile devices to radar in cars. And this represents about 70% of the semiconductors required to fill our lives with all the electronic components that create better engagement and the speed of our economy. You'll see later in time, I'm sure, some of this funding now going to the high-speed digital compute for data centers and some of the other players that participate in that space. But the pervasiveness of all the markets we address is really what this speaks to today and those endorsements you just spoke about. So, Tom, I'm going to ask the question that some taxpayers certainly have. I know

certainly because it's been in my inbox. With the cost of capital where it is right now, what would you have done without this money, you know, that you're able to do now? So what are you doing more quickly? What are you going to do now that you wouldn't have been able to do now. So what are you doing more quickly? What are you going to do now that you wouldn't have been able to do before? Look, this money really should be treated as an investment, not as an incentive. The whole purpose of the CHIPS bill

was to make sure that the capital investments companies like GF have to make to expand capacity, we can do it in a globally competitive way. Other regions of the world already recognize how important semiconductors are and give these types of co-investments. By and large, most of the money that will come into building these facilities will come from GF. What this type of funding does is it creates the ability for us to create globally competitive

capacity and to do it right here in the U.S., consistent with what we do around the rest of the world in our global footprint. Okay. Sounds like you're saying you would have built it somewhere else. No. I would say that we always have to make the best use of our capital, and we already have investments in the U.S., so we did that on our own most of the time. Tom Caulfield of Global Foundries, thanks for joining us. Thank you. Time for a CNBC News Update with Bertha Coombs. Bertha?

Hey, John. Prosecutors in Missouri announced this afternoon two adults have been charged with murder in last week's shooting at the Kansas City Super Bowl parade. The charges come after two juveniles were detained last week for gun-related charges and resisting arrest. The shooting left one dead and injured 22 others. A bankruptcy judge ruled former Trump advisor Rudy Giuliani can appeal the $146 million verdict for being found liable of defaming two elections workers in Georgia,

but only if he uses pre-approved donors to cover the legal costs. The ruling comes after Giuliani filed for bankruptcy in December following a judge's order that he start making those payouts. And the college football playoff board unanimously approved today what's being called the five plus seven model. It will guarantee the five highest rated conference champions will be included in the expanded 12 team playoff field this year. The next seven highest ranked teams will round out the twelve five seven twelve. All right. There you go. Yeah, I'm sure somebody's going to find a way to be upset about that, Bertha. Thank you. Stocks, meanwhile, finishing the day lower to start the week. So what should investors be watching more closely, the macroeconomic picture or the micro earnings reports? Morgan Stanley's Lisa Shalit is going to give us her playbook next.

And shares of Walmart closing the day up more than 3% after its earnings this morning. Analytics firm Amplitude, which lists Walmart as a client, just reporting earnings here in overtime. The stock is down as revenues came in toward the lower end of the range. Guidance was stronger and gross margin stronger, though. I spoke with the CEO about what their data showed about Walmart customers. We actually work with Walmart. And one of the interesting things that they shared with us was that customers who buy Omnichannel, so both in-store and online, spend up to three times more on average than customers who just buy in-store.

Overtime, we'll be right back. Welcome back to Overtime. Toll Brothers earnings are out. Diana Olick has the numbers. Hi, Diana. Hey, Morgan. Yeah, a beat on the top and bottom line. We got EPS at $2.25 a share versus estimates of $1.78, revenue of $1.93 billion versus estimates of $1.85 billion. Q2 deliveries were way up. They had 1,927 homes priced at an average of $1 million. That's slightly lower than we saw in the previous quarter. But remember, mortgage rates still very high. CEO Doug Yearley said there's, quote, solid demand. Net signed contracts for the quarter were up 40 percent in units and 42 percent in deliveries in dollars. Sorry, 40 percent in units, 42 percent in the dollar volume. There was no mention, though, of the change in mortgage rates that we've seen over the last couple of months.

So we saw rates come down in November and December. That obviously helped them a lot. The builders can also buy down the mortgage rates, which is why they're doing so much better on sales than existing homes. But rates are back up again. Nothing in the release, at least. We'll be looking to the conference call to see if there's anything on that. But again, a nice beat on the top and bottom line. We also got CoStar, another beat for them. Thirty three cents a share EPS versus estimates of 32 percent. Revenue came in at $640 million versus estimates at $634.2 million. They did say that they're a real estate and technical and analysis firm, but they own

things like homes.com and apartments.com. And an interesting quote that I want to read to you from the release says, our commercial information and marketplace business grew revenue by 14 percent in 2023 in the worst commercial real estate market in decades and delivered 40 percent profit margins our highest profit levels ever so a big beat for both costar and toll back to you guys all right well that stock is now costar off its lows but still down around four percent in overtime. Diana, thanks. Stocks, meanwhile, lower to start the shortened trading week. Here to share her outlook on the market and where she sees opportunity, Lisa Shallott, Morgan Stanley Wealth Management's chief investment officer. Lisa, I wonder, first of all, the role of bellwethers in this market.

We can look over at Palo Alto Networks now down close to 14 percent in overtime. NVIDIA reports tomorrow. What kind of an impact are stocks like that having on valuations and sentiment? Well, I think we have to separate, you know, the index from the average stock, right? So one of the points that we've been making for a long time is that the S&P 500 is a market cap weighted index. We know it's been super concentrated in those MAG-7, including companies like NVIDIA. And that index is extraordinarily sensitive to those cohorts,

and it's extraordinarily sensitive to interest rates. On the flip side, we've got the average company is much more fairly valued. And so I think that the read across for, you know, things like NVIDIA, which has been a very idiosyncratic story, is actually quite low for the broad, you know, fraction of the market. So does that mean you're more paying attention to equal weighted indexes versus the broader index given the heavy influence and increasingly heavy influence that the large names have or no? Yeah, 100%.

We're looking at the other 493 names. And as I noted, they're fairly valued. Our best guess is that many of those companies are going to have the opportunity if, in fact, the economy stays robust, if, in fact, the Fed begins to cut rates in the second half, to see some of their fundamentals reaccelerate. And that's really not built into their current stock prices, whereas, you know, some of the MAG-7 certainly have ebullient expectations associated with them already. So from micro to macro, I mean, the U.S. economic growth, it's been so strong,

so much stronger than everybody expected. How real is the risk that this is going to reignite or at least entrench inflation above 2 percent and push off or delay the Fed's ability to cut rates? And I ask that knowing that we've just seen a number of reports that showed a little more inflationary pressure than the market was hoping for. Yeah, so as you may know, Morgan Stanley's been in the camp that the inflation trajectory is going to be quite lumpy and that this idea that we were going to rapidly get to the 2 percent target, that we were rapidly going to see six or seven Fed rate cuts was probably overly optimistic. And so our best guess is that you have to understand that if the economy is resilient, if unemployment is kind of

anchored near 50-year lows, if wage growth is going to continue to hover between 4% and 5%, that the potential for inflation, especially if fiscal spending continues at the rate that it's been going, that inflation may be with us for quite a while longer and the Fed is going to have to be patient. Is the U.S. still the place to put your money to work right now or are there other markets that are compelling? We've been in the camp that says in addition to the 493 names below the top decile of the index, that there are some interesting plays outside the United States, given that valuations there are much better. And it looks like they're at a different point in their economic cycle. So our best guess is that emerging markets actually rebound into the second

half of the year. It may be that European stocks that have proven pretty resilient here to start the year are going to benefit from an ECB that gets their rate cutting program going by the middle of the year. And Japan is really, we believe, in the mid innings of a new bull market that's really been associated with the revaluation of the Japanese yen and the restructuring of their focus on shareholder value. So if you had to give us two or three specific countries, then you mentioned Japan, but outside of just broad emerging markets, what would you say? We'd be in Brazil, Mexico, and India right now.

All right. Lisa Shalick, great to have you on. And by the way, since I don't think you've been on since this news crossed, congratulations on becoming the chair of the firm's Global Investment Committee over at Morgan Stanley, too. Thank you very much. Appreciate it. Well, homebuilder Toll Brothers moving higher right now after reporting beats on the top and bottom lines. Joining us now is Ivy Zellman of Zellman and Associates. Ivy, I wonder what this environment means for the homebuilders, particularly since they've been subsidizing mortgage rates for so long. How long can that continue? Well, first, I'd say that Tillrothers, you know, really blew it away. I mean, they beat earnings by 25 percent and they raised guidance modestly. It was a very strong quarter.

Their orders were more than double than what we were expecting. And what we've heard from the builders that have reported so far this quarter is they're actually pulling back on incentives. We saw today that TriPoint reported earnings and they indicated that their incentives were lower in January than they were to end the fourth quarter. So I think what we're seeing is the market accelerating into spring and therefore there might be even a pullback in the need to buy down mortgage rates given the strength of the overall market right now. Now, does that picture change if we start to get more existing home inventory onto the market, which has not happened and has been driving so much of the interest in newly built homes?

No, it's a good point. Actually, that definitely is a factor that we flag to our investors that we have seen so much market share growth for the new home market. So if we do see an acceleration in listings, that might put a little bit of pressure on the builder's ability to push price that they're starting to now in some communities start raising prices again. You know, it's interesting because we've seen the cost to actually build homes start to fall on certain metrics. But the cost to actually acquire the land, the lots, has grown. How are home builders like Toll navigating that? You know, one of our concerns is that the builders right now, because of the new land that they're acquiring, has continued to see inflation, pretty substantial inflation, frankly, mid to high single

double digits or mid single to low double digits. And so without strong pricing pressure, they're going to see more compression on margins in 24 and 25. So unless we really see a big pickup in price appreciation, we're going to see margins come under pressure. But keep in mind that margins are still well above sort of normalized margins right now. So I think that for them, they're still feeling pretty good about their ability to grow earnings and provide double-digit returns to investors. So that is

part of our forecast, is to assume that margins come under pressure. Yeah. I mean, along those lines, just looking at, I guess, one of your recent notes here, you talk about gross margin normalization becoming more widely accepted. Is that what you mean by that? Yeah, I think that the investment community has kind of recognized that the land is going to be an impediment. And unless we see prices, you know, pick back up, that that's a part of what they're incorporating into their valuation outlooks. And I think that right now we don't expect the stocks to really take off from here. They had an incredible 23 in terms of performance. But we do think that they could provide investors selectively 10 to 15 percent returns. And that's really what we're guiding. And we have some select names we're recommending, Toll being one of them.

Ivy, assuming we do get higher rates for longer, what's your model for how long we have to wait before existing homeowners kind of throw in the towel and say, all right, I'm going to downsize, even though rates are high, even though maybe inventories have still been low and I'm not getting exactly what I want. Or, hey, I've got to move. So, you know, I'm going to have to do this. Just bite the bullet. When does that happen? I think it's starting. You know, I think you're starting to see incremental sequential increases in new listings. And I think that those people that have been waiting, they're kind of getting more comfortable with the idea that they're going to have to have a rate that's closer to six and a half, seven. Now that we've had rates that are down from what approached eight, I think they're starting to appreciate that if they want to make a lifestyle change, they're looking to relocate. It's happening. It's just not happening

at a significant sort of skyrocketing pace. So I think it's going to be a slow re-acceleration listings, but it is happening right now. Yeah, of course, it's going to make this spring home buying and selling season all the more important for us to watch. Ivy Zellman, thanks for joining us. We hope you'll come back soon. Okay, great. Thanks, guys. We have a news alert on Citigroup. Pippa Stevens has the details. Hey, Morgan. Well, Citi announcing just now that it is raising CEO Jane Frazier's pay for 2023 by 6.1 percent to a total of $26 million. That includes a $1.5 million base salary and then $24.5 million in a total incentive award. This comes one week after

Goldman Sachs said that CEO David Solomon's compensation would rise 24 percent for 2023. Shares of Citi ticking slightly higher. Morgan. All right. Pippa Stevens, thank you. Up next, BHP shares slipping after the miner reported earnings yesterday. I caught up with the CEO of that company. Find out why he's not too worried about the weak economic data out of China. That's coming up next. Welcome back. BHP is the world's largest publicly traded miner. It's a major supplier of industrial commodities like iron ore, coal and copper. It reported first half earnings yesterday with revenue growing six percent, underlying profit beating and an interim dividend of 72 cents per share. That was lower than a year ago, but also better than expectations. Ahead of the report, BHP took a non-cash impairment charge

of five point six billion dollars related to both the 2015 Samarco Dam disaster in Brazil and its nickel business. Nickel is BHP's smallest unit, but prices have fallen almost 50 percent since the start of 2023 amid a supply glut from Indonesia causing miners, including BHP, to idle some production. It's something investors have been very focused on. I asked BHP CEO Mike Henry for his outlook and whether waning demand for EVs is playing a role. So actually on the demand front, things have been at the high end of the range that we had estimated, and in large part because of the electric vehicle thematic. And so we believe that the demand outlook remains strong.

This is really a supply side consideration. There's just been so much investment that's gone into what's actually a lower grade of nickel, but there's been a lot of investment in that in Indonesia, and that's meant more supply on the market. There's also been a change to the way that this commodity gets traded at the key exchange globally, where that lower quality nickel is now impacting the price of higher quality nickel, which is the class one nickel that PHP produces. Understood. In terms of metallurgical coal and also in terms of iron ore, when we talk about steel making, what is your outlook for global demand, especially at

a time where there is a lot of focus on China, some of the weaker than expected macro data we've seen come out of that country and challenges that are ongoing with the property market. So here is the interesting thing. Over the course of the past 12 months, notwithstanding weaker than anticipated growth in China, the sectors of the Chinese economy that have been performing strongly have been steel intensive. So we've seen the 50-year running of over a billion tons of steel demand and production in China. That's meant healthy demand for iron, or prices have held up better than most people had anticipated. Our expectation is that in the year ahead we're likely to see another year of a billion tons plus of steel demand. We can say the same thing about other commodities. Copper demand was stronger out of China in the past year

than most people had anticipated. We expect a bit of recovery in other economies in the year ahead. That coupled with some of the supply side factors in copper, where there's been more disruption to supply on the part of other players in the market than people were forecasting, are likely to mean the market will be in a bit better balance. And that should provide some price support in copper as well. Iron ore is BHP's biggest profit driver, but the company is also ramping copper production, as he just touched on there, developing a major potash project in Canada, so fertilizer that will begin to come online in 2026. Henry says the focus is on commodities that will benefit from big, long-term, quote-unquote, megatrends, including population growth, urbanization, industrialization, electrification, and others. We're going to get other mining majors, Rio Tinto and Glencore, reporting overnight tonight as well. But for the full interview with BHP, go to CNBC

Overtime's LinkedIn page, as well as to CNBC.com. You know, China is just a huge producer and consumer of all of these industrial commodities. That will continue, as Henry talked about, but transitioning from a main driver of growth in commodities to a steady source of demand and other markets like, perhaps unsurprisingly, India starting to pick up pace. So are these results good or seen as good on the street? The stock was down almost 4% today and down for the year. Yeah, stock was down weaker than we had seen a year ago. We've got a macro environment that's been a little more uncertain and some slowing growth from a global standpoint. But some of these

results in general better than expectations. Keep in mind, ahead of the results last week, they had, you know, filed these non-cash impairment charges as well. So perhaps investors continuing to digest that, too. But overall, the dividend, I think, better than expected, though, lower than a year ago. OK. Up next, your earnings scorecard reports hitting the tape fast and furious all hour. We've got to round up with all the key numbers every investor needs to watch after the break. Overtime will be right back. Let's have a look at some key movers here in overtime. Palo Alto Network shares still sinking, down now about 19%. The company beat on the top and bottom lines, but guidance was weak across the board, top and bottom lines.

CoStar Group shares lower after the guidance came in, weaker than expected. Toll Brothers, however, is higher after the home builder beat on the top and bottom lines. CoStar Group shares lower after the guidance came in weaker than expected. Toll Brothers, however, is higher after the home builder beat on the top and bottom lines. You can see that up 3%. Looking ahead to tomorrow, it's going to be about those NVIDIA earnings, which are going to bring you live right here in overtime. The stock closed down 4% today, down 1%, 1.5% here in overtime. And Morgan, this move in Palo Alto, especially significant to me because of the sympathy it's getting from CrowdStrike, down 7.3% right now,

and Zscaler down, what, 6.5%. I mean, those would be big moves if they had actually reported, but they didn't. But they didn't. And it's it's worth noting that we tend to see this when one of the cybernames, because they've had such big runs when one of the cybernames does miss, you do tend to see the whole group trade in unison, but not necessarily after hours like we're seeing right now. I think that's very telling to your point.

NVIDIA, obviously going to be one to watch. You noted it during the commercial break. We're seeing shares exchanged, quite a number of them ahead of that report. A lot of positioning ahead of that report. Very high hopes for that company, especially given the fact that we've seen the company up more than 40 percent since the start of the year after a 240 percent surge in 2023. Nobody doesn't expect strong earnings growth tomorrow. The question is, how much is already priced into the stock ahead of time? The options market is expecting an 11% move up or down, up or down in NVIDIA. And this is a nearly $2 billion market cap stock. So that's like $200 trillion. It's like a $200 billion move. Yeah, we also get Fed minutes tomorrow.

Stocks finished the day lower today, though. That's going to do it for us here at Overtime. Fast money starts now.