Closing Bell - Closing Bell Overtime: GlobalFoundries CEO Talks Global Supply Chain, Earnings; Impact Of Moody’s Bank Downgrade 8/8/23

Episode Date: August 8, 2023

It looked like it would be a major negative session for the market but stocks staged a midday turnaround and closed well off the lows. G Squared’s  Victoria Greene and Northwestern Mututal’s Brent Schutte break down the market action. Earnings from Lyft, Take-Two, Super Micro, Rivian and Twilio. GlobalFoundries CEO Thomas Caulfield talks his company’s latest quarterly numbers, why its guidance disappointed and the state of the global supply chain. Silverstein Properties CEO Marty Burger on the banking sector anxiety. Recursion CEO Chris Gibson talks earnings.  

Well, stocks under pressure, but closing well off the session lows after weak China data and another ratings agency warning that shook sentiment. That is the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan. John Ford is off today. We've got a big hour coming your way with earnings results from Lyft, Take-Two, Twilio, Rivian, and a stealth AI winner, maybe not so stealthy, Supermicro, which is up more than 300% this year. Plus, we'll talk to the CEO of Chipmaker Global Foundries, which reported numbers this morning and saw a big intraday comeback. We'll be joined by the head of real estate firm Silverstein Properties as well, following that warning from Moody's about bank exposure to commercial real estate. But first, let's get straight to our market panel, shall we?

Joining us now is G-Squared private wealth CIO and CNBC contributor Victoria Green and Northwestern wealth management CIO Brent Schuette. Good afternoon to you both. Victoria, I'll start with you. The pullback we've seen overall over the past week and a half in stocks right now. Is that warranted? Does it have further to go? Oh, absolutely warranted. I think we got very overbought. August and September are the weakest seasonal periods of the year.

Plus, you got everybody still on vacation here in August so far. So I think you're just seeing a little bit of a breather. I think we got very overbought. Price to perfection. There are still a lot of macro headwinds. And everything's pricing in this golden road, golden path. You know, soft landing, no problems, anything whatsoever. Price to perfection. So I think it is a little bit warranted.

We might see a little more downward pressure. We're through the mega caps reporting. So now your catalysts, you know, start to turn to macro, which data has been a little bit mixed lately. And we'll have to see what these ratings downgrades have to bring. And if we do have any any more problems out of Washington, any more shutdowns and anything over the debt sending that they really need to get under control. Yeah. Brent, why don't you get your thoughts here on equities? I know you've been underweight. Are you convinced that a soft landing is afoot or not so much? Not so much. I still think we're all getting impatient waiting for the recession to happen because

we've been thinking about it since the Fed started hiking rates. And that was only about 16 months ago. Look, CPI has come down much as we forecasted. That's been the good news and the tailwind that we were overweight equities because we thought that would lift the market higher. Unfortunately, I still think the Fed is worried about wage price growth, which is still too high and not consistent with 2 percent inflation. And so they're going to keep that liquidity tourniquet on until they see

wages fall. And if you look historically, the only way that wages have sustainably fallen is through a recession, which I still think is the most likely outcome in the coming months, which will put downside pressure on equity markets. Yeah, it'll put downside pressure on equity markets. You could argue that the market is too richly valued if you were actually going to see a recession, even if it was short, even if it was mild. We've got our first earnings report out, and that is Rivian. Phil LeBeau has those results. Hang tight, team. We're going to go to Phil now for Rivian. Morgan, these are better than expected results from Rivian, with the company posting a narrower than expected loss of $1.08 a share.

The street was expecting—oh, I also put on the microphone. There we go. We'll put the microphone on. How's this? All right. Rivian posting better than expected results with a loss of $1.08 a share versus the street expecting $1.41 a share loss. Rivian's revenue is coming in better than expected at $1.12 billion, slightly better than the expectation. The gross profit per vehicle up $35,000 compared to the

first quarter. They're still losing money on their vehicles, but they have cut that loss dramatically. Gross margin negative 37% compared to negative 193% in the second quarter of last year. Free cash flow for the second quarter, negative 1.61 billion versus negative 1.56 billion a year ago. The guidance is what's going to get the most attention. They are raising their production guidance for 2023. It previously was for 50,000 vehicles. They now expect to build 52,000 vehicles, lowering their adjusted EBITDA

loss guide to $4.2 billion. Previously, they expected to lose $4.3 billion for the year, and their CapEx guidance drops to $1.7 billion to be spent this year, as opposed to $2 billion being spent this year. Overall, better than expected numbers, and that's the reason shares of Rivian moving higher. You don't want to miss what we have tomorrow on Squawk Box. It is a first on CNBC interview with Rivian CEO R.J. Scaringe. We'll talk to him about the second quarter. He said that they were building momentum and execution was improving. The supply chain was improving, and that's what we see in the results.

Morgan, back to you. All right, Philip. Thank you. And those shares are up about three percent right now. And after hours trading, Victoria, I want to get your response to that, because this this is something that the street was looking for. An increase to guidance, both in terms of production and also in terms of hemorrhaging or staving off some of these losses. A path towards profitability, though. I know we still have a long way to go there. I think hemorrhaging was the right term. Anytime you have negative billion free cash flow,

that kind of makes my soul hurt a little bit. But absolutely, $50,000 to $52,000 is great. The street had been wanting them to update their numbers for a while. You know, they sell these for $90,000 to $100,000 a vehicle. One of the questions was going to be if they're going to have to make any price cuts because obviously those tax credits get capped at $80,000. And we've seen a couple of manufacturers trying to lower prices on trucks and SUVs to get underneath that cap limit. But honestly, it's good news. And it seems this trend is going in the right direction. They're still an emerging company. They still have a lot of headwinds, especially as the EV market softens.

But for now, that's great. I didn't see the number if they produced 11,600, 12,000 vehicles. I'm not sure exactly where production came in. But the good news is they're progressing forward and putting together sequentially better returns, but still hemorrhaging. And I think if we do have any macro headwinds, Rivian is going to run into that wall because they're just not as well capitalized as a GM or a Ford, but definitely positive. And they may get a little reward from the street. We will caution, street hasn't necessarily done beats very well. It's a little bit like that Shania Twain song that don't impress me much, you know, so we haven't seen a historical price volatility

either up or down. You usually would see an earnings beat. So we'll see how this holds overnight and what Wall Street thinks tomorrow. Yeah, it's a good point you make. We've got more earnings lift. Those results are out. Leslie Picker has the numbers. Hey, and it's a good point you make. We've got more earnings. Lyft, those results are out. Leslie Picker has the numbers. Hey, Morgan, the market likes what it sees here after increasing 5% in regular trading, up nearly 13% on these earnings here. A sizable bottom line beat for Lyft, reporting 16 cents per share on an adjusted basis, where analysts were expecting a loss of one cent per share. Lyft matched the street on the top line. The number of active riders is at its highest level

in nearly three years, 21 and a half million. But monetization of those rides has come down with the revenue per active rider at $47.51. That's about 5% lower than last year due to pricing dynamics. Our producer Laura Batchor, spoke with CEO David Risher, who told her that Lyft's market share ticked up 2 percentage points to 32% quarter over quarter. He also said that driver supply has been strong with more drivers this quarter than they've had in about three years, up 20% from the same period last year. Q4 revenue growth outlook a bit lower than the expected. If we want to be kind of picky here and look for some weakness in the report, EBITDA

margin guidance roughly in line, but still shares up more than 12 percent on a very, very solid bottom line beat here, Morgan. Got it. All right. Leslie Picker, thank you. Victoria, I want to get your response to this, too, because these are two different names where we're talking about path to profitability in a market where we have much higher interest rates than we saw a year ago. But there has been a lot of FOMO afoot as well. Yeah. And you've seen that this last month with everybody starting to pile into Lyft, even though it's trailing Uber. Uber has about the 70 percent market share. Lyft is trying so hard with discounting to get more riders and get more drivers. It'll be interesting to see how long they can sustain this if they're having to take kind of this profit hit in order to build their business, get their marketing out there, get more riders attracted. I always kind of refer to them

as Uber's kind of annoying little brother. And they really have kind of struggled to get the momentum and they don't have the scale Uber has. So I think this is positive. Obviously, the street loves the fact they added riders and added drivers. Now we want to see better revenue coming from them, which means they're going to have to come out that discounted pricing. And that'll be key if they can sustain this momentum or if you start to see kind of a market shift back over to Uber. So definitely might see a nice pop tomorrow. Just a little bit of a question of if you're having to discount this much to get your riders, how long can you

sustain it? Yeah, we're seeing a pop and lift right now. And actually, Rivian has turned lower. Twilio earnings are out as well. Steve Kovac has those numbers. Hi, Steve. Yeah, Morgan. So shares falling despite a beat on the top and bottom line for Twilio. It's down about a percent here. It's down more than that just a few minutes ago. But EPS coming in at 54 cents adjusted. Street was looking for 30 cents. And revenue also a beat, $1.04 billion versus the $986 million the street was looking for. And it's that revenue guidance for the third quarter that seems to be dragging shares down here slightly. They're guiding towards $980 to to 990 million. Street was looking for just above a billion dollars in revenue for the current quarter.

Morgan, back to you. OK, now shares positive now. That's right. I was just going to say that we're bouncing around here with shares of Twilio. Steve Kovac, thank you. Brent, I want to get your thoughts on we were just talking about it before the earnings parade started here. But the fact that the market is basically priced to perfection, valuations, especially if you are forecasting for even just a mild recession later this year or into next year, are arguably stretched here. And what it's taking in this earnings season, which has been better than expected, and we're seeing a case in point right now with some of these reports, that even as you're having earnings better than expected, the market wants more. Yeah, well, I think the bar was pretty low. And I think you've seen the market rally quite a bit,

which is obviously the reason why the market wants a little bit more in the future, because the bar has been raised. I mean, we came into earnings seasons. A lot of people thought that earnings would be falling quite a lot, and they haven't. And that's been the backdrop to push the stock market higher. I think two important things that I took out of those earnings. In the first month, Rivian, the word supply chain healing was mentioned. In the second one, more drivers, a.k.a. more workers. And so I think there has been good news. But how much more can that drive if you're running out of workers, if you're near the end of an economic cycle?

The economy is kind of back to where it was in 2019. We've gone through the disequilibrium. Now we're moving back to where we were. And that was an economy late in an economic cycle, which I think is where we are right now, which to me means we have to clean the economic cycle a bit and kind of start all over. And that's why I think there's going to be a recession and why I think there's going to be some downward pressure, but certainly not a ton of downward pressure on the equity markets. But at 4% to 5% in bonds, I'm happy to sit there for a while or at least make sure that I have an allocation of that in my portfolio, because that doesn't sound bad for the

next six to nine months in my estimation. Got it. There's some actionable takeaways for our viewers. Well, super micro earnings are out as well. Kate Rogers has those numbers. Hi, Kate. Hey there, Morgan. A beat on the top and bottom lines here. Adjusted EPS $3.51. That is higher than the $2.96 estimated by analysts. Revenue is also a beat, $2.18 billion for the quarter versus estimates of $2.08 billion. The company's CEO saying, we continue to see unprecedented demand for AI and other advanced applications requiring optimized rack scale solutions. But guidance for Q4 just slightly above the company's previously stated range. The stock is up more than 300% year-to to date, but a little lower on this report.

Perhaps investors are looking for higher guidance than given. Morgan, back over to you. Yeah, it goes back to what we were just talking about. Kate Rogers, thank you. Take two interactive earnings route. Steve Kovach, double duty. He's got those numbers. I'm back.

And look, shares are up. They were up about 5 percent, now up about 3.5 percent. We got EPS here not comparable to estimates, but coming in at $1.22. And revenues generally in line with estimates at $1.2 billion. Street was looking for $1.21 billion there, Morgan. And they're reaffirming their full-year guidance. Last quarter, they gave really bullish guidance, kind of implying that a new Grand Theft Auto game is on the horizon here in the next year or so. So that's expected to be a big moneymaker. Just reaffirming that guidance there. That's probably why shares are up here. Three point three percent right now. Morgan, back to you. All right, Steve. Thank you. All right.

I want to get some takeaways, final takeaways, final thoughts from Victoria and Brent. Victoria, let's go to you first. I think you need to digest these carefully. It's all about the guidance. I think it's what can they do for you going forward and really sticks to quality. If we come up, we were higher and longer in rates. You want companies that can issue debt, that can sustain if there is a little bit of a revenue hit, if inflation picks back up. So I think you want to be a little careful reaching for those 300 plus, you know, kind of bubbly, frothy stocks right now, because it just might be so hard to maintain that momentum. And even a beat, if you look at some of those, when you're

priced that high, even a beat is a disappointment. So just be careful chasing into some of those high multiples. OK, Brent, final thought from you? Yeah, similar type of commentary. I mean, to me, the market has come a long way on the back of falling inflation or in this case, as the Rivian numbers talk about, supply chains that were back to normal. And we talked about more workers coming back. That's been the good news. I think the good news is that is there. The bad news is that I don't think that we're going to get away without having a recession, which I think is a headwind for the markets pushing forward and why I think that investors should make sure that they have bonds as a hedge against downside

risk in their portfolios. Okay. Brent Schuette and Victoria Green, thanks for kicking off the hour with me with all the major averages finishing today lower. The S&P down four-tenths of 1%, 44.99 is the level there. Senior markets commentator Michael Santoli joins us now from the New York Stock Exchange with key levels to watch on the S&P 500. Speaking of, Mike. Yeah, Morgan, as we track what seems to be perhaps a little bit of a consolidation phase, maybe a budding pullback. It's been a little bit stubborn, though, kind of firm in this 4500 area. But I had the 50 day moving average in here. That is the sort of general sort of short to intermediate term trend line. And the decline to that level or even a little bit through

it, as you see back here, would be relatively routine in the context of an uptrend. So it's a couple percent down from here. Right now, it's not really doing much. I have been pointing out, too, though, we've been around these levels for going on four weeks, right back to the last CPI report. That was July 12th. You know, we've sort of flattened out right here. So, so far, it seems fairly textbook, not that much to be concerned about. But, of course, always once you introduce a little bit of turbulence, things can get knocked off course more. Now, there are a lot of divergence as well underneath the surface. Take a look at Apple shares, which, of course, massive upside leaders. I kept pointing out the crazy linear advance that that stock had for most of this year.

That's a pretty sharp break. It's gotten below some of these trend lines and it's almost come back in line with the equal weighted S&P 500 on a one year basis, not so much on a year to date. So a lot of that outperformance, a lot of that kind of stretched action relative to the average stock has been unwound at this point. So far, the broad market is able to absorb it. Microsoft also in the midst of a relatively meaty downturn as well. So we'll see if if we can continue to have these isolated pullbacks or if the entire market might need to retrench a bit. I love that you are continuing this theme of Apple versus the SPX, which you and I have talked about quite a bit in the past couple of days and really quite a bit over the past couple of years in general. But to your point, the idea that and Bespoke pointed this out today that Apple's oversold and actually Microsoft is arguably

oversold. And you've seen this bifurcation or this divergence, I should say, among the mega cap tech names here. I just wonder how sustainable that is. How often do you see something like that? I mean, that's the magic of a bull market, which is, you know, things can can sort of go wrong temporarily. And then by the time you notice that maybe that's a big risk, which is, you know, things can can sort of go wrong temporarily. And then by the time you notice that maybe that's a big risk, they get oversold. And all of a sudden you have some some value buyers coming in. We don't know if it's going to play out that way. Arguably, the Nasdaq 100 got a little bit farther to the upside in an overshoot than just that we've taken care of so far. But at this point, there's nothing that unusual happening below the

surface. You saw what happened with the regional banks today. Pretty big decline, recaptured most of the morning losses. Not most, about half of it by the close. So market's not buckling too easily right here. We'll see if that continues. All right. Mike, we'll see you later in the hour. Thank you. After the break, we'll talk to the CEO of chip company Global Foundries about today's earnings report that initially sent shares lower before an intraday recovery and the outlook for chip demand. Plus, much more on all of today's after hours movers, including what a Lyft analyst wants to hear from the company's new CEO on the earnings call. You can see those shares are about 10 percent right now. We're back in two. Welcome back to Overtime. Global Foundry is closing higher today after a lower open following results this morning. The company

topping street estimates for second quarter sales, but issuing weaker than expected revenue guidance for Q3. Nonetheless, you could see shares there finishing today up one and a half percent. Joining us now, Thomas Caulfield, Global Foundries CEO. Great to have you on the show. Thanks for being here. Thank you, Morgan. Great to be here. All right. So I do want to start more macro here because you did talk about cyclical headwinds and continued macro uncertainty. What are you seeing more broadly across the different markets and end markets that you supply into? And when do you expect that stabilization in some of those key markets to actually manifest?

I think we can put in two buckets. The first one being general consumer spend. I think the macroeconomic environment is not conducive to consumer spending on technology. I think maybe more about trips and vacations and things of that nature. And so once we don't have the consumer participating at the level we need, we find this malaise we're in now. Now, the other end of that nature. And so once we don't have the consumer participating at the level we need, we find this malaise we're in now. Now, the other end of that, there's two really important

markets, the automotive market and industrial. And those two markets have been strong and offsetting some of the weakness we've been seeing. Yeah. Do you expect that strength in the auto market to continue? I guess, how much is that a reflection of the de-snarling of the supply chain that we've seen in autos over the last couple of years and the normalization of supply chain versus a reflection of future demand? I think there's three components of that. There's a certain amount of getting caught up. And in some cases, there are components that haven't got caught up. There's one where the auto industry believes a better inventory management, where it's not just dust and time, but a little bit more inventory preserves the fact that they can ship a $50,000 or $60,000 car, not because they're missing a $5 chip. And then the last part of that is while units are flat in car sales, content is growing

at a very steep rate, 15% compounded. And so when you combine all those together, still a little bit behind, wanting to have higher inventory levels to protect shipments, and the fact that content is growing, I think that's what keeps the auto industry very strong going forward. Yeah. Let's talk a little bit about data center because we've seen it not just at global foundries, but really throughout this earnings cycle, some softness in data centers. We've seen hyperscalers continuing to tighten belts amid this uncertain macro environment and more cost restraints. Is the expectation that that begins to shift now in terms of future spending, especially as you do start to see more focus and more spending on things like AI?

I think that's the catalyst for the data center, is AI. For GF, when we think of AI, we see three areas that can drive additional business for us in the future. The first is traditional data center. Power and power management and connectivity are key features data centers need beyond that processing horsepower you hear from the hyperscalers they're looking

to do. And we have silicon photonics technology and power management technology that feed well into the data center. But the two other elements that we get to address is in our essential chip deployment, the feature-rich semiconductors we provide are really well-tuned for intelligence at the edge. The billions and billions of devices that will be connected that need to leverage AI at the edge, intelligence at the edge. What will these devices do? The cloud will do all the machine learning and creating the algorithms.

The inference or the actions on those models will take place at the edge. GF has the technologies that will help do that inference at the edge, take that data, parse the data, compress it, send it to cloud to that iterative virtual cycle or virtuous cycle of getting more and more models, more refined, taking advantage of the intelligence, the edge for all things connected. That's a real opportunity for GF. And I think from an industry, as AI starts to really take hold, it'll drive a whole refresh cycle, whether it's routers, local hubs, family connectivity, smart mobile devices, all new

ones will come out with new features that support AI. And that's another opportunity for the entire industry, including global foundries. Yeah, I'd be remiss if I didn't ask you about the fact that we're lapping the one-year anniversary of the CHIPS Act. Our own Christina Parts-Navalis has been reporting on this all day as well. The fact that there's been all this money that's been allocated, but it hasn't actually been deployed to companies such as yours yet. Your thought on that process and what it's going to take to see some of those investments not only, I guess, be deployed,

but actually stand up into money-making entities. So I take a different view. I think it's a very thoughtful process. 2022 is the year to rally around we needed to do this and get the bill passed and funded. 2023 is the thoughtful process

of vetting all these applications and making sure that it's a holistic approach to creating the supply chain security the CHIPS bill is meant to do, that it's not focused on one company or one type of technology, that it's about creating the raw materials that come into the wafer fabs, and it's also about creating the capacity that take those wafers and make products. And so I commend the Commerce team for how they're being very thoughtful in this process. And we'll get to that funding soon enough. And recall, the chips is a 5% to 10% funding.

The ITC, which is a 25% funding mechanism, is already in flight. And so that is something companies like GF and others are already taking advantage of. Okay. And I know you work with some very important industrial partners like Lockheed Martin. So when we talk about chips from a national security standpoint and the resiliency of supply chains and moving away from the likes of China, this very much centers or I guess gets the heart of that. Tom Caulfield, CEO of Global Foundries. Thanks for joining me. Thank you. We have a breaking news on ESPN and Penn Entertainment. Julia Borson has those details. Hi, Julia.

That's right, Morgan. ESPN making a big move further into sports betting. ESPN announced an agreement with Penn Entertainment to launch ESPN Bet. This is going to be a branded sportsbook within the United States. And Penn Entertainment is going to rebrand its current sportsbook as ESPN Bet starting this fall in the 16 legalized betting states where Penn Entertainment is licensed. So this is going to be a total rebrand of the mobile app website as well as the mobile website. Now, one key thing here is that as part of this, Penn is divesting from Barstool Sports to David Portnoy. So selling 100% of the stock that Penn had held in Barstool Sports back to Portnoy. And what's interesting here is that this is actually a rebrand of the Barstool Sportsbook. So if you're familiar with this brand, Barstool Sportsbook will be rebranded as ESPN Bet starting this fall. So deep integration here,

and the whole idea here is to make it easier for people who are following sports to bet on those games. Morgan, back over to you. All right. Big news in that space with shares of Penn up something like 18% right now. And, of course, it comes less than 24 hours ahead of Disney earnings. Julia Borson, thank you. Lyft's earnings call is kicking off in just a moment. Up next, we'll ask an analyst what he wants to hear from executives. And later, we'll talk to the CEO of Silverstein Properties about the warning from Moody's surrounding banks' exposure to commercial real estate. Stay with us.

Welcome back to Overtime. Lyft's stock, it was up double digits. It's now off the highs. It's actually turned slightly negative. The earnings call just moments away. Let's bring in Angelo Zeno, CFRA senior analyst. Angelo, great to have you on. Your initial takeaway from this report, especially given the fact that Lyft did say that it's gained market share despite the tumultuous quarter, despite the competition with Uber. Yeah, I think I think the results were OK. I think they were perfectly fine. You kind of look at the numbers at the top line. Sales rose 3% on basically an 8% increase in active riders. And it was pretty much in line with where we expected. I think maybe where the positive surprise came into play was really on the adjusted EBITDA side of things at about 41 million, kind of beat the 28 million consensus. Then the guidance on adjusted EBITDA also kind of better than expected.

But, you know, the stock kind of ran into the numbers anyway. And when you kind of look at just looking ahead, I think there's still a lot of question marks that really need to be answered as far as the Lyft story is concerned. But I think at the end of the day, we're kind of looking at an environment here where, you know, Lyft cut their workforce by about 26% that was announced back in April, on top of a 13% workforce reduction late last year. And we've kind of seen a steep pricing decline here over the last two quarters north of 15%. So they've right-sized, we think, kind of the pricing side of things, as well as the overall business model. But now we kind

of the hard work needs to kind of take place here over the next couple of quarters and years. So what do you want to hear from David Risher, the still new CEO at the company who is tasked with executing this turnaround? Yeah, listen, I think we need to find out how is Lyft going to differentiate itself, right? I mean, we kind of know, you know, they're kind of a distant number two player out there. You've got Uber at kind of about a 70% to 75% share versus that of Lyft out there. But they're really kind of, when you're the number two player out there, there's really kind of two ways in which you can differentiate yourself, right? One is via pricing. And they've kind of done some, you know, some hard work on the pricing

side of things. But the question is, are they going to continue to get more aggressive on the pricing side of things, being that low-cost provider? Or number two, do they kind of look for ways to kind of offer a better service out there, have a cooler brand out there, kind of what T-Mobile did kind of on the wireless side of things? So I think we kind of want to know what path is Lyft going to want to take here or looking to take here over the next kind of couple of quarters. Got it. I mean, you've got a hold rating and an $11 price target on the stock. Stock right now and after hours trading just above that $11, or I guess $11 and change. Compared to a DoorDash or an Uber, you could argue that it's that it's cheaper or at least there's more it's more value oriented with that valuation.

What would it take for you to actually feel confident putting a buy rating on this name? Yeah, no, I think that's a good question. So as far as Uber is concerned, you know, lift relative to Uber, because maybe that's the direct competitor out there. You know, we kind of look at things from a free cash flow perspective based on our 2025 expectations. So Uber is kind of about 14 to 15 times our view, whereas Lyft is closer to about 12 to 13 times our view. Lyft should be trading at a discount, right? So what we're kind of looking to get a better indication of is whether or not they can kind of see significant upside potential on the free cash flow side of things. And right now, we don't necessarily see that based on these results, but it'll be interesting to kind of see what the company has to say on the call. Okay. Angelo Zeno, thank you.

Great. Thanks for having me. Time for a CNBC News Update with Seema Modi. Hi, Seema. Hey, Morgan. President Biden is creating a national, new national monument near the Grand Canyon. The move will protect sacred indigenous land and permanently ban new uranium mining claims within the nearly one million acre region. Mr. Biden has created four other national monuments during his presidency.

Three have been dedicated to land preservation and the most recent was one honoring Emmett Till. Tens of thousands of scouts are being evacuated by the South Korean government ahead of a typhoon. Scouts from 156 countries arrived for the World Scout Jamboree at the coastal campsite and were already dealing with a heat wave. More than 10,000 buses were brought in to help with the evacuation. Organizers say all the scouts have safely departed, with most being hosted in Seoul. And let's talk music. Jay-Z's annual Made in America festival has been canceled. Planned for Philly in early September,

festival organizers said they faced, quote, severe circumstances outside of production control, but provided no other information. Lizzo, SZA were scheduled to headline the event. The festival's statement mentioned coming back next year and offering refunds. Morgan, back to you. All right. Same emoji. Thank you. the event. The festival statement mentioned coming back next year and offering refunds. Morgan, back to you. All right. Same emoji. Thank you. After the break, Mike Santoli looks at an interesting dynamic that's playing out in the mortgage market that could be putting a cap on economic growth. Plus, the CEO of Silverstein Properties reacts to the Moody's cutting the

credit rating of several regional banks because of their exposure to commercial real estate. We're going to get his take on the state of real estate. Stay with us. Welcome back to Overtime. Banks getting hit today after Moody's downgraded several regional banks, including M&T Bank, Pinnacle Financial and BOK Financial. Others were put under review for a possible rating cut. The credit ratings agency cited ongoing stress in the sector and rising risks in commercial real estate. Michael Santoli is back with a look at other bank stress signals. Mike. Yeah, Morgan, at least a condition that in the past has been associated with other banking stress events. This is the very widespread,

unusually wide, between the 30-year fixed mortgage rate and the 10-year Treasury yield. Right now, 30-year fixed mortgage national average is a little bit above 7%. We've got 4% 10-year Treasury yields. You see that three percentage point spread really only reached right there in the height of the global financial crisis

and got close right there in the COVID crash. Typically, it's more in the zone of like the high, you know, 1.8, just under two percentage points difference. Typically, it's more in the zone of like the high, you know, one point eight, just under two percentage points difference. Now, a few things going on. One is just the velocity of this increase in yields in Fed funds that we've seen over the last year or two that has sort of a lot of lenders a little bit a little bit hesitant to extend credit out 30 years. Obviously, also the bank capital issues, the fact that they have unrealized losses in their bond and mortgage portfolios already, that's keeping more banks from going out there and either buying mortgage backed securities or lending at a tighter spread.

And naturally, the Fed is reducing its balance sheet. It's kind of reducing its holdings of mortgage backed securities. The net effect of it, of course, is that you're having a little more restriction on housing demand than you otherwise would, given the state of the economy and credit conditions more broadly. And obviously, it's something that, you know, you can't have a quick fix for unless you just have more reassurance that yields are not going to flare up and that the economy is going to hold together. All right. Mike Santoli, thank you. For more on real estate, let's bring in Marty Berger, Silverstein Properties CEO. Marty, it's great to have you on the show. Thanks for being here.

Thanks, Morgan. So when I think about Silverstein Properties, I think about this extensive portfolio you have of office space, residential, retail space. But then you also have this capital partners, this real estate lending arm as well. We just talked about a little bit about commercial real estate. We did see this Moody's downgrade today on the banks talking about commercial real estate as arm as well. And we just talked about a little bit about commercial real estate. We did see this Moody's downgrade today on the banks talking about commercial real estate as a rising risk for some of those entities. What are you seeing right now across the company in terms of activity and in terms of health of the sector more broadly? Well, it's a challenging time, obviously. Interest rates are up, so it puts pressure

on all of our cash flows. The residential markets are doing extremely well and so we're taking advantage of that. The office market, the leasing is slow mostly because companies just don't know what to do with their space because they're all coming back and figuring out what their populations and how they're going to use their space. And other property types like hotel and retail have been recovering. But again, this upward pressure of the interest rates is just challenging us all. Yeah. I mean, I guess how much further does this correction have to go? We've been talking about it on CNBC, this $1.5 trillion in loan maturities that are going to come due over the next, let's call it,

three years. How does this dynamic play out? Do we even know yet? How does it compare to previous cycles? Well, it's a tough situation because you'll have a lot of loans mature in the next three years. And when you go to try to refinance those loans, the interest rate coverage won't be there. And so there's going to be a mismatch between valuation and the maturing mortgages. And that's why we're seeing all this pressure on the banking industry. Yeah. And I guess, are you seeing that in some of your own properties right now? Or is there a greater opportunity in terms of that mismatch for you to be able to go out and make more acquisitions right now and engage in more developments?

We've had a couple assets where we had to be proactive and take care of that. For the most part, we've done that. And we certainly want to take advantage of this dynamic going forward, whether it's buying older office buildings and converting them to retail, to residential, sorry, or buying other distressed assets with good prices. Yeah, you did just make an acquisition, 55 Broad Street, which is right down the street from where you're joining me right now in Manhattan's financial district. Is there an expectation, and I realize there's rezoning efforts afoot in midtown Manhattan as well, do you expect that we're going to see more of this office space, given the structural shift in office space usage and vacancy rights right now in general, that we're going to

see it converted to residential? You'd certainly expect it. However, it's not the easiest thing to get done. You have to worry about, as you said, zoning, floor plate sizes, you know, the age of the building and how the mechanical systems work. But you will see a lot of it. OK. We did talk about this Moody's downgrade on some of the banks. We've seen the regional banks in particular experiencing experiencing some issues and rethinking their portfolios right now. Is that an opportunity for Silverstein to step in and extend loans? I guess, how are you thinking about that mix in terms of credit moving forward? I mean, to the extent that the Fed or the SEC is telling banks to work with good borrowers,

that obviously helps us if we have a troubled asset. Most of our assets aren't troubled, but as time goes on and more of our mortgages mature, if interest rates don't come back down, it may become an asset. It may become a problem because we'll have trouble refinancing it and so you're seeing that especially in the regional banks just have such a heavy real estate presence and so the maturities that come up they'll have issues with all their loans yeah final question for you I mean I think about Silverstein I think about the World Trade Center what are you seeing in terms of some of that higher quality,

newer office space? I mean, is there a bifurcation in the market in general right now? There certainly is. Even in the Class A properties, there's a big difference between Class A and brand new Class A. When you see buildings like one Vanderbilt or 425 Park, it rents upwards of $250 a foot. There's certainly a flight to quality. And when people are trying to keep their employees in the office, you want to have the best space possible and the highest technology space you can get. Can we say that we've found the new normal in terms of how office space is being used and the dynamics with work from home?

Has it normalized yet? I don't think so. I think people are still trying to figure it out. I think companies are bringing back their employees and learning about how they're using this space and I think we've got at least another year to go before people really feel confident about how the future of office is going to be used. All right, Marty Berger, thanks for joining me. Thanks, Morgan. CEO of Silverstein Properties.

Well, coming up, don't miss our interview with the CEO of Recursion Pharmaceuticals on the back of earnings. We're going to get the latest details on the company's partnership with NVIDIA, which sent that stock soaring last month. And take another look at Penn Entertainment seeing big gains after hours on that news we brought you just moments ago about a new deal with ESPN to launch ESPN Bet. Shares are at 21% now. Also, check out DraftKings, falling sharply on that same news as a big-name competitor enters the sports betting market.

Those shares, DraftKings, those are down 9% right now. Stay with us. Welcome back. Some big gains on weight loss today. Shares of Eli Lilly surging nearly 15%. After the company posted a blowout quarter, revenue was up 28% year over year. And EPS was up nearly 70%. Lilly also raised its full-year guidance.

Weight loss drug Munjaro contributing nearly a billion dollars in sales, growing from just $16 million a year ago. Don't miss Jim Cramer's interview with Eli Lilly, CEO on Mad Money tonight, 6 p.m. Eastern, right here on CNBC. In the meantime, Novo Nordisk shares. Those jumped more than 17% after a new study found the company's obesity drug Wegovi reduces the risk of heart attacks and strokes by 20 percent. WW also getting a bump on the back of the news of 12 percent, pushing its market cap to more than 700 million. Those shares finishing up 13 percent. Sticking with health care, shares of Recursion staging a turnaround despite posting weaker than expected earnings.

Recursion is a clinical stage biotech company using AI to discover new medicines. The company announcing today through its newly acquired technology and partnership with NVIDIA that it was able to map a large database, helping to accelerate the drug discovery process much faster than traditional methods. Now, back in July, shares spiked on news that NVIDIA was investing $50 million in a pipe transaction. Joining us now, again, Recursion CEO Chris Gibson. Chris, it's great to have you back on the show. I guess walk me through the news today. And perhaps more specifically, you have this treasure trove of data. You're thinking about it differently in terms of how you're applying technology and AI to it. How do you make money off of it?

Yeah, Morgan, it's great to be back. Good to see you again. I think we were on less than four weeks ago talking about the NVIDIA investment and partnership. And we're back again a few weeks later talking about how we've already leveraged those partners to help us do a set of computations across chemistry and biology, bridging those two worlds that would have taken 100,000 years using a traditional approach. But using NVIDIA's compute resources, their team, our team, and some of these new tools, we've brought that down into a matter of weeks. And this is helping us put one data layer in place, as you mentioned, among many others that we're building at Recursion, because we ultimately want to

change drug discovery from really an artisanal bespoke process requiring decades of experience and incredible scientists into really a search problem. How do we actually generate large data sets and allow scientists to search those with ease and create data lakes that allow us to learn from every program to make every future program better. And so with earnings this morning, we announced this huge set of predictions that we've made. But at the end of the day, a patient doesn't really care whether a drug was discovered the old way or using ML and AI. And so we were also excited to share that we've added, tightened, or accelerated guidance on all five of our clinical programs as well. So I think a good day for recursion.

Yeah. And just in terms of what this does to the timing of those clinical programs, does it change it? Or does it just, I guess, suss out the risk versus reward and how likely success is to be found through these pipelines? Well, the oft-quoted statement in our industry is that it takes 10 to 15 years and more than $2 billion of investment for each new medicine that's discovered. And the secret of that is that most of that cost is born in all of the failures. And so failing early on a program, as opposed to feeling late when you're in a phase two or phase three trial, I know you cover many of those events. That's really, really important. And so we think bringing these tools early into the process is helping us make sure that we take the right medicine into the clinic. And that's helping us get there faster for lower costs. But ultimately, the most important lever is can we

increase the probability of success? Because as you know, 90% of drugs that go into clinical development fail before they make it to the market. And so as I always tell the team, if we could fail 80% of the time across our clinical development plans, we would be twice as efficient as the industry average. And ultimately, that's how over the long run, you can help bring down the cost of medicines as well. Yeah. And a shift from say 90% to 80% is a very big shift, as at least one analyst pointed out to me. Okay, you have multiple clinical studies going on simultaneously right now and you are enacting and enabling this new way, this new technological way of approaching your pipeline. I guess my question is, can you do both at the same time?

How do you convince the market that success is nigh? Yeah, it's a great question, Morgan. And I think we've been doing a lot of evangelization and also a lot of team building. We've got a great new chief medical officer, David Morrow, who brings decades of experience to help us build out our clinical development team. That team's been working incredibly hard. And we also are continuing to hire across the data science, software engineering, biology and chemistry side. And what we look like, I believe, is the future of what all biopharma companies are going to look like. We look like a team of data scientists and software engineers, as much as biologists and chemists. That's the future, not only for our industry, but probably

many others. And so, yeah, I think we have to help convince people that this is the future. And I think we've done a great job, and we're confident we can deliver across both the platform, the pipeline and our partnerships as well. All right. Chris Gibson, great to speak with you again, CEO and co-founder of Recursion. Thank you. Shares finished up almost 5% today. Disney has been a real dud this year, significantly underperforming the Dow. Up next, the key numbers to watch when the media giant reports earnings tomorrow after the bell. Tomorrow brings another huge day of earnings and Disney is the big name on the calendar.

Julia Borson looks at the key numbers investors will be watching for. Hi, Julia. Well, Morgan, Disney CEO Bob Iger is under pressure to deliver cost-cutting amid an ad contraction as well as a strike. And the media giant is expected to grow revenue 4.6% to $22.5 billion, where earnings per share are projected to decline 11% to $0.97 per share. Another key number to watch is losses at Disney's direct-to-consumer division, which is projected at $759 million after the company warned operating losses in the division would widen by $100 million versus the prior quarter. Now, investors also have some Disney-specific concerns, including the underperformance of

recent franchise films and reports of declining attendance at its Florida parks in particular. Morgan, this is going to be a really interesting one to watch tomorrow. Yeah, and we'll be covering it here in overtime. That's going to do it for us here. Fast Money begins right now.