Closing Bell - Closing Bell Overtime: NVIDIA CEO On Promise And Perils of AI; ServiceNow CEO On Enterprise Spending 5/17/23

Episode Date: May 17, 2023

Major averages closed higher today. It was the best day for the indices since May 5. Wells Fargo’s Chris Harvey breaks down what’s behind the surge. ServiceNow and NHL announce a partnership; CEO Bill McDermott and Commissioner Gary Bettman join to discuss. McDermott talks the company’s Knowledge conference and its plans for AI in enterprise. NVIDIA CEO Jensen Huang sat down with our Jon Fortt in an exclusive interview talking the promise and peril of AI and scaling software. As questions swirl the regional banks, Todd Harper, Chairman of the National Credit Union Administration, discusses how to strengthen belief in the system. Smith Point Capital CEO Keith Block on spending levels in enterprise software and what it means for global demand. Earnings from Take-Two Interactive and Cisco.

A rally in stocks today with all the major averages closing up more than 1%, debt ceiling optimism and a pop in regional banks fueling those moves. That is the scorecard on Wall Street, but the action is just getting started as we await a pair of big earnings from Cisco and Take-Two Interactive. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Ford, who is at ServiceNow's Knowledge Event in Las Vegas. Yeah, we got a lot of news happening at this event, including ServiceNow announcing a partnership with chip maker and AI platform maker, NVIDIA,

to build generative AI applications for enterprise software. Coming up, we're gonna speak exclusively with the CEOs, Bill McDermott and Jensen Wong. Must watch interviews. But let's get straight into today's market action with our first guest, Chris Harvey from Wells Fargo. Joining us now, Chris, great to have you on. I do want to get your thoughts on the moves we saw today in the markets. And I know we keep talking about day in, day out, the tight trading range of the S&P. But are we seeing some sort of momentum here that could break us out of this range?

Yeah. Morgan, sorry to let you down. I'm going to say no. It was a heck of a day, especially if you're a regional bank. Big move up, some positive news out of that space. Obviously, that helped the rest of the market. But we still think we're in a trading range. We still think the macro is going to start to weigh over things we think people are getting too excited about the debt ceiling in the short term and we think that there's probably some more downside as we go forward in time all right you put out a new note today focusing on funding and liquidity said it's funding and liquidity not earnings and fundamentals that are driving the

rally we've seen since the start of the year in the S&P 500. Break it down for me. Yeah. So, Morgan, if you go back to mid-March, right, from mid-March to mid-April, that's basically the whole return of the S&P 500. What happened then? Well, you had the Fed providing liquidity. The balance sheet shrank. We had some funding programs.

In addition to that, the 10-year yield went down 50 basis points. We saw IG credit spreads go from a peak of, I think, 163 down about 30 basis points. Was it the fundamentals? No, it really was the funding costs. It was liquidity. What have we done since the middle of April? A whole lot of nothing. What have we done since earnings season has started? A whole lot of nothing. Really, for us, it was about funding, it was about liquidity, and it was about lower rates. It wasn't about the fundamentals. So the next move from here is a move lower. Does that mean that we are still in this bear market, or is a new bull market actually started here?

So we called the end of the bear market a couple of months ago. This is not a bear market rally. Is it the beginning of a bull market? Hard for us to say because valuations are so high. We do think the S&P ends at 4,200, right? But with that price target, there's not a whole lot of upside for us at this point in time. So we think there's opportunity in the market, mid-cap growth, medium entertainment. But overall, there's just not a lot of upside. And we do think, again, as we move through earnings season, as the macro starts to take hold, we think there's probably more downside in the short term than the upside. Interesting. So I want to dig into that opportunity a little bit more. You just mentioned media and entertainment. It's been an area that's actually been pretty

hard hit, at least in recent weeks, and mid-cap. What specifically are you looking for in terms of opportunity? As far as opportunity, when we look at mid-cap growth, what we see are valuations about 16 times. We see a sector that's been derated on a fundamental and on a price basis. And we see a space that's not really picked over at this point in time. And that can give you pretty easily 10 percent growth over the next 12 months. So a lot of opportunity there, not a lot of stretch valuations, which we do see in the broader market. And you have really stable earnings. So I think it's a fantastic risk reward.

And just to bring this full circle, the optimism we did see in trading today around the debt ceiling. Why are you skeptical? And what's the broader read through if and when we do get a deal, which is consensus for the markets? Well, you really have to listen to the politicians and what they say. And they're masters at spinning a narrative. They're masters at really talking to the media. If you listen to McCarthy said, hey, we can get a deal done. Not a problem. A couple of days. Right. I have that same conversation with my son. Hey, we can go to the park. Not a problem. But you have to clean up your room. What he didn't say is, hey, it's not a problem as long as the Democrats come to our side, as long as the conditions that we put on the table are met. So we're not so optimistic

that things are going to get done. We think it's going to get a little bit more tenuous as we go forward in time. We do think a deal gets done, but we think it's too optimistic at this point in time. Okay. So we sit on our hands. We sit on our hands. Chris Harvey from Wells Fargo, thanks for kicking off the hour. Thank you. CNBC Senior Markets Commentator Mike Santoli joins us now, also from the New York Stock Exchange. Hi, Mike. Hey, Morgan. Yeah, I can't sit on my hands and need them to draw on the chart

here. Take a look at the last year or so in the S&P 500 relative to some other areas of the market that have not kept up, at least recently, the equal weighted S&P as well as the Russell 2000. Now, both of those had good days today outperforming the market cap weighted S&P. But a couple of things to pull away. One, we're positive now on the S&P on a 12-month trailing basis. And when we've gone from negative on a yearly basis up to positive returns, typically it's been a pretty vaguely bullish sign going forward. And this is what people have been concerned about, though, there.

That's the impact of the very largest stocks in the S&PP kind of having the market cap weighted gauge race ahead of the others. I'm not as worried about it unless it really gets much wider. It does show you that this has been a stingier market, not as generous to most companies. We're definitely registering some cyclical concerns. But so far to me, it feels like it's in the regular ebb and flow. It's only been in the last few months. That's been extreme. Now, we're talking about the consumer today quite a bit. Some slightly reassuring numbers from Target in terms of top line and in terms of what they had to say about sales trends going forward.

Here's what it looks like, though. Walmart coming tomorrow. Walmart is basically a consumer staple stock, both in definition, because it is in that sector, and in behavior. You see, it's basically been exactly that over the last couple of years, whereas Target, more discretionary, has taken its medicine. And I think that's been a big part of this lesson I've been harping on. It's traded along with consumer discretionary,

which itself has already tried to price in a more moderating trend in terms of what the consumer can do for this economy in the next few quarters, Morgan. Gotcha. So if you see commentary coming out of Walmart tomorrow or you see a guide of some sort or a data point of some sort that misses in a meaningful way, does that then become a bigger impact on the market, not only because Walmart's a Dow component, but because it has been behaving more defensively and performing better than its peer and target? I mean, it certainly could be just because of the mechanical impact. Although I would say if money starts to flow out of things like consumer staples and Walmart, it may well be because people feel as if discretionary has a moment in the sun.

So I would want to look for why they would guide in a certain direction. Is it going to be because they're not going to take as much pricing? That could probably be bullish if you're talking about the Fed outlook or, you know, if they if they've cleared inventory and feel as if they have a cleaner outlook. That's probably a plus, too. It's not a cheap stock, certainly, but it rarely has been. All right. Mike Santoli, thank you. And of course, the small caps were the big outperformer today as well, up two and a quarter percent. Well, Cisco earnings are out. Frank Holland has the numbers for us. Hi, Frank. Hey there, Morgan. Cisco shares moving almost a percent and a half higher after beats

on the top and the bottom line. Profit three cents above the estimate. Cisco also offering Q4 guidance above estimates. Overall, strong beat for the entire quarter with Cisco's largest segment, secure and agile networks. That's networking systems and routers, et cetera, beating estimates. In this year of efficiency for tech, also a strong margin beat. I spoke with the CFO, Scott Herron, about that margin expansion, as well as supply chain issues that he said were easing. He said in part, we did two price actions last year. We increased pricing, but because we've been shipping out of the backlog, a lot of what we had shipped until last quarter were orders that predated those price

increases. So as you can see, Cisco maintaining pricing power as the issues in its supply chain and sourcing from China is easing. So again, beats on the top and the bottom line. Cisco shares moving higher after that report. Back over to you. Yeah, and certainly orders a key focus for investors here. All right, Frank Holland, thank you. Don't miss Jim Cramer's exclusive interview with Cisco CEO Chuck Robbins. That's tonight at 6 p.m. Eastern on Mad Money.

Still ahead, ServiceNow CEO Bill McDermott and NVIDIA CEO Jensen Huang discuss their new AI partnership in an exclusive interview. Plus, NHL Commissioner Gary Bettman on the future of sports broadcast rights on the eve of the league's conference finals. Overtime's back in two. Welcome back. Take two. Interactive earnings are out and Steve Kovac has the numbers. Hi, Steve. Hey, Morgan. Yeah, shares going up about six percent on this EPS coming in at a loss of three dollars and sixty two cents a share. Now, that is not comparable to Wall Street's estimates, but revenue was a beat one point three nine billion dollars versus the one point three

four billion expected. And guidance is a little light here, $5.45 billion to $5.55 billion for the entire year. The street was looking for a $6 billion for the rest of the fiscal year, Morgan. John, I'll send it back over to you. All right, Steve, thank you. And as you might have mentioned, that stock up 6.5% at the moment after hours.

Speaking of stocks being higher, ServiceNow shares getting a nice pop earlier today. I am here at the company's Knowledge 2023 conference in Las Vegas. Investors have been looking at several announcements. There was an analyst day. There's a billion-dollar commitment to ventures and AI strategy, as well as its first buyback program. Let's bring in Bill McDermott, ServiceNow's chairman and CEO. Bill, thanks for sitting down. Thank you for having me, John.

It's good to be out here at Knowledge. So as part of Analyst Day, you revised your guide on subscription revenue to $10.5 billion constant currency, down from $11 billion. Free cash cost in currency, down from 11. Free cash flow, 31%, down from 33. But the stock was up more than 5% because I presume people are like, oh, well, he can really do this. Yes. Talk about the headwinds that you have seen and how generative AI you expect is going

to temper that and allow you to keep growing. Right. Well, John, you know, we're the fastest company in the history of enterprise software to get to a $7 billion number. And so now, as you said, we've already said we'll be $10.5 billion, and I gave a vision for $20 billion. So everybody can see that ServiceNow is a sensation. And enterprise service management, if you think about the brands that are here,

we got literally near 20,000 companies here, which is pretty amazing. And when you think about what they're trying to do, they want a one XYZ company architecture that can, on an end-to-end basis, digitally transform their business. And ServiceNow has become that sensational platform

of this century. So speaking of that, we've got a lot of retail news this week. Last week, you announced that you're acquiring G2K, which has this IoT technology for the retail business. You say you're going to allow this to tie in the retail location to their back-end enterprise systems. Now we had Target and Tjax reporting this morning, we see a weakening consumer, these companies need to save on costs. How does the combination of your technology, if it does, how does it address that and what's your vision for how you want to partner with retail into the future? Sure, as you know, you know, G2K is IoT.

It's all about generative AI. So we've been on an AI mission and building that into the ServiceNow platform for many years, which is why we're so far ahead of everybody else, which is why Jensen and NVIDIA have wholly endorsed ServiceNow as one example. G2K in the retail industry will reinvent retail. So if you think about camera technology, what's going on in the aisle, what's going on in fresh foods, what's going on in checkout, everything then becomes a big data story. And if you use the power of AI now, real-time decisions can be made to help employees execute better, to help suppliers supply better, and ultimately retailers to sell more and spend less so they drive margins and profitability.

So this is a business story. And when you think about AI empowering people to do business, that's where ServiceNow is at. Speaking of doing business, I want to bring in one of your partners now who we've got on the line, Gary Bettman, a longtime NHL, National Hockey League commissioner. And we're getting into the thick, really, of the end of the playoffs, down to four teams. Gary, tell me about how technology and maybe particularly service now, but how technology is important to the next phase of business for the

NHL. We're in a situation with, you know, a lot of arenas. You don't know actually who's coming to the game. You don't know how to get them to come back necessarily you want to tie systems together perhaps what is your strategic approach to software to data with the nhl we have become completely technologically and data driven uh in fact if you talk to sponsor united they said that we've emerged as the leader in broadcast virtual signage, and I think seven of the ten most active advertisers in that space are advertising with us because we're so effective. But let's take a step back. Yes, we're very excited about where we are in the playoffs with the conference finals beginning,

but we're excited to have announce today our multi-year partnership with service now because service now is going to enable us to leverage the power of the service now platform to enhance our game day operations to streamline productivity and to support new connectivity with our fans to enhance their experience. And so everything we're doing around the game, whether it's puck and player tracking or digital enhanced dashboards or virtual insertions in the ice, we need an application, a solution that brings together all of the technology that's driving our game right now. Gary, it's Morgan. Just to dig a little further

into that, given the fact that this conversation between John and Bill started around AI, I know that artificial intelligence is used in some of the data collection for the league, but when we talk about AI capabilities, what does that mean for the future? How are you thinking about that, particularly in terms of this partnership? Well, two well two things one when it comes to running our business uh efficiently and making sure that all of our technology is working and working efficiently this the service now uh now platform is going to help us dramatically it'll also enable us to marshal better the connective data we have with our fans and take us to the next level. The game has never been faster, more skilled, more competitive. And what we're doing with that technology is enabling our fans to get closer to the experience.

And the best that we can do is be efficient with all of this data and how we use it and how we're connecting with our fans. Yeah. I want to shift to the future of sports broadcast rights. You've got regional sports networks facing a number of challenges right now. How does it speak to the money that will be available to the league and to the teams themselves as they sell rights to future hockey games. Frankly, still, no matter what happens with the regionals, the most valuable programming right now is live sports. It's predictable. It's valuable. You reach the right demographics. We're in the second year of our newer media arrangements with ESPN, Disney, and with Warner Brothers Discovery Turner. And our ratings are up.

Our viewership is up. And what we're finding is fans are looking for more and more ways to consume and connect with the game. And data is part of that connection because as more and more data is migrating to the cloud, what we're seeing is fans trying to customize their experience, getting deeper into the game. And ultimately, I think you're going to see the ability of fans to customize their own viewing experience. So I think the future for live sports has never been brighter or more valuable. All right. Well, Bill, you heard what Gary just said there about his data needs. We were just talking about retail and these arenas are retailing locations. Right. And then you've got people who want to buy. How does your retail work and your sports work come together with the data, with the AI models that you're trying to build, ideally, and make you better? Yeah, I think, first of all, I want to acknowledge my great

friend Gary Bettman. Him and I have been friends together for a long time. And the first time that we met, we did a 20th century architecture for NHL. And Gary was ahead of the curve then. We have now stair-stepped that into a 21st century platform. So to your point, John, what does that mean? The fan experience, these fans want to be immersed with their favorite players, they want to love on their teams, they want to buy merchandise in the stadium, they want to have special treatment, especially if they're a box owner or something like that, or they simply want to have something served to them instead of waiting on lines. That whole fan experience is going to be done

on ServiceNow to fully empower the fan to be in step with the team minute to minute, not only in the stadium but when they leave the stadium or when they're on the way to the stadium. And I think that that is a step function change. The other thing that Gary's done with his vision is to have his employee experience be the bedrock of success for the NHL. So they have all the information on their fingertips, on their mobile, what they need to do to provide that in-game experience, to run a great operation. If there is a security issue, an operations issue, a failure of some kind, he wants immediate response. All that's going to be done on the ServiceNow platform.

So, John, we've been saying this for a long time. There is only one end-to-end platform for enterprise transformation in this marketplace today if you want to do it in the cloud, and it's ServiceNow. All right. We're definitely at knowledge. I'm feeling it. And we'll see how all that shows up in the numbers. Gary, thank you. Gary Bettman, the NHL commissioner.

Thanks for being with us here on Overtime. And Bill, of course, thanks for having me here at Knowledge. All right, ServiceNow also announcing an AI partnership with chip maker,VIDIA today. Up next, the CEO, Jensen Huang, is going to join us in an exclusive interview along with Bill McDermott. Be right back. It's very much a double-edged sword. I think there's a strong probability that it will make life much better and that we'll have an age of abundance.

And there's some chance that it goes wrong and destroys humanity. Hopefully that chance is small, but it's not zero. And so I think we want to take whatever actions we can think of to minimize the probability that AI goes wrong. That's Elon Musk last night during his sit down with our David Faber. Now, I spoke exclusively with Nvidia CEO Jensen Huang earlier today, along with ServiceNow CEO Bill McDermott. I started off asking what they thought about Musk's warning on AI. Take a listen.

The industry is spending the necessary and the appropriate amount of time to talk about the peril. There's plenty of technology that we're creating to enable new capabilities for generative AI, but we have to put equal, if not more, emphasis into developing technology for safe AI. All of the technologies associated with guard railing, human feedback reinforcement learning, RLHF, vector databases that are connected to these large language models so that they don't hallucinate. All of those technologies and more are created for this very reason.

And we're going to have to advance. The amount of technology that's advancing in this space is just literally daily, and I'm so excited to see computer scientists dedicate themselves to the advancing of safe AI as well as, of course, generative AI. Yeah. Bill, earlier this year,

Jensen sort of previewed the DGX platform, looking to make it easier for enterprises to develop AI. When you look at the tools necessary to do what ServiceNow needs to do, right, to keep that growth rate going that we're always talking about, what are those? Where does NVIDIA fit in? And especially as we're moving from more generative focus to inferencing, right? How do you think about how you get more than your fair share of the value there? Right now, we have the platform for end-to-end digital transformation.

And that's where everything changed. ServiceNow started in IT, but has expanded into giving employees amazing experiences, servicing customers not only in the front but the mid and the back office to give them an unbelievable frictionless experience and obviously creators that are innovating and building innovation on the platform now with the power of generative AI can do things faster, better, more securely than ever before. So there's a lot of talk about the downside of generative AI, but I'm at a conference here, which is a ServiceNow's knowledge event,

and we're inspiring employees and customers and creators to do things that they never could do before. We also made a major announcement, and I'm proud to join NVIDIA in this regard as well, to rise up with ServiceNow, where we're training a million people, because people will need to be reskilled, will need to be retooled, but there's going to be more jobs and more exciting jobs than ever before in this intelligence revolution. Okay.

Jensen, I got to ask you about technology transfer, because we've been covering the tech industry for a while. I remember talking to you at San Jose McEnery back 15 plus years ago when CUDA was first becoming a thing. And something NVIDIA has done remarkably well is take research and deep engineering concepts and make them practical in a way that investors have benefited from. I mean look at the stock. What's your approach to AI where technology transfer goes making sure that the technology that you're developing whether it's in chips whether it's in software is actually business relevant as you know you've managed to do with graphics cloud supercomputing you were there at ground zero in fact you know that we have reinvented computing for the first time since the IBM System 360, 60 years ago.

There's a trillion dollars worth of data center infrastructure installed in the world based on that old method of doing computation. Now we have accelerated computing, and we have the killer app for accelerated computing called generative AI. I wanted to say something very quickly, and I'll come back and answer that,

about what Bill was saying. It's something really important. This partnership is a fantastic growth opportunity for both of us. ServiceNow has the platform, the world's largest enterprise customer reach, understand their challenges and the problems they want to solve, to accelerate themselves, to turbocharge themselves, and they have data. So how does that affect your growth? How does that help you grow? And the reason for that is this. In combination with this partnership allows them, gives the two of us the engine for transforming all of that data and domain expertise into generative AI models. We're going to create together, we're going to create together hundreds of models solving thousands of problems and they'll be deployed, these new models, these new AI super functionalities if you will, super apps will be deployed on their platform. And so that's what this this partnership

is about, transforming the domain expertise and the data that ServiceNow has into AI models that are then deployed on the Now platform. To us, it gives us, for the very first time, reach into 100% of the world's largest companies. This is a very, very big deal, and so I'm very excited about it. The way we do that, the reason why we have to transform, we have such a rich research organization because, as I just mentioned, we reinvented computing for the first time in 60 years. The System 360 was the most important computer the world's ever designed. Its manuals alone were used for education and college classes and textbooks for decades. Just about all of the buzzwords we use today in computing,

from CPUs to DMA, were all invented, virtual memory, were all invented on the System 360. The word I.O. was invented in the system 360. And so now, after 60 years, we reinvented computing. You can't do that without great research. And we realize that, and that's one of the reasons why NVIDIA has probably one of the greatest industrial research organizations in the world applied to reinventing computers. Now, AI is the next wave of computers.

The way to think about the next computer is it's this piece of software sitting on this accelerated computing system, and this computer knows any programming language. It can do anything it's instructed to do. It's a new type of computer that's why I called it the iPhone moment. We've taken IT and we put it into the hands of literally every single consumer in the world. This is such a big deal. I also asked Jensen about his position on M&A after he wasn't able to get ARM and how software in particular plays into that. Here's what he said. We created the DGX so that we can reinvent computers.

If you look at the computers we built today, they're data center scales. We have five supercomputers in our company that are in the top 500 in the world. They write software for us, they design chips for us, they develop new algorithms for us. We then take that DGX data center and we disaggregate it and we integrate it into the world's CSPs and clouds and data centers and OEMs. This method of developing, inventing new computers, but then diffusing it into and integrating

it into the world's data centers, this strategy was enormously complicated. Without software you can't do this. And so this is one of the great stories of our company and the great strategies that we can simultaneously invent something that is bespoke and one of a kind, but then disaggregated and integrated into the world as if it was an industry standard. Now we're literally everywhere. We're in every single cloud.

The AI models that Bill and the team develop could be deployed on ServiceNow platforms in any cloud that they like, on-prem if they like, anywhere they like. And so our computers are literally everywhere. Bill doesn't do a lot of M&A. You, there was a big deal that you were looking to do. Are you going to, as this environment is tough and NVIDIA remains strong, keep pushing with technology that you see that you think adds value for you?

We don't start the day with M&A. We start the day with invention. You know, NVIDIA, as you know, is a fundamentally inventive company. We're trying to invent something that the world has never had before. And so on first principles, we kind of have to build it ourselves. However, we have a super rich ecosystem and we have great computer scientists, collaborators, ecosystem partners all over the world. And so if there's something that is really, really special, and the thing that you were referring to is really, really special and is one of a kind, I would consider it. But otherwise, we are fundamentally an inventing company. And Morgan, I think it's really important to note here for investors, these are two growth companies in technology, right? ServiceNow on the software side, growing from a strong but relatively, I mean, they're not a mega-scale company at this stage.

NVIDIA certainly is. Put it right up against Tesla. I think it's up something like close to 100% year-to-date. People are really beginning to believe that these companies are going to figure things out in this AI era. They're working together, and the idea that they're putting together these AI models in software, working with each other, I'm going to be watching very closely how and whether that works. I think investors should, too. Yeah. To your point, I mean, NVIDIA hitting a fresh 52-week high today. And yes, it has doubled since the start of the year. Both of these stocks up sizably today. I'll tell you, John, what really perked my ears up was this idea of reinventing computing for the first time in six decades since the IBM System 360,

which I know well because it powered the Apollo program and is literally what put men on the moon. So the idea that we're entering this new era that is unlike anything we've seen in decades is certainly, I mean, you can see why investors are excited about this. Yeah, and these are two interesting leaders. Bill, of course, ran SAP for quite a while and then came over to ServiceNow. So he knows enterprise software from a pretty long trajectory.

And then Jensen went from graphics chips to figuring out cloud, to figuring out how that moves into AI and beyond. So we'll keep tracking him for sure here on Overtime. Yeah, the intelligence revolution, quote-unquote. Great stuff, John. Up next, we will discuss how the regional banking crisis is impacting other financial institutions.

The chairman of the National Credit Union Administration joins us after this break. Welcome back to Overtime. It is time now for a CNBC News Update with Kate Rogers. Hi, Kate. Hey there, Morgan. Here is your CNBC News Update at this hour. A judge ordering disgraced Theranos founder Elizabeth Holmes to report to a Texas prison on May 30th. This comes after yesterday an appeals court rejected her bid to stay out of prison while she appeals her case. She was also ordered to pay $452 million in restitution to her victims. The top federal prosecutor in Massachusetts will submit her resignation to the president. It comes after a report found Rachel Rollins committed serious ethical misconduct when she used her position to try to help a fellow Democrat get elected to a district

attorney position. Rollins reportedly gave journalists non-public sensitive DOJ information to create the impression the Democrats opponent would be investigated for public corruption. And the daytime Emmy Awards have been postponed until the end of the Hollywood writers' strike. The 50th annual awards show was supposed to take place on June 16th. Also today, a coalition of eight professional sports unions said they stand in solidarity with the writers and believe they deserve a fair contract. Morgan, back over to you. Kate Rogers, thank you. This week, we've heard testimony from key players in the recent bank failure crisis, from C-suite executives to regulators, including that of Todd Harper, who joins us now.

He's a voting member of the Financial Stability Oversight Council, and he's chairman of the National Credit Union Administration. Thank you so much for being with us, Chairman. I do want to start with specifically the impact of everything we've seen with the banking turmoil, whether it's deposit flight or whether it is the risks, the growing risks we've seen around liquidity and around interest rates, how that's been affecting this portion of the financial sector. So, Morgan, first, thanks for having me. I'm a big fan. Second, though, to get to your question, and really in particular, the system is safe and sound and secure. I want to emphasize that nobody has ever lost a single penny of insured shares at either a federally insured credit union

or at a federally insured bank. And so the system is safe. At the hearings that we had yesterday, we spent a lot of time trying to focus on who was to blame. Certainly, there were bankers here who made bad decisions over and over and over again. Regulators could have done a better job of, when they saw the problems, escalating the problem sooner. That would have helped to contain the problems that we saw. But we also had a discussion of what's next. And certainly we have on the table new liquidity standards, potentially new capital standards, potentially. And certainly there's even been some discussion about deposit insurance and whether there should be modifications done

for that. So what is your take on that in terms of what's on the table and what's next? What would make the most sense? So I think one thing that the FDIC's report laid it out pretty clearly is that if we were to have unlimited coverage, that creates a lot of moral hazard in the system. And it really would not, it would incent people to take bad risks over and over again. And I don't think any of us really want that. You could also just make a decision to slightly raise the current $250,000 limit to a higher number. I'm not sure that that's the right answer either because the vast majority of deposits are well under that $250,000 limit. The area that actually has intrigued me the most is with the small business

transaction accounts, the accounts that are used to pay payroll and perhaps providing broader coverage there. There I think that there could be a case made for. Certainly, though, it's up to lawmakers to make that decision. If they were to make that decision, we'd want to make sure that there's parity between the National Credit Union Share Insurance Fund and the FDIC's Deposit Insurance Fund. Okay. I mean, have you seen, though, have you seen deposit flight when it comes to the credit union system? I realize it's almost $2.2 trillion is what we're talking about in total assets. So a fraction of what we've seen in the banks.

But has there been any kind of impact or any kind of shift in light of everything that's gone on? So we've got about a 10% consumer base of consumer deposits are within the credit union system. In terms of deposit flight, we've actually not seen it. Recent quarters, we've seen large quarter-over-quarter growth and year-over-year growth in shared deposits. In fact, we've seen some of the strongest growth. That's moderated recently, particularly as the pandemic programs have expired. But overall, we have not seen any decrease on our side of the aisle. I think that is a testament to the faith that the people understand the value of the cooperative credit union system. OK. Todd Harper, the NCUA chairman, thank you for joining today in what's been a busy week, including your testimony on the Hill.

Absolutely. Thank you. Well, Morgan, up next, former Salesforce co-CEO Keith Block is going to join me on the state of enterprise software. He's going to tell us where he sees some of the biggest opportunities in that industry when we come right back on Overtime. Welcome back. Former Salesforce co-CEO Keith Block recently launched a new venture fund, SmithPoint, with a focus on investing in enterprise software. Keith joins me here.

Great to have you. So last month you announced Fund One, $400 million, ServiceNow Ventures as an anchor in that, which I presume is why you're here. What I wonder is, since you're looking at growth stage, which is shortly before a lot of companies go public, tell me in this crazy macro environment where there's a lot more focus on operational rigor, what are the filters in particular that you're using? Because I think our viewers and retail investors can get a lot from that as they look at what they should be investing in.

Yeah, thanks John. First of all, it's great to be here so appreciate that and yes here at Knowledge, kind of a crazy environment, lots of people going by and of course we made our big announcement and our partnership with ServiceNow so we're thrilled and you know grateful to Bill McDermott and the team over at ServiceNow. It's been a frothy 24 months. What we're seeing is that these private company CEOs, whether it's early stage or late stage, these people are really looking for guidance and wisdom and operational rigor. They understand the importance of it. You think about what's happened over the last 24 months, they've

been whipsawed from grow at all costs to cut all costs. So that operational discipline that we bring at SmithPoint is very, very important. And we don't just look at financial fitness. That's a very important foundation, which is traditionally what the investment firms will look at when they evaluate a company to invest in. But we're looking at the talent level, the culture, the product market fit, the messaging, the pricing, the packaging, all the operations of a company, not just the financial rigor, because we think that's important to build great companies. What about triaging on time to value for where we should look at how companies are focusing their resources? Well, look, it's an interesting time.

And one could say that certainly in 2023, it's largely over. Companies need to survive. They've been traumatized over what's happened over the last 24 months. I mean, think about what's happened with the global pandemic and the macro environment, et cetera, the social unrest. These companies, they're making decisions that have to be focused on 2024. Every decision they make right now is all about 2024.

And it's about smart growth. It's about operational rigor. It's about accelerating time to value as you suggest, but that means you don't cut innovation and you're smart about how you invest in growth. Those have to be prioritized if you want to thrive and survive, because when the economy turns in 2024, you want your company to be in a position to capitalize on these investments. So you're positioned for growth. So you're positioned for taking share. What about rule of 40? Orlando Bravo was telling us on Overtime a couple of months ago, not so. Bill has liked to talk about rule of 40 at times. How valuable is that as a metric investors should look at on that balance between growth and cash flow? You know, there's a rule of of 40 sometimes it becomes a rule of 50 sometimes

it becomes a rule of 60. it's a little bit of this whipsaw effect at the end of the day we're here to help build companies from the inside out and build durable companies that make smart operating decisions that will will become great companies that's that's what we're involved in so you know getting hung up on sort of a tactical metric of rule of 40, rule of 50, rule of 30, whatever it is, we're looking for companies that are going to grow and we think about things in the long term. That's what's important. Have valuations rationalized yet? They're on their way. There's still room to go. We've been working with a company that we're taking a hard look at and the valuations, the mark has come down 50%.

As companies run out of money, you're going to see that continue. And I think that's a good thing. Things have to come back to normal. Well, it looks like they might be getting there rapidly, the way some of these guidance numbers look, and with the uncertainty in the macro. Keith, thank you for the time. Thanks, John. Great seeing you. Appreciate it. Morgan?

Thanks, John. Up next, the after-earnings movers that need to be on your radar right now. Overtime, we your radar right now. Overtime will be right back. Welcome back. Take two interactive up nearly 10 percent in overtime. The company reported a loss per share of more than three dollars, 50 cents. However, revenue did come in above Wall Street estimates. The video game maker highlighted better than expected results from Grand Theft Auto 5 and Red Dead Redemption 2. Dow component Cisco, though,

moving in the other direction. That's despite beating on the top and bottom lines while increasing full year profit guidance in a bet that demand will stay strong. Shares are now down 4 percent. And shares of bowling center operator Bolero, throwing a strike. Those shares are popping after beating revenue estimates up 3% right now. Well, coming up next, the big takeaways from all of today's AI news. And there's been a lot of it. We'll be right back. Welcome back.

AI has been the theme of the hour today with commentary from Elon Musk, Bill McDermott, Jensen Huang. John, your big takeaway. My big takeaway is that AI is now investable, but it's complicated. There's kind of three levels. that chips and data center infrastructure layer that's developing with the likes of nvidia being a player but also aws microsoft google etc and then you've got we've talked about the application layer you know duolingo and the likes of those we've had on over time but then there's also this development of ai models of libraries and who's going to be able to develop those the fastest, deploy them to customers in a way that they get value, I think those companies could have quite an advantage.

Yeah. I mean, we talk about AI and it sort of seems like it's a secular shift despite all this uncertainty in the macroeconomic environment, right? Yes, but everybody's not going to win, right? Like we're in that stage, kind of like the metaverse a year or two ago, where everybody's got to work it into their press release, into their earnings commentary. But the metaverse wasn't real. It wasn't a good narrative. AI is real, but not every AI is going to pan out. So that's the work for investors.

That's the work for us, for you and the work that you're doing on space and defense and all that, for me and tech and enterprise to help investors parse through that, I think. Yeah. Well, great stuff from Vegas today. Safe travels. I'll see you back on set here with me tomorrow. In the meantime, major rally for all of the averages, all the stock averages today. We've got claims tomorrow, existing home sales, Walmart.

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