Closing Bell - Closing Bell Overtime: More Turmoil At OpenAI As Questions Swirl Around Microsoft Partnership 11/20/23

Episode Date: November 20, 2023

TechCrunch editor-in-chief Connie Loizos breaks down what happens to AI funding in Silicon Valley in the wake of the turmoil at OpenAI while DA Davidson’s Gil Luria gives his take on the impact on public companies, including Microsoft and Amazon.  Markets closed higher today as investors digested multiple developments on the AI front. Bank of America’s Liz Everett Krisberg on how the consumer looks heading into the holiday season, while RBC’s Helima Croft on the big moves in oil over the past week. Plus, what OpenAI means for Nvidia earnings.

You got your scorecard on Wall Street there, another rally, but winners stay late. Welcome to Closing Bell Overtime. I am John Ford. Morgan Brennan is off today and coming up this hour, the story shaking the AI world and reverberating all around the tech sphere. We're going to talk about Sam Altman's ouster from OpenAI for now.

Microsoft's moved to hire him to lead a new AI research team. If that's going to happen, we're going to discuss what all of these changes mean for investors in Microsoft, which did hit record levels today, and NVIDIA, which also hit a record ahead of tomorrow's earnings. Speaking of earnings, more big names are coming this week, including Best Buy, Lowe's, and Deere. And today, we get one-time pandemic darling, Zoom. I'm going to bring you those numbers as soon as they cross. Let's begin with the market. Stocks starting the holiday shortened week with

more green on the screen, building momentum throughout the session, coming off three straight weeks of gains. The Nasdaq leading the pack after best week since June. Oil getting a boost after four weeks in a row of losses. Let's bring in Mike Santoli, CNBC's senior markets commentator. Mike? Yeah, John. I mean, the market keeps testing just how deep that reservoir of pessimism was that set up this rally. You know, we were worried about so many things, whether the economy could handle yields rising to these levels. Oil seemed like it had reason to go higher. All those things have been essentially minimized, at least, in terms of the hierarchy of fears right here. And then it becomes a little bit of a seasonal chase with those mega caps finding reason to actually get another source of energy with the AI enthusiasm. So that brings us to the setup of how far is too far, how much of a chase becomes too heedless and creating its own

risk on the other side. It's not clear that we're there. I mentioned we were at 4,600 four months ago on the S&P. We're a little bit below that right now. We're kind of just round tripping over two years in terms of what the Nasdaq has done. So slow and steady in the economy is probably fine for the markets right now, although it always creates the possibility when you're up, you know, six, seven percent for the quarter to date that you do need to cool off and get a little shake out. Anybody, Mike, right now this week coming to sell, though? Yeah, that's the question. I mean, you do generally have an upward bias in these holiday interrupted weeks. That also is

the case when it comes to, you know, the very end of November. You start to get a little bit of a chop into December. So I don't know if you want to lean on that entirely, but it does seem as if unless yields fly, we got a pretty good 20-year Treasury auction at 1 p.m. Eastern time today that seemed to clear the way for upside in stocks. As long as kind of yields don't cause a problem, it seems as if right now the market's telling you which direction is the path of least resistance in the short term. All right, Mike, thanks. We're going to continue the conversation now with our market panel. Joining me here on set is Sri Kumar, president of Sri Kumar Global Strategies and BNY Mellon head of investment analysis, Jake Jolly.

Guys, thanks for being here. Sri, first off, are yields going to go higher from here, or should stock investors take a breather? I think yields have gone up enough. 502, which was the peak, which we reached on the 10-year, John, last month, I think was the peak for it in the short term. You're going to have a lot of fluctuations from week to week, meaning, for example, the 10-year is $4.42 this afternoon. Can it go to $4.70, $4.80 before it comes back to $4.20? Yes. But if you're an investor who is trying to protect yourself from the equity market,

and if you're trying to be looking with a two-year or more time horizon, this is a great time for you to be in long-dated treasuries. Okay. Jake, what if you're fine on protection and you're looking for some areas to take calculated risk? Where do you do it? Well, I think we still like U.S. equities. When we look globally, we look to Europe. We see weakness there coming, I think, sooner.

The U.S. still has risks. But really, when we look at, you know, how the market has performed this year, a lot of people just look at the headline return and think, oh, it's been a pretty good year. But if you look under the hood, it really hasn't been as strong, right? You look at the other 493 and, you know, we're seeing low single digits. So I think they're awful. You're talking beyond the big seven. I'm talking beyond the big seven, yes, exactly. So I think when we look at there,

there are opportunities. And that doesn't mean that there aren't still risks and that there isn't going to be sort of a challenging macro backdrop into 2024. But I think there's going to be pockets that do perform well, right? And just to give you one example, you look at healthcare, right?

Healthcare sector has been struggling for most of this year. So I think there are some opportunities there, particularly when you look to 2024, if we really do get this, you know, hope for soft landing. We get Medtronic reporting. Is that the kind of example, the names that were hit by the GLP-1 excitement? I think so. You know, I would say the reason that we really like healthcare is because it's this nice sort of nexus between giving you that defensive characteristics if we do get a recession and also generally has a lot of quality factors. Right. So that's a strong balance sheets, robust. And we think that if you do get a recession next year, this is a sector that's going to hold up pretty well. Sri, how should we think about the holiday season coming up? We've got Black Friday just in a couple of days now. Is that going to drive any important economic data or give us information from an investment perspective that we should pay

particular attention to? Well, what we know, since you talked about Black Friday and it is related to retail sales and consumer spending, the latest fall in retail sales was not as much as expected. It was just 0.1 percent. The market had expected 0.3, 0.4 percent, which did not happen. And what it says is that despite the higher prices that consumers have to pay, they are still in the market, they are still purchasing. So, I do not expect on Friday for it to be a really terrible Black Friday. It may not be as healthy as it was one year ago, but there is, I think, still quite an amount of stimulus in the market in the form of fiscal spending that came forth and the fact that the monetary policy was so easy for so long.

So what that means to me is that you're still going to have a decent Black Friday this Thanksgiving season. And the question is, as you go into December, as you go into the first quarter, that's where the question mark comes in. I want to mention Zoom earnings are out. We're going through those numbers. We're going to bring them to you as soon as we've got them. It's higher in the initial move by more than 5 percent. Jake, earnings. This is one of those names not by any stretch. Magnificent seven. This was a pandemic, darling. It's been hit pretty hard. How do you evaluate these kinds of names for when an entry makes sense? Yeah, it's tough. And I already mentioned that, you know, the macro backdrop is still pretty challenging, right? So when you think about these names, especially names that are, you know, on the growth side of the

universe, they're longer duration, right? Which means that we think they're going to be more sensitive to moves in interest rates. Now, when we look to 2024, the Fed mantra, higher for longer, we do expect that rates are going to be high into next year. But we also expect that the trend is going to be lower next year. So I think that at some point next year, maybe that's not the first half of the year, but maybe towards the end of the year, those names that are longer duration, if they come through with some strong earnings over the next few quarters, they can actually end up performing very, very well, even if they've been beat up, really coming in the post-COVID world that we're entering into.

And finally, Sri, to go back to what you were saying about fixed income, what's your bet on when the cuts start? Is that a 2024 phenomenon? Is it later in the year, earlier? The cuts are very much a 2024 phenomenon, John, number one. Number two, I would say it is the first half of the year. And what is prompting it? It is not going to be prompted by inflation rate and whether inflation rate meets the Fed objective or not. Because the core CPI inflation rate, the latest figure was still 4%, despite the good numbers we had last week. That means it is still twice the target. So if the Fed is going to go by that, there is not room for a cut yet. Where the cut comes from is the credit even.

Something breaks in the system. So much has gone up in terms of interest rate increases. And the balance sheet of the Federal Reserve is being cut back month after month. Even when there is a pause in interest rates, the reduction in the balance sheet is taking place. There has not been a pause so far in that. So, that to me is going to cause more damage to the system whether it be in the commercial real estate side, whether you have large pension funds which have a huge loss on their bond portfolio, similar to what you had in the UK in September, October of 2022, or you have a credit crunch in an election year, which is intolerable, not tolerable anytime, but not tolerable one year before the elections, the Fed cuts. That's where it's coming from.

And I imagine you think that's happening pretty soon, because that's seven and a half months before we're into the second half of next year. Exactly. Very much so. Jake, thank you as well. And Zoom earnings are out. As mentioned, Bertha Coombs has those numbers. Bertha. Yeah, monster beat for Zoom, particularly on the bottom line.

John reporting a dollar twenty nine per share on revenues of one point one four billion dollars. Analysts had been looking for a dollar nine on the bottom line and one point one two billion in revenue. That's better than the company expected. The company also, as I put my cheaters on here, company also beat on non-GAAP operating margin coming in at 39%. They also said that they retained customers who spent more than $100,000. That was up 13.5%. And as I read here from the release, Eric Yuan, the CEO, said their new capabilities like Zoom AI Companion and has continued to evolve our customer and employee engagement solutions. We're also pleased with our online business, he says, where we drove higher retention and saw usage of our new AI capabilities, enhancing the value of our platform. As far as fourth quarter guidance, they are guiding above the estimate to

$1.13 to $1.15 per share. The street was looking for about $1.09 consensus. And they're also boosting a little bit. They're more or less in line when it comes to the revenue guidance. But once again, that AI is the thing that everybody keeps mentioning and certainly top of mind today. Back over to you. In so many ways, Bertha, thank you. And if this move holds, it'll be back to the levels where it was in early October. Let's bring back Mike Santoli with a look at tech as Microsoft and NVIDIA, a couple more AI-driven names, hit record highs. Mike? Yeah, John, kind of a good spot to take a

look at sort of where we've been. It feels as if we're on this sort of runaway upside move in the NASDAQ 100, which is mostly dominated by that magnificent seven. Well, here's a three-year chart. You see, we're just kind of revisiting those highs back here two years ago, Sunday, as a matter of fact. Still at about 3% or so before you get up there. It was above 16.5. So it shows you it's been this big round trip. We troughed just around the turn of the year. So all the year-to-date numbers seem incredibly eye-catching and almost kind of hard to believe and unrealistic. Well, it's really just catching back to where we were before on a higher earnings base in most cases for these companies, though not all. The Microsoft move, truly stunning in terms of sort of the upside breakaway in market value.

Here we see it's basically $2.8 trillion in market cap. It's just on the heels of Apple, actually has about the same weight in the S&P as Apple for various reasons. But you see that these all three, Alphabet, Microsoft and Amazon, were really in a similar spot less than six years ago. And Microsoft takes off to the upsets. They're clearly bestowing on Microsoft this reliability premium and obviously the leverage to the AI boom, the commercialization of it. And so all this talk today, John, it's fascinating. You know, is Microsoft going to be able to capture whatever IP it needs from open AI?

Is it going to be able to rebuild it on its own? To me, you're paying implicitly $2.8 trillion to Microsoft in market cap because you hope they just have it figured out. Whatever turn is coming next in technology, that valuation implies they should be on top of it. We're about to get a very different kind of test on NVIDIA, too, when they report their earnings. this crazy news cycle since we got the first word on Friday afternoon that the relationship with OpenAI was at some kind of risk. Yeah, it's fascinating because it's clear to me after a couple of days, after today in particular, that people weren't owning Microsoft because of this kind of sum of the parts potential value of its OpenAI stake. It was because they had this head start, this incumbency advantage that Microsoft is going to be able to deploy and just essentially get to where everyone

wanted to go sooner. So the market today is saying, yep, that's fine. Maybe it's also just a momentum move. There's all kinds of other reasons. It's a balanced business at Microsoft. Of course, it's not such a focused, direct, highrisk play on this one part of the technology space. But fascinating nonetheless because you did have that wobble on Friday after the news came out and more than recovered today. Yeah, and in the meantime, we've very much seen that Microsoft CEO Satya Nadella is an active player in whatever is going on there. We still have to see it play out, Mike. Thanks. And when we come back, a lot more on Microsoft as CEO Satya Nadella perhaps brings Sam Altman under his roof. He's working at it. We're going to talk about what the AI shakeup means for Microsoft and competitors like Amazon and Alphabet. That's next. Overtime, be right back. Investors are digesting major news in the artificial intelligence world today with OpenAI ousting CEO Sam Altman.

Microsoft trying to bring him under its roof. It's still in flux, still developing. Where do the billions of Silicon Valley AI dollars go now? What about the talent? Salesforce CEO Mark Benioff just tweeting, quote, Salesforce will match any open AI researcher who has tendered their resignation full cash and equity to immediately join our Salesforce Einstein trusted AI research team. Okay, they got options. Joining us now is TechCrunch General Manager and Editor-in-Chief Connie Loizos. She's also the founder of the

newsletter Strictly VC. Also with us is DA Davidson Senior Software Analyst Gil Loria. Guys, welcome. Connie, I want to go first to you on this for what's at stake. So many of the customers for these AI platforms are startups that are funded with VC cash. Does this upheaval at OpenAI make them more likely to look for a plan B kind of multi-AI, just like they've been multi-cloud? I think so. I mean, you know, obviously customers are very, very nervous right now. It reminds me a little bit of Silicon Valley Bank, to be honest, back in March. You know, a lot of really loyal customers who didn't want to sort of help us speed the company's demise,

but at the same time, they had to be careful of their own, you know, assets and concerns. So I think right now we have a lot of customers who've been building on OpenAI who are thinking, is this company going to exist in another few days? So sort of somewhat naturally, my understanding is that they are talking to a lot of OpenAI rivals, Google, Meta, Cohere, Anthropic. And, you know, it's hard

to blame them. I think they have to sort of make sure that their own interests are protected. Gil, that makes it clear why Satya Nadella is working so hard to perhaps get Sam Altman back in the Microsoft fold, either as an employee. We'll see if he ends up back at OpenAI. There's still some word that that could happen. But Microsoft stock hit all-time highs today. So how does an investor separate this instability at OpenAI, Silicon Valley Bank- moment perhaps, as Connie puts it, and the stability at Microsoft? Microsoft has a window to solve this problem. If they get this situation resolved quickly, nobody's going anywhere. No startup wants to rebuild its entire platform on a new type of startup, Anthropic, Google, Amazon, or any other type of platform. It's already built on OpenAI,

built on Azure, and as long as Microsoft resolves this quickly, they are better off than they were on Friday. On Friday, they were at arm's length from OpenAI. They still didn't really have control there. Mr. Nadella over the weekend made all the right chess moves that he has more control now over the development of artificial intelligence than he moves that he has more control now over the development of artificial intelligence than he did on Friday. It didn't look good at the outset. He was kept out of that Google meets meeting where Sam Altman got fired, but now he's in charge. And he has 700 or more of the 770 OpenAI employees saying they want to work for him. And it's almost a worst case for the alternative case is that they all still work at OpenAI under Sam Altman,

without the board of folks that were clearly way over their head. So either Altman ends up at Microsoft or Altman ends up back at OpenAI with a board that he more likely controls. But, Connie, in a way, isn't that a danger here? Because it's one thing if you were an OpenAI customer and you were the customer of a startup that purports to be a philanthropy, a nonprofit. Maybe you're not as afraid of vendor lock-in. If all of a sudden Microsoft either owns OpenAI or has control, are you afraid of getting locked in with a major platform? Are you even more likely to want to have a plan B? Absolutely. I think we forget that Microsoft was long known as the evil empire.

And, of course, Satya Nadella has done an amazing job of softening the company's image. But I think, you know, customers still have reason to be concerned about the power that Microsoft wields. And honestly, I still think that there must be some percentage of employees inside of OpenAI who are also concerned. I mean, on the one hand, yes, it would be great to be paid handsomely to continue working with Sam Altman, but also there aren't that many

sort of seismic events like this in the industry. And so I could see some meaningful percentage of them deciding to peel off and maybe do their own things or maybe gravitate to one of OpenAI's competitors, Anthropic AI, which is very heavily focused on ethical AI. Because I do think that they, while they may love Sam Altman, who is a highly charismatic founder, could also have concerns about what the future holds if they were to go there and Sam were to sort of press on the gas in the way that Microsoft likely would like him to do. Interesting. Gil, we still don't know how this is going to end up, but it seems that

there are some AI plays like NVIDIA, which reports tomorrow, like Adobe, for example, which has been developing a lot of its own AI that have a position in AI and maybe are less reliant on outside platforms. Does this change how investors should value AI players who aren't reliant on open AI? It should change how people see AI in general in terms of the fact that I agree with Connie, there's going to be a big bang of employees going everywhere now and diffusing all this knowledge across all these technology companies and making all technology companies better at AI. It's going to make it harder to focus on investment. Adobe is a very good investment in AI. Their product is good. It's here. It's generating revenue. Absolutely. But let's not forget that the employees that will end up at

Microsoft or at a Sam Altman OpenAI are the ones that want to accelerate product development, the one that want to get the product to market faster, to get us to artificial general intelligence faster. That's the people Microsoft wants. They wouldn't care if Mark Benioff hired some of the slow progress folks or those go to Anthropic. They can slow progress their way to nothing while Microsoft continues to generate gravitational pull in the world of artificial intelligence and generate shareholder value. The chess moves continue. Gil, Connie, thank you. Thank you, John.

More on this tonight, 8 p.m. I'm going to be hosting a CENBC special, Satya Nadella and the future of AI. Here's what Satya Nadella said about the ways things are quickly changing these days when it comes to AI competition and not being able to be sure of just about anything. Quite honestly, it's not, you know, it's framing that learn it all versus the know it all, right? Because what came before, like today, maybe whatever, whether it's the stock or the market cap or what have you, but tomorrow, there's no guarantees. No guarantees. We'll see what tomorrow holds. After the break, Deloitte says spending during Thanksgiving week is expected to reach new highs, even as concerns remain about the health of the consumer. We're going to talk to the Bank of America Institute about the signals they're seeing over there, what it all means for retailers in this key push to the holidays. Overtime, we'll be right back.

Consumer spending is the game this week as holiday season officially gets underway and as more earnings come in from the likes of Lowe's, Best Buy, Nordstrom and American Eagle. Shoppers are expected to spend an average of five hundred sixty seven dollars during Black Friday and Cyber Monday. That's according to Deloitte. That would be a new high. And speaking of, think about inflation and what it's been doing. Treasury Secretary Janet Yellen was on CNBC today talking about how inflation is doing. Take a listen to what she said. We're making considerable progress in bringing inflation down, but Americans do notice higher prices from what they used to be accustomed to.

And importantly, you know, we're making this inflation progress while maintaining a strong economy and a strong labor market. So that's good news for Americans. Liz Everett, Chris Berg, head of the Bank of America Institute, joins us now. Liz, with inflation that high, are people going to spend throughout the holiday season or are they just going to search for bargains on these big days and then go away? Well, it's a great question, John. Thanks for having me on. I think when we look at the data across the 68 million Bank of America consumers, what we're able to find and what we're seeing is that consumer spending is moderating.

And in order to really understand what's driving the consumer spending, I think it's really important to take a step back and understand what's happening in the labor market, just as Janet Yellen had alluded to. And what we're seeing in the labor market is actually also moderation. What we're seeing in terms of income growth and what we look at at Bank of America Institute isn't just salaries, it's all income that's coming in after tax into the consumer accounts. And what we're seeing there is that while wage growth and income growth is still positive, it's really moderated quite significantly from a year ago. The other thing we're seeing in terms of the labor market and income levels coming in is that that slowdown, while gradual, is also broadening out

across the labor market. It used to be predominantly with higher income households, but now what we're seeing is that slowdown is actually impacting middle and lower income households as well. And just to give an example of that, higher income households' income growth was up four tenths of a percent this month while lower income households were up their income was up about 2.6 but both of those are significantly lower than they where they were last year higher income households up four and a half percent a year ago again down to four tenths where lower income went from you know three eight to two six so Liz tell me what you're

seeing in the velocity of this slowdown, because I've been wondering whether the high level of consumer debt that's on the books combined with these higher costs in areas like housing are going to cause consumers to hit the brakes on spending faster. But I don't know that we've seen that yet. We haven't quite seen that yet. And again, what I'd say, both spending and income are moderating. But the spending growth is moderating more. And when I say spending growth, I'm talking more about the card spending. It's moderating more than the income.

And part of that's because when you think about consumer spending, as you alluded to, some of the larger ticket items than those ticket items that are more impacted by higher rates, think about your mortgage, think about rent. Think about student loans. Those we're not seeing. Those are going up faster. And that's where the consumer, I think, is taking some of their money and spending it there as opposed to putting it on their cards, their debit or their credit cards. That being said, one of the things we would expect to see if the consumer was feeling a lot of pressure was a shift from spending on debit cards to spending on credit cards and we haven't really seen that yet so we're

looking for it but again i think the consumer still is resilient even if they're moderating if there's a jenga piece here uh is it employment is the fact that employment has been so strong has that allowed consumers to keep spending? And if that takes any kind of a dip, is that a concern? I think it certainly would be a concern. I think one of the other things that we look at, and you know, you've been spending a lot of time so far talking about job changes within the tech industry, right? What we're able to look at in our data is job changes, again, across the whole spectrum. And what we've seen recently is a real downturn in the number of people who are changing, going from job to job.

We're back at levels that are closer to where we were pre-pandemic and certainly a lot lower than where we were, you know, even a year ago. And the other thing that I think is really interesting about these job changes is the pay bump that people are getting when they change jobs has softened significantly. It's about half of the rate of increase for changing jobs today than it was a year ago. So a year ago, you might have been getting a 20% pay jump if you switched jobs. Now it's closer to 10%. So I think that's reflective of kind of slower hiring, but also some reluctance on the part of the consumer and some concern there about in an uncertain market. And unless that new job is a lot more secure, you might not want to do it. Liz Everett, Chris Burr. Exactly.

Exactly. Yeah. Well, time now for a CNBC News update with Contessa Brewer. Contessa. Hi there, John. The Secretary of Defense announced new military aid for Ukraine during his visit to Kiev today. The $100 million package will provide arms including anti-tank weapons, air defense interceptors and a mobile artillery rocket system. Secretary Lloyd Austin pledged long-term American support just a day after he met with Ukrainian officials. A Senate subcommittee announced an investigation into American, United, Delta, Spirit and Frontier Airlines over fees for baggage, seat selection, ticket changes and other

services. Chairman Richard Blumenthal said they're asking the airline CEOs to provide a breakdown of how much they collect from each fee and explain why charges are issued, detail the costs and those services. And get this, a hat worn by Napoleon Bonaparte sold for $2.1 million at an auction in Paris. The black felt bicorn hat was initially valued between $600,000 and $900,000. The hat was worn when Napoleon ruled 19th century France and then went on to start a war in Europe. So, you know, piece of history right there. Bien sûr, John. Yeah, went for a lot of money.

You don't want to be short Napoleon. Well done. Well done, John Ford. Thank you. Up next, Mike Santoli is going to look at why the one indicator that proves this recession-free economic cycle is truly unprecedented. And a quick check on shares of Zoom. They've been up as much as 6% on earnings, but coming off those levels, now barely above 1% higher. The analyst call kicks off at the top of the hour.

Meanwhile, we'll be right back. Back to overtime the conference board's leading economic index uh declined again in october that's a streak almost any other time maybe any other time that would indicate a recession not the case this time around mike santoli returns with his take mike this ever happened before no so this is the 19th straight month when the LEI has been negative. And of course, this is an index that's constructed to try and be predictive of how the economy is going to behave. Bespoke said today that the last two times we were down 19 months in a row, not only was a recession in the cards, we were already deep into a recession, like almost

a year into it. So clearly something different going on. You see here GDP growth rate annualized against the LEI. Now, one thing to note is you've actually seen it kind of flatten out here. So becoming less bad month to month, but never before have you seen quite this much of a divergence. A couple of explanations are possible. One is look at the sheer heights of GDP growth we're coming off of and the level of activity coming out of the lockdown may have skewed some of these directional indicators. Also, there's a lot of reliance in the LEI on manufacturing based and consumer survey based data. That seems to be what's dragging it down as opposed to things like credit provision. Although also we've had an inverted yield curve for over a year. And that's another thing that feeds into it. So you never want to outright say that it's different this time. There

could just be longer lags, but it is interesting that this divergence has persisted to this long, John. Mike, this reminds me of that common financial boilerplate, past performance is no guarantee of future results. So often when we say nine out of 10 times or whatever, people want to bank on that inverted yield curve, everybody run for cover. But this seems like a prime example that you can't always count on that. You can't, especially not if you put

some kind of a timeline on it, because eventually the cycle always turns. There will be a recession at some point. But in the past, there have been just a tremendous variation in how long it took an inverted yield curve, for example, to lead to ultimately a recession or just precede a recession. I don't want to suggest that it's always a causal thing. All right. There's a big difference between a 3.0 earthquake and an 8.0. Goes for recessions, too. Mike Santoli, thanks. Oil bouncing back today, but WTI crude still down about 17% since late September.

Up next, RBC's Halima Croft on whether OPEC's upcoming meeting could spark a crude comeback. Oil is higher today after gaining 4% on Friday, still down more than 14% over the past two months, and it's coming off four straight weeks of losses. This ahead of a closely watched OPEC meeting coming this weekend. Joining us now is RBC's head of global commodity strategy, Halima Croft, also a CNBC contributor. Halima, how much of a production cut is priced in here? I mean, I think at this point, market participants believe

that at a minimum, OPEC is likely to roll over their existing cuts and Saudi will likely extend its unilateral one million barrel production cut into 2024. I think that is really what is in play. I mean, there's some discussion right now. Could they go deeper? Could we see collectively OPEC cut more barrels? Will there be some potential countries saying, okay, alongside Saudi Arabia, we'll make some voluntary reductions as well? So I think that would be the bullish story if we see potentially more barrels coming on. I don't anticipate that Saudi Arabia is going to look to end its voluntary cut in 2024. I think the market is still too soft for that.

But everyone's watching those three scenarios for Sunday. How much downside risk is there based on, you know, how this turns out? I mean, I think if the Saudis came out and essentially said that one million barrel unilateral cut, we're going to basically sunset that. It's coming back in January. I think that is the bearish case scenario for this market. Again, that's why we expect that they will likely stay the course on the cuts that are already in the market. I think it's really a question of, do we see more cuts coming on top of what we have in the market? Some are speculating, though, that the Saudis might look to essentially try to regain market share by bringing those barrels back. That is not our base case at all for this

upcoming meeting. Okay. Now, how much risk is there in the demand slowdown? We've just been talking about supply, but during the show, we've been talking with Bank of America about how much consumer spending has been slowing down. Imagine people are going to be driving less if they're spending less. I mean, look, the macro data, particularly for a country like China, has been concerning. But overall, we don't see a really significant demand slowdown. I mean, there's been some softness when it looks to, you know, China in terms of recent imports. There's some lower refinery utilization rates. But some of this softness is seasonal. We don't see the flashing red lights on oil demand right now.

There have been issues about additional supply. There's been significant supply growth coming out of countries like Brazil, the United States. But fundamentally, this market does not look nearly as weak as the sell-off would indicate. We think this market is oversold. We think a lot of this has been driven by CTAs. And so it's interesting to see whether this OPEC meeting can sort of firm the floor at a minimum in terms of this sell-off. So what's meantime happening with natural gas? I mean, colder forecast, but is that enough? I mean, again, we think that there's been a correction in natural gas. We think that there's, you know, significant, there's enough supply out there. We will be waiting to see what happens in terms of winter. Inventory levels look solid. And so, again,

we think that the recent correction is warranted, but we just have to wait and see what winter brings for us. How much is the Chinese economy factoring into how energy is behaving right now? Again, I think the China concerns, I mean, China growth has not been the blockbuster that everyone anticipated with the end of zero COVID policies. But, you know, China demand has been relatively solid this year. Again, we think that we are oversold based on what the actual demand numbers look like. And the other story, Don, I think that we should be thinking about is there's basically almost no geopolitical risk premium in this market. We had a run-up when the war began between Israel and Hamas, but market participants have just basically decided

that it's not going to expand beyond Gaza. But we think it's way too soon to write off some type of disruption from this conflict. And we just saw over the weekend, we saw the Houthis make good on their threats to target shipping. They basically hijacked an Israeli tanker in the Red Sea. And we are concerned that this conflict could still bring some disruptions to energy. We don't think that it's necessarily going to remain confined to Gaza. The way you look at it, is that likely to happen in calendar 23 if it happens or never know? I mean, I think we do not know, but I think it's very important that Amos Huckstein, the presidential senior coordinator for energy, he is in Israel right now trying to prevent an expansion of this war to Lebanon.

And so the White House continues, it seems, to take the expansion risk seriously. There are significant U.S. forces that have been deployed to the region. There are ongoing attacks on U.S. forces in the region. So, again, I think it's way too soon to write off the risks from this war. All right. Halima Croft, Global Head of Commodity Strategy at RBC Capital Markets. Thanks. Thanks for having me. Bob Iger returned to Disney a year ago, but the stock returns have been anything but magical during that time. Got details when Today marks one year since Bob Iger returned as Disney's CEO,

but the stock has not been a fun ride since he came back. And elsewhere in Disney's world, worries are cropping up at the box office. Julia Boorstin has the details. Julia. John, that's right. The Marvels. This is Disney's latest movie in its Avengers franchise. It grossed about $10 million in its second weekend. That's down 78 percent from its opening weekend at the domestic box office. Now, this box office disappointment puts more pressure on Bob Iger to revitalize Disney Studio, as today he marks one year back as CEO. Now, shares are up about 4 percent in that 12-month period after a roller coaster year with more

volatility and changes than in any other single year that he has run the Walt Disney Company. In that year, Iger fended off Nelson Pelz's proxy battle. He reorganized the company with 7,000 plus layoffs and $7.5 billion in cost cutting. He accelerated the buyout of Hulu and just hired a high-profile CFO. So now, in his next year, he faces a slew of challenges, including determining the future of the linear networks, when and how to take ESPN direct-to-consumer, and what to do with Star India. Plus, there's the question of who should succeed him. And Iger is facing a possible second proxy battle with Nelson Peltz. He's backed by former Marvel Entertainment Chair Ike Perlmutter.

We may learn more about all of this when Iger is set to hold a town hall meeting with Disney employees on November 28th. John? I mean, it's kind of like, why did he come back? I mean, we're a year in. He said he was staying for two years and then longer. The succession piece still isn't figured out. Right. I mean, we're a year in. He said he was staying for two years and then longer. The succession piece still isn't figured out. And Peltz is back with with more backup than he had the first time. Well, I'll tell you why he came back. He came back because he and the board believe that he was the best person for the job.

And it's not just Disney specific challenges and issues. The fact is, is that the media industry right now, John, is in so much upheaval, so many challenges that transition not just to streaming, but to profitable streaming, plus this question about how to manage the legacy businesses. So the perspective here by both Iger and the board was that he had the expertise and the skill set to be able to manage Disney through this next transition. It's going to be a tough slog. Julia Boorstin, thanks. Well, NVIDIA is the big name on tomorrow's earnings calendar, hitting fresh highs today. Up next, we're going to discuss the key numbers to watch and how this open AI shakeup could impact investors across the AI ecosystem. We'll be right back. We have another big earnings day tomorrow. In the morning, we get Lowe's, Best Buy, American Eagle,

and Baidu. After the bell, here on Overtime, we'll get Nordstrom HP and Autodesk. But the big report everybody's going to be watching after the close. NVIDIA, especially after this leadership change at OpenAI, the impact on AI sentiment across Wall Street and beyond. NVIDIA has been a poster child of the AI boom, climbing nearly 250 percent. That's more than 3x this year, reaching all-time highs again today. Joining us right now on that, Mellius Research, Head of Technology Research, Ben Reitzes. Ben, how much of this is already priced into NVIDIA? How good do these earnings have to be for it to move higher, do you think? Well, I think that there's a lot of momentum into the print right now, but I think I feel pretty good about this, whether it's down or not on the print. I'm not 100 percent sure, but I all our checks are really good.

The bills are picking up and it does seem like they're navigating through some pretty volatile times in China. And what I'm excited about is they have a new product cycle next year. You know, they have some competitors getting going with chips and then they'll be revving up new products by the second quarter that could really knock your socks off. So I think they're going to sound good. The key question is going to be around China. How does it impact the results going forward? And I think the street's looking for a one to two bill of upside in revenue this quarter and next. And I do feel pretty good about it.

Question about strategy and valuation. So NVIDIA's got its own hardware, of course. It's making its own chips. It's got its own software. So in a way, it's not caught up in this whole OpenAI upheaval. Does that mean that investors can look at them as a port in a storm? Well, I mean, Microsoft's a big partner, right? And so OpenAI is running their stuff on Azure. So you do want to see that Microsoft still has CapEx increasing,

still partnering very closely with NVIDIA, which they are. And I think you'll hear that. In terms of AI overall, NVIDIA has the best lens on demand, what people are doing. They don't ship you a chip unless you have a purchase order that you can show them. So they're very careful about knowing where the workloads are going. So their insight on the overall market, not just on the three or four big clouds, but then the GPU as a service market with CoreWeave, and then what's going on in the enterprise with AI servers, with Dell, HPE, and others. They're the ones with the key lens to all the facets of demand. And they're the key enabler, too, driving a lot of the software. So we're looking to hear them, what they're saying about demand. We think they'll be pretty upbeat, as usual. AMD also has some AI chips that are coming out and they had a little bit of

a spotlight at the Microsoft event last week. Intel's got some AI chips on the way as well. Should you count them out? Are they a danger to NVIDIA or is it just upside for those smaller players? I think it's upside for the smaller players. I mean, AMD does seem like there's going to be some demand for their chip, especially for inferencing workloads. The market would really like a second supplier and AMD may fill that void. server partners do sound pretty excited, but anything with Intel and AI is a bonus. They're trying to expand their foundry business right now. And Pat Gelsinger does seem to be on the right track the last few quarters. And anything with AI is a bonus for Intel. For AMD, there's real expectations out there. The street's looking for at least $3 billion probably for AI next year. We've got to leave it there. Ben Reitzis, Mellius Research, Head of Technology Research. That's going to do it for overtime. See you again tonight, 8 p.m., for a special report.

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