Closing Bell - Closing Bell Overtime: OpenAI’s New Products; Commercial Real Estate Headaches 11/6/23

Episode Date: November 6, 2023

The major averages closed higher again, extending last week’s strength. Evercore’s Julian Emanuel walks through why he still sees a rally in the S&P 500 to end the year. Earnings from Tripadvisor and NXP Semiconductors. Bernstein analyst Stacy Rasgon breaks down the numbers. Bill Shopoff, Shopoff Realty CEO, talks his company’s real estate portfolio and how the sector is dealing with rising rates. Neuberger Berman CIO Joseph Amato on why investors should consider small-caps right now. 3Fourteen Research co-founder Fernando Vidal on the significance of today’s OpenAI developer day. 

The stocks continuing the recent winning streak, finishing the day higher after dancing between gains and losses during the session. That's the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan at CNBC headquarters. And I'm John Fort in Washington, D.C. today. Coming up this hour, chips and trips. We will get quarterly results from NXP Semi and TripAdvisor as we kick off another big week of earnings. Plus, Neuberger Berman President and Chief Investment Officer Joe Amato joins us with his outlook for the market and one surprising area that could start to outperform.

Let's get straight to the market as stocks come off a major winning week. The action a bit more subdued today as yields climb back after tanking post-fed. CNBC's Senior Market Commentator Mike Santoli joins us now from the New York Stock Exchange. Mike, in the S&P sector, technology, health, and comm services did the best. You know, nothing in technology seemed to be a huge, huge outperformer. More stocks down than up, right? Yeah, more stocks down than up on an individual basis, John. Twice as much volume was down than up. But you do have, I guess,

the familiar, comfortable growth sectors that people migrate to in a defensive mode, or at least when there's sort of no other strong catalyst. That did carry the indexes a little bit higher. We've had another strong Monday, the Nasdaq up for an 18th straight Monday. That's another quirky trend we have right now. In general, though, market came into the week running very hot after the rally of the prior five days. Needed to cool off. It's done so far in a pretty benign way. Those small cap stocks, you know, still always sort of the problem child.

After a good run, they give some back. That's exactly where I was going, Mike. The fact that, yeah, another higher Monday for the NDX and those tech names certainly leading the charge here. But the fact that if you look underneath the hood, maybe not as strong of a start to the week as one would expect, especially when you do see the Russell 2000 down 1.4% today. Right. So you see small caps, Morgan, as well as banks suffering when yields go higher. That relationship has been pretty clear. I wouldn't be as concerned about that on a one-day basis because you had such a very strong reversal to the upside in market breadth late last week.

In fact, if anything, you saw how washed out the market had been, that really poor comprehensive liquidation that had gone on over the course of months and weeks beforehand did reverse to the upside. So you kind of have a little bit of credit in the bank coming into today. We'll see if it goes from here. Okay. Mike, stay close because we're going to come back to you in just a few moments. But let's continue the conversation in the meantime with Evercore ISI Senior Managing Director Julian Emanuel. Julian, great to have you back on the show.

The S&P closing at 43.65. It's continuing this recent rally up four and three-quarters of one percent just over the past week. You have a year on target of 44.50. You confident we're going to continue higher from here? And if so, what makes you confident? Yeah, we feel pretty good about it. First of all, again, the seasonality is definitely a positive. Even in bad years like 2022, we saw that seasonality in November off of the October low. And we think we're seeing something similar to that. But again, if you look at it, basically people have been coming, came into November defensively positioned and probably rightly so.

When you think about the geopolitics, the political ramifications and the fact that earnings likely look unchanged year on year. But all of that having been said, the fact that the 10-year bond yield moved away from that psychologically important 5 percent level is very, very positive bond in a world where stocks and bonds tend to move in a correlated fashion. Yeah. And we saw a lot of short covering in the bond market as well last week, to your point. Treasury is going to be selling tens of billions of dollars worth of notes this week. So that, I'm sure, will be key for investors. But just looking at the market, where would you be positioning right now? Do you stay in some of these big, what we've been calling the more defensive Magnificent Seven or big Cap tech names? Or do you look elsewhere in this rally?

So I would really call it, Morgan, a barbell approach of sorts. OK, so we did some work. We believe the last Fed hike in the series was July the 26th. And what our work has shown is that the time between the last hike and the first cut, which we don't think comes till mid-next year, there is a definite propensity for the defensive sectors. We think health care is most attractive in that category to outperform. So we think that health care has been very largely on love. It tends not to care about how interest rates move around. It tends not to care about geopolitics. We like that sector. But at the same

time, we also think the AI type themes, those names that really have benefited, are likely on a, you know, medium to longer term basis to continue to work higher. That's an ongoing theme for us. Okay, Julian, picking up where Morgan left off there, part of the reason why names in healthcare haven't been loved is these weight loss drugs, GLP-1s, they're threatening everything else, or at least in investors' imagination, they are. So I know you're screening for stocks that perhaps have been unloved in this GLP-1 dominated environment. How are you looking at value there and how long a time horizon do investors need to have to make sure that they have the stomach to deal with them? So whenever you're buying something in the small cap performance today really is a dramatic example of that. If you're trying to buy something that's been beaten down, you need to take a cautious,

considered approach to it. You don't buy all at once. You perhaps scale into a position, understanding that trends don't change on a dime. But from our point of view, when we look at the sector, there are a number of stocks whose valuations are really near sort of five-year lows at the same time that they are expected to grow earnings next year in excess of the index average. And we think that's a very compelling setup, particularly when you look at health care's overall valuation being substantially beneath that of the S&P 500. Okay. And similarly, there's been a lot of excitement around AI, but that cuts both ways. If you're not a semiconductor name with a clear play there, NVIDIA, you know, Supermicro, the WCLD is still under 30, at around 28 today. So how are you,

even among the smaller names in software, distinguishing between what might end up in the trash heap and what's real value that just hasn't been recognized yet? So I think there again, what you have to sort of look at is what the earnings trajectory looks like into 2024, and in fact, was into 2023. And obviously, the bias for the names that have a larger exposure to generative AI in one form or another, are likely to continue to outperform. But again, there, and if you think about the market as a whole, we've had a very good rally over the last week.

We've had, if you think about it, a very good rally from the October lows, but there's still potentially a period of economic weakness ahead of us sometime in 2024. So you don't put all your eggs in one basket. You hold a little bit more cash. There's no penalty for holding cash at 5%, as Berkshire Hathaway told us about that over the weekend. But you have to be a very patient, long-term investor and let these themes play out. Julian Emanuel, thanks for kicking off the hour with us. Good to have you. You. Okay. Earnings have started. TripAdvisor, those results are out. Pippa Stevens has the numbers. Hi, Pippa. Hey, Morgan. The stock getting a lift here in extended trading after TripAdvisor beat estimates on the top and bottom line, earning 52 cents per share

on an adjusted basis. That was five cents ahead of estimates. Revenue coming in at 533 million, also ahead of the 505 million that Wall Street was looking for. The company said that revenue was up 16 percent year over year, performing better across experiences as well as their TripAdvisor core hotel meta offering. Once again, those shares up nearly five percent. John. All right, Pippa, thank you. Let's bring back Mike Santoli now for today's market dashboard. Mike, what do you got? Yeah, John, you know, the average stock in the market, at least among the top 1000, basically retested its bear market lows before last week's rally. This is the equal weighted Russell 1000. It's an ETF EQ AL just about got back to where we were a little over a year ago.

So we bounced off that. That's a very somewhat impressive springy move that we got last week. Good breath and all the rest of it. But you can see how much maybe proof still remains to be done in terms of this rally being a little bit more. So it is just about two years ago, too, that the average stock like the the NASDAQ, peaked in November of 2021. Now, another bit of normalization with this rally after that three-month slide in the index has been the volatility index. We closed under 15 today. Fifteen is kind of a neutral level. It's been sort of close to the floor over the last year. This is a two-year chart. But I would point out that we kind of got around there back in August when we got a 5% rally off an immediate sell off. And then it ended up being a little bit of a head fake. But it's

good news while it's coming down. That's a pretty good peak on the chart. That often does mean the fever has broken in the near term. Yeah, but the near term, Mike, we're right back at that level between 4200 and 4500 on the S&, where we're trading sideways for so long. And you were pointing out to us, don't get too excited on the upside or the downside. Now that we've popped back up there from being below, it seems like people are wiping their brows. And I wonder what are the either market signals, let's just maybe from the technical position, that people are looking for to determine whether we stay here or go higher? I would say that a few things you would take away from the recent action is the market did hold

where it sort of had to around 4,100. That's sort of the uptrend from the early 2020 low that we got around the COVID crash. So that's like checkoff box number one. The next one is, do you finally see rates stabilize so that money can migrate back into stocks, especially where there's been a lot of damage done below the surface? You know, earnings have been coming through OK. Fourth quarter numbers are coming down. So you can have this moment where if rates stabilize, people reassess. They realize that you have seasonal tailwinds. And, you know, I'm not as focused on what gets us there or what proves it.

The market still has to show better breath. You have to see pullbacks modest. Let's hold on to at least half of last week's rally as a start and see if we can get somewhere. Because, you know, when the pendulum goes too far, there's no catalyst for having it swing back the other way besides gravity and inertia. That's the first step. Okay, so what's going to matter the most this week then, Mike? I mean, we've got 55 S&P 500 companies reporting, so the deluge is largely over. But focus now turns to a lot of retailers and consumer facing companies.

You got all this bond issuance that's going to happen. And then, of course, a flurry of Fed speakers, including Powell himself. What are investors going to be watching? What's going to start to put are investors going to be watching? What's going to start to put these key levels to the test? The Fed speak is important because it is going to be that first kind of orchestrated or at least coordinated round of articulation of what the current stance is. Now, the market thinks it knows what it heard from Powell last week. Are they essentially going to just call December not much of a live

meeting unless something really changes? So that's the first thing. I think that would solidify the idea that rates have peaked. If July was the last hike, you know, then usually you have a little bit of a of a calm window in between before they start cutting. I guess weekly jobless claims start to matter again. I really do think because you want to track the loosening of the labor market, but making sure it doesn't really start to weaken too bad. All right. Mike Santoli, thank you. And while you were talking, NXP semiconductor earnings are out. Christina Partsenevelis has those numbers. Christina. What we're seeing is EPS $3.70 adjusted.

That's a beat on the top line. Revenues of $3.43 billion, which is a beat, although slightly down year over year. If we're talking about guidance, we'll say Q4 revenue fell in line with estimates with Q4 EPS, slightly about four cents higher than what the street was anticipating. But really, the breakdown is what a lot of investors are concerned about, given the slowdown that we saw from on semi within auto. Auto came in in line, $1.89 billion. Industrials and Internet of Things, that was also slightly higher than the estimates on fact set. Same thing for mobile, but it was communication infrastructure. That came in a little weak. And I'll just read one

quick line from the report. The combination of our third quarter results and the midpoint of our fourth quarter guidance indicates revenue for the full year 2023 will be flat versus 2022 in a challenging and cyclical market environment. So top and bottom line beat, Q4 guidance higher. You can see the share price up ever so slightly, almost 2%. Guys? Okay. Okay. Morgan, interesting there. Thank you, Christina. Interesting there. It seems like NXP more in line with Qualcomm with the auto's business performing well. And I can't help but note, you know, you're talking about what to look forward to Thanksgiving and Black Friday, just two and a half weeks away. Oh, my gosh. I

know I got my first invite to a holiday party today, John. But to your point, auto has been the thing and it's been a little bit more of a mixed quarter than we've seen in recent quarters. But autos has really been sort of the end market for the semis that has continued to stand up, to your point, whereas we've seen these declines that have continued and looking for signs of recovery in some of the other end markets, like mobile, for example, like PCs, which I realize is not necessarily NXP, but also industrial, where we know at least from the economic data standpoint and at least here in the U.S., signs of industrial recession continuing. Yes, the holiday parties, and I was also thinking about the data from retail, from the likes of Adobe. That might have a market impact. We'll see.

All right. Well, still ahead, Top Chips analyst Stacy Raskin will join us to break down NXP's earnings report and what he wants to hear from management on the call. And later, OpenAI hosting its first ever developer conference today, just as Elon Musk launches his rival chatbot. We will talk to an expert about the competition and about the impact on public companies like Microsoft and NVIDIA. Overtime is back in two. NXP Semiconductor reporting its third quarter earnings moments ago. The stock is just fractionally higher after hours. Joining us now is Bernstein Senior Analyst Stacey Raskin.

It's got a market perform rating, $210 price target. Stacey, good to see you. So this seems like maybe a wipe the brow moment on NXP, particularly when it comes to the guide. I had seen some people concerned that they might guide lower than $3.4 billion for Q4 and the midpoint is right there. How do you feel? In the quarter, this is kind of in line, in line-ish.

I mean, it's in line to just a hair above on the quarter. Revenue, just a hair light on the guide. EPS, a hair above. I mean, it all kind of washes out. It's mostly in line, in line. But given what we've seen out there, yeah, maybe there's a little bit of a sigh of relief. We do know among their peers, things like industrial and IoT have been quite weak. And their business has already been kind of rolling over the last several quarters, but I think there was some concern that it could be weaker, and it seems okay. And then there's just a lot of

versioning concerns about automotive just in general because of how robust it has been. And we are starting to see some cracks from other peers in that market. And so at least for now, it looks like it's holding up. Everything's holding up, at least within the realm of expectations. Looks okay. So there was some concern about some of the higher-end European automakers slowing down. I don't remember if that was in Ansemi's numbers or in somebody else's last week. Is the story overall in autos now, after Qualcomm and now NXP, that there is more stability and that those concerns were one-off or company-specific, or is it still uncertain? I think that is the question.

I think it is still uncertain, because it's not just those guys. We started even hearing issues like the quarter before from some peers, but it's been very mixed. Some companies are seeing issues. Some companies are saying things are fine. And there's not really like one sort of like discerning like way forward for anybody here. Like there is still some uncertainty there. I do think that that's one thing that investors have been nervous about for NXP. It's just, you know, it's actually a very good company. It's just they have 60 percent of the revenue, give or take, that's automotive. And so if you're worried that automotive has just been incredibly robust all through COVID, it's like kind of the one last end market that's sort of holding in. And somebody, if you worry that starts to roll, that makes people nervous. I

think that's where people have been on NXP. Again, like at this point, it looks okay. There's some information we won't get until the earnings call tomorrow. Like this is just in the release right now. We'll be looking for things like, you know, what is the guidance by segment? It is auto strong or weak, and we'll see where it is. The other thing I think people are going to be interested in is what's going on with channel inventory. So they've been deliberately keeping their channel inventories quite lean, and they're still lean. They're about one and a half months. Their normal is like two and a half months.

So that'll be one of the questions is, are they looking for channel inventories to start increasing? Are they going to be shipping to the channel, or are they keeping things lean? Those are some of the things people are looking for tomorrow. Okay. I mean, you just took some of my question right out of my mouth because I was going to ask you what you were looking for on that call. But, Stacey, I realize 60% of revenue is auto and that's really been the area that's hanging. Okay. That's really been hanging on. Where are we at in terms of the cycle for everything else? And how much is that, those signs of recovery or at least stabilization going to matter? Yeah. Yeah. You bet. So a lot of the end markets are weak. So industrial is clearly rolling over.

And again, their industrial numbers are down like pretty decently year over year. So they're seeing some of it here. But that ad market looks like it is rolling hard right now. Mobile looks like it may have stabilized. Their numbers are down, but they did sort of beat the street expectations and their own guidance, I think, for mobile. And we saw this with Qualcomm and some of the others. That market may be stabilizing. PCs, they don't have a lot of PC exposure, but PCs look like they've normalized. I think traditional data centers is currently weak. They don't have a lot of exposure there. AI is off the charts strong. They don't have a lot of exposure there. It's primarily for them, it's auto, industrial, and mobile. Within those end markets, I'd say

industrials rolling hard, mobile stabilizing, and then auto, I think, is TBD. I think that's the question. For now, auto looks like for them that it's holding up okay you got a market perform on the stock you got a price target that's 210 so higher from here do you buy into nxp or is there something else that's more compelling as we get through earnings season here you know what we'll see how things go like i have preferred um at least within my analog or diversified um names companies that have already cut and cut sizably. I cover ADI and TI and NXP in that space. I do prefer ADI a little over the others. They've already cut big. They've got a little more resilient margin structure, and I can sort of get a good feeling for trough earnings.

I think with NXP, look, if their auto business really is okay, then the stock's probably fine for me, but I think that NXP, look, if their auto business really is okay, then the stock's probably fine for me. But I think that is the question. And I've been nervous about auto for two years. To be clear, I've been wrong. Like, auto's been amazingly resilient, like, much more so than I ever would have thought. But that is the question. How much longer can it carry forward?

But if their auto business really is okay, NXP at these levels doesn't look unattractive. Okay. But I think that's the question. Stacey Raskin, thanks for joining us. NXP shares up about 1.5% right now. Well, only half a percent now, fading the gains. After the break, the turbulent world of commercial real estate. We'll talk to the CEO of ShopOff Realty, which has $2 billion in assets spanning office, retail, multifamily, and more about how he is navigating higher rates and how the lending landscape is changing. Stay with us.

Welcome back to Overtime Shopping Center. Tanger Factory Outlet just reporting Q3 results, earning 26 cents a share on revenue of 117 million. The company is saying occupancy rose to 98 percent. The company raised the lower end of its fiscal year EPS range to 93 to 97 cents. Shares are unchanged right now. Meantime, though, the Federal Reserve just out with new data from its senior loan officer opinion survey. This is for Q3. Domestic banks reporting tighter standards for all types of commercial real estate loan categories, as you can see on this chart, from construction and land development to non-farm, non-residential, and multifamily. Joining us now, Shopoff Realty Investments CEO Bill Shopoff. Bill, it's great to have you on the show, and that's exactly where I

want to start with you, because we're seeing increasing signs, including the sluice today, that credit is tightening and banks are pulling back on the loans that they're issuing for businesses and people, and specifically for real estate on the loans that they're issuing for businesses and people and specifically for real estate. Is that what you're seeing right now? Definitely. First of all, thank you for having me on the show, Morgan. But this has been a turbulent time in the markets. And when the Fed started their tightening last year, it certainly has put a lot of pressure. We've seen it on all of the banks, but definitely the regional banks. With the closing of SVB and First Republic earlier in the year, we started to

really see a ratcheting down of credit availability, and it's continuing today. So what does that mean for a developer such as yourself? You know, I've had many conversations with many non-bank lenders out there who say that, you know, this is a real opportunity for them to step in with types of debt and private credit, that it is still available, but it's much more expensive now to get a loan. Is that the situation? Is there still liquidity in this market, just it's more expensive to access it? There is a liquidity. It's definitely greatly reduced from where we were a year or two ago, where we had, you know, a very loose money, free money category. But today, you know, you've seen a couple of things happen, you know, both

the margins, you know, so for the standard overnight financing rate is increased dramatically, but we, or in prime, but also the margins. So those in the credit business, if you've got credit availability, heavily in the private credit markets, they're seeing this as a great opportunity. For us on the commercial real estate side, it just makes us be more diligent in our underwriting and probably have to pay less for our land and work a little bit harder. But good projects are still getting financed, and we're excited to be able to participate in these markets. So, Bill, please take us to school a little bit, because you've been in this business for 31 years, $2 billion portfolio here. What are the counterintuitive moves that you're making? Is there anywhere where you're selling winners or any losses that you're cutting, maybe even on

office, just saying, yeah, it looks bad right now, but we got to get rid of it? Well, Morgan, those are great questions because I think that this is a time where you have to look and you recalibrate your business. These are really opportunistic times and we run an opportunistic fund. So we look for places where we could place our capital wisely. And then we also look at the same time of exactly you said, you know, cutting losers. I mean, we have a little bit of office exposure. Fortunately, it's a very de minimis amount relative to our portfolio, but office is challenging. It's beyond challenging today. And office is the tail of two markets. I mean, we have some office buildings that are doing great. We have great

tenancy, long-term tenancy, and those buildings are going to perform well. But we have some others that are, you know, we'll say less than desirable today. So when you're placing a controversial bet to deploy capital right now, maybe it's in multifamily. I don't know. You tell me where you're most interested, perhaps in a specific geographic area. What's the data that you're looking at that convinces you that, hey, maybe not next year, but three to five years from now, you're going to be happy you did it? Well, in our business, we do have to be looking out, you know, several years. It's not looking for a quick win. The number one place that we are, you know, I guess first and second place is we're placing our bets today. One is on the industrial sector. I saw actually today Prologis just came out with an expectation that they'll hit an all-time low vacancy rate into next year.

We tend to agree with that. But the other area that we've spent quite a bit of concentration on for the firm is buying existing retail facilities. I call it retail therapy. buying shopping centers that should be something else and re-engineering and redeploying, really redeveloping them into residential for sale and for rent product. And we've done that. I guess we've now owned five centers that we're doing that on. And we're very encouraged with the results having just sold our first one where we got approval for some housing and sold it to one of the public home builders. Very interesting. Love to hear more about that sometime. Converting shopping centers into residential. Bill Shopoff from Shopoff Realty. Thanks for joining us.

Thank you for having me. Appreciate it very much. Time now for a CNBC News Update with Julia Boorstin. Julia. John, the Biden administration is planning to send $320 million worth of precision bombs to Israel. The Wall Street Journal reports that under the agreement, a U.S. weapons manufacturer would transfer the bombs to Israel to be used on the Israeli Defense Ministry's warplanes. The plan reportedly includes a provision of support, assembly and testing. The House Oversight Committee is ramping up its investigation into President Biden and his family. Sources tell NBC News the panel is preparing to send out a series of subpoenas in its impeachment inquiry,

which could include Hunter Biden and the president's brother, James Biden. On Tuesday, the committee will interview special counsel David Weiss. And Taylor Swift broke her own record. The re-recording of 1989 Taylor's version has now surpassed the original. The original album's first week sales in 2014. This album is also the top-selling record in America for 2023 in less than a week, and it has sold over three and a half million units globally. Swift is the first artist ever to earn six number one album debuts with over a million units sold. John, back over to you. That is phenomenal to put it out the second time and do better in that first week, Julia. Thanks.

I'm sure the concert didn't hurt. After the break, Newburger-Berman president Joe Amato is looking at two very different parts of the market. The magnificent seven mega caps and the Russell 2000 small caps says it might be time to start thinking small. And don't forget, you can catch us on the go by following the Closing Bell Overtime podcast on your favorite podcast app. We'll be right back. Welcome back. We have a news alert on Carl Icahn. Leslie Picker has the details. Hi, Leslie. Hi, Morgan. Yeah, Carl Icahn, his firm announcing a continuation of a cooperation agreement it has

with IFF. Those shares higher in aftermarket trading on this news. According to a press release, the two have agreed to re-nominate one ICON director and one mutually agreed director to the board for a 2024 proxy season. In the statement, IFF Chair Roger Ferguson says the ICON Group's relationship with IFF has brought relevant market experience to and enhanced the financial expertise of the IFF board. So they say they are pleased to continue to benefit from that expertise as they continue their growth and transformation plan. IFF had reached a settlement, just for some background here, with Icon over a year and a half ago that added a director to the board, but shares were down nearly 45% since then, although you can see they're up five percent currently. Concurrent with this news, IFF also reporting third quarter earnings beat on both the top and bottom line,

89 cents per share adjusted on the bottom line versus 75 cents that analysts were expecting. Revenue of 2.82 billion versus the street's expectation of2.77 billion. And the company also saying fiscal year EBITDA will be at the higher end of previous forecasts. So a beat, a raise, and an agreement, or at least a continuation of a cooperation agreement with Carl Icahn. Guys? And that stock up about 5% after hours. Leslie Picker, thank you. Let's turn now to things other than mega caps. Small caps were big underperformers today. Russell 2000 closed down more than a percent.

It's in the red for the year. Despite that weakness, our next guest says it might be time to give the small guys a chance. Joining us now, Joe Amato from Neuberger Berman. Joe, good to see you. I actually want to start with another insight or idea that you got hey and that has to do with looking at large cap stocks that um maybe haven't gotten as much love as the mega caps uh with that are still quality now i have to look back at the definition large cap you know traditionally means just above 1010 billion in market cap, which seems small compared to the trillions that we talk about. But MongoDB, for example, $23 billion. It's the biggest stock in the WCLD. I keep calling that out because we think of tech, you think of that index,

but it's down quite a bit, the WCLD is. So how are you defining quality when you talk about large caps and which industries are you looking at specifically? Well, you could certainly think about quality in a whole range of ways, right? It's not just about those that are less cyclical. It's you want companies that have a persistent ability to generate cash flow, a degree of pricing pressure, lower financial leverage, sort of moats around their businesses. So you could find those stocks in a whole host of places, not just large cap, but throughout the cap spectrum and within traditionally defensive industries, as well as

the cyclicals. So I think quality is a place that right now you want to be because we see some of the concerns that you have talked about, many of your guests have talked about, which is a level of deceleration resulting from the monetary policy impact that we've seen, of course, over the course of the last 18 months. Now, let's take it to small caps. You mentioned all sizes. They've been taking a beating on days when the markets are down. So how should investors approach growing their position in small caps in a relatively volatile environment? What's the strategy? Is it sort of averaging in? How do you do it without, again, losing your lunch? Well, I do think you want to leg in, like with any asset allocation. You don't want to jump in at any one particular time because

it could be a bad day or week or whatever for a particular asset class. But I think small caps are not typically the place that you would want to be when you're seeing deceleration in the broader economy, right? Now, the question is, have we seen the discount of those concerns fully, right? Small caps are at the levels they've been at, were last at since like November 2020. I mean, before we saw a COVID vaccine. I mean, that's how brutal the small cap space has been. And you've seen this huge migration up the cap size, particularly, of course, in the super duper size mega caps. But we think there's value in other places of the spectrum. It's not just in the super seven. And I think people should start to leg in. And there are ways to play in small cap that are consistent with what I referenced

earlier, you know, sort of higher quality, defensive nature, persistent cash flow, very defensible business models. Joe, I wonder if you're in the soft landing camp or if you believe that a recession has just been delayed rather than staved off? And I ask that because your answer to that is going to sort of determine whether we're as good as it gets with stocks in the cycle or not. Yeah, no, it's a fair point, Morgan. I think that we see a deceleration of economic activity, right? I don't necessarily see an economy that's going to fall off a cliff,

but there are certainly plenty of signs where things are softening, things are cracking. And those are the things that we're worried about. So we want to be that's why we want to be up in quality, up in the more sort of more defensive parts of the market. I don't think you want to be I don't I don't think you want to have zero exposure to equities because, by the way, we could be wrong. And if you do have a soft landing and you're off to the races, you want exposure to an equity asset class is going to do very well in that environment. But in a world where you can get five, six, seven percent in reasonably high quality investment grade fixed income, in our view, it's not the time to take a lot of aggressive equity risk at this point in the cycle where you've seen this build up of headwinds. I mean, just in the long end of the curve,

that's created volatility in the past couple of months. So there are things I think you want to watch out for. But it does pay to be diversified across asset classes, as we've always preached. OK. Joe Amato, great to have you on. Good to see you. Thanks for joining us. Thanks. Uber stock has been on quite a ride over the last year. Up next, Mike Santoli looks at whether Wall Street has Uber expectations for the company when it reports earnings tomorrow morning. Stay with us. Welcome back to Overtime. Uber reports earnings tomorrow morning.

The stock closed higher today. It's up more than 90 percent this year. Michael Santoli is back with a breakdown of Wall Street's expectations. Mike. Yeah, Morgan, a big comeback year for the stock. Now, if you go back to when Uber debuted about four and a half years ago with its IPO, it's been sideways, basically dead money. It was in the low 40s then. It's in the high 40s now. But here's the last year compared to DoorDash, which really increasingly seems like the closest comparable company in the kind of gig economy space right here, the delivery and mobility, as the street calls it.

And you can see both moving very much in sync. DoorDash, a good quarter last week. The stock reacted. So we'll see if that's a foretelling of what's to come for Uber. Now, I will say the sell side is pretty much in the tank for Uber in a big way. If you look at the breakdown of buy-sell-hold ratings, there are no sells at the moment. It's about basically 96% buys right here.

You see the target price is up in the high 50s with the share price today around 47 or so. So pretty much people are giving Uber a lot of credit in advance, I would say, for having to make this turn soon toward free cash flow positivities, toward basically being kind of able to exploit the ubiquity of their network finally in terms of bottom line profits. So we'll see if that means that expectations are a little high for tomorrow or not, Morgan. Yeah, it's really fascinating to me, Mike, because and I like the fact that you call out the comparison.

The better comparison is not between Uber and Lyft, but between Uber and DoorDash. I mean, these are also two companies. They're a little more diversified businesses than Lyft. But they also have these nascent and fast-growing advertising businesses that are gaining traction as well. Yeah, absolutely part of the bull case. Yeah, they're young. They're fast-growing. But it's pure profit.

So everyone knows what happened with Amazon where, you know, advertising became a massive part of the business. It's very material right now. Not to say any one of these companies can get quite there. But that is a big part of it, because, you know, Uber otherwise is really just kind of a toll taker on the way. They have to pay out a lot of their revenue to the driver. So that's one way to actually get the returns higher on the business. We'll see if there's evidence here that it's finally maybe nearing payoff or at a trajectory where people are willing to pay what's still an expensive multiple on cash flow. If you look at the analysts, price targets are all based on like 20, 25 cash flow forecasts. All right, Mike. Thank you. Mike mentions Uber being a toll taker. OpenAI

getting into that game as well, announcing new features and products at its first ever developer conference, including an app store right after Elon Musk launched a chat bot of his own. Up next, we're going to discuss how OpenAI's moves could affect the fast-growing AI industry. When Overtime comes right back. Welcome back. OpenAI jump-started public interest in generative AI about a year ago when it released ChatGPT. Now it's racing to stay ahead of the competition, announcing today customized bots and cheaper, more powerful models at its developer day in San Francisco. Joining us now, 314 co-founder, chief data scientist, Fernando Vidal.

Fernando, the thing that most caught my interest about today was this kind of app store that they're opening up. Say they're going to let people make their custom GPTs without even having to know how to code, But it also seems like you got to bring your own data to the party and give it to OpenAI and they monetize for you. Seems kind of dangerous in a way. Well, there's been a lot of startups that have been trying to do this. And I think today's announcement killed a lot of startups. But basically, that's the thing with AI is you don't want to just have general knowledge. You want it to do stuff related to your business. You want it to have domain knowledge about your business and be able to deal with the customers that you have the way you want to.

So OpenAI announcing this is basically them creating this new vision for another app platform. So the same way we have a, you know, you might have an Android app and an iOS app. They imagine you'll have a AI chat GPT app. And instead of interacting with an application by clicking around menus and looking through a typical user interface, you'll just talk to an AI assistant. And that AI assistant will know everything about

your business and be able to deal with your customer the way you would. So that's really the big surprise from this announcement. It leaked early and I was surprised that this rumor actually turned out to be true because it's a pretty big deal and just shows their vision of the future of computing, I think. A number of AI heavyweights are trying to jump into other people's swim lanes. NVIDIA, we're talking about possibly CPUs for PCs from them, also potentially a cloud service from NVIDIA. You made a call last time you were on, on NVIDIA, saying that, hey, you wouldn't invest in it, It's going

down and it has been lower since then. Does this from OpenAI kind of change your opinion at all about what's going to drive demand for these services and maybe make you more bullish on NVIDIA? My trepidation about NVIDIA is not really the future of ai i think it's it's basically the reason why we can justify cloud service revenue growing for you know 20 to 30 percent which it has done for a decade we can basically confidently say that'll probably continue for another decade that's the reason why the magnificent seven are the magnificent seven but I think the NVIDIA story is really about whether the next 12 months of just huge arms race and building out hardware capacity will be the steady state or will it be a one-time kind of boom of energy pulling forward a very huge capex cycle. But what we saw today

with OpenAI's announcement is the result of that CapEx cycle. So these new models are bigger and they're cheaper. And that's basically what you're able to do when you have the hardware that you need to serve up these powerful models. And I think it's very interesting that the price drops were so aggressive. So any price drop from OpenAI on their most capable models is also a price drop on the model served through Microsoft's Azure. So it's a big deal when they announce that they're going to cut the price in half, essentially. And I don't think you cut a price in half if you have a product that doesn't have any competition. So the big price drops really, I think, are a sign that they're seeing

some competition on the horizon. And they want to make sure that they continue to be the best model at the cheapest price, which after today you can still say is the case. Fernando, I have to have you back again for more on AI. Fernando Vidal. Thanks. Microsoft shares did end up 1%. Up next, we will look at some cracks in the consumer spending as Wall Street prepares for another big week of retail earnings. Stay with us.

More retail earnings are still coming, and the key question for investors is that long-anticipated slowdown in consumer spending beginning to materialize. The National Retail Federation says holiday spending will reach a record level, but at a slower growth rate compared to the past three years. Inflation continues to be the biggest concern for consumers, according to a new survey today from Morgan Stanley. The political environment in the U.S. coming in second and worries over student loan repayments are on the rise, too. But in a CNBC interview last week, Target CEO Brian Cornell noted he's seeing consumers pull back. We look at overall retail spending.

Just look at the top line. You say, all right, a really healthy consumer. And they are spending. But even in food and beverage categories, over the last few quarters, the units, the number of items they're buying has been declining. So they're even tightening up their spending in those categories. But in discretionary goods, we've seen seven consecutive quarters of both dollars and units declining. So you're buying less apparel, less items for your home, fewer toys. You're seeing some of the pressure in those categories. Well, General Mills, the company behind Cheerios and Betty Crocker, saying its customers are starting to trade down to private labels and destocking pantries.

Restaurant brands have noted the impact, too, particularly among the lower-end consumer. McDonald's and Wendy's have both recently noted that group coming under pressure. And online shop Etsy, citing macroeconomic challenges hitting households with lower income as well. So could these concerns continue to shape upcoming earnings? And what does it signal about the all-important holiday season? We'll be getting results from a flurry of consumer-facing companies this week, including Disney, Under Armour, Kava, and Tapestry. And next week, Target, TJ Maxx,

Walmart, and Ross stores. So we'll continue to watch and we'll continue to monitor. But John, in the meantime, we do have more earnings tomorrow, including another consumer facing name, eBay, given what we've been talking about around the holiday season and the role of e-commerce. We do indeed. We've also got Akamai after the bell. And there are some health related names like Gilead and Davida to maybe test Julian Emanuel's desire to look at that arena outside Morgan of the GLP-1s. Yeah, we've also got the Fed consumer credit data for September, so that'll be one to watch. And then this week in general, we talked about it earlier in the show, but a flurry of Fed speakers, including Powell on Thursday. You've got quite a bit of Treasury issuance coming this week, too. So yields are going to be front and center once again. They will. But you've got to keep your eye on

tech. I mean, OpenAI is not public, but has an impact across everything. Okay. In the meantime, major averages finish the day slightly higher. That does it for us here at Overtime. Fast Money begins right now.