Closing Bell - Closing Bell Overtime: Mastercard CEO On Consumer, Global Economy, New Crypto Initiative; Snowflake CEO On AI Plans 6/28/23

Episode Date: June 28, 2023

The Dow and S&P 500 closing lower while the Nasdaq was positive. Adam Crisafulli, Vital Knowledge founder, breaks down the market action. Needham’s Raji Gill reacts to Micron’s earnings. Mastercard CEO Michael Miebach sits down with Morgan for an exclusive interview on the consumer, global economy and a new crypto initiative. Advisors Capital Management CIO Charles Lieberman and Wedbush’s Bruce Harting on the state of banks after the latest Fed stress test. Snowflake CEO Frank Slootman on its AI strategy. 

Well, your scorecard on Wall Street is a mixed bag, but winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan, and we have got a very busy hour of breaking news coming your way. In just a moment, we're going to get earnings results from Micron as the chip industry braces for potential restrictions on exports to China. Plus, we're awaiting the Fed's bank stress test. Those are due out in 30 minutes, which will be even more closely watched than ever after the financial turmoil we saw earlier this year. And if that wasn't enough, we've also got a rare exclusive interview with the CEO of MasterCard, Michael Meebach, on the state of consumer spending, the economy, so much more.

But first, we begin with today's market action and a mixed session, as John just mentioned, for the major averages following Tuesday's rally. Joining us now, Vital Knowledge founder Adam Crisafulli. Adam, it does mixed and modest, I'll call it, with some of these moves. The NASDAQ 100 basically ending the day completely flat here. I want to get your thoughts on whether the trajectory from here is higher or lower and why. So I think the overall S&P has a little bit further to go on the upside. I really don't think it can get much higher than about 45, 50 in the near to medium term. So that gives you about 4 percent, call it.

So there's a little bit more to go. And I think the catalyst is going to be intensifying disinflationary pressures. And so but rather than chase that index just for a couple more percent, I think some of the more beleaguered groups have more upside potential. So small caps, banks, energy, and then even China. I think those areas of the market have more upside potential than the broader S&P. But I do think there's a little bit more upside to go. OK. We'll note that micron earnings are out. We're going through those results. We're going to get them to you in just a moment here. In terms of the disinflation, I know we've talked about it before, but it's worth retreading this, especially on a day where

we did get hawkish commentary or the reiteration of some hawkish commentary by major central bankers earlier today. The disinflation narrative, positive or negative for stocks? How do you think about it? I think in the near term, it's going to be positive from a macro perspective. I think you're going to see the PCEs, the CPIs continue to move down meaningfully going forward. So in the near term, it's positive. And then the intended implications that has for monetary policy. Eventually, though, looking out over the next couple of months, it's going to start to create some complications for earnings. And you're seeing this play out a little bit in certain pockets of retail, where cooling prices is going to start again being a headwind for earnings power for certain industries. And that's going to trip up parts

of the market. But I think in the near term, it's going to be a broader macro positive. So, Adam, I guess what are the downside risks for the market more broadly? I mean, maybe earnings specifically, but the potential catalyst to the downside in a way, maybe this move higher has been the removal of so many of the things that investors were worried about so far in 23. Yeah, I mean, I think obviously growth is a concern. You've had an enormous amount of monetary tightening around the world. The economy has been very resilient despite all that. But there is a lag effect. So I think growth is something to watch very closely. I think in

the last couple of weeks, you've seen people, I think, become a lot more comfortable with the underlying growth trajectory. Just yesterday, you had that very bullish Delta presentation and then the consumer confidence report as well that showed a big increase. So I think some of the growth concerns are abating, but that's still an area to watch. And then poor inflation is still an area that is going to be worth watching as well. Poor prices have not pulled nearly as much as headline numbers have. And that was a big theme at the Cintra conference in Portugal this week, where central bankers acknowledge that the headline inflation figures are breaking lower, but the core numbers are not. And so that's going to be very important that the core inflation

really, really starts to follow the headline inflation readings. What about China? We are about to bring you Micron results once we've gone through, but that stock popping a bit after hours. It already had some individual China issues that had sent the stock lower days, weeks ago. But there have been increased tensions related to China. Yellen is headed there before too long. Could that pose any kind of an issue for the market? Or are we more on the path to cooling in a good way of the tense relationship with China geopolitically? It does seem that temperatures have been lowered a little bit in that relationship. So the Blinken trip to Beijing, the fact that he was able to meet with Xi, that was an important step in

stabilizing the relationship. Like you mentioned, Yellen should be going in the next couple of weeks, and then possibly she could be in San Francisco in November to meet with Biden. That's not confirmed yet, but that would obviously be a positive sign. So you do have efforts to stabilize the relationship, but then you also have this kind of ongoing, bigger picture decoupling, one example of which are the talks of incremental semiconductor restrictions that we saw overnight. And you're going to see more of that unfold going forward. So the geopolitical dimension of the China story is definitely the biggest overhang, in my opinion. You know, there obviously are some growth concerns, too, but it's much more geopolitics. Hold tight. Micron earnings, as I mentioned, are out. Christina Parts and Nevelis,

give us the details. Top and bottom line beat. We're seeing adjusted as I mentioned, are out. Christina Parts and Nevelis, give us the details. Top and bottom line beat. We're seeing adjusted earnings come in at $1.43. That's a loss, I should say. We're not exactly comparing right now, but so it's $1.43 per share loss on revenues of $3.75 billion, which is actually higher than anticipated. Also comes into the midpoint of their guidance from the previous quarter. The interesting thing, too, is that in the report on the top line, you have the CEO saying, we believe the memory industry has passed its trough in revenue, and we expect margins

to improve as industry supply-demand balance is gradually restored. That was a concern, because memory prices had been falling dramatically, so perhaps we've hit that bottom. The second major point was we know the company warned about the impact of the Chinese ban, more specifically the cyberspace administration of China, the CAC, as we call it, decision. And in the report, CEO is saying it's a significant headwind that is impacting our outlook and slowing our recovery. So that was literally the first two lines in this earnings report. So we are, again, seeing a loss per share of $1.43 and revenues of $3.75 billion, which comes in higher than estimated. And I'm just going to go through the guidance in a bit away from the 74 or so a share where Micron peaked recently.

But given these results, is this kind of a sigh of relief we're getting? I think it is a sigh of relief. If you look at the guidance, particularly around the gross margin line, the midpoint for the gross margin is negative 4 percent. The street was around negative 9 percent. You know, last quarter it was closer to negative 21 percent gross margin is negative 4%. The street was around negative 9%. You know, last quarter, it was, you know, closer to negative 21% gross margin. So obviously not good margins at all, relatively speaking. But moving in the right direction as they clear out that X's inventory that's been building up because of smartphones and PCs. I think what we're going to hear in the quarter is some particularly some evidence that

DRAM pricing is starting to improve coming off the bottom. There's a transition to kind of next generation DDR5 memory being generated by new CPU architectures. That's having, I think, a positive impact. And so that's helping pricing. And I think we're starting to see some sequential bid growth coming off the bottom. And so I think those are some positive indicators that the memory cycle is starting to bottom. And our contention has been that in the second half of calendar 24 is where we think the memory industry actually could return even back to a shortage situation, a tight supply environment. So that still continues to be our view. Raji, I mean, shares are jumping right now. They're up 4 percent. Presumably it's on memory and the commentary we're getting here and what you're talking about and breaking down.

But this policy decision by China, this ban by China, and the fact that it says here in the release that it's a significant headwind impacting outlook and slowing recovery. I mean, there had been an expectation going into this print that you were going to see this dent the current quarter as the company realizes that change. Is that why the market seems to be sloughing that off here right now because it was already anticipated? Or is it something else? Yeah, I mean, pretty much, Morgan. I think, you know, they indicated with the street for the August quarter, despite the fact that they're seeing the China headwind, which is, again, I think around 12 percent impact, negative impact. So I think the street's interpreting that as positive, that at least in the near term, the fundamentals for DRAM, the fundamentals for NAND are starting to improve.

We're going to get more clarity on the smartphone and PCN markets. That's 50% of their revenue. Those markets have been hit the hardest over the last two years. We'll hopefully get more commentary around cloud and data center. And if there's any uptick that they're getting from AI in terms of high bandwidth memory inside some of these servers and data centers. Adam, Chris, if fully, is this enough, perhaps, connect some dots, positive for the semiconductor industry overall, do you think?

I mean, we had already heard talk from Intel and others that the second half was going to be better because inventories had been worked down. Micron had its own issues, but it's talking about a trough. How much would you read through here? No, I think the commentary, the macro commentary is definitely encouraging. You know, if you go back to their last call, they hinted that they were starting to see a stabilization, that they were starting to see the end of inventory, destocking, you know, and improved conditions in a lot of their big end markets. So this looks like they're past the top of the overall memory market. Now the question becomes for them, unfortunately,

they're kind of the biggest U.S. semiconductor company that China can source elsewhere. So, you know, they can't really source chips elsewhere other than in memory from Micron. And so they're going to bear the brunt of whatever retaliatory actions China implements against U.S. restrictions. And that's kind of the big, you know, the big headway for them. But from a macro perspective, the commentary is definitely encouraging some of the big end markets, like I said. So, you know, PCs, semiconductors, PCs, wireless and then and then data center. OK, we'll see if that continues to pan out. Adam, Raji, thanks. Thank you. Now, one stock on a lot of

radars today is Apple as it hovered near that $3 trillion market cap mark. It's closing just shy of that level. Senior markets commentator Mike Santoli joins us now with a look at how Apple stacks up. Mike? Yeah, John, stacks up pretty high at this point. We're waiting for that kind of elusive, somewhat abstract number in the sky, $3 trillion. Here's how the path has looked over the last few years. It's about three years since Apple hit about $1.5 trillion in market cap. That was in mid-2020. So for the first 40 years of its existence as a public company, went from zero to $1.5 trillion.

Another three years, you added the same amount of value. Also put Microsoft in here, just for comparison. Obviously, together, they're, I guess, close to five and a half trillion in market cap. They're more than 14 percent of the S&P 500. So absolutely massive volumes of capital just consumed by or at least allocated to these two stocks. There have been times when it's crossed one of these thresholds, round numbers, a trillion, a trillion and a half, two trillion, where it kind of touches or goes beyond it and then pulls back. The final note on the market cap is you never know the number of shares outstanding in real time. Apple is constantly shrinking the number of shares outstanding. So back a couple of a year and a half ago, we thought it touched three trillion on an intraday basis, January

2022. When we later heard how many shares were out, it actually wasn't the case. So I don't mean to either feed or detract from the suspense, but that's the reality of market caps in real time. Now, in terms of the overall market's implied bet on technology, it's basically never been higher. So this slices the tech sector into not just what's now categorized as tech, but adds back the Internet stocks and all the other things that have been carved away from tech over the years just to make it comparable over this long period of time. That's the old Internet bubble there when it really was consuming a lot of the energy of the market. And here you're back up to 37 percent.

This is from Wisdom Tree that massages these numbers. So I guess you could argue bigger profit pools in technology. Technology is a much more important part of the economy. So it makes sense that it's a bigger piece of the overall capitalization of U.S. equities. But it's getting to be perhaps a little bit skewed in that direction. We'll see if it has to digest some of this for a while, guys. I mean, these are fascinating charts per usual, Mike Santoli. But just to go back to the first one for a minute, I was struck by how similar those charts are for Microsoft and Apple. And it almost seems to me

like when you're talking about these big mega cap growth names that are also seen as defensive within the tech sector, that there's a trading that happens that's almost knee jerk from a broader market standpoint versus what the actual, I don't want to say fundamentals, but the actual undergo, you know, whatever's going on at the company specifically. Absolutely crucial observation. These are basically the best balance sheets we can find, best managed companies that are a general play on the digitization of the economy and the world and consumer behavior and all the rest of it. And, yeah, so they both outperform. So it's not just that the overall market has gone in that way on exactly that path,

but it is very true that they have moved in lockstep. I don't know if it's significant, but Microsoft itself, the shares have stalled out at their old highs. We'll see if that's meaningful or just a bit of a stutter step on the way up. Okay, so that's a technical level that we will keep an eye on. Mike Santoli, thank you. After the break, MasterCard CEO Michael Meeback joins us with insights into consumer spending, the outlook for the economy. This is a rare, exclusive interview. You do not want to miss it. For sure. And we are awaiting bank stress

test results in the wake of real stress to the banking system earlier this year. Those numbers are due out in the next few minutes. Overtime will be right back. Welcome back to Overtime. Fed Chair Jerome Powell saying today a recession is not the most likely scenario, but it still remains certainly possible. This coming after data this week that showed consumer confidence at a 17-month high, touching levels last seen in January of 2022. Joining us now is MasterCard CEO michael mebach michael so great to have you here on set thanks for joining me morgan thanks for having me you've talked about it in the past how resilient the consumer has been given how strong the data has been given

the commentary from powell today um that basically soft landing is still the most likely scenario at this moment in time do you see it the same way? The consumer has been resilient. So all along, the consumer has been surprising us. If you take a walk around the world, the United States, resilient consumer. The consumer in Asia is still catching up. So it's been a consistent story. But the consumer also has to make trade-offs, have to make decisions.

Longer time of elevated inflation means that you have to decide prices, necessity, preferences. Those are all criteria that people do make the trade-offs. In the end, they make trade-offs work in their favor, as in, I do want to travel. So they do that, and then they spend less on something else because that might be less necessary. Overall, they make it work, and as long as the consumer is resilient, I think what Powell is saying could very well be true. Yeah, and cross-border travel has certainly been something that's powered growth in your own business.

So that continues. That does continue. So there's still potential, particularly outbound from Asia, particularly outbound from China, that we have put out a set of numbers where we're saying we're probably on the outbound side at 65 percent of pre-crisis, pre-COVID levels of outbound travel. So that's happening. The summers, I mean, right now, I just came back from a trip, very anecdotally, you can't get a seat and people do want to travel. So it continues.

And we have not seen a trend of this is purely catch up to make up for lost time. It sits at consistent, relatively consistent levels. Interesting. So this idea of revenge travel maybe not showing up in the data I think initially it was really clearly there, but you know, we're starting to see pre-crisis levels continuing Okay, I do want to get your thoughts also on inflation I mean and not just here in the US where we have seen credit card debt reach record levels, but but across the world Disinflation at least from a market standpoint,

has really seized as a narrative, even as we're getting all this hawkish central bank talk from around the world. Is disinflation something that you're starting to see in the data, given the fact that you are covering billions upon billions of transactions? We're starting to, I would say, calling it a downward trend is we're not quite there yet but we're starting to see it cooling off here and there. For us the way when we look ahead there's a few things we monitor and one is resilient job market that goes right back to consumer spending is one of the drivers. Excess savings levels, access and willingness to access credit, those are

all things that impact what the consumer wants to do and is able to do. So those those we keep in mind. The recent confidence crisis in banking system that's also something to to monitor. So a few moving parts here but overall it's been slowing a bit. Okay I got one more question on this and that's Goldman Sachs came out trimmed estimates this morning cited four headwinds to card network revenues. Number one is student loan repayments. So this is a U.S.-specific question here, but they'd expect that it's going to be a headwind to U.S. card volumes. We're awaiting a Supreme Court decision on student loan forgiveness, but assuming that you see repayments start come September, how are you assessing that?

Is it a risk? Right. We're not into the lending business, so it really does not affect our revenue directly. So therefore, I think that'd be a better question to to post to to a bank. Yeah. Overall, this this aspect of credit access and willingness that I just talked about, that is interesting and it's something we keep in focus. So in terms of historic credit access and credit write-offs, we're still not quite back to where we were before COVID, and that's fundamentally a healthy trend. So just to pick up on what you said,

does it matter then if people aren't spending as much or the transaction, the size of the transactions aren't as large on your network? So consumer spends dramatically impacts the services that we provide. So it matters if they spend more. It comes through. But there's a normal spend logic.

So for a period of inflation, inflation had an impact. But back to what I said at the beginning, people do make trade-offs depending on prices and so forth. So as we look forward, we'll have to see where that goes in terms of repayments and so forth. So as we look forward, we'll have to see where that goes in terms of repayments and so forth. But as I said, I don't expect it's a mega impact on us. That's more for the banks. Yeah. Your stock has traded very similarly over the years with Visa's stock. And I realize credit

cards are really just one piece of the puzzle. You're a fintech, one of the original fintechs. There you go. Very expensive, expansive payments infrastructure network. Walk me through some of these other businesses and what you think investors are missing. Describing what we do as a company, it comes down to the safe and secure payment choices that we deliver. That's always the start. That's the beating heart of the company. But then we're looking for opportunities before the payment transaction, after the payment transaction. What else can we do with it? What are people looking for? It's not to get money from A to B. Get money from A to B fast or in a safe way. Or if you're a business, you want to use the data that comes out of the payment transaction to make

smarter decisions. That's everything that we do. In terms of payment-related services that do all of that, keep your payments safe, make it smarter, that's about a third of our revenue, and it keeps growing. There's tremendous opportunity in there. When you think about how rapidly the world is digitizing, all that data that's thrown off from this increasing digitization trend needs to be kept safe. That's what we do for a living.

And we use that data to provide it to airlines, to retailers, to merchants of all kinds and say, well, here's how you find more customers. Here's how you can use that data to create loyalty between your brand and your customers through a set of loyalty solutions that we also provide and so forth. For the payment transaction, after the payment transaction, that's the whole package that we provide.

And with that, we're a technology partner. We're also a payment scheme, but we're broadly a technology partner in the payment space. So it raises the question, A, how do you keep that data safe? And B, at a time where everybody's focused on regenerative or on generative AI, all that data, is there an opportunity there? So I'm happy we're going to talk about AI as well, but starting with keeping it safe. So every bit of technology that we have, privacy by design, is absolutely critical because no technology will scale if people have doubts what is happening with their data. So building in that we will only use as

much data as needed for the job to be done. For example, it could be an age verification, is Morgan 21, yes or no, these kind of answers. So minimal data, the way you use it and so forth. In the end, it translates into very simple principles. You own your data, you control it, you benefit from it, it's our job to keep it safe. So that is what we do pervasively across all of the services that we provide and we are a very large data warehouse in a way, but it is all not personalized data because in the end what we know is here's a transaction, here's an amount,

and here's the kind of company that you buy something from. it's not personal. So inherently data privacy is a big differentiator. That helps. In terms of AI, you can use data as a basis and then you leverage AI to kind of target the data. For example, in personalization. So we all get these emails every day that are kind of like random, out of context. Here's this offer, that offer.

We're a leader in personalization where we provide to our customers, a an airline a merchant a retailer and so forth here's how you delivered that offer that you want to make to your end user at the right moment through the right channel at the right time our data enables that and that is AI powered we have years used machine learning to do fraud management and things like that to keep payments safe. Today, we use generative AI to look even further down the road into personalization, into enabling your travel bookings, where you say, all right, here's

all my preference that I have. I'm going to take all the data that's out on the internet and say, this is the perfect trip facilitated by MasterCard. I do want to ask, you had a little bit of crypto news or blockchain news, I should say, out. You and I have had this discussion before in the past. You've been creating the infrastructure, if you will, for cryptocurrencies and these digital assets to be able to transact more smoothly. The news today, break it down for me. Right. So the multi-token network sounds very complex. In the end, it's very simple. We've sort of created the app store for the blockchain distributed ledger ecosystem. So what are the foundational capabilities that you need to keep transacting from one blockchain ecosystem to another?

Interoperability. If you're over here on one coin, you move it to another coin. How do you get from A to B? That's what we do in the cards world today. We're crossing across different kind of ecosystems. That's one thing. With this particular technology that we put out today, we're also creating the standards of making it easy to create through what a

regulator is doing, what a private sector company is doing, what a bank is doing. They're all innovating somewhere around blockchain. Why has it not scaled? Because there is no connectivity, there are no standards. We believe in this technology. I think it can solve a lot of problems. Okay. But I think interoperability isn't there. Guardrails are not there. And that's what we do for a living. And we can help with that. All right. One to keep an eye on, especially as we've seen so much more institutional investor and bank activity, et cetera, in the cryptocurrency space in general. Michael Meebach, so great to speak with you today.

Thanks for joining me here on set. Thanks for having me. It was fun. CEO of MasterCard. Interview, insights into services, travel, and, of course, that AI play and fintech. Amazing. All right, we are just moments away from the release of the Fed's bank stress test results. A key moment for the banks following the chaos in the regionals earlier this year. We will bring you the results and instant analysis when Overtime returns. The Fed's stress test results are out.

Leslie Picker, how does it look? Hey, John. Well, it looks pretty good. All 23 banks that participated in this year's stress test stayed above their minimum capital requirements. The Fed said these banks have enough cushion to absorb the $541 billion in estimated losses from the hypothetical scenario so that they could continue lending. The hypothetical scenario in this year's test involved a severe global recession with a 40% decline in commercial real estate prices and a 38% decline in housing prices. The unemployment rate rises to a peak of 10% under this scenario. Of those $541 billion in projected losses, $100 billion came from commercial real estate and residential mortgages. The Fed said that the banks in this year's test hold roughly 20% of office and downtown commercial real estate loans held by banks.

Among the banks tested, Capital One would see the highest projected loan losses largely from credit cards and CNI loans, followed by Barclays U.S., Goldman Sachs, and Citigroup. Under stress, the aggregate common equity risk-based capital ratio that exemplifies essentially the cushion against losses, that was projected to decline by 2.3 percentage points to a minimum of 10.1%. Fed Vice Chair for Supervision Michael Barr said in a statement that the results confirm the banking system remains, quote, strong and resilient, but he adds that the stress test is only one way to measure that strength. He says we should remain humble about how risks can arise and continue our work to ensure banks are resilient to a range of economic scenarios, market shocks, and other stresses. Now, the results of these tests greenlight capital return for banks, which will announce their own plans for buybacks and dividends as soon as Friday after the close. Although, analysts say that management teams are actually expected to be

quite conservative despite the stress tests because they are expecting a variety of regulatory actions later this summer, later this year, that kind of cloud their confidence in returning a lot of capital to shareholders, John. Yeah, and of course, we've been watching for some of those regulatory actions and talking about them. Leslie, it's worth noting that the Fed changes scenarios each year. It takes months to devise how they're going to lay out these tests. Were these tests basically developed before we saw all of the turmoil around SVP? And if so, did they fold in stress testing around a rising rate environment?

Yeah, Morgan, it's a great question. So these tests were actually published about a month before some of the turmoil we saw in March. And so these specific variables for the hypothetical scenario, they do incorporate commercial real estate declines by about 40 percent. What they don't do, to your point, is incorporate a rising interest rate environment. In fact, these stress tests actually have a falling interest rate environment. And the rationale for that, according to senior Federal Reserve officials that I spoke to, is basically that normally it's a falling interest rate environment that accompanies times of severe stress. And so that is, you know, if they're testing for severe recession, they're going to test a falling interest rate environment and that

impact on banks. And those are technically riskier to certain aspects of bank business models than higher interest rates, where they can generate more on the loans that they make typically. Now, obviously, in March, we saw kind of the flip side on that in certain idiosyncratic situations. And it really highlighted just the overall vulnerabilities that banks can face with regard to a rising interest rate environment as well. All right. Leslie Picker, thank you. Let's talk more about these stress tests. Bring in Bruce Harding from Wedbush, Chuck Lieberman from Advisors Capital Management.

Bruce, this is 23 banks. There are a lot more regional banks than that. I'm not sure if there was any surprise that they all passed. Should investors take any solace from this, or are there really still questions among the smaller banks that might have significant amounts of commercial real estate in their portfolios? Sure. Thanks for bringing me on today. Good to see you. I think that these results are great. The banking industry still has a number of hurdles they have to overcome in the next few months and the remainder of this year. You know, on your show this morning, we heard... Huh. Yeah, we're having a little

trouble with the show. You know, Chairman Powell talking about to see if we get one or two more tightenings. Now, the good news about that is, you know, for the most part, the long end of the curve, you know, five out to 10 years have been pretty stable. And that's what impacts the held to maturity portfolios that have given some of the bank's problems in terms of their lower yielding securities portfolios. But the continued rise in short rates will continue to push up and put pressure on the funding costs of the banks. So that's one thing that I think is keeping investors away for all the banks, even the ones that have passed here. And the other wait and see is, as Leslie pointed out, will we have more regulatory reform?

Now, I think also Chairman Powell has said that if any major regulatory changes happen, they'll likely be phased in over a number of years. But that's another thing, keeping investors who may have gotten burned holding some of the banks that failed earlier in the year from jumping back in. Chuck, the overall environment and what, if anything, these specific results do to shed light on that? We're still expecting consolidation among the regionals? Yeah, I think clearly the regionals are going to be under pressure to consolidate. I agree that there will be more regulations coming and they're going to be aimed at least initially at the tier right below the systemically important banks, the large regionals and the smaller regionals. Those are the banks where, shall we say, the regulatory

oversight has been a little bit lax. The majors have regulators in there every single day. And these tests were really aimed at the larger banks. So those companies are in good shape. And one of the interesting aspects of it is even with $100 billion in commercial losses, which is one of the concerns in the market today, those banks will pass and pass obviously pretty easily. So one of the market's concerns about commercial office space, I think, is a little bit less critical today. But it's the regionals where you really have to worry. And there is going to be more regulation.

But fortunately, the Fed recognizes that. And so the changes are likely to be implemented very gradually over time and pushed out into the future so they don't disrupt things now. Yeah, Bruce, I was going to pick up. gradually over time and pushed out into the future so they don't disrupt things now. Yeah, Bruce, I was going to pick up, I am going to pick up on that thread around commercial real estate and those implied losses that resulted from these tests as well. And get your thoughts on whether that number sounds manageable to you, $100 billion, or in line with what you would have expected, or better or worse. Morgan, it's in line with what we would expect. Last year's results were quite similar. I was surprised that the number wasn't considerably changed or higher. And I think for the most part, given that the stress test that we just went

through, the smaller banks do have to do their own stress test analysis and turn that in every year. And they show similar results on the commercial real estate side. So, you know, we feel pretty comfortable that as much as this is, you know, sort of topic number one in terms of potential recession impacting commercial real estate, that the banks have ample capital to offset that. Since we're talking about commercial real estate, Bruce Chuck, hold on just a moment. Earlier this hour, our Andrew Ross Sorkin spoke with Wells Fargo CEO Charlie Scharf at the Aspen Ideas Festival. He asked Scharf if banks are concerned about commercial real estate. I think overall the banks will do just fine. The other thing which you have to remember is real estate's going to play out over a multi-year period of time. Banks are still earning plenty of money.

And it doesn't mean that there won't be an individual bank that has too much exposure in whatever area they're in. But when you, especially when you talk about the regional banks, regional banks have broad-based businesses. You know, it's not commercial real estate. Office is just one thing they do, right? It's not size generally in a way that should bring about the fear that you're describing. Chuck, I mean, I hear what he's saying. And yet, does it take more than one bank that's small with too much office exposure that has trouble for investors, for the market to freak out about banks in general. In a way, isn't that what we saw with SVB and a couple others? It doesn't look like there was an issue that affected all the regionals, but they're still trading around 40 bucks a share in the KRE. Yeah, well, that's the difference between the markets reacting to news and the

reality. The reality is nowhere near as bad as the market fears. Start off with this discussion about commercial real estate. And that's the way we started it. We talked about $100 billion in losses. But the problems within commercial real estate are much more confined. It's really office building space. And the office market is a fraction of the commercial market. So there's a very limited degree of exposure. And when you look at individual institutions, some of them have done a good job of underwriting their lending. So they originally did loans at 60 or 70 percent of loan to value.

They've got a healthy cushion. They can stand the 40 percent price decline without taking a major hit. So the actual impact on the banks is likely to be very dispersed, spread out among the large banks and the medium sized banks and the smaller banks. It really gets back to the quality of the underwriting of each institution. There will undoubtedly be some that do a poor job of that, as we saw with Silicon Valley managing its own investment book. So there may be some failures. But if there's some small banks that fail, that's not going to weaken the system and it's not going to undermine the financial system. All right. Well, we hope for the best. Chuck, Bruce, thank you. Of course, in the meantime, we wait for shareholder returns and those types of announcements from these biggest banks now that we got these test results.

Indeed. Yeah. Now we can look forward to that. After the break, we will hear from Snowflake CEO Frank Slootman as his company stock jumps after this week's Snowflake. And news of partnership with NVIDIA and expanded deal with Microsoft. We'll be right back. Welcome back to Overtime. I spoke today with Snowflake CEO Frank Slootman from this week's Snowflake Summit. And NVIDIA partnership there on large learning models inside Snowflake's environment, helping to send the stock about 5% higher over two days. We also talked M&A strategy after Snowflake's Neva acquisition and their expanded partnership with Microsoft, which Slootman framed as a win-win,

growing consumption on Azure while fueling Snowflake's growth. You're going to benefit from that. People are not getting paid. They're going to fight you tooth and nail. They're going to double down, triple down, and so on. But we've been able to build relationships with the public cloud providers where, look, okay, we will compete head on. But once the technical eval is won or lost, we partner up. That is how it's supposed to work. And that works when there is alignment on incentives where both sides get paid on, you know, whatever business is going to, you know, come to fruition from it. Let's talk about M&A. I was a little surprised that you bought Neva.

I know, Sridhar, another Fort Knox conversation that I've had. Clearly, deep experience in search and data. How does that fit in with Snowflake's broader vision for what you want to provide customers on the platform? Clearly, it's not the consumer-facing search thing that Neva was doing for a while. That was sort of the front end of that that technology now it's what as part of Snowflake? Well we've really obviously Neva has turned from consumer search to enterprise search and enterprise search you know really hasn't happened yet to the extent that it can especially when we can AI enable it for the conversations to be contextual I mean if you're searching for Snowake, what are you going to get?

The weather, the company, the social phenomenon? And the conversations are not stateful, right? In other words, it's from one search to the next. It has no clue what happened before. The other thing that Neva is really, really good at is understanding, you know, all the problems in search related to hallucination, bias, and all these things that make people distrust the results. It's going to be very, very important. I mean, search has been such a phenomenal thing, you know,

in computing over the last 25 years, but we're now going to take it to the next level. And in enterprises, search is going to become a main mode. That's going to be part of your relationship with data. And so we're thrilled to bits to not just, you know, get the injection in talent that Neva brings, but also the technology. I mean, they build a complete search infrastructure, you know, with all of 50 people. It's quite extraordinary what they've accomplished on their own, you know. So how far up the stack do you plan to move as Snowflake? Because I view Search as being a bit of a layer above

the core technology that Snowflake was initially offering. Do you have a stated philosophy or framework for what goes, what else perhaps even adjacent to Search Snowflake is interested in innovating in and building out? We have this massive ecosystem. If you would see the partner pavilions that we have here, there's multiple football fields of exhibitions of partners showcasing products. That's really what we want. We want to be a place for innovation and choice rather than we're sort of a single stack. You got to buy everything from Snowflake. So at the application level,

I'd much rather have partners, you know, built the apps than us doing it. Databricks also gathering some people together this week. It's a big week for data. They just did a $1.3 billion acquisition or announced it. And ThoughtSpot also did a $200 million one. IBM announcing Aptio. What's going on with M&A in this generative AI era? What's driving it? Even though for a lot of these assets, a lot of these companies, the valuations are pretty rich. Yeah, they are. And the reason is the talent is so extraordinarily scarce.

You know, when you're buying companies, you're always buying the mix of talent and technology. But, you know, we're much more heavily weighted towards talent because technology obviously comes from talent. And it's very, very difficult to acquire. And you are willing to pay up for talent because it's so it is so valuable and so scarce and so expensive so I think that that's certainly a big part of our acquisition strategy that you know I always say we try to buy stem cells okay things that we don't have that we can grow body parts from or new businesses or major extensions to businesses so that's what you see people doing you know you'll never see us buy you know revenue or roll-ups this is not or new businesses or major extensions to businesses. So that's what you see people doing.

You know, you'll never see us buy, you know, revenue or roll-ups. This is not the sort of thing that tech companies do. Slootman also making clear he intends to be CEO of Snowflake for quite a while. He said, I'm doing this kind of work because I like it. And, you know, I'll stick around until they're ready to strip the jersey off my back, Morgan. The jersey off my back, Morgan. The jersey off my back. Great interview, per usual, and certainly a newsmaker this week, given what we've seen come out of Snowflake. Thanks.

Well, Michael Santoli is back with a look at the risk appetite in the market. Mike. Yeah, Morgan, the appetite's rising, and it's visible in a few different ways. This chart is a relative chart of high beta stocks within the S&P 500. Those are the more volatile, aggressive parts of the market versus low volatility, the more stable defensive areas. And what's interesting here is it's reached this kind of ceiling that's been in place since the ultimate peak of the Nasdaq. That high point there is the Nasdaq 2021 peak in November of that year. So we'll see if this shows that we've kind of gotten to the near-term extent of this risk rally or not.

But very interesting that you've seen basically a chase for the leverage type plays on a further market rally. Now, in the credit area, might as well take a snapshot there, too. Also showing some healthy risk appetite for credit. High yield debt is now outperforming comparable treasuries. This is just on a year-to-date basis, not by a lot. It's not necessarily kind of happy days are here again, but definitely showing not that much concern, even though you are starting to see default risk go up

in some parts of the borrower market and an uptick as well in bankruptcy filings. But so far, the credit picture is not sending off too many alarms, guys. All right, Mike. Thanks. And everybody, I know what you're thinking. That's not enough, Mike. Well, it's your lucky day. More, Mike, coming up on the CNBC special Taking Stock. That's tonight, 6 p.m. Eastern. It's just an hour after this show ends. Stick around. We're looking forward to that. Still ahead, it's the final countdown for Virgin Galactic's first commercial spaceflight. We're going to tell you what's at stake as that stock rallied big into

the close of 9% today. Stay with us. Check out the big banks after hours, mostly higher after all 23 firms that were stress tested by the Fed passed. We'll be right back. Big news on tap for tomorrow on the economic front. First quarter GDP, May's pending home sales and weekly jobless claims. And here on Overtime, we will get the latest read on the consumer with Nike earnings. Yeah, there's going to be a lot to watch tomorrow, including this. Nearly two decades after Sir Richard Branson founded Virgin Galactic,

the company's poised to launch its first fully commercial revenue-generating spaceflight, Galactic One, tomorrow from New Mexico's Spaceport America. Today, though, address rehearsal and mission control, inspections of the space plane, VSS Unity, and its mothership, Eve, and final rounds of training for the crew, which includes three members of the Italian Air Force, two Virgin Galactic pilots and an astronaut instructor. Now for Virgin Galactic, the clock is ticking to catch up with direct suborbital competitor Jeff Bezos' Blue Origin, which has already flown dozens of paying customers past the edge of space, but halted service after an uncrewed launch mishap last fall.

SpaceX has done a number of private space flights. Those are orbital, including the recent Axiom mission to the International Space Station. Blue and SpaceX are both building diversified businesses, but Galactic's fate rests solely on convincing the paying public and researchers and governments that suborbital space travel is safe and worth the $450,000 ticket price. So far, current backlog, about 800 people. The key will be ramping flights. And we spoke with Virgin Galactic President Mike Moses about the plan, if all goes according

to plan, tomorrow to fly monthly. We've been basically ready to go monthly for a while. We've had a few things that have made long downtimes, but the bones of being ready to fly once a month, we're always there. We've tweaked and modified that a little bit. We've added some expertise and new people on the team. We've given ourselves a few more facilities and infrastructure, but we're really highly confident we can make it once a month. We flew about a month ago. We're ready to do it again tomorrow. We'll be ready to go a month after this. Some of that downtime was refurbishment of the spacecraft that got us to this point.

In terms of how big the opportunity for space tourism overall could be, Future Market Insights estimates it could be or could become a $13 billion plus market over the next decade. But it really depends on who you speak to, John, because different analysts have different numbers. Either way, it's seen as a big opportunity. Stock moving much higher. It's up almost 40 percent since the start of this month. I wonder if they're going to have to revise their numbers after this month. If all 800 are still in line after this reality check, the world has gotten on extreme tourism.

Which is going to be something that I will be probing and probably asking some questions about tomorrow. Among everything else. Because I will be down in New Mexico to cover this live and exclusively for us tomorrow. Exciting, exciting. Well, wear your athletic shoes and we'll see if that helps Nike out at all. Lots of questions there about the consumer, not just in the U.S., but of course globally for them, as these tensions with China have cooled down perhaps, but also still pretty high. That's right.

In the meantime, it was a mixed picture for the markets. The S&P closing just below the flat line, 43.76. That's going to do it for us here at Overtime. Fast money starts now.