Closing Bell - Closing Bell Overtime: Palo Alto & IBM CEOs Talk New Partnership; Brex Co-CEO Talks Growth 5/15/24

Episode Date: May 15, 2024

The CEOs of Palo Alto Networks and IBM join to discuss their news the companies are teaming up in cybersecurity threat monitoring and management. Brex was named to CNBC Disruptor 50 list; co-CEO Pedro Franceschi talks about the company’s growth and what’s ahead. Plus, Invitation Homes CEO Dallas Tanner on the current market for housing and rates and our Leslie Picker on the moves the hedge funds are making. 

Closing at the highs and record closes across the board as the Dow, Nasdaq and S&P all finish their highest levels ever. It's the first record close for the Dow and S&P 548 days and that is quite the scorecard on Wall Street and winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. Well, coming up today on the show, a crucial component of the CPI report, shelter inflation, ticking a bit lower in April, or not growing as quickly, we should say, according to today's data, but still up 5.5% year over year. We're going to talk to the CEO of Invitation Homes about his read on the housing market. And today is the deadline for 13F Report. We're going to bring you the latest update on holdings of some of America's most well-known investors as we get those this

hour. Plus, $200 billion tech conglomerate Cisco due to report earnings in just moments. We're going to bring you those numbers as soon as they cross. We begin with the markets and record closes for the three major averages following a softer than expected CPI print. Joining us now, Barbara Duran of BD8 Capital Partners and Eric Friedman of U.S. Bank Asset Management. Great to have you both on on a day where we have these record closes for the three major averages as well as the Nasdaq 100. Barb, I mean, you've been pretty bullish over the longer term. What do you think about the market at this level right now, given the fact that it has been so risk-gone, largely due to data that's been, I guess, bad news being good news? Can we call it

that yet? Right, right. Well, I think this is a continuing bull market, and there's going to be a point, I don't think we're there yet, where in the short term, we're going to start to question like we did in January, February, is it overbought? How much more can we go? Well, the fact is, if you look at what's happening in the economy and with interest rates, I mean, the PPI number yesterday was disappointing, but then you had a revision down in the March number. Today's CPI was a nice, pleasant surprise. Fingers were crossed, and we got our good CPI number. And that's really what spooked the market in April, You know was the the phrase that the Fed would have to the place was going to research but which I frankly don't see how

that could happen since so much was driven by supply chain issues. And wage increases- are coming to our company still up but coming down. So I think you know we're in- in very good shape and earnings are what we're gonna start to focus on

now we're gonna wait we have another few prints to come in over the next months on on inflation. But earnings were good in the first quarter, up 7% to 8%. And we started to see year estimates being raised in April, when typically April is a month where analysts look ahead and you'll see more revisions down than revisions up. So it's all very encouraging for what we're going to see. And it really speaks about the strength of the economy. And that means earnings and that means stocks can go up. And of course, we're awaiting results from Cisco, which tends to be such an IT spending bellwether on the tech side. But Eric, the data

over the past month in general, largely, and you could look at retail sales as another example of this just today, has been weaker than expected. It does raise the question about the fact that in the second half of the year, we do see these upward revisions on earnings. There is a very strong expectation in the market that earnings are going to continue to grow at these strong at the strong pace. Is it actually sustainable? We think it is sustainable. We've been bullish. We used some weakness in April to add to both equity positions domestically plus commodities. Those are the spaces that we think investors should have more exposure to. So we think it is sustainable.

This is still an environment where on a real wage basis, you're seeing consumers pick up some gains in terms of compensation. You're also seeing a broadening out by sector participation, lots of good things happening across the pond. As well as domestically so we think that in eight to nine percent earnings growth which is working senses for the year. Another ten percent for next year is not so is not too

much to ask for so. You know if you look at at the participation by no variety of different consumer types both middle income as well as upper income consumers. They remain strong there's been some marginal weakness from lower income consumers, but also more measured. So the data is still

positive. We're still bullish and think this is a good time to add up positions. Strengthen the bond market, we think is worth selling again, not to get totally out, but this is a good opportunity on lower interest rates to sell bonds and buy some stocks and commodities. Okay. Well, Barb, even with maybe even especially with all this optimism, U.S. equities are still kind of expensive. So when you're looking at what to buy from here, is it more fixed income at all international equities or are you sticking with domestic? Well, I'm sticking with domestic because I'm not sure things really are all that expensive when compared to other areas. I mean, right now the S&P is probably around 20, maybe after today, 21.

But a lot of that are the big high growth mega cap names that we always talk about. And even there, you're not seeing valuations out of control. They're not 40, 50, you know, P.E. So I don't think we're all that expensive. And I think, you know, I agree with Eric in terms of it's a nice time to be switching out of bonds because the Fed has signaled they're not going to be raising rates. And now the question is when they will. And if we have a few more inflation prints, you know, this could happen sooner rather than later, but probably not before September, I would think. So I would stick with equities. Okay. Okay. And Eric, you say you're kind of switching out of bonds, but adding to

duration in tax exemptexempt munis. Explain. Yeah, so a couple of thoughts. One is that if you look at the shape of the curve that the, you know, for those clients that have taxable positions, this is an environment where, you know, the yield curve on the muni side is more normally shaped. So you're actually seeing an opportunity for investors to add to duration without taking on a bunch of a bunch of what's called curb risk other thing i'd really emphasize is within fixed income there's certainly some opportunities in high yield but i also would say that equal weighted s p has been the the problem child that field that hasn't really kept up with uh their southern large

cap brethren so this is an opportunity we think to step into an equal weighted s p whether you look at that on an index basis or through active managers. That's a spot where the value factor is starting to make some sense, and we think that that broadening exposure will benefit clients. Well, we said we were awaiting Cisco earnings. We have those results, and Christina Parts-Nevelis has them for us. Hi, Christina. Hi, Morgan.

Well, the networking provider Cisco posted an EPS earnings per share and revenues beat helped by its recent acquisition of cybersecurity firm Splunk. So Q3 EPS came in at $0.88 a share with revenues of $12.7 billion. Splunk added roughly over $400 million to that line, but still a beat. You can see shares reacting quite positively. And with only one quarter left in their fiscal year, they were also able to beat Q4 expectations with an EPS range of 84 to 86 cents and then Q4 revenues of a range of 13.4 to 13.6 billion. In the actual release, Cisco's CFO saying that customers are consuming their inventory now and they are seeing, quote, stabilization of demand as a result. That was an issue over the last two quarters. The company also naming Gary Steele, who is the CEO of Splunk, as the president of Cisco's go-to-market effective immediately. Reaction? Positive. Over 4 percent.

Guys? All right. Christina Parts Nevelis, thanks. Barbara, I'll go to you on this one because you had a beat on the top and bottom lines. You had current quarter guidance coming in better than expected. But perhaps most interesting is that commentary about customers consuming inventory and the stabilization of demand. It goes back to this notion that perhaps the bar was low or certainly had been lowered coming into this print. Well, I think the management did a great job of that. And this is the fifth quarter in a row, by the way, that they have beat their EPS and their revenue targets. So this, in my view, is not unexpected. But they had set the bar. The last two quarters, they have cut estimates because they are in sort of this lull. I mean, they had a big backlog issue because of their own supply

issues during the pandemic. So when things opened up again, they got all that backlog out, right? So that sort of bumped up the growth beyond what it normally would be. And right now, the expectation, I'll be interested to see what they, to hear what they say on the call, orders are expected to be down 10 to 15 percent. You know, so this, the bar was so low. I mean, you had 14 different estimate cuts in the last three months, 11 different revenue cuts. So there really was hard to see what the negative aspect would be. And so it was, I think the risk reward going into this was very good. All right. I love that you had those numbers to trot out right there, too, for a little bit of context. Barbara Duran and Eric Friedman, thanks for kicking off the top of the hour with us with

record closes for all the major averages. Well, Netflix shares getting a brief pop late in the session on some new user data and advertising news, though the stock did finish the day lower. Julia Borsten has the details for us. Hi, Julia. Hi, Morgan. Well, Netflix announcing at its upfront presentation this afternoon that its ad-supported plan now has 40 million global monthly active users. That's up from 5 million a year ago and up from 23 million in January. Netflix also announcing that it's launching in-house ad technology, its own ad tech platform, saying that by the end of 2025 that they will be entirely moved over to their own collection of ad tools. Netflix is also expanding its partners for selling ads beyond its launch partner, Microsoft, saying that this summer they are

adding the Trade Desk, Google's Display and Video 360, and Magnite. Now, shares of both the Trade Desk and Magnite popping on this news. You see Trade Desk up about 5%, Magnite up 8.5%. John? All right, Julia, thanks. That's a lot of data. Now, turning back to the macro, Mike Santoli joins us with a look at bellwether parts of the market as the S&P 500 hits new highs. Mike? Yeah, John. So some of the groups that got us here, and then two that I like to look in in pairing is semiconductors and homebuilders. Right. These big secular growth, demographic change type areas, rate sensitive to varying degrees. Both of them strong recovery moves, although somewhat interesting, not quite back to old highs.

Semi's had a pretty big correction before today. NVIDIA had really done nothing since early March, trying to rebound on that. And homebuilders benefiting from that drop in treasury yields, but still not all the way back. It's still a pretty similar shape here. It's a bullish kind of construct of these charts. And it shows you in general that risk appetites as well as rate expectations are in a friendly zone, at least for now. And a lot of attention on copper, even as other commodities also get some play. Here's a 20-year chart of carbon. I want to point out the longer-term trend, both because the absolute levels are similar to what we saw at times in the mid-2000s and

early 2010s. And now this is a very strong move. There's a whole shortage story around it, of course, with the power grid and electrification being a big part of it. What I would point out, though, is these past peaks, that's right in 06. Here you have right before Lehman failed and the world almost melted down, you had copper peaking. It wasn't telling you a heck of a lot about the forward path of the macroeconomy globally or necessarily about inflation. So copper can be strong. There could be good fundamentals without it sort of being an economist, an economics PhD, as people call it, telling us what's going to happen in the economy or inflation. Yeah, maybe a reactor rather than a crystal ball. I wonder if you were paying attention at all, Mike, to Bitcoin as well, which was up 7 percent today as there seemed to be this renewed attention to risk assets,

including some of these AI darlings? For sure. I think what happened today is once we cleared the anxiety that was built up to some degree and headed the inflation numbers, we went to the first quarter winners. And that included all the parts of the stock market that had done well in the early part of this year, as well as Bitcoin. So I think that they're just kind of fellow travelers with a lot of those asset classes in crypto. And I think in terms of copper, the fact that you have some pretty big deal news drama playing out with BHP

and Anglo-American is probably casting a light on what we're seeing. The stocks have been very strong as well. Exactly, what we've been seeing in the copper trade overall. Mike Santelli, we'll see you a little bit later this hour. While sentiment on Wall Street is up, new data today pointing to falling confidence in the housing market. Homebuilder sentiment dropping to its lowest level since January as mortgage rates remain high. Up next, though, the CEO of Invitation Homes with his read on real estate and the outlook for shelter inflation. Single-family home rentals, a key part of the market.

Overtime, back in two. Welcome back to Overtime. We have some breaking news on AT&T. The wireless carrier announcing a commercial agreement, a definitive commercial agreement with AST Space Mobile to provide their first space-based broadband network direct to cell phones. AT&T has been working with and investing in the satellite communications company since 2018, but the news today marking a next step in that relationship with an agreement extending to 2030. Now, AST Space Mobile, which makes satellites that can deliver broadband connectivity to any smartphone without special hardware or modifications, expects to launch its first five official commercial satellites later this year.

Financial details undisclosed tied to today's news. But AT&T's head of network, Chris Sambar, tells me the plan is to launch a couple dozen satellites later this year and into early next year. Once that density is there in low Earth orbit, limited commercial service will launch behind that. Zambar, who will join AST's board, says they're still flushing out the actual business model, whether to provide this to customers on specific plans, whether it'll cost extra, et cetera. More on that expected in, quote, coming months. How to think about this as a consumer or business customer, though? Better connectivity on the AT&T network instead of experiencing dead zones or patches of poor

service like you would, for example, in a rural area. The space-based solution will bridge the terrestrial network and seamlessly. The user won't know where connectivity is coming from, just basically that they have it. And as you can see right there, shares of AT&T are unchanged on this news. But look at AST Space Mobile. Now, mind you, this is a small cap stock. It's got a market cap of something like 600 million at close today. Shares are shooting higher. They're up 46 percent right now. Back on Earth, new data out today on the housing front. The National Association of Home Builders survey showing a decline in builder sentiment. It's the first since November, marking the second weakest level of the year. Meantime, shelter prices. Those were up 5.5 percent in April from a year ago,

which is down slightly. The pace of growth for March, according to the CPI report we got this morning. Joining us now exclusively, Invitation Homes CEO Dallas Tanner. Dallas, it's great to have you back on the show at a time where everybody is so focused on rent prices and the pace of those rent price increases as we do see the reading in CPI where it's outsized and we know it's lagged. What are you seeing in real time across your portfolio, which really spans most of the country? Yeah, it's a great question. We just had our earnings call. And while you're certainly seeing things moderate, pricing's still elevated. Demand's still really high. Our business today is about 97.5% occupied. We're seeing rent growth in kind of the low

fives were the numbers that we shared for April from a blended basis. So there's still really insatiable demand. It all comes down to lack of lack of housing supply, as you and I have talked about in the past. I think we've got to address some of these challenges. We need we need better access to supply for the marketplace. And while it's nice to see things moderating, supply is still certainly cramped. And so I think we're going to see additional pricing pressure on housing and housing costs for most of this year. It's interesting to hear you say that. I mean, what do you think it's going to take to see, as you talk about moderating, what do you think it's going to take to see actual stabilization? And I ask that knowing that you are a buyer in this market, too, in some cases going straight to

the builders themselves to strike deals to create more inventory for your own customers. You're exactly right. We are hyper focused on trying to create new housing stock. We have a couple thousand units somewhere in the production line right now, and then we'll deliver to mostly Sunbelt and Southeast markets. That's been our focus. We're going to lean in on that strategy and continue to partner with really great public and both private home builders that want to create this additional scale. It takes a balance sheet and it takes a focus. And so we're going to use Invitation Homes and its balance sheet to really focus in on creating some of this new supply. It won't

solve the problem, but we've got to do our part. I think the other thing you need to start to see is resale supply come back into the marketplace. We've talked about this in the past, but the reality is, is you have this rate lock situation where a lot of people are in a pretty affordable mortgage. And if you look at the bid-ask spread right now between what a new mortgage cost is relative to leasing or staying in your home where you currently have a mortgage, it's a huge differential. And so we're certainly seeing that in our customer profile. They're continuing to stay longer and longer and renew it at pretty favorable rates. Dallas, what do you expect is going to happen to all of this rental stock when the housing market eventually normalizes? Well, to be clear, I mean, we've seen since 2016

less single family rental available in the marketplace over the last, call it seven or eight years. There's definitely been a focus on building some more kind of scattered sites, smaller, what they call BTR product out on the periphery. Most of it's getting absorbed just due to the lack of supply. I do think one area that is of focus for people that are leasing right now that's been extremely beneficial has been you can build positive credit while you're leasing. We have over 190,000 people in our homes right now that are leasing and building credit. We've seen average credit scores bump 33 points over that period in the last year. All right. That's major. Dallas, thank you. CEO's invitation home. Well, we're getting the first batch of 13F reports. Let's get to Leslie Picker with details. Leslie.

Hey, John. Yeah, they're coming fast and furious. And with some news to boot, you've got the mystery name revealed by Berkshire Hathaway, it is revealed as the insurer Chubb. You can see shares of Chubb had spiked upon this 13F filing in aftermarket trading. There you go, up 5% right now. It's come down a little bit, but still gaining about 5% there. Berkshire revealing a $6.7 billion stake as of the end of the first quarter, representing about 25.9 million shares. And just a reminder, Berkshire had been purchasing in the third and fourth quarters of last year, but was allowed by the SEC to keep it confidential as it was building its stake. So Mr. Name revealed

Chubb, $6.7 billion stake. Other news from the Berkshire filing, sold out of HP. That was about a $700 million position last quarter. We also saw that Berkshire pared back 88% of Paramount Global in the quarter, and they must have sold the rest in the six weeks since because during the shareholders meeting, if you recall, Buffett said Berkshire sold its entire stake at a loss. Turning also to Appaloosa's 13F filing, some interesting moves in Chinese tech here. Alibaba, that firm, upped its stake in Alibaba, nearly tripled up 159% to $814 million, so sizable move there, upped Baidu by 188% to $190 million, and also took a new stake in JD, worth about $100 million at quarter end.

Also, Appaloosa took a new stake in Boeing, an interesting move. It's about $43 million at the end of the quarter, relatively small compared to its overall portfolio, but noteworthy because it's Boeing. Also kind of pared back some big tech names, pared back Meta by 39%, pared back Nvidia by 44%, and pared back Uber by 77%. Of course, these are all positions as of the end of Q1, as of the end of March. They may have shifted in the six weeks since, but they are a snapshot of kind of how some of the larger managers traded their equity holdings during the first quarter, guys. Always interesting, you know, if backward-looking,

insight into how these billionaires are trading. Leslie, thank you. Well, fintech firm Brex landing at the number four spot on this year's CNBC Disruptor 50 list. And up next, the company's co-CEO is going to join us with his read on lending and spending and how the company's using AI for everything from corporate expense reporting to fraud detection. Overtime. CNBC releasing its annual Disruptor 50 list this week.

Coming in at number four is Brex. The fintech company uses AI to help companies streamline expense reporting, booking management capabilities, and more. And joining us now is Brex co-CEO Pedro Franceschi. Pedro, good to have you. So I'm noticing this expansion from so many small business and enterprise-focused fintechs in the breadth of things that you're trying to offer. Tell me about how you're doing that to serve the demand you're seeing for customers. First, thanks for having me. Very happy to be here and very happy to be making the list as number four. So for Brex, we started the company

in 2017 with corporate cards. But what we saw is as you start to have spend and your company start growing, a lot of the challenge becomes how do you manage a spend at scale? And a lot of what the company evolved into and what we do today is help companies make every dollar count. How do they make every dollar across their spend on corporate cards, on invoicing, on bill pay, on travel count and then do this on a global scale as well. And obviously we're using a lot of AI for helping us customers automate this. But really for us is how to help every dollar spend go

farther for our customers. And the spend management to be able to look at whether companies are paying the right amount, a fair amount for things that they're acquiring, not just on a T&E travel and entertainment basis, but just for things like equipment. How is that working? Yeah, so for us, the way we think about it is every single dollar spent in a company, typically, especially as you start growing, finance teams, they start to think about, is this in policy? Is this on budget?

And not just a few dollars are spent, but every dollar spent. And a lot of what our product does is enable our customers to doing this in a really large scale. So we have, for example, 100 public companies using Brex today to doing this for their whole employee base and every single financial decision. And a lot of the value that they get as they start using the platform is the level of automation that we provide as well for them. So we just crossed the mark this

week of helping our customers automate 11 million hours of manual work that they were typically doing manually across accounting, collecting receipts, you know, chasing folks for memos, and all of that goes away as our customers start using Brex and leverage the platform capabilities and AI to automate a lot of that busy work for them. For the folks that maybe weren't aware of Brex before last March, when we saw the collapse of SVB and we saw many different startup and other types of, you know,

companies have to sort of reimagine what their financial transactions are going to look like. You extended lines of credit. You brought on many new customers through that process. Now that we're 14 months past that, what what was, I guess, the impact of that and how did it spur you to perhaps think even more broadly about the business and how you're now building out the portfolio? Yeah, so the time around the SUV collapse was a very interesting time for our company. So we took over 4,000 customers and over $2 billion deposits in a little bit over 48 hours. At the same time of all that, we established this billion-dollar emergency fund line for a lot of the customers that couldn't access their funds in SVB. And the roots of Brex is in serving startups.

Today, one in every three startups in the U.S. uses us. And when Iquan and player into space collapsed, it was, we felt it was our duty to extend our customers and help them really, you know, weather that complicated time. And, you know, now 14 months later, we're really proud that, you know, more than 90% of the customers who came to Brex are still Brex customers and expanding their user platform, which has been really good to see. All right. Pedro, thanks. Pedro Franceschi from Brex. And you can catch much more Disruptor 50 coverage tomorrow, beginning in Worldwide Exchange with the CEO of Octopus Energy. It's number 11 on this year's list, which it was number eight. Oh, my God. Time now for CNBC News Update with Bertha Coombs. Bertha. Hey, Morgan. New details emerging this afternoon about a suspected assassination attempt on the leader of Slovakia. Prime Minister Robert Fico said to be in, quote, a life-threatening condition.

The country's interior minister said the prime minister was shot five times and that the shooting appears to be politically motivated. The suspect was tackled at the scene by security. Fico was then airlifted to a hospital where he has been undergoing surgery. The House this afternoon approved a new $105 billion aviation bill. It increases the number of air traffic controllers and puts more safety inspectors in aircraft factories. Also requires airlines to automatically pay refunds when flights are canceled or delayed significantly. President Biden expected to sign it into law. And finally, HBO's Hard Knocks has found its team for the upcoming NFL season, the New York football Giants. The popular show will follow the team through July of this year, covering the

Combine, Free Agency, the Draft and minicamps. This will be the Giants 100th season as a team. The Giants, the only team to defeat Tom Brady twice in the Super Bowl, but I'm not bitter. All right, Bertha Coombs, thank you. Okay, breaking news now in security software. Palo Alto Networks and IBM teaming up in cybersecurity threat monitoring and management. It's an area of the market estimated at between $5 and $10 billion a year, quickly shifting in the AI era. Palo Alto is buying some software from IBM in a consolidation move. IBM's offering broader support to Palo Alto customers. And coming up next, we're going to be joined exclusively by IBM CEO Arvind Krishna

and Palo Alto Network CEO Nikesh Arora to talk about this partnership when Overtime returns. Welcome back to Overtime. As I mentioned before the break, Palo Alto Networks and IBM teaming up in cybersecurity threat monitoring and management. The partnership also involves WatsonX and the IBM adoption of Palo Alto Network security monitoring, among other collaborations. And the companies expect this to close pending approvals before October. Joining us now exclusively to discuss are Nikesh Arora, the CEO of Palo Alto Networks, and Arvind Krishna, CEO of IBM. Great to see both of you.

Nikesh, this looks like it's about consolidation to create a more powerful player in hunting down and addressing threats in this AI era. Now, you already have a product in this space under the Cortex brand that has AI integrated. You've attractively priced it. What does this add? Well, first of all, thank you for having me, John. I think for us, this is a historic day because we've always admired IBM and its ability to deliver cybersecurity solutions to their customers. And Arvind and I have been talking about this for 12 months almost, where we said, what if you brought the entire portfolio of Palo Alto to IBM? And IBM was able to partner with us and bring solutions to the market in addition to the cybersecurity products that they have. And Arvind and I and our teams worked really hard

to get there, but this is a far reaching agreement where IBM is gonna sell a lot more cybersecurity with Palo Alto, embracing our entire portfolio. We are consolidating our efforts in the SOX space where we are bringing our XIM platform to the market and we're gonna buy IBM's security, our SaaS business, which is what needs approval, allowing us to collectively migrate those customers to XIM, allowing us to cement our opportunity in the SOX space. And also, we will leverage each of our products. We will leverage Watson X across our portfolio, and IBM will platformize and power out the product.

So it's a really far-reaching, really exciting day for us. And this is a very, Arvind, important piece of the security picture, right? We're talking about those dashboards where people see threats and they track exactly understanding where the threats originated from and then what to do about them. You seem to be making choices here. We just talked about HashiCorp and buying that. What to focus on,

where to invest? How does this transaction fit into your calculus? Yeah. So, John, first, great to be here with both you and Nikesh. Look, cyber is a very fragmented space. So, the ability for us to step in and give our clients a much more complete answer, building on what Nikesh and team have done with with XIM which is part of the cortex and brand and then adding on data protection eventually Walt from IBM allows us to give our clients a much more complete cyber answer look we already partner well with Paulo on firewalls on sassy and other products this is going to allow us to partner on threat management. Now, to your point on threat, both Palo Alto and IBM believe that leveraging AI also on top of the SOC is going to become incredibly important

because just having people look at the screens is no longer sufficient. Very important part, but insufficient. And so building out the unique AI models on top of the XIM is also going to be a big part of it. So we really believe that this is going to bring more capability, leverage AI, but also AI, because you're talking about a thousand folks from IBM being able to support the customers who are using the software. So what are you hearing from customers about the types of assistance that they need to really effectively use this security software, even with AI increasingly enabled? Well, John, as you've possibly noticed, the cyber hacking activities are at an all-time high. We've seen some very major attacks in the last few months.

And part of what has happened is every one of these, you know, customers come back to people like IBM saying, come on, help me rethink my security architecture. Help me think about how do I solve these threats in a systematic way in the future? And that is where a thousand plus people at IBM are working, will work with us and get trained on re-architecting the customer security platform. They will help bring us in, help us platformize, which is where our products kick in. And in the case of XIM, we go in, we've built an AI-ready platform. We will take each of those customers and migrate them to this platform where IBM will use Watson X to build industry-specific

solutions for those people. So it's really using AI to stop these threats in real time because the time from sort of breach to time to exfiltrate data continues to shorten, which is no longer possible to solve that problem with humans. You have to use AI. You have to use real-time technologies. That's where the people will help architect it. The people will help solve the big problems or will take care of most of the noise, most of the other threats using AI. Arvind, what does this do to your other relationships with other software companies within the security space? Because IBM's been around for a long time, major player with lots of big customers. Now that you have this Palo Alto tie-up, what happens in ransomware? What

happens in recovery with all of that? As Palo Alto continues to aggressively expand into more areas far beyond firewall, how far is this partnership going to go? So, John, first, look, in a space which is $100 billion wide in terms of the technology spending that's going to be needed, I think amongst us we have barely 10% share on that total. So we have many, but we don't really have all of the partnerships that you are, I think, thinking about. Our partnerships would be with people like Cisco, they'll continue to play a major role in some of these spaces. With Microsoft, they'll continue to play a very important role on their cloud offerings.

Those I expect will fully continue. Will this maybe impact how we do SOCs? Probably. We are pretty clear about what is going to be our preferred answer on the SOC side. Does this impact what we're going to do around SASE probably so in some cases we are making choices but just like we do in other in other places we have very strong agreements with a couple of places on ERP we don't really work with everybody in the market and so that's a question of where do we build

the skills that's why when Nikesh just talked about training a thousand people they can learn two three four. You can't have them learn everything that's in the market, but that's what our clients want. Our clients are always asking us for, where do you have real expertise? Where can you lower my risk? Where have you done this many, many times before? And so this will allow us to go do that. Arvind, it's Morgan. Just I'm going to take a step back, kind of a basic question here because I know you guys have worked together with certain partnerships even before now and how deep this one is.

How much overlap of the customer base is there already between the two companies? What does this do to grow the customer base? Yeah. So Morgan, that's a great question, and I think you've got to the heart of what we want to do here. So our security client base here is in the multiple thousands of clients. If you look at the top few hundred,

likely they are both already clients of Palo Alto and of IBM. But the moment you go after that, then they're much more likely to be the clients of only one of us. This is going to allow us to bring both capabilities to that remaining two, three, four thousand clients. I think that's a huge opportunity for both of us in terms of expansion. By the way, in the first few hundred, it's not going to be that they're always working

with both of us together and there might be other people in there that we believe that we'll have a better answer with the integrations we're going to build and with the much better capability we'll both provide. And that's going to give us an opportunity even in the first few hundred. Nikesh, you used the word platformize. I think back to February when there was so much attention paid to your earnings and to the announcement

that you made strategy shift towards greater platformization. How does this spur that strategy forward and how does it speak to this evolving threat landscape and this need perhaps for increasingly more of a one-stop shop in an AI-enabled world? Well, look, I think, first of all, Morgan, it's the first conversation I had with Arvind. Arvind said, look, I'm all for platformization. If you can make my security posture better, if you can eliminate multiple vendors from me and give me something that works real time.

So, you know, we've also had that conversation as part of this partnership and IBM will be platformizing on our network platforms and possibly our SOC platform because that's the deal we're doing here. So it's very helpful in that context. Again, when we go platformize customers, we need to go arm with people they trust from a consulting perspective. That's where IBM's cybersecurity consulting team

comes into play. Whereas Arvind said they can't learn 40 different technologies, they can learn one, two, three, or four. And our joint partnership says we'll be the first party partner of IBM, where they will get specialized on our platforms. Their teams will work with us to go architect those platforms into the large customers out there to allow us to sort of derive better security outcomes for the customers and also allow us to go sort of perpetrate our platformization approach. Finally, Arvind, you guys aren't telling us yet what kind of money is changing hands in a transaction like this, but I wonder, are we going to see more of this? Are you looking through IBM's portfolio, thinking about what do we really want to continue investing in? What might we spin off or do a transaction with? Where are we going to double down?

Well, if you can bring me more partners like Nikish and Palo Alto who have leading capabilities, whom I trust that we can really work well together and establish a one plus one equals three partnership for the client first, but that then flows back to the two of us, then we'd be happy to look at that. As you know, normally, John, we've been doing much more, I'll call it M&A, than deep partnerships like this. But once in a while, you come across a deep partnership like this and we do it. I'll actually mention SAP. We have a similarly deep partnership with SAP, and that's an example where it's much more of a partnership than anything else. Well, that's why it's so valuable to have both of you on here on Overtime to explain it. Arvind Krishna and Nikesh Arora, thanks to you both.

Thank you, John. Well, up next, Mike Santoli looks at how the market is treating higher and lower-end consumer plays ahead of Walmart's earnings tomorrow. Stay with us. Welcome back to Overtime Retail Sales. Came in flat for the month of April. This is a sign that the consumer is slowing down. This comes as we await results from Walmart, which come out tomorrow morning. Let's bring back Mike Santoli for a look at how the market is treating lower-end consumer players versus higher-end. Especially, Mike, as we do see this $5 value meal roll out with McDonald's, too. It's been getting a lot of noise, attention.

There's signs all over the place, and it really is becoming a pretty clear split. First of all, look at the stock performance of Walmart relative to Target. This goes back four years, so right to the beginning of the pandemic. Really remarkable, actually, that Target is even as close to Walmart in performance as it was, and it owes it all to that huge surge during the pandemic when discretionary kind of hard line items were so in demand. Target was meeting them with that omni-channel solution. But the market really does prefer the stability at this point of Walmart. The valuation of these two companies tells you that. Now, this shows you the forward P.E. of each stock relative to the S&P. So the premium or discount to the market that they're trading at.

You see that Walmart at a pretty steady 20 percent premium to the S&P 500 and at the higher end of its range going back 10 years, whereas Target pretty significant discount, more like a 20 percent discount to the S&P. And that's pretty much the floor of the range Target has occupied over the last 10 years. So basically, really, the market wants the stability of the value customer buying less discretionary, more staples type items at Walmart. Final point. This is from Morgan Stanley today on the services end of the economy, travel in particular, high end travel stocks versus lower end. This includes hotels, airlines, casino operators. And you see just absolutely shooting vertical here. You've seen this a couple of times in the past when there

is concern building for the resilience and strength and durability of consumer spending, John. All right. Mike Santoli, thank you. Speaking of wealthier people, we are still awaiting more portfolio moves by the nation's richest investors. Some of them, we're going to bring you the latest 13F reports as soon as they're released. And meme stocks, GameStop and AMC, they sold off today, giving back a chunk of their huge rally this week. No particular news triggering the GameStop slump, but AMC did say it's going to dilute some people. 23 million shares in debt for equity exchange. We'll be right back.

Welcome back. We continue to whale watch. The 13F filing for Dan Loeb's third point is out. And Leslie Picker has the details. Hi, Leslie. Hey, Morgan. Yeah, we've got Amazon. That stake up 21% to $453 million as of quarter end.

That was named as one of the top winners for the firm for the quarter in Dan Loeb's recent shareholder letter. Its Uber stake, that was slashed by about 50% in the quarter in half to $38 million. And then some other interesting new positions, a new stake in Goldman Sachs worth about $104 million. And the firm actually bumped its stake in Apollo by 11%. So some interesting moves in the financials there. As a reminder, this is as of the end of the first quarter. They may have shifted in the six weeks since. I'll send it back to you. Leslie, thank you. Walmart headlining another huge day of earnings tomorrow. Up next, we will run through the other key reports and economic data that need to be on your radar.

And a programming note, Sarah Eisen's interview with Israeli Prime Minister Benjamin Netanyahu on the war in Gaza, his relationship with President Biden and much more airs tonight at 8 p.m. Eastern. We'll be right back. Let's get another check on Cisco. Off the highs, but a nice pop in overtime, up almost 5%. The company beating bottom line estimates, coming in at 88 cents per share versus estimates of 82. Revenue also above street expectations. Fiscal Q4 guidance strong as well, Morgan.

Yeah. Now let's get you set up for tomorrow's trade because it's going to keep going. We've got some insight on the consumer when Walmart and Under Armour report earnings before the bell. They'll be joined by Deere, which is also reporting. And then after the bell, we're going to get results from applied materials, take two interactive and doximity. Also going to get a read on the state of the labor market with the latest slate of jobless claims, weekly jobless claims, which last week jumped to the highest level since August of 2023. And of course, those claims are one of those things we continue to watch for a labor market that's continued to be tight, but maybe showing some signs now as evidenced by last week. But one week, a trend does not make with that jump. That's one of those key things

in this soft landing scenario that's got the market's attention that folks are going to be watching. Yeah, yeah. I also continue to watch Palo Alto networks in particular. IBM's just up fractionally after hours, but Palo Alto did spike a bit of 1% on that news of the collaboration with IBM platforms across so many different areas, but security in particular. Interesting. We see CrowdStrike. We see Zscaler also working on platforms. And Palo Alto is trying to work its way in there on numerous different segments. One to continue to watch. In the meantime, Walmart, we're going to have to see if they lose their crown as largest company by revenue to Amazon when we get those earnings tomorrow. We know that stock has been an investor darling amid the focus on lower end consumers and the

trade down in a high inflation environment. That's going to do it for us here at Overtime. Fast money starts now.