Closing Bell - Closing Bell Overtime: Nvidia’s Blowout Fails To Lift Markets; Intuit CEO On AI Investments 5/23/24

Episode Date: May 23, 2024

Despite Nvidia closing up nearly 10%, broader markets closed in the red with the Dow posting its worst day since March 2023. Truist’s Keith Lerner and G Squared’s Victoria Greene break down the market action, plus earnings from Workday, Ross Stores and Deckers. Intuit CEO joins in an exclusive interview to talk the strong quarter, plus the productivity gains from investing in AI. KeyBanc’s John Vinh on why there is still more upside ahead in Nvidia. The Department of Justice is suing Live Nation; company President Joe Berchtold on the counterargument. Raymond James’ Global Head of Private Capital Advisory Sunaina Sinha Haldea on how her clients are allocating their money. 

Well, Nvidia's stellar quarter not enough to rescue the market today as stocks took a leg lower, yields rose, the Dow falling looks like right around 600 points with steep declines for Boeing and Intel. That is the scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. We'll be all over this market pullback throughout the show and another busy hour of earnings is coming your way as well, including results from nearly $200 billion software giant Intuit, along with Workday, Raw Stores and Deckers. We will bring you all of those results and an exclusive interview with Intuit CEO Sasan Ghadarzi before he talks to analysts on the call. But let's begin with today's pullback. The biggest pain being felt in the Dow and the Russell 2000 yields getting a boost as services and manufacturing data topped estimates and jobless claims fell more than expected. Joining us now are Victoria Green of G Squared Private Wealth and

Keith Lerner of Truist Wealth. Guys, welcome. Victoria, does all of this action look healthy to you? I mean, NVIDIA rides, the incitement falls in almost everything else. Dell is the exception, I think. But is that healthy or is that a concern at all? It's not too concerning to me. I think this is a very normal progression. You know, NVIDIA was kind of the last of the majors. And so it's like, now what? Right. If we don't have earnings as a catalyst, we're switching back to economic and Fed speak, which honestly hasn't been that great for the market. So I think a little of this, number one, could be some profit taking. Number two, value got weighed on by Intel and Boeing. You know, those were obviously two big movers to the downside today. And so you're kind of seeing

this disparity of growth got a lift, value still got hit. You know, Dow obviously being only 30 components, it was really tough for it to not struggle today with Boeing. But I look at this and say it's OK. We had a wonderful earnings season. The profitability of companies, the earnings growth of companies has been reaffirmed. But now I think if we pivot to the Fed and econ as the major drivers over the next couple of weeks, that's a little bit harder and a bit more headwind. So I wouldn't be surprised to see a few more stumbles here in the very, very short trading windows until the end of May. I want to mention Intuit results are out already. We will bring you those in just a moment. But first, Keith, I want to get your take here. You upgraded

equities to overweight, I believe, back about four weeks ago. And, you know, it's been a pretty nice run. Do you still feel just as bullish? Yeah, we're still positive. Obviously, the risk report is not as favorable when we were down 5%. That's when we upgraded equities. But overall, I still think the underlying trend is positive. I think Victoria's point is spot on, meaning that the one thing that's been steady is forward earning estimates moving up every week. And now we're past the video. And that was a big catalyst. Almost feels like what happens after a big CPI or employment report? The market often acts differently than people anticipate.

And I do think there's some profit taken. That inflation report from the PMIs or within the PMI this morning was somewhat hot. But it also showed economic growth is still strong. That should still continue to support profits. But again, we are lacking a near-term catalyst after earnings season. So a little bit of digestion, some chop, I think would be normal. We still think the underlying trend is still positive. Yeah. I a little bit of digestion, some chop, I think would be normal. We still think the underlying trend is still positive.

Yeah, I mean, Victoria, you kind of laid it out, right? We've got to have this hot data. We had positioning that was stretched, technicals that were stretched coming in today. You got low volatility headed into a holiday weekend. And yet, for what it's worth, NVIDIA hung on to its gains for the day. It finished up more than 9%, basically where it started trading today. New high. The fact that we saw that, how much does that speak to rotation into that name specifically? How much does it speak to what is going to continue to drive the market higher from here

if you do have a higher yield environment? I still think that AI play is very alive. And you saw that today with NVIDIA. And there's a lot yield environment. I still think the AI play is very alive. And you saw that today with NVIDIA. And there's a lot of positioning. I think a little bit one of the reasons Intel fell today is there are some rumblings. Is NVIDIA going to come into the Dow? 10 to 1 stock split puts them in the right kind of trading range on price. And, you know, you could see them have an inclusion there. And you could see, unfortunately, Intel become the new Walgreens and get booted out. So I think that's a little bit of a catalyst, but how can you not lean into AI right now?

We are still in the early innings of this trend. If you look at the internet, you had three or four years of frenzy before it finally topped out. These are real companies making billions of dollars in profit and growing them beyond expectations. Analysts kept ratcheting up, ratcheting up. Oh, they're not gonna hit that 28 billion.

They had high expectations and Nvidia still beat them. And they still look like they have a runway to continue to grow and improve. So I look around the market, and how can you not like the AI play, and how could you not want to hold NVIDIA? All right, well, hold tight. We're going to start getting you some of those earnings. Intuit earnings first, as I mentioned, are out. A little bit of nuance here, so let's check. It's actually a beat and a raise with an asterisk here.

Revenue for Intuit fiscal Q3 came in at $6.74 billion versus 6.65 consensus. EPS came in at $9.88 versus $9.37, $9.38 expected. It is a big revenue quarter for Intuit because of TurboTax and tax season. So that's a major EPS beaten in Q3 of 51 cents. So bear with me. You see the stocks down. It might be algo. So think about this. Intuit also raised the full year guide to a range on revenue of $16.164 billion to $16.2 from from 16.05 at the midpoint.

And the EPS guide was raised as well. Now, because the EPS guide was raised, Intuit argued you don't want to pay too much attention to the Q4 EPS number because that's the end of the fiscal year. And because Q3 is so big and they had such a big EPS beat, that Q3 number distorted it. I have more on that and the details on the quarter coming from CEO Sasan Godarzi. But I will point out the small business unit for Q3 was at 2.4 billion. That's a beat versus expectations. And they are bullish on the rest of the year. Also shifting some resources toward AI, which has helped some growth for them, Morgan. Always great to get that context, especially as you see this New York move

in the stock lower right now. Look forward to that interview. We also have Ross Storrs earnings out. Julia Boorstin has those numbers. Julia. That's right. Ross beating on the top and bottom line, reporting earnings per share of $1.46 versus estimates of $1.35. Revenues of $4.86 billion a hair ahead of estimates of $4.83 billion. The company's guidance also better than anticipated, guiding to an EPS range for the fiscal third quarter between $1.43 and $1.49. That's versus estimates of $1.45. Also saying they see same-store sales up 2% to 3%, which is slightly lower than the street account estimate of a consensus of 2.9%. Looking at the stock, though, stock is up 6% in after-hours trading. And I just want to point

ahead one comment here about the guidance, saying ongoing uncertainty in today's macroeconomic and geopolitical environments, including prolonged inflation, continue to squeeze our low to moderate income customers purchasing power, saying they think it's more important than ever to offer customers the best branded values and that they will continue to manage inventory and expenses tightly. Back over to you. All right. As you mentioned, those shares are up 6 percent right now. Workday earnings are out. And Contessa Brewer has those numbers. Contessa. Well, Morgan, we're seeing a solid beat here on earnings coming in at $1.74 adjusted per share

against the estimate of $1.58. Revenues $1.99 billion against the expectation of $1.97 billion. So a slight beat there. But you're seeing the stock plummet in aftermarket trading, in part because of revised guidance where subscription full year subscription revenues are concerned there. The guidance is for the for the seven point seven billion to seven point seven to five billion. That just is slightly lower than the market consensus estimate of seven7.73 billion to begin with. And here's the quote that we have from the CFO of Workday, Zane Rowe. He says, our updated subscription revenue guidance reflects elevated sales scrutiny and lower customer headcount growth that we experienced during the quarter. At the same time, we're increasing our margin outlook as we focus on

driving increased efficiencies across the company. But boy, the stock doesn't like that down more than 8 percent in extended trade. All right. Some cost cutting there. Contessa Brewer, thank you. Keith, I'm going to go back to you. We were talking about it yesterday. I'm going to revisit it. It seems like there's three pillars driving this market right now. AI, FedSpeak and macro, and then consumer. So going back to raw stores, I mean, we'd seen that stock sell off after the last earnings report, but in general, it's been a very mixed picture in terms of what we're seeing come out of just consumer discretionary and consumer staples, where consumers are concerned. That's a lot of C's right there. I just want to get your thoughts

on that, especially as you are starting to see gas prices. I realize they're coming off a little bit, but they're higher. And you are starting to see things like shipping rates move higher as well. Yeah, well, first thing I'll say, we are overweight tech and we are underweight consumer discretionary. I think the consumer is OK. There's some normalization that's happening. And there's also a bit of a split in the market. I think after several years, you know, you're seeing the inflation now, you're seeing consumers kind of fight back and saying, hey, we want to find more value. But on the same token, look at this morning, initial jobless claims,

you know, still relatively low. We still have wage growth above inflation now. And job growth, you know, year to date is still well above the pre-pandemic average. So if the job market is still somewhat tight, even if it's softening somewhat, but still relatively resilient and consumers can continue to get wage growth, that should continue to help power the economy forward, but at a more modest pace than we've had the last year. And you're starting to see that more split dynamic in the market. And like you said, between the lower income and then the higher income that has benefited from house appreciation, stock market appreciation and so forth. So I think you have to be more selective is the bottom line when you come in to talk about the consumer at this point. Well, speaking of consumer, you can see Decker's is up more than

three and a half percent on results. Julia Borsten has those numbers. Julia. Yeah, shares the footwear maker that owns Hoka as well as Teva, beating on the top and bottom line, earnings of $4.95 per share, far ahead of estimates of $2.89 per share, revenues of $960 million, surpassing expectations of $888 million. And the company's gross margins were up more than six percentage points year over year, and they say this is on stronger than expected HOCA and also UGG sales. In terms of guidance here, the company's, because the company just finished its fiscal year, looking ahead to the next fiscal year, they're guiding to revenues of $4.7 billion, which is right in line with expectations, and guiding to EPS in a range which is just below expectations, guiding to a range of between $29.50 and $30 versus the consensus estimate of $30.27. So it's

that earnings guidance for the next fiscal year, which is a bit light, but we see shares are up nearly 3.5% on that top and bottom line beat. Back over to you. Okay, Julia, thanks. Victoria, any eyebrows raised there on the guide for Dekker's? I mean, doing well. They got some strong brands, probably the higher end of the consumer spectrum, but at least on the EPS guide, some conservatism. Yeah, I think they're concerned a little bit. You know, Uggs has had this big pull forward. I feel like it's 30 years ago. We're redoing everything in the 90s, So Uggs are back and fastened again. And when you look at that between Uggs and Hoka, they have wonderful brand names, but they are having to ramp things up. They're trying to get their DTC direct to consumer going. And there's some concerns, obviously, you're going to lap some pretty big numbers. So

a little bit maybe rising costs and concerns on how frequently are you going to buy Uggs? You know, I think Hoka obviously is where their fastest growing margin is, but all in, it's a great stock. You know, for me, I'm a little surprised you're not having a bit more of an adverse reaction to guidance getting lowered slightly because typically the market has been pretty harsh to that this earnings season. But I think when investors look at this company and look at Decker's, they say, man, those brands are so strong. And if they continue to grow direct to consumer, they continue to have high margins. We could actually see expansion on that, but we could see some froth depending on how many times you want to buy odds. Yeah, we saw a similar dynamic with health beauty as well with more conservative guidance. The stock shot up 19%

today in this down market. Victoria Green, Keith Lerner, great to get both of your takes today on this big market day with all the major averages finishing lower. NVIDIA, though, was the standout winner in a sea of red. Let's turn to Senior Markets Commentator Mike Santoli with a look at some of the ways NVIDIA has been impacting the market lately. Mike. Yeah, Morgan, NVIDIA kind of helps us get at the market's message in the form of a few pair trades. For one thing, over the last year, Dell has kept pace with NVIDIA. Of course, seen as part of the same broad trend, implementing all of these kind of AI processors. And you see basically right in lockstep, 238 percent.

However, if you go back any farther than one year, there's no contest. I think NVIDIA is up something like 270% over two years versus 20% for Dell. But it does show that it does have some legs and some halo effect among very closely related companies. Now, take a look at two forms of the semiconductor sector ETFs. The SOX, that's market cap weighted. That's increasingly become an AMD as well as Broadcom and AMD index. Usually they, you know, went in lockstep until pretty recently.

This is a two year chart about a year ago. Market cap weighted soars against equal weight, which is the XSD. So the average semiconductor stock not keeping up a lot of the sort of non-AI related stuff. Now, we often take a look, or I do, about the semiconductors relative to home builders. They've really been closely connected. Again, they have these sort of long, very entrenched secular trends. A lot of it is a supply, demand, and balance in the respective areas. But look at the divergence here. Obviously, rate sensitive home builders, as well as some very weak home sale numbers the last couple of days, have taken

their toll over here. And of course, we have still the lift, thanks to NVIDIA, on the rest of them. You can see we have diverged before, but we'll see whether this one is going to remain a tandem or not, Morgan. Yeah, it is interesting. And I'm glad you brought up the home sales, whether it was new home sales today, existing home sales, the fact that you're seeing prices are still staying high, but inventory is starting to tick up in this market as well. How important is it? How important are the homebuilders to the broader market? We know semis very, very important to the broader market. But what about homebuilders? I would say they're important based on the conditions under which they would do well, which is rates stay tame, credit conditions stay generous. Maybe even, you know, banks can can start to compress that spread between mortgage rates and treasuries.

And then, of course, the consumer and the jobs market remains healthy. The wrinkle here is that, as you mentioned, existing inventory going up a little bit. If that really catches, you know, a tailwind and that happens to be a new trend, then maybe new home builders would have their advantage diminished a little bit because, of course, they've really been much more important to the home market than they have been historically because there's just no existing supply. All right. Well, you look at these charts, which means we look at these charts and we always appreciate these charts. We'll see you with another one later this hour. Thanks. Up next, much more on NVIDIA's blowout quarter and the jump in the stock. We're going to talk

to an analyst who sees a lot more upside ahead. And we're going to ask why other names in the space pulled back so sharply today. And later, Intuit CEO Sasan Ghadarzi joins us exclusively before he talks to Wall Street on the earnings call. We'll break down the results and the outlook that's important when Overtime returns. Welcome back to Overtime. Shares of NVIDIA up sharply in today's trading session. But the post-earnings rally did little to lift the broader market, or its peers for that matter. Stocks fell sharply and broadly, chip stocks being hit especially hard. Joining us now to discuss is John Venn of KeyBank.

John, it's great to have you on. I'm going to start with NVIDIA specifically. We have seen just a fast and furious flurry of price target increases today on the heels of those results. You raised your price target as well. You continue to be bullish on the stock. Why and what do you see as the risks here, whether it's from a valuation standpoint or an increased competition, maybe not in the near term, but over the longer term standpoint? Yeah, I think there's probably limited risk over the longer term.

But certainly, if you were to talk about the risk, you know, right now, you've got a company that's heavily dominant within the AI space, their share is probably well over 90%. If you look at the implied gross margins that they're getting on their AI data center business, it's roughly about 90%. No company in the semiconductor space has ever earned 90% gross margins on their business. This is more of a software gross margin profile. So obviously there is a huge market demand by the customer base, the hyperscalers, the consumer internet companies to kind of stand up a credible second source alternative to NVIDIA. So obviously longer term, it is not sustainable.

But right now, we think it's such a massively expansive market that we're not close to kind of thinking about things in terms of zero-sum. Yeah. I mean, what we initially saw 24 hours ago is when these results released, other semiconductor names, including competitors like AMD, like Intel, had traded higher in sympathy. As the session unfolded today, you saw a stark reversal in that. I wonder why and whether those are buying opportunities right now as they sell off as well. Yeah, I think there were a couple of things going on. I think you had kind of a sell the news type of event. There was obviously a great anticipations of NVIDIA reporting numbers.

And a lot of these stocks kind of ran into the earnings numbers. And then you've just basically have a sell off. I think I think the second factor that's kind of contributing kind of to these stocks pulling back is I think you're seeing NVIDIA do such an amazing job from an execution perspective. You're seeing them do such an amazing job from the roadmap perspective, right? So in the second half, they've got their Blackwell GPUs ramping. And then going into 2025, you've got GB200, which is a systems-based architecture. And I think there's some concerns about whether, you know, the competition can kind of keep up and compete with NVIDIA in the near to medium term. John, should we read anything into the fact that Dell and Marvell, I know Dell isn't

a semiconductor name, but they've recently had some significant announcements with NVIDIA and are being viewed through that AI and accelerator lens. Why those two bucked the trend and did end the day significantly higher? You know, I would say Dell is a partner of NVIDIA, right? So they're not competing with NVIDIA. You know, and Marvell, you know, Marvell's kind of big opportunity in AI is really on the custom AI ASIC front, right? They're partnering with these major cloud providers and Internet companies like Meta and AWS to develop their own internal AI chips, right? So we talked about kind of the need for the market to have a credible alternative.

One of those alternatives is for these cloud providers to make their own chips. And Marvell is a big enabler of that. I like to look, John, at history when I think about these huge moments like we're having in AI. And there tends to be this assumption that there's going to be the number one player and then the two and three that are going to get big benefits. But sometimes, really, there's just one, right? If you look at who got huge off of smartphones, Samsung did well, but really it's Apple, right? And they were talking about, oh, what's BlackBerry going to do? What's Microsoft going to do? Well, they made their money in other places.

Are we framing the AI outcomes, you think, correctly when we're talking about the second and third players or much more of this than we expect really accrue to NVIDIA in the end? at the cycle in terms of where we are right you know obviously you know blackberry made its money early in the days but obviously as the sector became more mature apple became the outsized beneficiary i i think we are still so early in this generative ai cycle that there are multiple winners like if if maybe we're looking five to ten years out and you're starting to see some maturity and some slowing of growth, then at that point you can start looking at more decisive winners and losers. But I think at this point there's more than enough opportunities for more than one beneficiary besides just NVIDIA and the chip space. Okay. Multiple rounds. John Vinh, thank you. Thank you. Coming up next,

Intuit pulling back in overtime despite a beat on both lines. The fourth quarter EPS guide versus the full year guide. We have to get through that because it's a little complicated. Up next, Intuit's CEO is going to join us with his take on the quarter before he joins analysts on the call. And take a look at the biggest decliners today in the Dow. Boeing, Intel, McDonald's, J&J, and Disney. We will be right back. Welcome back to Overtime. We mentioned it earlier in Tuit. Reported a beat and a raise for fiscal Q3 and the full year guide. Q3 revenue, $6.74 billion versus $6.65 consensus.

EPS came in at $9.88 versus $9.37 expected. That's where it gets complicated. If Q3 beats an EPS by about 50 cents and the full year EPS guide is a raise, how much does it matter that you're left with seven cents less in Q4? Well, you decide. I spoke with Intuit CEO Sasan Ghadarzi about the quarter. Here's how he framed up the guide itself. We are raising our guidance for the year. We're shifting from 11 to 12 percent revenue guidance to 13 percent and we're raising every metric operating income and EPS and it's really several fold. One our revenue is growing faster and we're continuing to get just incredible leverage because we're a platform company

and all of our investments that we've particularly made in data and AI is allowing us to deliver more innovation for our customers and be far more effective internally. And so that's the leverage that you're seeing and why we're able to increase our guidance across all of those metrics. And specifically about your question in small

business, our guide for the year was 16 to 17% growth, and we've just now raised it to 18% growth for the year, where we're very pleased just with the progress of the platform. Again, in a very uncertain macro environment, we are mission critical for those that we serve. Yeah, and I just thought maybe I'm reading something wrong here, because overall, in a very uncertain macro environment, we are mission critical for those that we serve. Yeah. And I just thought maybe I'm reading something wrong here because overall, your fiscal year guide on EPS is higher, right, to $16.79 to $16.84. But it looked like the Q4 guide was short of expectations. Was that because of the outperformance in the quarter that you're now reporting? I guess I didn't have time to do the math. Yeah, I'm not sure what the numbers are that you are looking at,

but what I would say is generally folks have a hard time knowing what Q4 is going to be because they don't know what our Q3 is going to be. So now that we've delivered Q3 and we beat across all of the metrics, I think the big thing to focus on is not only did we beat across all the metrics in Q3, we also raised in Q4. And that should be really the big takeaway, which just demonstrates the strength of the platform and the company. Now, I also spoke with Ghadarzi specifically about tax season and how Intuit fared at a time when consumers have been budget conscious. Our biggest focus right now in taxes is really going after the assisted segment. These are folks that, whether it's a consumer or a small business, they go and have somebody else do their taxes for them.

And, you know, it's about a $30 billion TAM. And, you know, we see it as a very manual, very disaggregated and very high priced market. And so that's really our singular focus. And so when you look back at the tax season, TurboTax Live is the platform we really leverage to help customers get their taxes done, whether a consumer or small business virtually, that's now $1.4 billion in size. It grew 17%. And it's actually now 30% of all of TurboTax. And eventually, you know, it's going to be the largest driver of growth. And I just want to clarify what that is for people who aren't familiar. Yes, TurboTax, the software itself, steps people through the process, but you can get a live tax professional to actually do the taxes with you. And you're saying it's more cost effective than the traditional means of getting a person. Yeah, that's exactly right. And in fact, just to finish the thought, and then I'll answer your

question very directly, our share of paying customers actually increased this year. You know, total IRS returns grew about 1%, but the assisted segment was sort of flat. And we saw significant growth. And really, the reason is folks want to have confidence in their taxes, but they also want to be treated fairly in terms of the price. Finally, I asked about how he's allocating resources. Intuit is stepping up investment in Gen AI, shifting engineering resources and spending less in customer service and some content creation. I'll give you three examples, actually, that areas that we're looking at. You know, one is, although we're going to be adding to engineering, our engineers are actually far more productive now with all of the AI capabilities that they

are using. So we'll be shifting engineering off of certain work where AI is not going to do the work to more important work. Another area is our investments that we've made with AI across our customer success operations. We're able to have AI do a lot more of the work and reduce the manual entry for our customer success folks. And so therefore we'll be able to do more with less investments. And then the other, I would just say is content generation. We're leveraging a lot of our AI capabilities

to generate content internally that others would have to manually write. And so those are areas where based on investments, we're're going to be more efficient, more productive, and move the dollars. So job shifting because of Gen AI as well. On Credit Karma here, some changes. Founder Ken Lin is leaving Credit Karma, a new leader taking over as that is folded in with TurboTax under the consumer group. And it'll be a new leader for Credit Karma as well, though it did perform a little better than expectations this quarter. It had been a weak point in previous quarters.

I think his comments about taxes, too, supplementing the workforce versus replacing the workforce. We're hearing more and more of that from CEOs, so always fascinating. Yeah. All right, well, shares are down right now. But it's time now for a CNBC News update with Kate Rogers. Kate. Hey there, Morgan and John. For the second time in three months, a bipartisan immigration and border security bill failed to advance in the Senate. The vote received 43, falling short of the required 60 to pass. Nearly every Republican, including some of the bill's primary authors, voted against it, along with a handful of Democrats.

The bill, negotiated earlier this year, was meant to tighten asylum and migration laws at the U.S.-Mexico border. The NCAA and Big Ten conference leadership approved a nearly $2.8 billion settlement of antitrust claims from three major lawsuits. The settlement would be paid over 10 years to former and current college athletes who were denied an opportunity to earn money from endorsements and sponsorships dating to 2016. Two power conferences have already backed the plan, while two others are expected to vote later today. And another online retailer is making the leap to brick and mortar. Wayfair opened its first ever physical furniture store today just north of Chicago. The store sells home goods, decor,

and housewares as well, and even has its own restaurant. The new approach to sales comes after Wayfair posted a net loss in 2023 and laid off 1,600 people, or about 13 percent of its workforce, in January. Back over to you guys. All right, Kate Rogers, thank you. Still ahead, we're going to talk to the global head of private capital advisory, Ed Raymond James, about today's sell-off and if she sees more volatility ahead across markets and asset classes. And Live Nation, deep in the red today, down almost 8% on news of a DOJ antitrust suit against the company. We're going to hear what Live Nation's president said about that news when Overtime returns. Welcome back to Overtime. Check out how Live Nation finished the day. Down sharply after the Justice Department sued to break up Ticketmaster parent company.

It finished down almost 8%. It was the worst performer in the S&P. The lawsuit, which 30 states joined as well, calls the ticketing giant a monopoly, alleging, quote, unlawful anti-competitive conduct at the cost of fans, artists, smaller promoters and venue operators. Live Nation's president joined Closing Bell last hour to defend the company against those allegations that it drives up fees for fans. There is no basis for saying that the ticket prices are higher because of any of our conduct. What the DOJ has done is they've taken a variety of random data points and put it together to create a thesis that we're somehow creating higher ticket prices. The ticket prices are driven in the marketplace by what the artist needs given today's production costs,

given what they see in the secondary is the value of their show, what a fair price will be. As we mentioned, Live Nation finishing the day lower by nearly 8%. It's going to be one to watch, see how artists and others weigh in on this process as well. I can guess how. Meantime, DuPont closing higher today in a down market. After news it is planning to split into three public firms. Our Mike Santoli is back and taking a look at how the market has rewarded other companies that have taken similar steps. Mike? Yeah, John. Market generally likes it, which is why DuPont and other companies are doing it.

Spinoffs in general, split-offs, various types of separations of businesses. Historically, it's one of the strongest sort of anomalies in the market. You shouldn't have this consistent outperformance of one kind of corporate action type of stock. But it happens. This is only a one year chart of CSD. This is actually an ETF that owns spun off companies and it hasn't always outperformed on every one year basis. But if you look at the academic literature, it seems as if there is a pretty consistent outperformance. You had these orphan type businesses, maybe not run well within a big conglomerate that have greater greater incentive to please investors. And that has worked. Now, the other thing about this spin off ETF is it's massively overweighted in industrials, like 40 percent of the market cap of the fund is in industrials.

Industrials have been by far the strongest and most consistently firm area of cyclical sectors. This is equal weighted industrials. That's consumer discretionary. IYT is transports, which actually part of industrials, but have underperformed quite a bit. So it shows that the spinoff theme is benefiting in a couple of different ways because you do also have momentum in the underlying industrial businesses, John. Okay. Makes me think of Boeing, though, and the traditional things about how most M&A doesn't work. And I know that isn't as true as it used to be, but it makes me wonder, without a counterfactual, can we say how some of these companies would have done if they hadn't spun stuff off or if they hadn't bought it in the first place? You can't specifically say how they've done. I think really all that people fixate on is once a spinoff is in investors' hands, that does better.

And actually, there's some sort of structural, mechanical reasons for that. Usually, a company spun off is not in any indexes. It doesn't have analyst coverage. It sort of gets neglected. If you own the parent company stock, you may not have wanted the business for that reason. And so you have natural sellers. So there's sort of an advantage in terms of the entry point you get. But no, it doesn't necessarily say that at all times either those companies are good or that it was a good idea for the for the parents to buy them in the first place. Yeah. You see these long tail cycles, though. And right now we're in the midst of one, this idea that the value is greater than the sum of the parts. And then they'll

re-conglomeratize at some point. Yeah. I was talking earlier about ITT and Tyco and all these other names from the distant past that that did this in a serial fashion. All right. Mike Santoli, thank you. Up next, Raymond James, global head of private capital advisory on whether she's finding opportunities in today's pullback. And if she's worried, the Fed may not cut rates at all this year. Stay with us. Welcome back. Stocks sliding in today's session. The Dow closing more than 600 points lower. The Nasdaq and S&P also lower after reaching record highs earlier in the day. It was a big reversal. Joining us here on set is Sunaina Sinha-Haldea, the Global Head of Private Capital Advisory at Raymond James. It's so good to have you back here. I do want to start more broadly. I know

you tend to be more focused on the private markets, but we do have equities that have been trading near record highs. There has been a fair amount of FOMO, at least up until today, in those markets. Your thoughts on what we're seeing across asset classes right now and what that's meant in terms of the push-pull of investor flows between public and private? I think you're still in this market where any good news is bad news, as we've seen this week with PMI and jobless claims coming in better than expectations on both fronts. But that's bad news for the markets because of the expectation of a rate cut. But what we're seeing in terms of inflows into the markets, you have a market that was very cautious in early 23 up until the summer time frame, where you had a lot of cash sitting in treasuries and you had a lot of cash sitting in short term

cash instruments. Now that cash is seeking opportunities to invest, and that's the big technical inflow you've been seeing in public and private markets in general. Private markets being much more constrained because of the lack of liquidity there, the lack of debt there, which is now improving, but it's certainly been a constraint. So the publics have really benefited from that over the last 16 months or so. I mean, one area where we've been arguably seeing outflows has been in real estate. And I say that even as Blackstone and even Aries have signaled maybe perhaps we're somewhere near bottom for real estate. But you see what happened with B-REIT over the past year. I realize that's like stabilizing or they've said it's stabilizing. But now even just today, Starwood, REIT, further

limits redemptions to shore up liquidity. What does that tell us? I think it tells us that there's questions about valuation of certain private market assets, in particular real estate. The Starwood REIT is very exposed to residential. And that market, as we all know, has taken a bit of a beating, especially as you think about a big supply-side inflow into residential real estate coming up in the next six to 12 months or so. So that's brought a lot of redemptions, which is putting pressure on that structure. Now, you've got to remember, what is a private REIT?

It's a semi-liquid structure. Investors that invest in it know going in that there will be liquidity gates, i.e. they can't redeem more than 5% of their investment at any given time. So they've gone into it with their eyes wide open. However, a big redemption request, as they've seen now, is going to put a lot of pressure on them. And they're looking to sell assets. They've got about a billion dollars worth of property. They have to offload very shortly here. Sunaina, when you were with us back in March, you talked about how investors were watching the Reddit IPO to see if the window was going to open. We've had Reddit. It's done pretty well. We've had Rubrik as well. What's the mood? The mood is cautiously optimistic. Unlike this time last

year, I think there's more hope on the horizon for dealmaking and for capital markets windows opening. You're seeing term loan markets, the debt markets start to function again. You've got refinancings on the private market sides happening in the debt markets now very successfully. So now we're starting to see harbingers of perhaps that this is a good incline as to when the rest of the capital markets open up for some of the other companies. But the quality bar remains incredibly high. The time of unprofitable, high multiples, that type of company getting a listing opportunity, those markets are gone.

So it's high-quality companies that have investor backing. Like a Reddit, like some of the others we've seen, I think they stand a shot. But are the markets open in entirety? No, they're looking for a catalyst. And that catalyst everyone's been predicting is a rate cut. That rate cut looks elusive now. The chances of September rate cut just this week have gone below 40 percent. So we've got to assume September may well likely not happen now.

So then where are we with the rest of the year? Any FOMO with risk appetites perhaps stronger than many expected at this point? And maybe folks, you know, private investors, some of them went too conservative. Some of them went too conservative. And this is a great buying opportunity, right, where you've had markets being very quiet on the deal front for about 18 months now. One has to think that this can be a great vintage to invest and buy assets that have been relatively priced down here. Certainly, you've seen a big resurgence in take privates, take privates in particular in the U.K. market, for example, where there's a relative value arbitrage between the stock indices so there are absolutely tailwinds here and you've got to remember that private markets especially private equity works on a clock four to five year investment period four to five year exit period

that market's been very quiet in terms of new deal activity for about 18 months but the clock doesn't stop and so they've got to get out there and sell companies and buy more all right we're we're going to watch for it sunaina sin Sinha Haldea from Raymond James. Always great to have you here. Up next, all the after hours movers that need to be on your radar as we monitor the analyst calls from Intuit and Workday. Overtime will be right back. Welcome back. A story we've been following closely here on Overtime. Norfolk Southern closing down almost 2% today after agreeing to a civil penalty and cleanup costs stemming from the 2023 derailment in East Palestine, Ohio.

Costs the company says are already included in its $1.7 billion set aside for related charges and also part of CapEx. As part of the deal, worth more than $310 million in all, the company will face no criminal penalties pending court approval. This resolves all federal investigations and claims, DOJ, EPA, and the Department of Interior, all except for the NTSB, which will release its own findings next month. It comes on the heels of Norfolk Southern's recently resolved proxy fight, and as prior to the news earlier today, as RBC upgraded NSC to outperform with the, quote, turnaround story intact.

All right. Well, now let's check in on some of today's overtime movers. And it is software down, retail up. Intuit topping estimates on both lines. But the stock is sliding, perhaps on guidance, perhaps on the departure of the credit karma founder. But you see it down there more than 7 percent. Workday topping on EPS and revenue, although full year subscription revenue guidance was a bit light. Deckers outdoor also beating on both lines. Domestic net sales were up nearly 20 percent. And raw stores coming in above estimates as well.

Footwear and apparel seem to be doing well, per CNBC's Robert Humm. Up next, why Elon Musk says to treat AI like raising children. We've got those details ahead. And tomorrow, don't miss an exclusive interview with Booking Holdings CEO Glenn Fogle on the outlook for the summer travel season and consumer spending as, unofficially, summer kicks off with Memorial Day weekend. Stay with us. It's hot in New York.

It's either participate and try to build the best possible AI, the one that will be hopefully most beneficial to humanity, or watch others do it and be concerned about how it's being built, because I don't think it's being built correctly. But you should think of an AI as like something that you kind of, you must like, you grow in intelligence, you know, in the same way that you raise a child. And like, what do you teach the child? And digital superintelligence is grown. It matters what you encourage and discourage, what you teach is good or bad.

It's kind of like you build it with values. Well, that was Elon Musk speaking earlier at the Viva Tech 2024 conference, comparing building and training AI models to, well, raising a child. And news crossing just a few hours ago on Musk's own artificial intelligence firm, XAI, just getting new backing from Andreessen Horowitz, Sequoia and Tribe as part of a funding round reportedly seeking to raise $6 billion. I really like this analogy about raising AI, developing or raising AI like a child, because so much of the parents, if you will, input is going to factor into how things like chatbots are developed. Scary, though. I don't know if I'd want the billionaires, maybe especially Elon Musk,

raising my kids. I mean, judging by his social media feed, I mean, maybe teaching them grad-level business. Anyway, speaking of AI, cue the QR code, because that leads in perfectly to the latest installment of my On the Other Hand newsletter, this week's debate that OpenAI crossed the legal line by allegedly

copying Scarlett Johansson's voice for its latest AI model. You can scan that QR code crossed the legal line by allegedly copying Scarlett Johansson's voice for its latest AI model. You can scan that QR code on the screen to join the conversation. I mean, Elon Musk or Sam Altman? There you go. They're your choices. Either one, I'd rather. Mr. Rogers would be great.

Can we get him back to train the AI? That would be nice. Yeah. In the meantime, we did see stocks sell off. Nvidia held on to gains, finishing the day up 9%. Record high for that name. Tomorrow, Michigan Sentiment Survey, the final reading. Got to watch that one. That does it for us over time.

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