Closing Bell - Closing Bell Overtime: Microstrategy’s Michael Saylor On Why The Banking Crisis Is Bullish For Bitcoin; Chegg CEO Joins After His Company’s Stock Fell 50% 5/2/23

Episode Date: May 2, 2023

Stocks fell sharply today, although off worst levels after paring some losses in the final hours of trading. Regional banks were among the hardest hit stocks; Vital Knowledge’s Adam Crisafulli on why this selling feels worse than in March. iCapital’s Anastasia Amoroso gives her take on the market action and earnings so far. It was a busy day of earnings, including: Ford, Starbucks, AMD and Simon Property. An exclusive interview with Microstrategy Executive Chairman Michael Saylor after the company posted strong earnings; he weighs in on bitcoin’s rally, the company’s dual strategies and why the banking crisis is bullish for crypto. Chegg stock fell nearly 50% after warning AI was hurting potential new business; CEO Dan Rosensweig joined in an exclusive interview to discuss why investor fears were “overblown.” Wedbush analyst Matt Bryson on AMD’s quarter and the stocks weakness in Overtime. Box CEO Aaron Levie talks the upside of AI for human productivity…with the right guardrails. 

You got your scorecard on Wall Street, but winners stay late. Welcome to Closing Thought Overtime. I'm John Ford with Morgan Brennan. And get ready for a big hour of earnings with reads on the consumer, the chip space, commercial real estate, and more. Our reporters are standing by to bring you results from Ford, Starbucks, AMD, and Simon Property Group. Plus, an exclusive interview with the CEO of Chegg, the education tech company that got wrecked today as it warns about the disruptive effects of artificial intelligence. Let's get straight to today's wild market action with all the major averages down 1 percent or greater. Joining us now is I Capital Anastasia Amoroso, chief investment strategist and vital knowledge.

Adam Crisafulli, plus Leslie Picker, is here with us to, well, talk about the banks. But, Adam, first, let's start with you. We saw Treasury's bid. We saw the JOLTS report this morning. We saw this major pain in regional banks as we saw the sell-off there. Why? Why the sell-off? So it's a little confusing in terms of bank stocks.

I think this sell-off today was different than what you saw back in March. I think the March sell-off was driven by worries about an acute fear of a deposit run. I don't really think that was the nature of the sell-off now. I think the focus is more shifting towards the secular outlook for a lot of these companies, the earnings power of the franchises. If you kind of go back to the Q1 earnings, which all of them we just reported, they kind of put to rest a lot of, again, those really acute deposit flow fears. Now the question is net interest income, net interest margins are at a peak. Provisions have more upside than downside risk. Funding costs continue to rise.

The positive betas continue to move higher. The regulatory environment is going to grow more stringent for a lot of these companies in the wake of what happened with Silicon Valley and First Republic. And so it struck me as a different type of a sell-off, one driven more by the long-term earnings power of the franchise versus an acute deposit run, which was more the March story. Huh. Anastasia, when you look at what the banks are doing, and then we've got a Fed meeting tomorrow, how much does that setup matter? Because everybody still expects the quarter point, but it's the color after that that particularly matters. And if stuff is breaking, at least in the stock market, if not in the fundamentals, how much does that factor in? Yeah, well, I think the sell-off today is a bit of a message to the Fed to say, look, there's not an acute crisis, per se, that's still ongoing in the banking sector, but there's still pain throughout the sector.

And the reason why I think the bank action should really matter to the Fed is because, remember, in the last FOMC meeting, Fed Chair Powell really gave us new metrics to watch in terms of whether they're going to be raising rates or not. And that is the extent of the credit tightening that's happening in the economy. Well, John, if you look at the charts, I mean, they kind of really catch your attention because even though the deposit, the massive deposit outflows from small banks have stalled out, which is good news, look at the credit flow. If you look at the net credit flow over the last four weeks, it is absolutely collapsed coming out of the small banks.

It is also retrenched coming out of the large banks. So I think the Fed has to look at the price action that we saw today. They have to look at the credit charts and say, look, we've tightened rates enough. You know, maybe it's another 25 basis points. But after that, just let this Fed tightening kind of hand it off to the credit tightening because it is playing out as a full swing right now. Let's get a deeper look into the banks. Regionals getting hit hard. PacWest and Western Alliance leading to the downside. But a number of other household names also caught up in the damage, including Key Corp,

Zions, U.S. Bancorp, Citizens. The KRE was down more than 6% today. Leslie Picker, what happened? Yeah, John, it's actually kind of a head scratcher in many ways because you look at what the regional banks did yesterday. It wasn't even as bad. They're seeing their worst day of trading since mid-March when Silicon Valley Bank and, of course, Signature Bank went under. Today's slump is far steeper than yesterday's when J.P. Morgan announced that it had purchased First Republic out of receivership. So in speaking with analysts and investors, it appears there's no clear catalyst other than a pure hangover from yesterday's event. First Republic's bondholders and stockholders, of course, wiped out in the deal. So the market is revaluing its peers as a result of that, specifically those with higher levels of uninsured deposits. As of the end of last year, when this data was published in

regulatory filings, Comerica, Western Alliance, Zions and KeyBank each said at least half of their deposits were uninsured. These figures have likely shifted since mid-March as uninsured deposits are seen as a bigger flight risk if bank confidence is wavering. Commercial real estate exposure is another consideration for investors today as they assess the regional banking environment. But we're also looking at a new world order for regional banks, one in which it's clear from yesterday's events that large firms with large balance sheets like J.P. Morgan tend to prevail as smaller firms have a harder time competing. that JPM can't be the knight in shining armor for every major regional bank that is facing pressure or this crisis of confidence. So what does it mean in terms of that potential consolidation framework that we may now need to see for these smaller banks that are not as heavily regulated

and therefore now considered more at risk by the market? Yeah, I think that's the key question. And the reason that JPMorgan did prevail, by the way, is because they were risk by the market? Yeah, I think that's the key question. And the reason that J.P. Morgan did prevail, by the way, is because they were seen by the FDIC as the lowest cost acquirer for these assets and liabilities out of receivership. And so the reason that we didn't see some of the other super regionals prevail is because First Republic was a lot to swallow for a smaller firm with a smaller balance sheet. J.P. Morgan and its universal peers are looking at somewhat of a different situation. So that begs the question, next time there is some sort of an auction in this type of a process,

how many competitors are in the room? And I think that that's a key question as we kind of assess how this will play out moving forward if we do find ourselves in this same situation. Not saying we will, but there's obviously some concern out there. Okay. We're going to continue to dig deeper into this and into the broader market impact. But first, Starbucks earnings are out. Kate Rogers has the numbers. Hi, Kate. There, Morgan. The stock moving higher by about 1% now. Beats for Starbucks across the board for the second quarter. EPS coming in at 74 cents adjusted.

That is higher than the 65 cents. The street was looking for revenue, 8.72 billion for the quarter. That is also a beat compared to estimates of 8.4 billion. Same-store sales also higher than anticipated across the board, up 11% overall, higher than the 7.1%. Global comp estimate estimate North America, same-store sales up 12 percent. That's also higher than the 8.5 percent projected. China, same-store sales. That's Starbucks' second home market. Remember, growth of 3 percent. That also marks the first positive comp since the first quarter of 2021. Remember, last quarter, China

business really saw some challenges due to ongoing COVID concerns. Their store traffic in the U.S. has also surpassed pre-pandemic levels in the company's busiest day parts in the U.S. And Starbucks rewards members are at 30.8 million. That includes a 4 million member increase in the U.S. year over year. The stock is higher by just under about a half a percent now, guys. Back over to you. Yeah, you started talking. It was lower.

Then it moved higher. All over the place. You broke down the numbers. Kate Rogers, thank you. Don't miss the first on CNBC interview with Starbucks CFO tomorrow at 8.30 a.m. Eastern on Squawk Box. Meantime, Ford earnings are out, too. Phil LeBeau has those numbers. Phil. John, this is a beat on the top and the bottom line by Ford for the first quarter. The company earning 63 cents a share well above the street at 41 cents a share. Revenue way above expectations coming in at just over $39 billion. The street was at just over $36 billion. An adjusted EBIT margin of 8.1% in the first quarter.

For a comparison with the first quarter of last year, that's a sizable increase. It was 6.7% last year with free cash flow of $693 million. Remember, this is the first quarter where Ford is breaking out the performance of each division. That's significant, and here's why. We'll go over each of them. The ICE division, which is known as Ford Blue, this is your internal combustion engine vehicles, huge quarter, $2.6 billion profit on a 10.4% margin. The EV division, the Model E, lost $772 million. And the commercial vehicle division, known as Ford Pro, had a profit of $1.36 billion. For the year, Ford is reaffirming its guidance of planning to earn between $9 and $11 billion

with free cash flow expected to come in at about $6 billion. And here's the significant part of this. They are reaffirming their guidance for the performance of each of their divisions, which they set out about a month, month and a half ago. The most significant of those, the EV division, which they said about a month ago, look, we expect to lose $3 billion. They are reaffirming that guidance that the EV division is expected to lose about $3 billion this year. Conference call coming up at 5 o'clock. We'll be on it. We'll have more details

if they have anything else to say in terms of their outlook. Guys, back to you. All right. Meantime, stocks down 2.5% in the after-hours trade right now. Any sense on why that would be the knee-jerk initial reaction here? There's no surprises in here. And so the question becomes, Morgan, if you are a Ford investor or institutional investors, we want to know when you can turn a profit with EVs. And that's not going to happen this year. And so it's a question of what they say about, A, dealing with the price war that is going on in terms of at least with Tesla. And you saw with the Mustang Mach-E, they cut prices today. And then the other question is ramping up production.

Are there going to be any changes? Anything in the color commentary from the CEO, Jim Farley, when he's talking on the conference call? So I think more than anything, this is sort of a, okay, there's no surprises in here. That's good news. Now we want to hear what they have to say during the conference call. All right, Phil, thank you. Well, you got your coffee, your cars. Now let's get commercial

real estate. Simon Property Group earnings are out. Courtney Reagan has those numbers. Courtney. Hi there, John. Yes, there's Simon Property Group reporting earnings of $1.38 per share. We're not going to compare those to estimates at this point because of thin coverage here, but the revenue did beat expectations at $1.35 billion a street, looking for $1.24 billion. The company also reporting that occupancy was 94.4 percent. That was an increase of just over 1 percent from a year prior. Base minimum rent per square foot, $55.84. That was an increase of just over 3% year over year. And retailers reported retail sales per square foot also increased 3.3%. David Simon saying that the company is raising its quarterly dividend and increasing the midpoint of its 2023 guidance. You can see shares here just hardly moved of Simon Property Group, but an interesting one to watch, of course, Morgan, as we watch

the rates continue to tick higher, of course, for all of these REIT properties. But Simon is largely considered one of the stronger retail REITs out there. Back over to you. All right, Courtney, thank you. We got the 4C chips coming up after coffee from Starbucks, cars from Ford and commercial from Simon Property Group. Adam, this doesn't look in these reports like an economy, at least as reflected in these companies, that's slowing down that much, does it? No, I mean, you continue to have Q1 earnings season. Q1 results are coming in above expectations. Companies qualitatively are much more upbeat on the outlook than I think the current narrative around just the general state of the economy. You know, you continue to have some of these issues whereby companies are beating

and they're not hiking guidance by as much as the beat. That's maybe an issue with Ford. But again, I think you're very early in the year. There are a lot of risks on the horizon. You know, this is still earnings is by far the most important part of the equation for equities. And again, that remains the big reason why I'm more optimistic than many people. It remains a very solid earnings season. Yeah. Anastasia, just to use this as a read-through to the Fed decision tomorrow, we do have this resilient consumer. Jobs market is still incredibly tight here. Inflation, yes, it's moving in the right direction, but still high.

What happens if the Fed doesn't actually take the option for another hike off the table tomorrow? Well, I think the markets would be quite disappointed, right, because everybody is looking for another hike and then a pause. And again, I'm really very much in the camp that the Fed should pause, because as you mentioned, inflation is coming down across the board. What's happening in the banking sector is certainly disinflationary. And here's another thing, Morgan. You know, if the Fed stops at 5, 5.25 percent at that level of nominal Fed funds rate, we're

going to have that rate finally be over and above the rate of core PC inflation. So I think that should be sufficiently restrictive and sufficient for the Fed, knowing that they're dealing with kind of the fallout from the banking sector. So I think they pause. And I do want to actually, Adam, agree with you and kind of share some of the optimism with you. I think the U.S. consumer is remarkably resilient. I mean, look at some of these results. The fact that, for example, U.S. consumers are spending less money on gasoline. And guess what they're spending that money on? They're spending it on food and beverage and services. And I think we might have seen that in some of the Starbucks

numbers. You know, the fact that consumers are still buying cars really tells you that, you know, 6% or 7% rates on auto loans are really not that restrictive for the consumer and even real estate is hanging in there. So, you know, my underlying thesis is, you know, the Fed pauses. The U.S. economy can actually handle this 5 percent rates because consumers have low unemployment rate, have excess savings. And when that's the case, they will continue to spend. And that should support the economy and support the markets. All right. On a day where it's red across the board for all the major averages, we'll take some optimism, guys. Anastasia Amorosa and Adam Krizafouli, thanks for kicking off the hour with us. Thank you. Let's talk more about the pressure

on the banks today with CNBC senior markets commentator Mike Santoli. He's joining us now from New York Stock Exchange. Hi, Mike. Hey, Morgan. You know, from when I first started covering markets, you know, 30 years ago, one of the most unquestioned maxims on Wall Street was the market can't really make much progress if banks are not participating. Banks or this bellwether group or at least rallies should not be trusted if banks are not involved. Well, if you look over a longer span of time, it hasn't really proven to be the case. Point to point, this goes back 15 years to March of 2008. That's when Bear Stearns failed. You've seen essentially dead money from the KBW Banks Index since that point. As a

matter of fact, you go back 20 years, the KBW Banks Index is flat. We should keep in mind, Citigroup shares are still 90 percent off their 2006 high. Bank of America shares are still about half the level in 06. And yet the stock market, obviously, because of the mix of companies in the S&P 500, has in fact made a tremendous amount of progress. What you can't have is bank stocks going south in a very urgent way that says liquidation of financial conditions are tightening. That's what we have right now. So here, this is going to keep the overall market in check, even if it doesn't have the overall S&P 500 buckle to new lows. So I do think that's why we're paying attention, not because banks have to lead our way out of it.

When it comes to the Fed and when it comes to the way short-term yields have behaved, take a look at the one-year Treasury bill yield over the last year. And it's worth checking on this level relative to how it got here. This is basically when the overall market said we know where the Fed's destination is likely to be. This was October. That's when the stock market bottomed. When we got a fix and we think where the Fed's going to settle out with short-term rates, in the zone of 4.5% to 5% plus or minus percent, that's what we got. And then you got some hot January jobs numbers. People thought that the economy was reaccelerating. You had some hawkish Fed speak. or minus percent. That's what we got. And then you got some hot January jobs numbers. People

thought that the economy was reaccelerating. You had some hawkish Fed speak. And then it was going to be 6 percent is going to be the destination rate on the Fed funds rate. And then you got SVB and it all turned about. Well, we're right back to where we were in this steady state spot right here. What it implies is probably another quarter point tomorrow that gets you to five to five and a quarter. This yield will converge with the Fed funds rate in one year's time. And so it kind of builds in maybe one cut in there between now and then. I like to use this as opposed to the Fed funds future, just because this is a yield you could actually capture if you wanted to and something you can track. So I think it's worth keeping in mind. We're back to that sort of equilibrium moment we got to in the fall, John. Mike, love to get your take on what happened

with the banks, particularly the regionals today. It seemed like Goldman Sachs had a note saying that short started it, but then others piled in and sort of what that means based on what you said earlier about the KBW and sort of the role that banks play in the overall market? I'm not sure one single thing happened to actually prompt all the selling in the regional banks today. You do have this setup, though, where there was a failure for the banks to take a lot of relief from the FRC resolution, the JP Morgan taking it over. Yesterday, I would have thought that would be seen as a clearing event. It wasn't.. Then SoFi earnings not so great. They were going to have to take some tough marks on some loans are going to sell. I got a downgrade today. And then there was a report, too, that a

big institutional manager was just selling wholesale out of a lot of the bank preferreds. Remember, the preferred stock of FRC went to zero. All that together, plus the Fed tomorrow is supposed to ramp up the pressure again by taking the yields higher on money market funds. Maybe that creates a situation where you don't feel like there's really a profitable reason to hang around, even though you have these banks trading below some stated nominal book value level. I think all that coming together ahead of a Fed meeting, it might be a washout moment, might not. Also, the idea that the J.P. Morgan type of deal, it's not really scalable. You know, you can't go across the entire economy and say, one by one, we're going to pick up these troubled banks. So that's my best guess on what came

together today. All right. Mike Santoli, thank you. We're going to see you later this hour. AMD earnings are out. Christina Parts and Avalos has those numbers. Hi, Christina. Hi. Well, what we're seeing is a top and bottom line beat for the company. They are posted, or they posted 60 cents EPS. That was four cents higher than what the street anticipated on revenues of 5.35 billion. Also a beat for non-gap gross margins. That came in line with expectations the company guided for 50 percent. That's what we're seeing, 50% for this quarter Q1. Interestingly, in the press release, there is a quote, for the second quarter, we expect sequential growth in our data center and client segments,

offset by modest declines in our gaming and embedded segments. So there was a lot of concern about data center revenue, considering it contributes over 50% of the total revenue for the company. Data center revenue came in at $1.295 billion. So that is a little bit less than the fact sets estimates. But overall, you're seeing a top and bottom line beat. And the company is still relatively strong guidance. But we're going to get the actual numbers hopefully on the earnings

call right now. And you can see shares just reacting slightly to the negative, just down three-tenths of a percent. Okay. Christina Parts-Navalas, thank you. Don't miss an exclusive interview with AMD CEO Lisa Su. That's tomorrow. Let's walk on the street. Yeah. And with data center and embedded together more than 50% of revenue. That is an important thing to continue to track. Now, let's turn to Chegg. Worries over the impact of AI are growing as shares of the edtech company dropped by almost half after it warned on its earnings report. ChatGPT is hitting new customer growth.

Some other education stocks, including Duolingo and Coursera, also taking a hit in sympathy. Joining us now exclusively is Cheggs CEO Dan Rosenzweig. Dan, welcome. Thanks for coming on. So you explained on the call that this was because in March, this weaker guide than expected, in March around midterms, you didn't get the signups that you expected from new subscribers. You said that coincided with the launch of GPT-4. What doesn't make sense to me here is people have to pay 20 bucks a month to use GPT-4. So are you saying the students that would have signed up for Chegg were actually paying for GPT-plus, or do you think just the buzz around GPT-4 drove them to use GPT-3?

It's the latter, for sure. And I just want to make sure that people understand, first of all, we're selling millions of new customers. But coming out of COVID, we expected this year to see increased growth rate beyond what we were seeing last year. And at the moment, we just aren't seeing that. So overall, Chegg is extraordinarily healthy company. We have more than enough cash to pay off our debt. We're generating a tremendous amount of EBITDA, a tremendous amount of free cash flow. And what we said was its students are becoming increasingly aware of AI and chat GPT. The awareness has gone way up over the last several months. It's gone up four times. Usage has gone up eight times for more things than just education,

by the way. They just use it for a lot of things because they're learning it and they're interested in it, as you can imagine. So what we said was at the moment, we just are seeing some impact on new account growth. And so therefore, we're just going to guide quarter by quarter for a while until our exciting product which is called checkmate comes out which integrates in chat gpt for and what chad can do it'll only be available on us all the data will be blocked off from chat gpt and so we're really excited about the future and i think this is extraordinarily overblown and i don't normally say that i don't really talk about the stock price much but this is just well this is quite a move i mean this is it's a move. It's quite a move for a company that generates free cash flow, generates EBITDA and, you know, has over 200

million dollars in cash above our debt. So this is a market where we've seen some AI hype moves to the upside. This is one of the first AI horror moves that we've seen to the downside. So in a way, there's just a lot of volatility around this AI idea. But let me ask you here, what happens when GPT-4 comes out of beta with so many companies, including yours, and is in the wild? Khan Academy is testing an AI-driven tutor, Khanmigo, that sounds like it's going to compete with Checkmate. Is there a real issue here with AI? Are you facing more competition in your core market that AI is enabling or no? No, we don't think we're facing it in the core market.

We just think we're facing it as a result of an extraordinarily exciting platform shift that needs to be embedded into not just our services, but lots of services. And anybody who thinks that AI is not going to have an impact just isn't really paying attention. I mean, the fact is, we didn't bother to get on the NFT bandwagon or the Bitcoin bandwagon. We didn't think any of those things were likely to be relevant to us or relevant necessarily at all. This one, though, allows you to do things that's pretty exciting. And so the magic of who wins in the end is the one that has the best experience, has accurate answers, which ChatGPT does not have, has the combination of what it can do with conversational real-time information, definitions, and things like that, along with the proprietary database of over 90 million solutions

and a billion different education pieces where we train it against our data so that it's accurate and more student-friendly, more relevant, more personalized, all things you can't get on ChatGPT. And one of the things that people need to understand is students can't be wrong when they do homework or when they learn things. ChatGPT is often wrong, and it's not going to be right anytime soon. And so as students begin to understand that, we're very comfortable that the launch of the combination of the two, which will be exclusively available on us, will be an incredible growth opportunity for us.

The reality is we're not seeing any impact on our renewals, any impact on cancels. This is literally people that historically probably wouldn't have wanted to pay but would have. And we just saw it and we said, let's just do a quarter by quarter. And so this is significantly overblown in our opinion. Hey, Dan, it's Morgan. How many quarters? When we talk about when this is going to roll out, Checkmate's going to roll out. I mean, what is your timing? And can you give us a little more detail on that? And what is it going to look like to actually monetize this product? So remember, we're a paywall right from the beginning.

So we have a subscription service. So this is about us regaining the customers, the subset of customers that chose to try ChatGPT4 around midterm time. And we believe and hopefully will come back to us because they'll realize that ChatGPT4 can't do what Chegg does. And they just aren't familiar with the Chegg experience. Chegg's existing customers love Chegg experience. They're renewing at extraordinarily high rates. And second of all, they are subscribing to our more expensive product, which is counterintuitive to what we're just talking about.

So we think this is a marketing conversation at the beginning, and it's a newness, and it's students trying it, and we think ultimately ultimately we'll win at the end the product is going to roll out in beta this month uh we have a video up on the website if people want to see what it could do over time it's really exciting so imagine the ability to have a tutor in your pocket that understands who you are where you're at school what your subject is what textbook you're, what the purpose of your question is. And so, therefore, we can do things that ChatGPT4 can't do and only Chegg with ChatGPT4 can do. And that's pretty exciting. And that, we think, will open up huge market growth because we'll also be able to translate instantly.

We're going to leverage this technology inside the product, and we think that's what wins over time. All right. So my other question for you, then, is the other businesses that you're building out right now, they're still not necessarily a significant piece of your revenue, but could be in the future, whether it's foreign language, whether it's the skill business that you're building out, career on board. How quickly can you continue to develop those and make those meaningful revenue streams as well. Yeah. So again, the core business is going to generate a lot of cash flow and a lot of EBITDA. And we're very excited about that. And we think this will return to growth as we roll out Checkmate and as we compete more effectively. And that's what it takes to do it. The skills side is actually growing quite nicely. So if you

actually look at the way we break out the numbers, we break out another category, which skills is in. If you take out the ad business, which you said at the beginning of the year was going to be challenged, as you know, from ad businesses, and you take out the change in the business model that we did with textbooks, you can see that all of the growth is coming from skills. So right now it looks like skills is going to be a very significant business over the next two to three years at the growth rate we're seeing now in our partnership with Guild. And we believe that next year it will be profitable. So we think we'll be one of the few skills companies that's actually profitable. So that is a line of business that we have a lot of confidence in right now and is performing extraordinarily well. So we look at the future as being very bright, but we looked at this moment and we said, let's not sit here and deny the fact

that AI exists, that it's going to affect us, it's going to be bumpy in the short term. But we have a great plan to win in the long term, a great product, and a lot of cash and a strong balance sheet. And so we're, you know, we're ready to go. All right. Yeah. It's not all upside with AI when you get disruption. Dan, appreciate it. As we've been talking after hours on some decent volume, the stock up about 7%. Dan Rosenzweig, CEO of Chegg. Meanwhile, still ahead, we're going to talk more about the disruptive power of AI when we are joined by Box CEO Aaron Levy, whose company just announced a new integration with ChatGPT. Plus, Bitcoin, a rare bright spot in today's down market. We're going to discuss that pop with MicroStrategy co-founder and

executive chairman Michael Saylor, fresh off of last night's earnings report. Stay with us. Take a look here at shares of AMD down almost 4 percent, three and a half, despite posting better than expected earnings and revenue. Joining us now for a moment, Matt Bryson of Wedbush. Matt, is this about the guide or what? I think it's a combination of the data center revenues coming in a bit light, the guide being a little bit light, and expectations having lifted a bit over the last month or so. And so on the call, you need to hear what? I want to hear that the data center is going to bounce back and recover through the remainder of the year. Margins at 50%

look good to you, or is there danger there? And the inventory stuff that we've been talking about, particularly with Intel, is there any concern about how much AMD is shipping in, or do you expect that to be about the same? I actually think that AMD, particularly if you look at their PC numbers, they've been under shipping demand by a fair amount. So not really concerned about inventories. On the gross margin side, I think 50% was pretty much where expectations were. As that data center number hopefully recovers for the remainder of the year, that'll lift the gross margin side of the equation moving forward. All right. We know what to look for. Matt, thank you. We'll leave it there for now.

Thanks, Rob. Up next, MicroStrategy Executive Chairman Michael Saylor on the outlook for Bitcoin amid a growing list of concerns for the broader market. Stay with us. Welcome back to Overtime. Bitcoin bucking the trend today and trading, jumping some 3% as worries continue to swirl around the banks and the Fed comes into greater focus ahead of tomorrow.

A name that typically trades in step with Bitcoin, MicroStrategy, also higher today, finishing up more than 6.5%. Earnings last night topped estimates while the company bought 7,500 Bitcoin in the quarter. Joining us now exclusively is MicroStrategy co-founder and executive chairman Michael Saylor. Michael, great to have you on the show. Welcome. Yeah, thanks for having me, Morgan. All right. So let's talk a little bit about earnings, because in your core software business, software licenses

revenue climbed 23 percent, subscription services revenue of 46 percent. But really the focus from the market, as per usual, since MicroStrategy is the largest publicly traded holder of Bitcoin, is the fact that your impairment loss for Bitcoin was so much smaller than it has been in recent quarters. Walk me through the results and the flywheel between these two companies within the company. Sure. We have progressively built up a Bitcoin position up to 140,000 Bitcoin over the past two and a half years. When Bitcoin traded from 66,000 all the way down to 16,000, we took an impairment loss. And in the course of the last 12 weeks, that Bitcoin position has traded up $2 billion in fair market value.

So, of course, when it's trading down, there are tax consequences and indefinite and tangible write-offs. But when it's trading up, we reverse some of the tax accounting. The indefinite and tangible treatment hasn't changed any. But I think the short of it is the software business is very stable, and it's a cash cow. And we use it to pay our interest on our debt and to acquire more Bitcoin. And the Bitcoin itself is our belief that Bitcoin is the ultimate digital scarcity network. And because Bitcoin has been moving up about 50% a year on average over the last three years, the real key with Bitcoin is just to be able to percent a year on average over the last three years. The real key with Bitcoin is just to be able to hold on to it and stomach the volatility.

And we have conditioned our shareholders and our bondholders to understand that we're long term hodlers. And because everybody is aligned in that interest, we're able to weather that volatility and we end up doing very, very well as Bitcoin recovers. Yeah. And Bitcoin is recovering, though. We're still well off the all time highs. We're up something like 70 percent since the start of the year. What do you attribute that recovery to? I think right now there are two twin drivers right there. There's the macroeconomic concerned about inflation. And as and as inflation takes place, people lose confidence in fiat currencies. And that means they start to realize that everything valued on cash flows is a currency derivative. And Bitcoin is not valued on cash flows. It's in a digital scarcity.

The failure of the banks, Silvergate Bank, Signature Bank, Silicon Valley Bank, now First Republic Bank, causes people in the Western world to start to lose a little bit of faith in the banking system. And they remember that Bitcoin is a bank in cyberspace run by incorruptible software. So the phrase be your own bank has emerged as an investment idea in the United States, but it's really a matter of financial survival elsewhere. And so the combination of that concern about inflation and counterparty risk with banks is driving Bitcoin's adoption. It's also being driven, by the way, by the crypto crackdown.

And as people lose faith in crypto exchanges, crypto securities and cryptocurrencies, there's a natural migration of capital from those crypto ecosystems into Bitcoin, since it's viewed as the risk off safe haven asset of the crypto space. Yeah, and certainly it's being handled by regulators a little bit differently, at least right now, still being classified as a commodity, whereas the SEC is starting to look at more aggressively other cryptocurrencies as a security. You mentioned the banks. We do talk about the three banks that failed, including most recently First Republic. But as you mentioned, Silvergate, it doesn't always get brought up, I think in part because it voluntarily liquidated. But it was really the first example of a highly specialized bank, massive uninsured deposit base, mismatch in duration, questions around interest rate, risk management. And it arguably set the stage for the SVB run that we saw just a few days later. I want to go back to comments that you made about a month before that happened,

the last time you and I spoke. Take a listen. The institutions that were improperly constructed collapsed, the Alamedas, the FTXs, the Voyagers, the BlockFis of the world. But in fact, Silvergate was a responsible bank. They were able to meet their redemptions. And if you consider the loan terms we have with them, we're nearly 4x over collateralized by 25% loan to value. And the irresponsible crypto banks, we're doing over collateralized by you know 25 loan to value you know and uh you know the irresponsible crypto banks were doing under collateralized loans so i think they do banking the right way in a responsible fashion and they're a good citizen for the ecosystem your thoughts now well you know i think what happened to silvergate is unfortunate i'll notice i'll note that they weren't seized by the regulators.

They're not in receivership. They actually were able to return all their deposits, and they're working out of that situation in a responsible fashion. And so my hat is off to them. I think it's a very, very difficult time for any bank that had a large portfolio of long-dated bonds and interest rates surging from almost nothing to 5 percent in 12 months, I think, is largely responsible for the difficulties that the banking sector has undergone. Yeah. And you did have that retirement of a Silvergate loan at a 22 percent discount. But with Silvergate out of the picture, with Signature now essentially out of the picture, or at least reclaimed by another bank, what does it mean for the banking landscape for MicroStrategy and for others in the Bitcoin space? How does this now evolve and change? I think for those that are acquiring and holding Bitcoin, it doesn't make a big difference. I think the real significance

of these on-ramps to crypto being shut down is that as people lose faith in certain stable coins or they lose faith in crypto exchanges or if they lose faith in crypto asset securities like the crypto tokens that the SEC is currently going after, they exit those positions. And since they're not going to withdraw their money back into fiat banks because there are no off ramps, the natural trade is to trade all those crypto assets for Bitcoin and then put their monetary energy into the Bitcoin network. So I think this is all fairly bullish for Bitcoin. People are trying to figure out what they can trust. And Bitcoin is the most trustworthy crypto asset. It's the most trustworthy crypto network. There is no second best. Michael Saylor, always great to get your

thoughts on this topic. Appreciate the time today. The MicroStrategy up 130%, more than 130% year-to-date. Thanks for having me. Still to come, Box CEO Aaron Levy on integrating ChatGPT into his company's platform. When we come back. Welcome back. Take a look at some of today's big after-hours movers. A lot of beats, but mostly negative reactions. Ford beating on the top and bottom lines, reaffirming full-year guidance. Starbucks also a beat on both. Same-store sales were up 11% globally and up 12% in North America.

And AMD beating, but Q2 revenue outlook, meh. So we continue to watch that. And, of course, we mentioned Chegg, which was, meh. Yeah, you know, we'll see. All right. Well, Box just announcing it's integrating chat GPT into its platform. So up next, CEO Aaron Levy weighs in on the risks and the rewards of AI. There's a theme going here this hour. And don't miss last call tonight at 7 p.m.

Eastern from the Milken Institute Global Conference featuring Hayman Capital CIO Kyle Bass, Michael Milken, and Entertainment Studios CEO Byron Allen. Big show. Stay with us. Welcome back. Box, the cloud company that allows users to store, share, collaborate on documents and other content online. Announcing today, it will be unveiling a new feature called Box AI, and it is teaming up with OpenAI to bring its first tools to the platform.

Customers will be able to ask questions based on the content of the files, get summaries, and more. Joining us now on a first on CNBC interview, Box CEO Aaron Levy. Aaron, good to see you. I actually need to start off asking you about downsides and blind spots for your business that AI might create because your rival Dropbox last week announced it's cutting 16% of its workforce, in part blaming AI, saying they don't have the people they need yet to develop features at the pace that they need to. Chegg, we were just talking to earlier this hour, down 48% today on AI impact. So how is AI potentially going to hurt you, and how are you guarding against that? Yeah, great question. I think the situations are

pretty different than those examples. We're extremely optimistic on the role that AI will have in how companies work with their enterprise content, whether that's asking questions or securing data more effectively or finding the information that they're looking for. So we don't see any sort of particular downsides for our business. I think there's open questions, obviously,

across society of the role of AI in various institutions. But we're extremely excited about the impact that we can bring to the enterprise and to productivity using AI. One thing that AI seems to be doing potentially is lowering the barrier to entry for a competitor to move into your space and deliver value, higher margin value, leave you commoditized. That's the threat, at least in the education technology space. Do you not see that threat in where you play? We don't. We think that enterprises are gonna care a lot about their data security, their compliance,

the regulatory framework that the software providers leverage that they work with, and the scale of the platforms that they choose. And so in all of these cases, this is where Box has invested well over 15 years in building out a substantial infrastructure to help companies work with their most important information. And then AI gets layered on top of that

as really a turbocharger of what you can do with that data. But we don't really see it as a means to get into the space and kind of rebuild any of the architecture that we've created over a decade and a half that is so important to enterprises. Yeah. Aaron, how are you thinking about guardrails? And I ask that because we just got reports really earlier this hour that the administration is calling the CEOs of Alphabet and Microsoft, OpenAI, and maybe some others to have a meeting this Thursday to discuss some of the issues around artificial intelligence. If you were in that room, what would you say?

Yeah, I mean, we're big believers in policy advocacy in this space. I think that this is such a new market and such an emerging technology that we do have to align on the ways that we want to regulate it and the governance that we want to put around these models. You know, for instance, things like how much should an AI model be able to execute on its own without human oversight? Or what is the level of breadth that these AI models should be able to be trained on in terms of their information sources? You know, how should we ensure that AI models are always producing citations around how they come up with answers? These are going to be incredibly important topics, and we are big believers that this technology does need to be treated incredibly, you know,

thoughtfully and that there does really deserve to be strong regulation around it. Yeah. I mean, we keep having this debate and I realize that maybe we just don't know yet, but does this change jobs or does it eliminate jobs? And I ask that in the midst of the headlines from IBM CEO yesterday, this screenwriters strike where AI is a sticking point. We're this is sort of a personal opinion. I think our corporate philosophy, we're big believers that this is an enhancement to human productivity and to what we can do in our jobs. The ability to automatically, you know, execute tasks that maybe would have taken a couple hours to go research something and instantly get an answer. And that answer was blocking your next action that you were going to take that was even more important to what you were working on, you on, selling to a customer, working on a new product, supporting a customer. And so we think there's a tremendous amount of information that today is in silos that you can't easily quickly connect the

dots on that AI is in a position to help us dramatically increase our ability to get access to that information and that knowledge. So we think this is going to be a boost to productivity, and I'm extremely optimistic on its ability to help companies grow, which will ultimately lead to hiring even more people over time in the institutions that leverage AI. All right. We'll be watching. Aaron Levy, thank you. Thank you. Good to see you. Up next, Mike Santoli looks at what the big jump in layoffs could mean for the Fed when we come back. Mike Santoli back again from the New York Stock Exchange with a look at today's JOLTS report. Mike.

Yeah, John, obviously a lot of focus on the actual job openings component and the quit rate. This is the third element of it, which is layoffs and other involuntary separations. And this has gone sharply higher, so a lot more layoffs running through the economy in the latest monthly report. But it only gets us up basically to the run rate of before the pandemic. It's like a lot of economic indicators

that they've been slowing rapidly, but from such an elevated level that it's unclear if the Fed tomorrow is going to say we've done enough on rates because things are moving in the direction we want it to see. It's the case with retail sales. It's the same with consumer credit. Almost anything in the economy was operating at such a hot level. It's cooled off, but has it cooled off enough for the Fed? That's the question. You know, I wonder whether the surprise hike that we saw from the Central Bank of Australia coming into today also maybe dinged sentiment here and raised some questions about whether we could potentially see some more hawkish surprises tomorrow. I think it absolutely was in traders' heads. Remember when Australia paused in rate hikes, we took it to heart, and there was a little bit of a rally off of that.

Just a sense out there that the central banks, you know, were less your enemy. I also think there's something to keep in mind, which is that Jay Powell, in response to questions in the past, has said he's reluctant to pause rate hikes and then resume them after the fact. That might have put him in a little bit of a box right there because he may want to change the tune and say, hey, we're going to pause, we're going to reassess and see how things go for a few months without committing to being either fully done or not. Or maybe, Mike, he was saying that the slowdown in credit is the equivalent of a hike. He could argue in a way he's hiking without hiking. Yes, there's many ways he can argue that. And that's why I think it's you have to be open minded about the flexibility

of the cover story here for what they want to do. Right. Rates are high enough. They're above the rate of inflation. Growth has slowed enough that it seems like policy is restrictive. They're more or less in the target zone for where they said they're going to be in the March press conference. Remember, he said they considered pausing in March when we had the SVB thing. So there's a lot of cover if they do want to change policy pivot here. Yeah. And of course, we're going to have ISM services tomorrow morning as well, which the market is watching a flurry of earnings, including Qualcomm after the bell tomorrow. And then, of course, that big Fed decision. Mike Santoli, thank you. Just get another check on the markets here,

John. I mean, it was a very rough day. The S&P finished down about 1.1 percent, 41.19. All the other major averages much lower as well. Yeah, big day tomorrow as well. That's going to do it for overtime. Fast Money begins right now.