Closing Bell - Closing Bell Overtime: Paramount Global CEO Out As Deal Talks Heat Up; Norfolk Southern CEO Fights Back Against Activist Investor Ancora 4/29/24

Episode Date: April 29, 2024

Charlie Bobrinskoy, Ariel Investments Vice Chairman and a Paramount shareholder, weighs in on deal talks heating up, plus the news CEO Bob Bakish is stepping down and Q1 results. Plus, other earnings from NXPI Semi, Chegg, and F5 Networks. Norfolk Southern CEO Alan Shaw responds aggressively to activist investor Ancora’s calls for management changes and their courtship of unions. John Hancock Investment Management’s Emily Roland and Innovator Capital’s Tim Urbanowicz get you set for the market action in the week ahead. Plus, BofA Securities Euqity & Quant Strategist Ohsung Kwon on his one market move to make no matter what the Fed does.  

Green on the screen ahead of a major week of catalysts for investors. That is the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Ford. Yeah, buckle up. It is the busiest week of earnings season with nearly one-third of the S&P 500 reporting results, including Amazon and Apple. This hour, we'll get Paramount as reports swirl about a merger deal and the departure of CEO Bob Backish. We'll also get numbers from NXP Semiconductors, Chegg, F5 Networks, and Yum China. Plus, the fight for the future of Norfolk Southern is heating up as proxy advisory firm Glass Lewis backs activist investor Ancora's plan to revamp the railroad.

We're going to hear exclusively from Norfolk Southern CEO Alan Shaw with his response and more. But we already have news crossing the wires. Julia Borson has more for us on Paramount specifically. Julia. The CEO of Paramount Global, Bob Backish, is stepping down. The company announcing that it is creating a new office of the CEO consisting of three senior company executives, George Cheeks, who's the president and CEO of CBS, Chris McCarthy, president and CEO of Showtime, MTV Entertainment Studios, and Paramount Media Networks. And the third member of this office, the CEO, is Brian Robbins, who's president and CEO of Paramount Pictures and Nickelodeon. These three men, they say, will work closely with the CFO of Paramount Global, Naveen Chopra, as well as the board of directors.

This release goes on to say the office of the CEO is working with the board to develop a comprehensive long range plan to accelerate growth and develop popular content, materially streamline operations, strengthen the balance sheet and continue to optimize the streaming strategy. I haven't gotten a chance to look at the actual earnings yet, but that seems like that'll be secondary to this news that we were anticipating out today. Sherry Redstone putting a statement here in this release saying she has confidence in this team. No comment in this release as to whether or not they're going to be moving forward with that Skydance deal. We reported earlier today that Skydance and its consortium, led by David Ellison, made its final offer yesterday. So no word yet on what the plan is to respond to that. Back over to you. Of course, that's exactly where I was going with you, Julia. With Backish now stepping down, what does that mean in terms of the possibility of this deal moving forward, especially since it is a complex deal and we're talking about two different classes of shareholders in stock here.

Yes. Well, I think Backridge was expected to step down if that deal were to go through. So this would be part of sort of a transition here. But what I understand is part of the deal that was offered yesterday was sort of a sweetening of the deal to make it better for shareholders, the sort of second tier of shareholders other than Sherry Redstone, who has the controlling votes here of the company. I haven't seen anything in here that has any commentary on the Skydance offer or the offer that Apollo and Sony are expected to make together as early as this week. But we're going to continue to dive in. I'm sure it's going to come up as a question on the earnings call, which is set for 4.30 p.m. Eastern. And in the meantime, I haven't seen the earnings release yet, but we will take a look at that and get right back to you with those numbers.

Okay. Julia Boorstin, thank you. As the shares shoot higher here in overtime, up about 5% right now. Well, we do start with the market specifically, the Nasdaq S&P 500 coming off their best week since November, starting this week in the green as well. Joining us now is Emily Rowland of Hancock Investment Management and Tim Urbanovitz of Innovator Capital Management. Good afternoon to you both. Emily, I'm going to start with you because we are in the thick of earnings season. We know that that has been driving more of a risk on sentiment here in recent trading sessions. And oh, by the way, we're starting to see the pickup in dealmaking look no further than potential with Paramount as the latest example. Yeah, absolutely. The story to us so far in earnings season has been the tech and

communication services sectors really carrying the market here. Earnings up 30 to 40 percent on a year over year basis versus just about 2 percent for the S&P 500. Now, of course, the reaction to those earnings reports has been pretty mixed. A lot of the good news was already in the price. So we're seeing a variety of reactions. And in fact, the market's starting to reward those momentum stocks that have worked so well over the past six months after a week or so of being dragged down. So interesting, notable environment here. Earnings look great. But again, the market's been in love with a lot of these stocks for some time. So we may need to let a little bit of the air out here.

OK, Tim, we had a pullback. It's like it's almost like it never even happened. And so I wonder what that means for this week, because we did see markets or stocks move a little bit lower on the Treasury news we got in the past hour or so. But right now, in general, it really is the calm before the storm between the Fed decision, the jobs report and nearly 175 S&P 500 companies reporting results, even as investors do continue to chew on AI growth as a secular theme here. Yeah, that's exactly right, Morgan. And I think what investors are going to be focused on, obviously, Apple, Amazon are big news this week, but also the Fed. I think you're going to see a very different Jay Powell than we have seen over the last couple of sessions. Last couple of sessions, he's been very dovish, really reaffirming the market's belief that you're going to see rate cuts. And look at the consequences. We've had financial conditions that have loosened. The

market has shot up and we're seeing this reacceleration in inflation. So I think you're going to see a lot of that being walked back. Powell's going to come out very hawkish. It might be a negative for stocks in the short run, but ultimately it's really what this market needs longer term. Tim, I guess we got maybe a preview of that when Powell was in Canada. But how do you think the market's really going to react to that? How much of that already came after those Canada remarks? Well, I think the market still doesn't believe that this inflation battle is one that we're going to be fighting for some time. If you look at the term premium on the 10-year Treasury, treasury, we're still negative. So it tells me that we think that this is going to be in the

bag. We're going to get over this. And John, I think what's so important to look at is historically, that narrative is very inconsistent with anything that we have seen. And secondarily, I think it's also very inconsistent with the strength that we are seeing from this economy and particularly the labor market. Wage growth is still running just under 5%. That is very strong. That is not consistent with a 2% inflation environment. So we need to see some adjustments here. And I think, you know, at the end of the day, you're going to see yields pick up a little bit from where they're at right now. And Emily, how much can the earnings this week reset the narrative that we've had thus far? I'm particularly

curious about tech because we get Supermicro tomorrow. That stock really tanked on not pre-announcing and has recovered somewhat since then. But of course, we got Apple and Amazon, too. But how much of those are just really their own stories now that on the Amazon side, we've already gotten the cloud results from Google and Microsoft that were pretty strong. Yeah, earnings are important. But again, this is kind of the Super Bowl, you know, for macroeconomic data this week as well. And we look at things like the jobs report on Friday and the Fed. And I agree with Tim that you're going to see a much more hawkish Fed. Powell does not want to be a hawk. He knows that aggressive Fed tightening has historically resulted in exogenous shocks.

I don't think he wants the Fed to be the scapegoat if we do see a contraction in economic activity. But I don't think he has much of a choice here. He's kind of got to go to the dark side of this and become a hawk here. You know, and I think that that could challenge this Fed pivot momentum driven rally that's particularly benefited higher quality momentum stocks, tech in particular here. And it could result in a potential rotation into more cyclical parts of the market. The other market implication I would think about is yields. I mean, you're looking at an environment now in which the aggregate bond index is yielding over 5 percent, about 5.3 percent. That is close to 20 year highs right now. So we think that makes a lot of sense to look at any incremental backup in bond yields that we're seeing and think about that as a really attractive long term investment.

OK, will do. Emily, Tim, thank you both. Now let's bring in CNBC's senior markets commentator, Mike Santoli, with a look at the rebound we've seen in the S&P 500 and a key trend line to watch. Mike? Yeah, John. So big picture, the S&P 500, we got about a 5.5% decline from an all-time high. Over the three weeks or so, we bounced for roughly 3% off of that low. All pretty much in the normal range, but we do face a bit of a hurdle here. One of these imaginary lines on the chart. That's a 50-day moving average. You see we've come right up to it.

It's around 51.25. It'll move around a little bit day by day. It's not necessarily make or break, but it just shows you there's a little bit of sort of tactical attention on that area. And one thing that people are probably focused on here, too, is last summer. So July peak, a bit of a decline into about a 5 percent decline into August. And then we bounced up to that 50-day average, kind of chopped around it for a while before a correction continued. Now, that had a lot else going on. Treasury yields moving up to 5 percent. There's sense out there that the Fed was going to have to engineer a deep economic slowdown. We didn't have a pivot yet.

Nonetheless, I think that's still in the back of people's minds. So we have to wait and see how this develops. Finally, the cyclical parts of the market, I think, really deserve a lot of attention and specifically industrials, equal weight, equal weight consumer cyclicals as well, along with low volatility. That's a proxy for defensive stocks. You still see cyclicals over defensive as a theme, but this is really widening out industrialsrials, huge advantage over consumer discretionary. And I think that shows you where there's more confidence at the long-term themes. The consumer looks like maybe hitting some headwinds when it comes to rates, when it comes to lower income households. And I think that's something that we have to keep an eye on as well.

If I just did a consumer discretionary over industrials chart, it's kind of at the lows of the last two years. So not a disaster, but something to pay some attention to, John. So, Mike, does that suggest if there's upside, it could come from a shift in perception about the consumer running out of steam? In theory, for sure. I mean, I think we're always on the lookout for the way that the narrative is going to overshoot in the short term. And I don't think in aggregate the consumer is overshooting. But a lot of what's in here is, you know, home building related as well as auto related, in addition to just sort of the retail shopping type type name.

So, yeah, I think we have to be aware that, you know, the economy doesn't move as fast as the storyline does. So we'll see where where the next turn takes us. All right. We will see. Mike Santoli, we'll see a little bit later in the hour with our own turn. Let's get back to Julia Borson with Paramount Earnings. Julia. Morgan, the company beating expectations on the bottom line, reporting an adjusted $0.62 in earnings per share versus estimates of $0.36 per share. Revenues falling short of estimates coming in at $7.69 billion, just a hair light of the $7.73 billion estimated.

A couple other details here. Operating losses of $286 million for the direct-to-consumer unit was less than the year-ago loss of $511 million, also lower than the loss that was anticipated of 200, less than the loss that was anticipated of 362 million. Also, Paramount Plus subscribers of 71 million, coming in just over a million more than anticipated. Shares are up over 1%. And, of course, that's all on the big news that CEO Bob Bakish is out. And there is a new office of the CEO of the three most senior leaders of the company working in consortium with the CFO to figure out next steps.

Back over to you, Julia. Thanks. Now, Chegg earnings out as well. That stock is down initially in overtime. Pippa Stevens has the numbers. Pippa. Hey, John, the stock is under pressure here after Chegg's Q1 results. The company earning 26 cents adjusted for the period. We are not comparing that to estimates. Revenue coming in at 174 million. That was in line with Wall Street's expectations. But it is this weak Q2 revenue guidance that is weighing on the stock. They see revenue between $159 and $161 million, short of the $174 million the street was looking for. Now, Chegg did also announce a CEO transition. Current CEO Dan Rosenzweig will become executive

chairman, while Nathan Schultz will step up to president and CEO effective June 1. That's stocked down 4%. Morgan? All right. Big news for a company we know well here on Overtime. Yeah. Pippa Stevens, thank you. When we come back, Norfolk Southern CEO Alan Shaw responds exclusively to news

that proxy advisory firm Glass-Lewis is backing activist investor Ancora in its bid to overhaul the railroad's board and management. Plus, much more on this breaking news out of Paramount as CEO Bob Backish steps down. A long-term shareholder is going to weigh in on the news when overtime returns. NXP Semiconductor earnings are out and Christina parts and nevels has the numbers with that stock higher christina yeah that's because it's a beat on the top and bottom line uh eps of three dollars and 24 cents on revenues revenues i should say came in relatively in nine 3.13 billion dollars it's the q2 guidance the range was stronger they gave a range of about $3 to $3.41, so midpoint was higher than what the street anticipated with revenues. Also, just a touch higher, actually, a touch higher.

But the one concerning line in here that I did see was our early views into the second half of the year underpin a cautious optimism that NXP is successfully navigating through this cyclical wide downturn we've heard this before and specifically for the breakdowns auto and industrial came in a little bit light but mobile did quite well smartphones so that bodes well maybe for qualcomm but you can see shares up four percent on the strength of that guide all right christina parts novelist thank you thanks as the proxy contest between norfolk Southern and activist investor Ancora ramps, proxy advisory firm Glass-Lewis, the latest to take a side, this morning recommending shareholders vote for six out of seven of Ancora's nominees

for the Railroads Board and supporting the activist investor's picks for CEO Jim Barber to replace Norfolk's current CEO, Alan Shaw. Now, it's not unprecedented, but still a rare move by Glass-Lewis for a company of this size. Earlier today, I sat down exclusively with Norfolk Southern CEO Alan Shaw for a wide-ranging discussion. And we started with his response to this forum's report. We vigorously disagree with that recommendation and that conclusion. You know, what it fails to do is take into account the meaningful progress and change that our board has deliberately put forth that is making us a safer and more profitable railroad.

You know, we're confident that Norfolk Southern's slate of 13 nominees has the skill sets and the qualifications that far outshine those of the activist slate and the Glass-Lewis recommendation even to admit admitted as much i want to dig into that a little bit more but first several unions now comprising just under half of the unionized workforce at the railroad backing ancora in the last couple of days including the brotherhood of the locomotive engineers and train men which flip-flopped after initially backing your team what what is the outreach with the unions right now and why are we seeing such a division?

Because that too seems unusual. You know, it's clear that Cora is making backroom deals and giving away shareholder value in a situation where they have zero authority to do such. We remain really engaged with our union workforce. We still have the support of 11 of our 13 unions. And Morgan, it was just this Saturday, I and John Orr, our chief operating officer, were in a crew room in Chicago talking to our craft colleagues about our vision, their pride of working for Norfolk Southern, their pride of serving their customers.

And it was a great conversation. They were giving us a lot of good feedback on how to make NS more productive and safer. And that's why an engaged workforce matters to our shareholders, because an engaged workforce is a safer workforce and it's a more productive workforce. You came out with a pretty pointed statement about this where Ancora is concerned this morning, speaking specifically to the BLET. Ancora already responding to it, saying, quote, we ask shareholders to recognize that current leadership is simply making meritless allegations

to distract from its lack of a credible plan and its inability to retain stakeholder confidence, as demonstrated most recently by Ancora's slate receiving an endorsement from Norfolk Southern's largest customer. It does seem like a pretty strong allegation to make that they're making backroom deals here. Well, the MOU that I co-assigned with the BLAT is published on Smart TD's website. It's really clear they're making these deals and giving away shareholder value, which is why they can't be trusted to run a company and a franchise as powerful as Norfolk Southern is, and one that plays such an integral part in the U.S. economy.

Is it in violation of the law or going against the regulatory framework that we see in terms of how these types of deals or negotiations can be done? Yes, we believe it's a violation of the Railway Labor Act. Okay. Cleveland Cliffs, largest customer, casts a light on service times. You just talked about it. Q1 delivered 86% of shipping containers, about 76% of all other goods on time. You're forecasting improvement in Q2. Your nearest pier in the east, CSX, does already have significantly better service times. How do you catch up? How do you get there? You know, we're making great strides in our service product. We have undergone a number of operational changes since last fall, most recently hiring of John Orr, a 40-year industry

veteran who's had immense amount of success installing PSR on three different railroads. And right now, over the last 30 days, I'm seeing our train speed is up 10%, our terminal dwell, the amount of time cars sit in our terminals is down 10%, our intermodal service product is the best it's been in a decade, and our merchandise service product is the best it's been in a couple years. As a result, a couple weeks ago you saw an independent survey of our customer base saying 80% would pull business away from Norfolk Southern if Ancora came in and changed management and changed our strategy. 86% of our customer base said they were aligned

with our management and strategy. You know what percent said they're aligned with Ancora? Zero. We're delivering a really good service product to our customers and our customers are seeing it and they're awarding us with new business. So you're seeing an increase in market share? Yeah, we are seeing an increase in market share. If you look at our intermodal franchise and our cold franchise, we're doing very well there. And our merchandise network is speeding up. So this raises the question, how do you drive down costs, increase profitability, essentially lower your operating ratio,

which for better or worse is the industry metric and certainly the one in focus in the midst of this proxy fight. You forecast getting to 64 to 65 percent in the second half. Q1, 69.9 percent adjusted. Lower is better when we talk about OR. How do you get there and how do you counter Ancora that says they can get lower faster? You know, we've got a responsible plan, and it's a balance. We're going to get to the same place, and we're going to get to a sub-60 OR in the next three to four years by safely balancing service productivity and growth. We'll take trucks off the highway with our service product. We're really focused on productivity right now,

and with the new leadership that we have in operations, we're confident we're going to deliver a 400 to 500 basis point improvement in OR in the second half of this year. Morgan, you were with me in the aftermath of East Palestine. You were on the ground with me and you heard me make promises to really focus on safety and really focus on service. And we kept that promise. We did just that. Our mainline accident rate declined by 38 percent last year. Our service improved to the best it's been in a number of years. That's created in a safe

manner the platform to drive productivity this year and the foundation for growth which drives long-term shareholder value. So based on my reporting, Ancora offered the board chair, Amy Miles, over the weekend a settlement offer. It involved replacing you with Jim Barber, putting Jamie Boychuk in a senior position to current COO John Orr, a reconstitution of a sizable minority of the board, and also the replacement of that current chair after the annual meeting. It was rebuffed. Is there a possible path to settlement? Yes, there is a possible path to settlement. We continue to openly engage and hope for a settlement. But I'll tell you, everything that ANCOR has offered would require

wholesale change to the board and the management. And our board firmly believes that that's not in our shareholders' best interest. Well, the shareholder vote is May 9th, so next week. But with Shah, we also discussed in more detail safety for the rail network, including the East Palestine Class Action Settlement that happened recently, was announced, $600 million. Also, the implementation of precision scheduled railroading, PSR, which really is at the heart of this proxy fight, with both sides talking about implementing it, but taking different approaches to how they would do it. You can catch the entire interview right now on CNBC.com.

Bottom line, John, the rhetoric is ramping. Different stakeholders are taking sides, and this is heating up ahead of that vote next week. Yeah, and he's been there almost 30 years at a time when people want to see some changes. So we'll see if he can win over that conversation. Well, two more earnings reports to bring you. Coursera and F5 Networks. Pippa Stevens has those. Pippa?

Hey, John. Coursera is dropping here down 17% on week guidance. But let's start here with the Q1 results, reporting EPS of $0.07 adjusted. That beat by $0.06. Revenue coming in at $169 million. That was a 6 cents. Revenue coming in at 169 million. That was a slight miss, but it is that Q2 revenue outlook. They see 162 to 166 million.

That is short of the 178 million that Wall Street was looking for. Coursera also gave poor EBITDA, a poor EBITDA outlook, as well as full-year revenue guidance that fell short of estimates. Now, F5 is also turning lower here after its results, earning 291 adjusted for the second quarter. That was the beat. Revenue at 681 million, a slight miss. That company also getting hit on guidance week Q3 revenue and EPS guidance.

The company said that we're in an environment where customers remain cautious and they're forecasting largely flat IT budgets for calendar 2024. That stock down 11.6 percent. John. Wow. Echoing what we were hearing from some others in the enterprise. Pippa, thank you. News crossing at the top of the hour that Paramount CEO Bob Backish is stepping down, being replaced by an office of the CEO made up of three company executives.

We're going to hear from one of the company's biggest shareholders when we come right back. Welcome back to Overtime Paramount. Announcing CEO Bob Backish will be stepping down and he'll be replaced by a consortium, a triumvirate of internal executives. The company also reporting a mixed quarter, beating on EPS, missing on revenue. Let's bring in Ariel Investments Vice Chairman Charlie Babrinskoy. Ariel is one of the company's largest shareholders. And Charlie, I imagine that's been rough over the past 15-ish years, if you've been holding on to it that long over there. But why the mixed feelings or even opposition to the Skydance deal?

Well, first of all, it hasn't always been rough. This stock went from 15 to over 100 during the run-up in streaming assets when they formed Paramount Plus, and we sold a lot of stock over 80. So it has been actually a very good investment over a long period of time. CBS was and is the Tiffany of networks, and we still think there's a lot of value here. But this has actually been a very difficult time, you're right, John, in the last six months or so. We think most of that pressure on the stock has come from leaks and indications that the company might do a deal that wasn't in all the shareholders' best interest. And so we're obviously going to be opposed to any transaction that wouldn't be in our or other shareholders' best interest.

And frankly, we don't think letting the CEO go and putting three CEOs in his place is a great strategy. It's like having two starting quarterbacks, you have no starting quarterbacks. When you have three CEOs, you don't have any CEO. And this is a very critical time for the company as they're negotiating their deal with Charter. And it's now very important to have one person in charge. Well, it seemed to me like maybe they're just trying to clear the decks to seem welcoming to new leadership coming in. But is it more of a price issue here? You think they're not getting enough value for the assets? And if so, are you considering just how rough a time the entire media industry is going through? Well, first of all, it's not clear we're getting anything for our assets. Some of the deals that have been rumored have us buying Skydance for an inflated price.

That makes no sense. There are indications, as you know, of Apollo and maybe Sony with them being willing to offer $26 billion for the company. If they were to consider that, if that was on the table, we might have a conversation. But a transaction that's been rumored where the controlling shareholder sells at a premium and is able to induce Skydance to do that by having Paramount buy Skydance at a price way over what an arm length transaction would be just makes no sense. It's having our class of shareholders subsidize another class of shareholders. And that's I don't want to throw legal terms around, but that's not going to going to stand up. So how do you expect this to evolve, Charlie, as such a key shareholder yourself at Ariel, given the fact that the clock is ticking, there is this charter deal that needs to be negotiated, and the Disney bar was arguably set very high. And we're at this key moment in terms

of transition for the broader media industry. How does this play out? And how much of this plays out very quickly? Well, your point, Morgan, is important that this is probably not a great time to be doing this. There's an awful lot going on right now, and there isn't any reason why we at Paramount have to sell now. The numbers are getting better. The losses at Paramount Plus are narrowing. We think there are a lot of good things that are happening. So if Ms. Redstone wants to sell her controlling stake, we can't stop her.

And she has the right to do that if she wants. But what she doesn't have the right to do is to force Paramount to buy Skydance at an inflated price. So headline, we don't like the transaction that's been rumored. We are happy standing pat and letting the company prove its value or, frankly, liquidate some of the assets that are clearly very valuable where there have been real indications of interest. All of those things are better than the subsidized transaction that's been rumored. OK. Charlie Babrinskoy, great to have you on. Thanks, Maureen.

It's time now for a CNBC News Update with Seema Modi. Seema. Morgan, the police say numerous law enforcement officers were shot this afternoon in Charlotte, North Carolina, while serving a warrant. NBC News spoke to officials who say a U.S. deputy marshal was shot, along with three local police officers who were part of the task force serving the warrant. The severity of the officers' injuries is still unclear. With bird flu on the rise, the USDA will test ground beef sold in stores as some dairy cows are processed into ground beef. It comes as the U.S. continues its efforts to contain a bird flu outbreak in dairy cows,

though the USDA says it is confident the meat supply is safe. And former Philadelphia Eagles center Jason Kelsey headed for a career in broadcasting. According to The Hollywood Reporter and The Athletic, Kelsey has signed a deal with the ESPN and will join the network's NFL pregame show Monday Night Countdown. Kelsey, of course the older brother of Chiefs Travis Kelsey, retired after last season and was reportedly pursued by multiple outlets. I'm looking forward to that. John and Morgan. It's a good week for the Kelsies. I'm looking forward to that. John and Morgan.

It's a good week for the Kelseys. I mean, his little brother just signed the biggest tight end contract out there, and he's got some other good things going on as well. Seema, thank you. And he's got a TV show. Well, Tesla shares, meanwhile, see, I didn't say her name, are up more than 35% in the past week with a big boost today on news out of China. Up next, a look at the big rebound from the lows of the year.

Look at whether it's sustainable when overtime returns. Welcome back to Overtime. Tesla posting its best day since March of 2021 after the company passed China's data security requirements, which will pave the way for its full self-driving software to roll out in that country soon. The news came as Tesla CEO Elon Musk made a surprise visit to China and met with the Chinese premier. Today's move, driving Tesla back to a key level on the charts. Mike Santoli is back. He's got a look at it for us. Hi, Mike. Yeah, Morgan. And this stock has been so all over the place over the last few years that there are so many key levels because it seems like you get a stampede in and out when it hits these thresholds.

And I would say, you know, the slingshot was pulled back pretty far. This stock was cut in half over the course of nine months into the recent lows. It's bounced 35 and 40 percent from here, just under this 200 level, which, you know, if you go back a few years, this is a five-year chart. It's spent most of the time since late 2020 above that level. This right here is Elon Musk just sold a bunch of Tesla stock to buy Twitter. We don't really know what's going on.

Tax-less selling, bear market. Other than that, it's kind of been above that 200 shelf. By the way, this in here is where it entered the S&P 500. Index funds paid about $230 per share for Tesla back in late 2020. Now, take a look at what's going on with earnings projections, and they've been going down pretty persistently. This goes out all the way to 2027. So you see right now it's about 450 shares, the estimate, for 26 and 27.

Nobody has visibility there, but the point is, the trajectory is lower. And not that long ago, it was expected to earn more than that this year. And now we're talking about around $2 a share. So you can't really make the valuation case. It's all about is the big picture story falling into place in terms of whether it's full self-driving, less expensive car, somehow software margins, you name it, Morgan. Yeah. I mean, it is interesting that we get this news, we get this visit just a couple of days after Tesla reported earnings and had a call where Elon Musk really talked very heavy-handedly about full self-driving and about AI and robotics and sort of where Tesla's headed.

I also thought it was interesting that Baidu popped on this news, too, on a report that it has reached an agreement with Tesla to provide access for its mapping license for data collection on China's public roads. I mean, are we potentially going to see full self-driving rollout in China sooner than we see it in the U.S.? I have no idea the answer to that question. What I do know is Tesla needed to reinforce the idea that this is coming. Baidu licensing their mapping. I mean, the bull case for Tesla is they own the data and they've been doing the mapping and training the AI all along. I just can't imagine whatever happened today was responsible fully for a $80 billion

gain in market cap that you can actually attach numbers to. But the atmospherics are moving in a better direction, just considering how depressed and washed out the stock had been a couple of weeks ago. All right, Mike, thanks. Up next, the Fed proof playbook. Find out one trade that could benefit your portfolio, regardless of whether Jay Powell and his merry band cut interest rates this year. And later, an analyst who sees roughly 20 percent upside in Amazon shares on whether he thinks the company is going to deliver strong earnings for investors tomorrow. When Overtime comes right back. Welcome back to Overtime.

The Fed kicking off its two day policy meeting tomorrow. And while a rate cut is not expected, Wall Street will be closely watching the language from Chair Powell on Wednesday. So how should you be positioning around the Fed? Joining us now is Osung Kwon from Bank of America. Good to have you back. Thanks for having me. So you like dividend paying stocks, but here, you know, trying to think like a lot of investors out there, if we're higher for longer, right, and you can get yield from other places and equities in general are riskilyfree value, doesn't that kind of work against the dividend payer idea? So what's really interesting is that

if you look at the 100-year history of the S&P 500, one-third of total returns came from dividends. But if you only look at the past 10 years, dividends only represented about 15% of total returns, so only half of what we saw over the past 100 years. And that's basically because rates were zero. Even if you collected dividends,

what are you going to do with that? You were facing huge reinvestment risk. But when rates are at 5%, cash is king. Investors want dividends today than tomorrow. So I think dividend yielding stocks are going to do better,

especially in a higher for longer environment when bonds are not that attractive when rates could potentially go higher. But dividend yielding stocks that benefit from higher inflation as well, those can potentially do better. I guess also a big growth story of the past 30 years has been these tech stocks that until last week, many of which were not paying a dividend and being a little joking a little there with Alphabet doing what it's doing. But earlier we were talking to Mike Santoli about the consumer and how some pessimism around the consumer

has some stocks linked to that underperforming. You seem pretty optimistic still. Is that because you think the consumer could perform better through the year than many others are counting on? Yeah, I think both the consumer as well as the industrial side of the economy are probably going to do better.

When it comes to the consumer, I mean, we haven't really seen that much impact from the rate hiking cycle so far. And I think one of the biggest reasons is because A, 90% of mortgages are long-term fixed, but B, because of the wealth effect, the U.S. consumer has 5.5 times nominal GDP worth of net worth, $150 trillion.

So you got to look at the whole balance sheet. And those who have a lot of cash on the balance sheet, they're actually generating higher interest income. So for those high net worth individuals, they're actually benefiting from this higher interest environment. So I think the consumer overall is still healthy. And especially, you know, if we stay at this full employment environment, then I think the consumer is going to stay healthy. Particularly the higher end consumer, to your point, especially if we start to see some bifurcation there in a more meaningful way. I want to go back to this notion. I'm looking at your report. AI CapEx means money out of tech, money into non-tech. We're seeing this to a certain extent through earnings season already that the non-AI application companies, more of the infrastructure companies, do seem to be doing well.

Just today, Sima Modi reporting on some of the industrial companies that are really benefiting from the AI infrastructure build-out. How do you position yourself as an investor to see those returns, realize those returns above and beyond the mega cap tech names? Yeah, so that's a very interesting dynamics that we are seeing in the market today is the reversal of what we saw between tech and non-tech. Tech companies cut costs last year. They lowered their capex as well, down by about 4% last year. This year, they're increasing capex by about close to 30%. They're done laying off people. Layoffs in tech sector is actually down about 65% year over year. On the other hand, the non-tech sector, they're maintaining their CapEx this year. Last year,

they increased their CapEx by about 9%. Their layoffs are still very elevated. It's actually up 1%. So it really feels like tech is done cutting costs. They're investing in CapEx. Non-tech sector is still cutting costs. And they're actually going to be the beneficiaries of AI CapEx because last time I was here, we talked about how power is now the biggest constraint in building data centers.

So these power plays, industrials, materials, commodities, I think they are much better positioned than the tech sector. So I am going to ask, do you think markets are de-risked here going into the FOMC meeting this week? The fact that we've seen such a dramatic shift in terms of what the market's pricing in, in terms of rate cuts, I think it's like 30% or 35 basis points before the end of the year now, maybe not even as soon as summer. Yeah, I think for this FOMC particular, I think the risk is skewed to the upside for equities because the rates market has priced out two full rate cuts

since the last FOMC meeting. And especially if they start talking about potential taper of QT, which is our house view, then I think that's broadly positive for equities. Okay. Great to have you on. Thank you. I'm Sun Kwan. Thanks for being here on set. Well, up next, all of the overtime earnings movers

that need to be on your radar, and what to expect from Amazon, which is the big name on the calendar tomorrow. And check out shares of Franklin Resources, the biggest loser in the S&P 500 today, down about 6.5%. The asset manager reporting much lower than expected second quarter profit because of higher expenses. We'll be right back. Welcome back. Got some movers for you.

Lattice Semiconductor down about 2.4% in overtime. Let's see. Earnings coming in about in line with expectations, but revenue guidance disappointing the street. The CEO saying the results reflect near-term impact of cyclic industry headwinds. Another check on Paramount after earnings and the announcement CEO Bob Backish is stepping down his current estimated severance package just over 50 million dollars. That's courtesy of data firm Equilar. That earnings call ending a short time ago after just nine minutes and no answers for analyst questions. Morgan. Wow.

Amazon, AMD, Supermicro. Oh, my. Tomorrow will be another wild hour of overtime earnings. You can take a look. Little preview here right behind me. Up next, an analyst with a buy rating on Amazon tells us what he's expecting from those results. Stay with us. Welcome back to Overtime. Amazon is set to report tomorrow after the bell in this hour. Joining us now to share his expectations is Ken Gorelsky of Wells Fargo. Ken,

it's great to have you on. You've got an overweight rating. You've raised your price target to $211 a share. What is going to matter here? Is it really AWS and how AI is adding to growth there and then everything else? Yes. Thanks so much for having me on. I think there's two key parts of this story, and we think there's strong momentum on both sides. One is the retail business, where we see continued healthy trends, ads and operating efficiencies driving North America retail operating income up five times year over year, to $5.3 billion from less than a billion last year. And then the second, of course, is on AWS, the cloud business, where we see growth accelerating by two points in the quarter to 15%

in the first quarter, and it could even be higher. We note that AWS was in a period of rapid deceleration from 33 percent growth in 2Q22 and then bottomed in the second quarter of 23. We look again for two points of acceleration from fourth quarter to the first quarter. Overall, we see operating income $12.4 billion versus consensus of $11 billion. So well ahead of expectations. Ken, over the past year or so, Amazon, you know, Andy Jassy has been talking more about shipping speed as an actual benefit to the bottom line because of the inventory turnover issues. Do you think that's factored in to expectations fully? And how do you expect that to play out as we're getting toward the end of the year when the consumer side of the business has a bigger impact? Sure, absolutely. And I think what's different here at Amazon is they're delivering both speed of delivery and improving unit economics and operating efficiencies.

So I think that's the key difference relative to 2022 when retail operating margins declined and were negative. And now that we've recovered nicely over the past two years, and we see this as a trend that continues. How much does advertising matter here as that business continues to grow? And as we've seen digital advertising more broadly across the industry showing signs of reacceleration here? Plus, you've got the media to sell against it, too. Absolutely. Advertising is absolutely a core driver of profits here. Just to give you context, right, in 2022, the North America retail margins, X advertising, we estimate bottomed at minus 7%.

That's a loss of $22 billion from an estimated $3 billion in profit in 2018. We estimate that Amazon North America retail margins, X advertising, will approach break-even in 2024. So Amazon advertising has absolutely been a driver of profits. But what's really important, I think, and the key takeaway is that X advertising, the Amazon North America retail business is still below the 2018 margins for the core business. And we think that provides continued upside. All right. Ken Gorelsky, thank you. Thank you. Looking ahead to that, Morgan, I still get the feeling that a lot of investors see Amazon as not having a fully articulated AI story. And over the past

several days, we've gotten earnings from Microsoft and from Google, and they've talked about cloud and AI, especially on the Google side. That story, at least in investors' perception, has come together more. So I wonder if that poses an opportunity for Amazon. Yeah, it's going to be certainly key to watch. It takes us back to the conference call as well, right, which is where we know that others like Meta and Mark Zuckerberg, and then, of course, Elon Musk at Tesla, a little bit different there, but still talking about AI, where they really articulated their visions,

for better or worse, to mixed investor reviews last week as well. Yeah, of course, you've got the interesting dynamic where Meta's investing in AI and isn't charging people to use it on the other side to the same degree that the others are. Yeah, another one to watch is going to be Lilly, speaking of secular growth stories in the morning. That's going to do it for us here at Overtime. Fast Money starts now.