Closing Bell - Closing Bell Overtime: IBM CEO On AI’s Impact On Jobs And New Watsonx Tool; GlobalFoundries CEO Talks Chips Environment 5/9/23

Episode Date: May 9, 2023

Major averages closed lower today. Wilmington Trust’s Meghan Shue and Decatur Capital CEO Degas Wright break down the market action amid earnings from Affirm, Airbnb, EA, Wynn, Occidental, Rivian, Twilio and IAC. IBM CEO Arvind Krishna weighs in on the company’s new AI offering Watsonx and the macro environment in tech spending. Former Atlanta Fed President Dennis Lockhart weighs in on the debt ceiling talk and when the market will begin to worry. Plus, GlobalFoundries CEO Thomas Caulfield talks the semiconductor business and whether there are signs of softening. Our Julia Boorstin launches this year’s Disruptor 50 list. 

Well, we got our scorecard on Wall Street, but we're going to stay late. Welcome to Closing Bell Overtime. I'm John Fort. Morgan Brennan is off today. Breaking news this hour. President Biden is hosting a crucial meeting with congressional leaders, including House Speaker Kevin McCarthy on the debt ceiling. That meeting slated to kick off right now.

We will bring you any updates throughout the show as we get them. Plus, we've got after hours action coming your way with earnings results from Affirm, Airbnb, EA, Wynn, Rivian and more. And we will bring you an exclusive interview with IBM CEO Arvind Krishna as that company outlines its AI plans with a revamped version of Watson. Now let's bring in our market panel, talk about the debt ceiling and today's action. Joining us are Megan Hsu from Wilmington Trust and Degas Wright from Decatur Capital Management. Guys, welcome. Megan, to start, for more than a year now, we've been talking about companies that overspent during the pandemic and are having to go through the painful but necessary process of cutting back. I mean, is America

any different? Is maybe this debt ceiling wrangling short term a problem for the market and long term healthy? Yeah, it absolutely could be a short term negative. It's certainly a risk off event. We definitely do not want to see the U.S. come close to any sort of a default, no matter how technical or short term in nature it might be. The repercussions could be pretty catastrophic. We give an uncomfortably high probability to that happening, higher than we'd like, but still pretty low, about 10 to 20 percent maybe. I think what we are more likely to see is some sort of extension, even if Biden and McCarthy are saying that's not what they'd like to be doing, and then a relief rally.

But then I think the market refocuses on the prospects for spending cuts, which gets to your maybe long-term healthy, but shorter term, could exacerbate the recession that we already think is slated for the second half of this year. And Diggins, maybe that is the real issue with this debt ceiling fight, is it's adding another dose of instability and uncertainty potentially into a market where it could just be a straw that breaks the camel's back. So how would you be positioned right now as we approach mid-year? Yeah, John, and going back to what Megha just said, I think one of the things we have to look at is we may have a temporary default. What we're seeing in the Treasury market is that they're starting to price that in.

If you look at the one month T-bill rate, you're seeing about a five point five percent at the three month is at five point ten. So this is actually a tactical way. If you're on the short end of the yield curve, you can actually get some additional yield as we go through this period. You know, I believe that we'll probably get very close to the cliff if we go over with a temporary default. I think they're going to resolve it and we won't go into a permanent default. Yeah. But, Megan, at the same time, SVB was just one bank. But it's really the aftershocks that are hitting the market harder than the one bank, right? So what should investors be prepared for and potential follow-on effects here, ripples through the market? Well, I think there's the debt ceiling and I think there's what's happening with the Fed.

And the way I think about it is almost like when you turn on a shower as hot as you can make it, it takes a while for that water to heat up. And even though the Fed raised rates incredibly quickly by about 500 basis points in a year, we're still waiting for that water to heat up and make its way into the economy. And even if the Fed doesn't go any further, we're probably going to see tightening happening in the form of banks pulling back. So that sort of trickle-on effect. And I think that the debt ceiling just adds one more thing that could be a risk aversion to investors when we're already expecting that tightening to be making its way into the economy. Megan, let me interrupt you for a moment here because Airbnb results are out. The stock is down after hours. Deidre Bosa has the numbers. Deirdre. Yeah, and those losses in share price accelerating. It's now down 7.5%. Previously, it was only down about 3% right after the results. Investors, they're digesting a quarter that itself was solid, but guidance, that may be seen as a little bit soft, and that's

what's contributing to the share action. EPS was a beat, $0.18 versus $0.09 expected. Revenue beat as well, $1.8282 billion just a little higher than that 1.79 billion that the street was expecting also adjusted ebada gbv gross booking value that topped estimates nights and experience booked basically in line but here's where we get to some softness the company sees q2 revenue of between 2.35 and 2.45 billion. At the midpoint, that is a little softer than what the street was expecting at $2.42 billion. So that's growth of between 12 and 16% in the current quarter. The company also says that it sees ADR average daily rates slightly lower year over year in Q2. Also, profitability could be a little softer this current quarter, but they say that for the full year, they expect it to be in line broadly with the full year of 2022.

As you can see, though, John, shares are down 8% now, so not seen as a great quarter, at least initially. We'll see how it all shakes out. All right. That's a great first read. Dear Jibosa, thank you. And I want to mention here, don't miss a First on CNBC interview with Airbnb CEO Brian Chesky tomorrow, 11 a.m. Squawk on the street. Digus Wright, let me get to you real quick on this. This is not what you were expecting from Airbnb. You expected an improving outlook from them.

Yeah, so ultimately, we did not get that improvement in outlook, but we still feel that this is a good company because of the fact that the demand for travel, and that's increasing. And also we're looking at the gross volume bookings, that is still higher than what was anticipated, I think about 17%. So there is some positive here, but what we're seeing with this company, like we see with other companies, if the outlook is not as rosy, we get this pullback. So we'll see what happens tomorrow with this particular stock. Let's also see what happens with Wynn Resorts. Those earnings are out. Speaking of travel, Contessa Brewer has the numbers. Contessa. Are you ready for this? Wynn Resorts returns to paying dividends. 25 cents a share. Say goodbye to pandemic privation.

The luxury casino resort company announces a big bottom line beat. 29 cents a share adjusted. Where the street consensus was a loss of a penny per share. Revenues coming in above expectations. $1.42 billion. The all-important earnings metric in gaming. Adjusted property EBITDA coming in at $430 million. Expectation was about $368 million, so a beat there as well.

One note here. Wynn Macau noticeably lower on occupancy, on room rates, on casino revenue growth compared to Wynn Palace because of renovation construction on the casino floor. Call starts in less than half an hour. I expect more attention paid on what they're doing in the Middle East. But how about that dividend? That's going to be a welcome note for investors. That's why the stock is higher. Well, from that Vegas style gaming to a different kind of gaming, EA Electronic Arts earnings are out. Steve Kovac has those numbers. Video gaming this time, John. Yes. So shares are going up for EA about a little over 3 percent here. Some good guidance and a dividend for EA as well.

But let's go over the top and bottom lines. A loss per share of four cents. Now, we're not comparing that to estimates and revenue beating expectations, though, John. One point nine five billion dollars versus the one point seven six billion dollars expected by the street. And that dividend payable, 190.19 a share, just approved and announced. And then the outlook for Q1, pretty good and in line with estimates here, between $1.5 billion and $1.6 billion for the current quarter. And this is the beginning of their full fiscal year, John, so they're giving some outlook for that.

They're guiding towards net income from 915 million to a little over a billion dollars, which would show some growth there. John's shares are up a little better, excuse me, a little more than 3.3 percent. All right, Steve Kovac, thank you. Let's see, should we check in back with our panel here or are we going to move on? Let's go back to the panel. Megan Hsu, I know you don't necessarily focus on these individual stocks here, but it's been a mixed picture on earnings overall. Airbnb had been in a bit of a run upward, but perhaps cooling off a bit. How do you take this continuing demand for travel that we're seeing reflected, at least in Wynn? Yeah, I think there's a lot there that we can unpack. First of all, continues to be

a better than expected quarter. But we just have to remember that earnings tend to be, they don't tend to be, they are backward looking. And looking forward, it's really about the guidance. And I think we're at a bit of a pivot point here where we have to be looking at the strong quarter behind us, but maybe some slowing to come. I think the demand for travel seems to be continue to be insatiable. Consumers, I think, are the brightest spot that we have on the economy. So while we're talking about pulling back on lending and maybe CapEx plans from businesses, consumers still have a tremendous amount of cash in their in their savings accounts and in their bank accounts. And that is being spent on travel. So I think while there might be some questions about demand for Airbnb, I would have maybe expected that to be a little bit better,

but the travel industry is doing very well, and I think that just speaks to the very strong consumer that we have. Well, they also seem to be spending it on video games, Degas, which to me is an interesting outcome because we've seen weakness in PCs. We've seen relative weakness in mobile on the product side. But even digital services here, perhaps, I mean, I don't know how low the bar was, but perhaps performing a bit better than some had feared. I mean, the stock is certainly off the lows from March. Exactly, John, you know, and we're looking at EA because they're the leader in the gaming,

sports gaming for consoles and PCs. And so they can still continue to have that lead. What we're really looking for is when they start that mobile strategy, because as you know, mobile takes up about 50 percent of revenues so gaming revenues so what we're looking for is when they move forward on that mobile front that's when we're going to see a lot of growth in ea all right and uh airbnb which we mentioned first and now down a bit more than eight percent after hours we will continue to track those guys. Thank you. And coming up, IBM CEO Arvind Krishna on the company's latest push into artificial intelligence with Watson X and how AI could disrupt the workforce, but maybe not as much as some assumed. Plus, we're going to talk to former Atlanta Fed President Dennis Lockhart about the ongoing debt ceiling negotiations at the White

House and what would happen to the economy if a deal is not reached in time. Be right back. Twilio earnings are out. The stock plunging 15%. Kate Rogers has the numbers. Kate. John, revenues coming in right in line here at $1.01 billion for the quarter. EPS an adjusted $0.47.

Unclear if that is comparable, but it is the guidance. The Q2 revenue guidance being forecasted is a bit lighter than anticipated. The company forecasting $980 million to $990 million in revenues. That compares to and is lower than the $1.05 billion that had been anticipated. As you can see, the stock lower by 15% now. Back over to you. Quite a reaction, Kate. Thank you. We've also got Rivian results out. Phil LeBeau has those numbers. Phil. This is a beat on the top of the bottom line by Rivian,

a smaller than expected loss of $1.25 a share. The street was expecting a loss of $1.59. Revenue coming in at $661 million, a little above the street estimate of $652 million. Three important notes in terms of what the company is affirming for its 2023 guidance. First off, with an adjusted EBITDA loss of $4.3 billion, that's what the company still expects to lose this year. So not a greater loss than what they previously forecast. Production expected to come in at 50,000 vehicles for this year. That was the guidance at the end of the fourth quarter. The supply chain, by the way, remains the main factor that is limiting its ability to increase production at this point. And its capital expenditure is expected to be what they forecasted at the end of the fourth quarter, about $2 billion for this year.

They end the first quarter with just under $12 billion in cash on hand. Overall, when you take a look at shares of Rivian, yeah, they're ticking up a little bit right now, mainly because you have an affirmation on the guidance of 50,000 vehicles. Lots to discuss with Rivian founder and CEO, RJ Scaringe. We will be in central Illinois tomorrow at the Rivian plant for an exclusive interview on Squawk Box, talking with RJ, not only about the Q1 results, but more importantly, the guidance in terms of production, which again is expected to be 50,000 vehicles for this year, staying where it was at the end of the fourth quarter in terms of guidance. John, back to you.

Phil, thanks. That guidance is important, especially given the news you brought us from Lucid yesterday. Thank you. Meanwhile, President Biden meeting right now with lawmakers to discuss ways to avoid a default on the debt ceiling. The meeting is underway. Let's bring in Dennis Lockhart, former Atlanta Fed president. Dennis, we're going to get some video from the president any moment. So I'll interrupt you.

But this game of chicken that the White House and Congress are playing, how much danger for the market? Danger for the economy and danger for the market if it goes badly. We're in a stare down at the moment. that Speaker McCarthy has and the chance of a mistake or an accident that no one intends, but we get to the X date and we are effectively in a default situation. So it's a grave situation that's building up here. And, you know, I'm here in Atlanta, so I'm out in the provinces. I think there's a lot to be worried about. So, Dennis, what is the risk, even if, and this is a scenario that I think is maybe more likely, the can gets kicked down the road at the last minute and the uncertainty for the economy gets extended?

What are the ripple effects that investors should be concerned about? Well, I think kicking the can down the road and continuing with the uncertainty and perhaps having a notice. Sorry, let's hear from what's happening at the White House right now. Excellent. Welcome. I'm sure that my colleagues and I will be saying things to you after this The President of the United States, Mr. President, thank you so much. Mr. Speaker, are you really going to speak for all? Thank you so much. Thank you so much. Thank you so much. Thank you so much. Thank you so much.

Thank you so much. Thank you so much. Thank you so much. Thank you so much. Thank you so much. Thank you so much. Thank you guys. She was good. She got a clear shot at it. Dennis, they say they're not taking any questions, and then sometimes they take one, but he didn't. He just set the table, nothing to say.

I mean, if we continue to get that, back to what you were saying, what's the danger if the can just gets kicked down the road and we don't get news on whether the debt ceiling is getting raised or not? More volatility than is desired, of course. Uncertainty leads to volatility, and volatility overall is not good for the real economy. It makes it difficult for capital investors to plan. It makes it difficult for companies to take, let's say, bets on the future. Well, in particular, what does it do to short-term rates at a time when we've had multiple rate hikes and we have a commercial real estate market that a lot of people are arguing is on the brink? I think that's a good question. My sense of the

Fed is that the Fed is focused on inflation and they still have a lot of work to do to get inflation down, and will tend to, let's just say, compartmentalize their focus on the Fed and not factor in some of the uncertainty related to the fiscal side of things, which could mean, if inflation remains sticky, that we see higher rates. It could go that way. At what point does the Fed have to start talking about the debt ceiling, even though the Fed wants no fingerprints on this issue? You know, it's clearly something for Congress. You know, Fed Chair Powell didn't even want to address the possibility of default or getting close to it. But once you get these ripples, does it become a broader economic issue that the Fed has to address with policy?

Yes, it becomes a broader economic issue. In my experience, fiscal matters get factored into the decision making when it looks like they're going to affect the outcomes in the real economy, and particularly in the two mandated objectives of low inflation and maximum employment that the Fed has been given by Congress. So that's the equation. If it's going to begin to affect those two objectives, then it becomes part of the Fed's considerations, if you will. One of many considerations, but nonetheless an important one. Well, another piece of an important consideration we're due to get in the morning, the inflation reading from CPI for a Fed that seems to perhaps want to pause rate hikes. How important is this number tomorrow? It's important because it appears that inflation

is declining, but gradually and not very rapidly. So if we see something that's consistent with that theme of gradual progress, then I think you still have question marks about the direction of policy. All right. We'll see what we get. Dennis Lockhart, former Atlanta Fed president. Thank you. Thank you, John. Still to come, we will talk to the CEO of Global Foundries, the $30 billion chip stock under pressure today after giving some soft guidance when we come right back. Welcome back. It has been a busy after hours of earnings already. Two names to the downside considerably. Airbnb down almost 10% right now on a week guide. Twilio, same issue, down about 12%.

Meanwhile, gaming doing well. Two different kinds. Electronic arts and video gaming up about 3.5%. Wind resorts up almost 2% higher. But, of course, the call is still to come. We have Wind resorts up almost 2% higher. But, of course, the call is still to come. We have one more now. Affirm is out.

Christina Parts Nevelis has those numbers. Yeah, this is the popular buy now, pay later leader. Affirm posting a narrower than expected loss of 69 cents a share versus the expected 92 cent loss. Q3 revenue came in at 381 million million versus the $369 million that was estimated. The company attributing the improved quarter on credit performance as well as a bump in gross merchandise volume. So that's a key metric that measures the total value of all goods sold through a firm's platform. So that number came in at $4.6 billion versus the $4.45 billion estimate. For Q4, the company guidance revenue of $3 million to 415 million versus the 390 million estimate. So that's higher.

And then just during the commercial break, I had a two-minute phone call with the CFO. And I have to say I had to hang up because I had to go live. But he told me that delinquencies did decline in the quarter. That was a concern at 2.5 percent. And they are seeing a healthy repeat of users. So those are the two things that I was able to grab from him just at that moment. And shares, though, are reacting negatively, down almost 4% at the moment, though. Well, it's moving, bouncing quite a bit, that's for sure.

It's bouncing around just like the market overall in some aspects of the economy. Christina, impressive to take that call in the commercial break, and it will continue to watch affirm. Let's stick with earnings now. Shares of Global Foundry is falling 9% today the commercial break and it will continue to watch affirm let's stick with earnings now shares of global foundry is falling nine percent today after the company projected quarterly revenue below expectations for the quarter uh the chip maker reported a nearly 30 percent drop in revenue year over year in the smartphone market we've heard that a lot and losses in the pc segment

but more than doubled revenue for autos joining me here exclusively exclusively, Global Foundry CEO Tom Caulfield. Tom, thanks for coming in. The quarter itself, solid, but as so many companies are having trouble with the guide and seeing what happens with demand in the back half of the year. Yeah, very good, John. First, thanks for having me. And I'd be remiss if I didn't give a shout out to our team around the globe. Tough, challenging environment delivering outstanding results for Global Foundry. So great job by that team. Yeah, I think what we're seeing here is we entered the year as an industry thinking it was going to be a sharp second half recovery and it's clear it'll be a much more muted. Now we believe Q1 is the low point and we

will have modest increase in revenue going forward. But what we're focusing on is making sure we maintain our profitability. You talk about year-on-year revenue down. We're down $100 million in revenue year-on-year, 10% increase in EPS. That's performance through a down cycle. Okay, so what is the cause of the second half demand being less than expected? We've been talking about the consumer perhaps running out of steam, but we've also been talking about a consumer that's continuing to spend on services, if not goods.

Is it that dynamic that's continuing to tilt more towards services, and we're seeing the impact? I think there's a certain amount of money they're going to spend, and there's a certain amount you're going to spend when you think the environment is constructive or not. And so we need to get the uncertainty out of the economy. We need to make sure the debt ceiling gets lifted. You're talking about that all day today. Let's prove to ourselves that the interest rate increase we've made is going to start to take a hit on inflation so that we can come back down, and then we'll start to see, I think, spending everywhere by the consumer. You know, the other end of that is consumers never had a higher savings

rate than they have today as well. So I think there's always when there's always uncertainty, you know, people will spend a little bit differently. A couple of years of being locked up in COVID, a lot more free time to want to go travel and spend the money there. Longer term, looking through this, this is an industry that's going to double in the next 10 years. We as an industry, and GF in particular, position ourselves to participate in a meaningful way in that growth. But I think the question is, how long do we have to wait until we get to that longer term? Right now, I mean, pipeline-wise, the setup for Q4, which is very important, seems pretty uncertain. What are you hearing about inventories? Yeah, I think that's another great point. Q4 is usually that strong, smart mobile devices,

handsets that you talk about. It was a mixed bag in Q1. As many companies brought inventory down and went up, I think it's about the normalized period. Now it's about how fast do you bleed off that inventory. I think if the highest volume application is handsets, and so their inventory built up a little bit longer, and it may take longer for that to bleed out. You know, we're planning our business. It's a little bit, we'll believe it when we see it, that we think it's going to take a little bit longer for that inventory to bleed down. And that's why we're only projecting modest growth through the rest of this year. So within that picture, how convincing

is the China post-COVID recovery? How does that play into how long it's going to take to bleed down that inventory? No, I think that's a huge point. I think all of us expected a much steeper ramp of the China economy getting revved up and probably a stimulus is going to be needed there to get that economy to where the government there would like to see it go and all of this puts how much pressure on this meeting that's happening right now at the white house that we got absolutely no news out of in that press spray between you know the president and mccarthy to not drag out this uncertainty i think the that's the absolute point here. There's already enough uncertainty with inflation and high interest rates. Let's not put fuel on the

fire. Let's get that done and start to create a bedrock for this economy to come back. Tom, thanks for coming in. Thank you, John. Great look at what's going on. All right. Time now for a CNBC News update with our Bertha Coombs. Bertha. Hey, John, here's what's happening at this hour. A New York jury found former President Donald Trump liable for sexually abusing writer E. Jean Carroll, but not liable for her alleged rape. Carroll said the former president attacked her in a New York City department store nearly three decades ago. The jury also found Trump defamed Carroll by calling her claims, quote, a hoax and a con job. Carol was awarded $5 million in damages for her claims.

E. Jean Carol did not share any remarks outside of the courtroom, but her attorney, Roberta Kaplan, said we are very happy in an off-camera statement. Meanwhile, Donald Trump responding to the verdict on his Truth social media platform, calling the verdict a disgrace and saying he has absolutely no idea who this woman is. A Trump 2024 spokesman said the case will be appealed. John Bertha, thank you. Up next, IBM CEO Arun Krishna on just how many jobs could be at risk from the AI revolution. How many jobs could be created risk from the AI revolution, how many jobs could be created. We'll be right back.

Welcome back. IBM is planting a new flag in the artificial intelligence realm. Today at its Think Conference, announcing Watson X. This time, Watson itself isn't the AI, so much as it's a set of tools and resources to help customers tailor other AI to their needs. I spoke with CEO Arvind Krishna today and asked why OpenAI and ChatGPT have the spotlight when IBM has spent the last quarter century telegraphing this moment with Deep Blue and the original Watson. Take a listen. Some technologies take a time to mature. And I think to give OpenAI credit, they've achieved for AI kind of what Netscape achieved for the Internet.

By the way, the Internet was more than a dozen years old when Netscape came along. But they really helped put it into perspective for the business leaders, for CEOs. It really inspired them to think about what the Internet could do for business. I think OpenAI did exactly that. Now, if we think about the evolution of AI, the ones you're mentioning, machine learning, I would say that was maybe the deep blue era. If I look at Watson winning Jeopardy, that was the deep learning era.

Very good AI, really useful, but still the burden to get it implemented was high. You had to get labeled data, experts built a model, and after six months of work, you could deploy a model. But that's a lot of work and a lot of expense for one task. With this approach of foundation models, you really build the model once, but then you can get 100 tasks done, each one over a weekend, not necessarily with experts. So when you get 100x improvement in the possibility of deploying AI for a business advantage, that seems pretty revolutionary.

And that is why I believe this time the adoption is really going to take off because we have met the hurdles of both the cost of a single model as well as of how to get it deployed. That's a pretty big deal, I think. Talk to me about how IBM creates an advantage for itself here in the marketplace. Talking to Satya Nadella over at Microsoft, he's talking about combining the infrastructure with Azure, along with, you know, search and some of the applications work that they're trying to do.

Different layers, different lines of attack to try to take their cloud momentum into the AI era. How is IBM's hybrid approach potentially going to create advantages for you here when you've got these large hyperscaler players that are also trying to dominate? Look, I think the hyperscaler players will get their successes. And with a lot of respect for what Satya is doing over at Microsoft, with what OpenAI is doing, actually also with what Google is doing and talking about, there is going to be an approach that succeeds there. But similar to how Red Hat succeeds in a hybrid cloud approach, in addition to what people succeed with in public clouds, there are lots of people who are going to worry about the data going anywhere.

If I think about audit, you think about compliance, you think about places where they need extreme accuracy, where they need to make sure that the model has only been fed with data that they trust. It has no data from sources that they cannot point to the lineage to. There is an opportunity for us in those enterprises. So giving people the ability, they can decide to deploy it on their own premises. They can deploy it on their private cloud. They can deploy it in their own dedicated instance on top of Azure and AWS. It gives them a deployment option they don't really have with some of the other approaches.

Two, we're also going to partner. We had a partnership with Hugging Face. So you can start with models IBM gives you. You can bring in open source models. And by the way, you can train your own model, not just the ones that are at the basis of what OpenAI or Microsoft or IBM gives you. I think this does give people a lot of flexibility in how they deploy and they can meet all the conditions that the enterprise wants as well. Okay. A few days ago, you announced, I believe, that IBM is freezing hiring in thousands of positions that you think AI is going to potentially make obsolete in the pretty near term. How quickly might we move from AI affecting hiring freezes to AI making actual existing jobs obsolete? And IBM has a lot of employees.

There's a big risk there if you've got to cut pretty soon over time because AI is sapping the potential productivity of that workforce. Yeah. So, John, those media reports covered half of what I said, but not all. Okay. I do believe that AI is going to replace a lot of what I'm calling white-collar clerical jobs. So the ones that are much more repetitive, the ones where people do the same task again and again and again, I think a good 30% of those roles could go away over five years. By the way, when you think about 30% over five years, that's actually handled by attrition.

That's why I called it. We're not going to backfill those roles. However, at the same time, it's going to create lots of other roles, more roles around AI prompt engineers, more roles around software engineering. As technology becomes more and more competitive, as a source of competitive advantage, companies are going to need to hire more people into those jobs. So I think that the value-creating jobs are going to increase, and I believe our

total employment will increase, while there will be a reduction in more of those back-office roles. I think that's actually goodness. Look, we can take the nature of farming. 1900, 40% of the US population was directly working on farms. Today, it's 3%. The other 37% have plenty of jobs. The nature of roles tends to change. If I follow the US census, 60% of all jobs changed between 1940 and today. I think this is just the next era of those kinds of changes. And generally, the jobs become better, not worse, as time goes on. I also asked Krishna about the global economy and specifically the debt ceiling drama in Washington, the impact on the markets and confidence and how IBM is approaching it. I am always a believer that people should

hopefully see a rational outcome while they're still negotiating. But that's a political process, and I'm no expert on the political process. But I do believe that I am reasonably confident that they will get it resolved. The question is when. Will it be right before, right during, right after? And it will have an impact. It has an impact on the confidence on currency as well as on the economy.

But my base scenario will be it'll get resolved in a way that there may be some kind of short-term cycle, but nothing that is impactful even for the quarter. And that's where I do hope that they get to. I think anything else is not worth really considering, because it could be much more dire. Okay. Echoing what Janet Yellen told us yesterday a little bit there, though she used language that was a bit more extreme. She was talking about chaos. Let me ask you about the impact

thus far of the regional bank turmoil for medium-sized business customers, certainly, who might be looking for IBM services. Are you seeing a change in confidence or purchasing behavior? Are you needing to lean more on your own financing capabilities to fill in gaps there? John, the data so far does not show us any of that. If I look at the data, the confidence in business software, the confidence in deploying technology remains high. Now, but I don't want to be naive. I think that as the credit tightening will happen,

it will likely impact medium businesses. Those are not usually our direct customers, are not really very large customers. However, they are the customers of our customers. So I do expect that we'll see a second order effect as the year wears on. But this is going to be a slow, not a quick tightening. And so whether it's at the very end of the year or early next year, I would expect there could be a small impact on us. And then finally, the free cash flow target that you've given is important to a lot of investors, but also has some people scratching their heads about, given the chaotic environment, how confident you can be in it. What is inspiring

your confidence in those free cash flow results by end of year at this point? Well, you mentioned one at the beginning, as we are leveraging AI ourselves to become more productive, that is one piece which impacts us. Two, we see pretty strong demand for all of our technology offerings. So that's the second piece that impacts it. And three, always when we look at our revenue, I do believe that while there could be a little bit of softening, and we said that in April, it's not significant on the top line. We are pretty comfortable on the bottom line. And we saw that in the first quarter results as well.

And that is what gives us confidence in meeting our free cash flow targets of $10.5 billion. Well, all right. Between Arvind Krishna and Tom Caulfield, at least some questions about what happens in the second half of the year. Some confidence as well. All right. Now, speaking of AI, which we talked about earlier, get your phones out. Here is your QR code for the On the Other Hand newsletter. Please subscribe or just go to cnbc.com slash O-T-O-H to do that. IBM CEO just now saying in the first part of that interview

that AI will replace a lot of white collar clerical positions, but also create jobs. That leads to the topic of tomorrow's On the Other Hand newsletter. Well, I will present both sides of the question. Will AI create or kill more middle class jobs? You can subscribe to the On the Other Hand newsletter now by pointing your phone at the QR code once again or visiting CNBC.com slash OTOH. And of course, I'll see you on Squawk Box tomorrow morning in the 7 a.m. hour for the segment. Up next, Mike Santoli is going to look at what the recent rise in the VIX futures could mean for the market when we come right back.

Welcome back. Got a big mover for you. Shares of Upstart are rocketing up 50 percent after its earnings report. Kate Rogers has the numbers. Kate. Yeah, John, look at that move up over 50 percent now. The AI lending company reporting a much narrower than expected loss for the first quarter coming in at 47 cents adjusted versus 81 cents adjusted for the estimate. There are revenues, though, amiss. One hundred and three million for the quarter versus one hundred and nine million anticipated. The company also projecting Q2 revenues of one hundred and thirty five million. That is higher than the one hundred and133 million that had been projected. But once again, as you said, now up 51%.

Back over to you. Thanks, Kate. And this one has been volatile. Even up 51%, it hasn't reached its February highs. And back June of last year, it was at 50, now rocketing up to 21. Well, now let's turn to the broader market and the role that volatility, speaking of, is playing. CNBC Senior Markets Commentator Mike Santoli joins us with a look at the volatility index. Mike.

Yeah, John. Subject of some consternation among some people looking at the relatively low level of today's VIX. It closed today about 17.7 or so. So right around down here. But the VIX is just a statistical gauge of the pricing of S&P 500 options going out around 30 days. So in other words, you can't directly trade the VIX itself in real time. What you can do is trade VIX futures contracts. That's what this chart's right here. So what it shows you is that this contract that expires in a week's time is above 19.

And it slopes up from there going out into the summer as it typically does. But this is on the steeper side. And because it's building in some anticipated volatility, some storminess in the market, some event risk around, who knows, the debt ceiling deadline, perhaps, maybe when the Fed's going to meet another couple of times. Some people think the economy is maybe going to hit a tougher time. So in other words, people are not complacent by this measure just because you look at what the market is doing today, what the VIX is doing today. And by the way, the S&P 500 has been in an extremely narrow range. Even the daily moves

have been relatively muted. So that tends to drain away that real-time volatility. So I don't think there's anything in the current VIX that says it's out of the ordinary with how the market has behaved. But you do see people at least anticipating things might get a little livelier, so to speak, John. How lively, Mike? I mean, how often are you looking at that and the futures contracts are up above the mid-20s? It's relatively common, I would say. I mean, you know, usually it's when the market itself has also been under some stress. So that kind of jacks up people's anticipated volatility a little bit. So this is a somewhat normal slope.

But sometimes when it's really discounted in the here and here and now. And it slopes up this this steeply. It means that in aggregate, the market is anticipating that maybe we're at a lull in in volatility. That's going to going to perk up in a little while. So like a snooze button, the market volatility plans to wake up later. And that's that's right. And certainly a lot of times when that happens, you know, it's kind of jarring and they got to rush. All right, Mike, thank you. Up next, a look at the stocks making big moves during another huge hour for earnings when overtime comes right back. Welcome back to overtime. Two more notable overtime movers for you. First up, IAC. That's a company that owns brands like Dot Dash Meredith, Care.com, and Angie. Up sharply right now, more than 10 percent despite revenue shrinking, operating loss growing year over year. CEO Joey Levin did highlight a rare stock buyback in his

shareholder letter, and their stake in MGM Resorts doing pretty well for them. Akamai, also the top S&P 500 gainer in overtime right now. The cloud and cybersecurity company posting strong revenue and guidance. It was the first time security was the company's largest revenue stream, and you can see it there up more than 4.5%. Now, it might not be a huge surprise, but AI is dominating this year's Dis disruptor 50 list from CNBC. But you might be surprised which under the radar industry has made a huge move higher over the past year. That's next. And we are continuing to monitor any headlines out of the White House as President Biden meets with congressional leaders about the debt ceiling.

Overtime will be right back. Today, we unveiled CNBC's 11th annual Disruptor 50 list. And though some parts of the startup world are struggling, Julia Boorstin is live in San Francisco with a look at which sectors are thriving. So, John, it has been a tough market for private companies. Overall, VC spending has declined meaningfully over the past year, and we haven't seen an IPO from a disruptor 50 company since April of 2020. But there are some key areas that are thriving. No surprise that AI is a big trend. And another key recession-resistant space is climate tech and green energy.

The number of companies with a climate focus or environmental impact more than doubled from seven companies on last year's list to 16 on this year's list, ranging from logistics with the likes of Flexport and Flock Freight to ag tech disruptors like Monarch and Behero. And then, of course, there are the green energy companies, including London-based Octopus Energy. Now, while venture investment in climate tech declined by 2% last year to $13.8 billion, that space has been far more stable than the broader startup space. Overall VC spending last year declined by 35%.

Meanwhile, government spending on climate tech is set to more than triple to $500 billion over the next 10 years. according to PwC. This is driven by legislation such as the Inflation Reduction Act. Now, Climeworks, which is new to this year's list, raised a $650 million funding round last year. That's the largest investment ever into a carbon removal startup, despite a 2% dip into carbon and emissions tech startups overall. So now coming up in the next hour, we're going to be speaking to the CEO of another Disruptor 50 company, an AI company called Cohere. They are focused on the B2B space. John?

All right, Julia, looking forward to that. And meanwhile, it has just been quite an afternoon for earnings thus far. Just to call out a few names, Airbnb right now after hours trading down a little more than 10 percent. The guide there a bit weak. But, you know, on the other hand, a couple of names doing well having to do with gaming. Wynn Resorts up only slightly. Electronic Arts up a bit better than that. And then you've got IAC, which might not seem like a gaming play, but part of what did well for them was the 16.5% stake in MGM Resorts that they've got. Well, CPI tomorrow, big data.

That's going to do it for overtime. Fast Money begins right now.