Closing Bell - Closing Bell Overtime: Rally on hold, Is Alphabet cheap and state of the consumer 2/26/24

Episode Date: February 26, 2024

Stocks taking a breather after Fridays record close as investors await more key inflation data later this week. Jefferies tech analyst Brent Thill reacts to earnings from Workday and Unity Software, which he calls a "disaster". Alphabet shares getting hit by problems with its Gemini AI model. Melius' Head of Technology Research Ben Reitzes says the stock is looking cheap, but that doesn't mean investors should buy it. And Former Toys 'R Us CEO Gerald Storch on what earnings from Macy's, Lowe's and Urban Outfitters on Tuesday will say about the state of consumer spending.

Well, the Dow, the S&P, and the NASDAQ all finishing lower, but the Russell 2000, the outperformer, finishing in the green today. That is the scorecard on Wall Street. The action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Ford. Yeah, and it's utilities and comm services that were the biggest drags on the market today. Energy, consumer discretionary, and tech, the only sectors in the green. But maybe a trio of earnings after the bell can get the rally back on track. We're going to have instant analysis of results from Workday, Zoom Video, and Unity Software as soon as they're released. Plus, we will hear from an analyst who says Alphabet looks cheap for a reason.

It actually moved the stock today. But first, we're going to get more on this market day. Mike Santoli is back with us from the New York Stock Exchange. Mike, interesting market action. The 10-year yield isn't backing off, creeping up to 4.28. This week, we get PCE, durable goods. I mean, is this about seeing post-NVIDIA if there's another leg here? Yeah, I mean, I do think the market is trying to explore that.

And today, you mostly held near the highs. There were sort of more stocks down than up, but really not a lot of intense selling. So I think today's kind of a hold. And, you know, you sort of seeing the Nasdaq 100 kind of churn around this round number level around 18,000. Same thing with the Nasdaq composite. So, you know, maybe we're at a moment where you've already kind of taken credit for a lot of good things out there. You mentioned yields. We're definitely testing the pain tolerance. I don't think 4.3 in the

10 year is a game changer at all. But if it looks like it's starting to accelerate and you're starting to get toward four and a half and you're taking back a lot of that decline in yield that we got from October, then maybe that's an excuse for a rethink of exactly what the equity market can handle. But most of it's happening because the economy has been more resilient. And in that context, you can accept a world in which the Fed is is wait and see as opposed to rushing to cut rates. Yeah, of course, we get another tidal wave of Treasury issuance this week. So that's one to watch, including some auctions today. Mike Santoli, stay close because we'll be back to you in just a moment. In the meantime, let's get to our market panel. Joining us now is Vital Knowledge founder Adam Crisafulli and Wilmington Trust head of

investment strategy Megan Hsu. Megan, I'll start with you because if we're talking about a spectrum of things that are affecting the market right now, at one end you have AI, at the other end you have the Fed, somewhere in the middle you have the economy, which both of these things are affecting. How do you invest given the fact that you do have these different dynamics afoot right now? Yeah, Morgan, I think you've laid it out perfectly, which is to say that there's some competing narratives at play right now. And the Fed and the interest rate story is certainly on the more bearish side, but AI is a huge engine for growth right now. It's not the only engine. We're also seeing really solid economic data. CEO confidence is picking up. Manufacturing surveys

are showing signs of bottoming. That, we think, is really key to get some of the broadening of market participation here. So I think you want to think about being in the market, fully invested. We have a neutral allocation to equities, but we're favoring the U.S., where we are seeing better economic data and extended valuations relative to non-U.S. equities, but for good reason. Megan, we've got our first earnings out. Workday, those results are here. Kate Rooney has the numbers. Kate. Hey, Morgan. It's a beat on the top and bottom line for Workday. We also have some M&A news here in a separate release. Workday has agreed to buy HiredScore. That is an HR software firm. But let me get to the EPS and revenue numbers here. EPS

is a beat by 10 cents. This is the adjusted number, $1.57. That was on revenues of $1.92 billion, a beat as well for Workday. But again, the big headline here, some M&A for Workday acquiring hired score. They talk about some of the AI assistance with this HR software firm. Again, but a solid beat for Workday. No guidance, though, in the release here quite yet. But we'll keep an eye out for that, guys. Back over to you.

Okay. Kate Rooney, thank you. Adam Crisfulli, I'm going to go there with you right now because we got shares of Workday down about 7% after hours. We know it's been a mixed picture in terms of tech, in terms of enterprise tech, but the fact that we do have an M&A acquisition by Workday, it seems to be tied to AI capabilities. How does it speak to what we were just talking about before those earnings crossed? Yeah, I mean, I think you're seeing companies across the board ramp up their AI capabilities. Either they're doing it organically, internally with their own development team, so they're going out and buying assets. You know, I'm not sure the size of this acquisition that they're making, But this is definitely an area where they had exposure already.

It makes sense for them to move further into the HR aspect of the market. I think for the stock, the key will really be kind of guidance. Like you said, we've had mixed signals on enterprise tech. You had Cisco and Palo Alto networks, both of which were somewhat disappointing. Unclear if that's impacting Workday's outlook. We get Salesforce later in the week as well. So I think commentary around guidance, both quantitative and qualitative guidance, that's really going to be key, I think, for the market.

But, you know, all tech companies are ramping up their focus on AI, like I said, whether or not they have to make M&A to do it or they're able to do it internally with their own development teams. Megan, it's an interesting day where even though the major indices were pretty flat, a lot of software and even smaller software names did pretty well. I mean, Coinbase was up almost 17 percent. HashiCorp, we're going to talk about later, up 14, even further down in some of the larger names. You know, CrowdStrike was up three. Palo Alto Networks, which had that rough post-earnings trade, was up seven. How much

are you thinking about risk differently, if at all, after last week's earnings reports? Well, I think earnings season has been a positive surprise, and we've been pleasantly surprised by what we've gotten there. As it relates to small cap, I think you're has been a positive surprise, and we've been pleasantly surprised by what we've gotten there. As it relates to small cap, I think you're seeing a little bit of stronger performance today. That certainly has not participated to the degree we'd like to see. I think small cap tech is a little bit of a funny place right now, where a lot of the tech story and the secular growth story is around big data, AI having scale. And so small cap tech is a little bit of a maybe a no man's land. But if we get better economic data with that continued disinflation story, we're not going to get that this week. PCE is going to

reiterate what we got from CPI. But we do think that the disinflation trend is intact. We think that the Fed will be in a position to start cutting rates in May or June and do that about four times this year. That should all help small cap. And we would expect to see some maybe some upward revisions to small cap earnings as we go forward. there's a couple of different ways looking at post-NVIDIA earnings. One is, hey, the AI trade is still alive and that helps smaller companies that are trying to innovate in that space. But the other way of looking at it is maybe bigger is still better, right? Because even though they're already big, they're still managing to grow significantly. Which do you think is having the bigger impact on stocks right here? Yeah, I mean, I think for the broader market, you know, like your prior guest said, I think disinfl broader market, you know, like the prior your prior guest said, I think disinflation is going to be the key to the extent we see this kind of rotation back into smaller caps away, back into the more equal weight S&P from these dominant

companies. The earnings numbers from all of them pretty much, you know, Meta has spectacular results and video is spectacular. They've been really great. But I think if we're going to see a rotation back into small caps, it's really going to come down to more macro factors, specifically disinflation. You know, there was a great article in The New York Times this morning talking about the real estate component of the CPI and the PC, which is probably the single biggest question mark for this market. If we are going to see further disinflation, you have to see those rent

owner occupied components of it really start to move lower. They haven't yet. They're likely to, given how rents have been progressing over the last several months. But if you do see that happen, you're going to start to see a market composition more similar to what we saw in November or December, where it was the equal weight S&P and the small cap Russell that really went on the upside. But I think dissecting the inflation data is really going to be key over the coming weeks and months. All right. Workday, meanwhile, just reporting down about 6 percent. Adam, Megan, thanks to you both. Zoom video earnings are out as well.

Pippa Stevens has those numbers. Pippa. Hey, John. Zoom beating on the top and bottom line for the fourth quarter, earning an adjusted $1.42 per share. That was ahead of the $1.15 estimate. Revenue coming in at $1.15 billion, also slightly ahead of estimates there. The company also announced a $1.5 billion buyback. Also gave strong guidance. They see Q1 revs between $1.125 billion versus the $1.13 billion estimate. EPS guidance both for Q1 and full year also coming in ahead of estimates. The stock now up about 4.5%. John?

All right, Pippa, thank you. And now Mike Santoli is back with a check on the good old 60-40 portfolio. It hadn't been good lately, Mike. Yeah, it hadn't been good really for a couple of years. We are basically back to even if you bought the 60-40 portfolio at the top. That was in late 2022, really, I guess going back almost two years. Let's put it that way, early 2022. So this is, of course, 60 percent equities, 40 percent bonds. And this chart shows the total return. So it includes dividends as well as interest income off of that, which is what really matters when you talk about 60-40 long-term retirement type portfolio. So what does it mean now that we're back to the highs, basically, in terms of the portfolio balance here?

Well, the trailing two-year total return on this is about 4% annualized. That means, obviously, that the dividends and the interest payments have accrued, even though on a price basis, it's kind of flattish. So 4 percent annualized return is about half of the 5, 10, 20 and 30 year average annualized return, which is around 8 percent. So if you think we're going back to a scenario where that's the norm, then there's theoretically still some mean reversion upside to this approach. Obviously, it doesn't happen in a straight line. It's not necessarily a smooth ride, even though it does damp down some of the volatility that you would otherwise have from 100 percent equities, guys. Well, given that a lot of people think that the rate hikes are done for the foreseeable future, I mean, I guess that would bode well for potential upside from here or no? It would bode well, certainly, in terms of the bond values, for sure.

And the ability, if that's the case, the ability to right now enter fixed income trades at, let's say, 5% plus on investment grade corporates, which is where they trade at the moment, would seem to be a pretty decent spot to do so if, in fact, yields are going to go a little bit lower. So, you know, obviously, many, many factors go into it. But some of the, I guess, the general atmospheric conditions around this type of portfolio look okay. All right. Mike Santoli, thank you. Up next, a top tech analyst reacts to Workday's results as we count down to all of the earnings calls. Plus, the hits just keep on coming for Alphabet, at least hits two in stock. Coming up, an analyst who says there's a good reason why shares look cheap right now.

Overtime is back in two. Unity Software earnings are out. The stock is moving lower. Pippa Stevens has the numbers. Pippa. Hey, John. Yeah, the stock is down 12% here after earnings. The company reported a loss of 66 cents per share. We are not comparing that to estimates. Revenue coming in at 609 million. That was a beat. Analysts were looking for 596 million. Clearly, the stock taking a tumble here. We are looking into the report for

any other indication of why, and we'll keep you updated. Back to you. All right, Pippa, thank you. For more on Unity and Workday, let's bring in Brent Thill from Jefferies. Brent, I'm going to start with Workday, unless you have some insight into what in this Unity report has the stock reacting the way it is in overtime. Yeah, John, Unity really is being impacted by a 25% reduction in force and effectively numerous management team members leaving the company. From our perspective, the inside of this company right now is a mess. There's an incredible amount of change. They're going through a strategic review. They've gone through this riff. And again, remember, they announced the reduction in force at the beginning of the year. But it's rare to see the magnitude of a cut unless something's really bad.

You don't usually see tech companies cutting 25 percent of the workforce. So I think those changes are rippling through the organization. And then you have interim CEO Jim Whitehurst. Is he going to stay? Is he going to go? No one really knows what's going to happen. Everyone really holds Jim in high regard. He ran Red Hat, was CEO of Delta Airlines. He's a great leader in our industry, but is he going to stick around? And so he's interim CEO right now. So ultimately, is he going to make all these changes? Are we going to have a reduction in force? And then effectively, what is he going to do as a CEO?

Is he going to go or is he going to stay at the company? So I think there's too many answers, too many questions, not enough answers right now. Yeah. Well, let's try to get some context at least. Take a step back with me. What on earth happened here? Because a few months, maybe a year plus ago, Unity was buying IronSource.

AppLovin was saying, hey, Unity, why don't you buy us instead? And now AppLovin is worth, you know, around $20 billion, while Unity is worth $12.5 billion. I mean, the apps space and the need for digital clarity and advertising and data seems to be healthy. So how did this company stumble? Does it say anything about the overall industry that it's playing in? They're losing share, John, is effectively what's happening to Applovin.

Applovin is taking market share against the grow business where IronSource is at. Remember, the entire management team at Iron Source just punched out. They all left. We know this management team. It's a phenomenal group of people in Israel. They all checked out. Okay, so they're gone. So that side of the business, Apple Evans taking share, Unity is losing massive market share.

And ultimately, what does it look like over time? It's unclear right now. On the Grow side, it's effectively a duopoly between Unity and Epic, but they've had their fair share of issues on that side of the business as well. So at this point, again, I think, like I said earlier, when you have a brand new CEO come in, it was poorly run before. They made a change in their CEO with John Riccitello, bringing in Jim Whitehurst, who I followed and admired at Red Hat, ultimately sold the business to IBM. I mean, I think you have a situation here where the company is spiraling and they have to stop the spiral and get it stabilized out of the stall that it's in. And we effectively think, again, that's going to

take time. Jim's making the right call. They're putting the right initiatives in to get it stabilized. But it's going to be a tough one for the next few quarters to get it in the right spot. Yeah. And certainly investors selling out right now, the stock down about 10 percent in overtime. Want to get your thoughts on Workday because it looks like it was a beat on the top and bottom lines. Fiscal 25 guidance reiterating subscription revenue that represents 17 to 18 percent growth year on year, non-gap operating margin of 24.5 percent, also announcing an acquisition, yet the stock is trading lower right now. Why? Not enough on the print, not enough on the guide. We think Carl escherbach is one of the best leaders in in the software industry uh taking over we've known carl for 20 years uh this is the right

guy long term but like you head coach it takes time to put your players on the field to effectively run the plays and and what i'd say is that they're investing in international markets uh i know they've they've lost shared SAP. I'm sitting in Germany. SAP's backyard right now. And effectively, they have to figure out how to get their market share back in international markets. They talked about the financial product, trying to get better traction there. And they've had some initiatives they have to put in place.

So you have a new senior team in place that I think is going to make dramatic changes and dramatic impact to the organization. We're very bullish on Workday, unlike Unity, where we don't have a buy, we have a buy on Workday. And we think that ultimately, Carl, in the new team that's come in, is really going to lead the next generation of execution and better growth. They guided to 17 17 to 18 percent subscription growth that's in line and 24 and a half percent margin. Again, this company is capable of producing mid 30 percent margins over time. So they're far from cruise altitude. They got a lot of room left. They've got to put these investments in to get market share back against Oracle in the U.S., SAP internationally and improve their execution. All righty. Brent Thill, thanks for joining us today.

Thank you. We have a news alert on Altice and Charter. Alex Sherman is here with those details. He's been doing some reporting here. Yeah, so Bloomberg came out with a story an hour or two ago saying that Charter was looking at a potential acquisition of Altice USA, a smaller U.S. cable company, among others. I have not been able to confirm the Bloomberg report yet. But what I can tell you is that

there are no actual official talks here between Charter and Altice. There has not been a formal proposal or anything. So we're still early days. Bloomberg didn't say there had been. They just said that Charter was investigating various different options. So just adding a little bit of context that we're obviously still very early here. There is strategic logic to putting these two companies together. We saw a big wave of cable consolidation almost 10 years ago now with Charter buying Time Warner Cable, Comcast almost bought Time Warner Cable, our parent company. But that has slowed down in recent years. This would be yet another larger cable acquisition. Altice's market cap is only about a billion dollars, but it has a ton in debt, over $25 billion of debt. So a much larger enterprise value.

Yeah. How does it speak to the broader media landscape in a year where we are already talking about the possibility of M&A writ large? So broadband, the story around broadband for years has been the growth story of residential high-speed broadband. That has slowed down in the last year or two. In fact, it's stopped altogether. Now you're seeing these companies actually report negative high-speed broadband growth. So it may be time now for another round of consolidation as the growth stories to a lot of these companies starts to at least change. Or maybe it's wireless, maybe it's 10G

or some sort of higher-speed broadband. But it's possible that Altice has simply come to the point where there's no more growth there for Altice. So they're going to have to find a buyer as the next chapter of its own corporate existence. All right, Alex Sherman, thanks for joining us. Thank you. JP Morgan Chase, CEO Jamie Dimon

on the potential fallout for commercial real estate and regional banks if interest rates remain high. We've got all those details when Overtime returns. J.P. Morgan Chase, CEO of Jamie Dimon, sounding cautious today during an interview with CNBC's Leslie Picker from his company's High Yield and Leverage Finance Conference. Leslie, was this kind of typical Jamie Dimon not necessarily too bullish

or something more behind this? Yeah, I thought as it pertained to commercial real estate, he was actually a bit more sanguine. I asked him whether the stress in the commercial real estate will be the source of the next credit event. He said a lot of that depends on whether we have a recession or not. When you talk about defaults being higher, part of that's just a normalization process. They were so low for so long. So in all of credit, you're watching as things go up, but they're not at a crisis level. They're just kind of going to normal. So, yes, if rates go up and we have a recession, there will be real estate problems.

And some banks will have a much bigger real estate problem than others. He was also pretty sanguine about the potential pockets of contagion that could arise from stress in the system. There should be no domino effect. The problems you've seen were kind of idiosyncratic, problems with Silicon Valley, First Republic, New York Community Bank, and a lot of these, you know, it's also very local. I mean, you talk about real estate, I think when you say blanketed, if I call an office and I have great leases in it, it's fully leased out, 20-year leases, that's completely different than spec building.

So you really got to dig deeper, and, you know, we try to do that when we look at credit about where it is. It'll be pockets. In terms of his overall macro outlook, Diamond said markets are ascribing a 70 to 80 percent probability of a soft landing, and he thinks the odds are about half of that. He said quantitative tightening, fiscal spending and geopolitics, he thinks those things will need to play out over the next couple of years. And he's, quote, cautious about everything. Guys.

Well, yeah. So he said if we have a recession, these bad things could happen. And maybe he's slightly more inclined to think that we will have one, but still not. He's still not predicting one. Well, he's saying that there is basically odds are kind of 50-50 that we have one, but he's not saying it's imminent. He's saying over the next few years and that the different factors that are out there, geopolitics, the fiscal spending, the QT, all of that kind of takes time to work through the system, according to Diamond. And so that's kind of where he's getting that bearish sentiment that we've seen, you know seen over the past few years or so. It's allowed them to be more conservative as a firm from a balance sheet standpoint.

And he's basically saying it may not be imminent. The markets are giving a high likelihood of mission accomplished here in terms of a soft landing, but he's not quite ready to go that far. Quite a number of Wall Street, a growing list of Wall Street heads who have been pointing to geopolitics as a real risk factor that they're watching, too. Leslie Picker with a win for the live shot today. That looks delightful. Thanks for joining us and bringing us the highlights from your big interview with Jamie Dimon. It's time now for a CNBC News update with Bertha Coombs. Bertha. Hey, Morgan. New York City prosecutors are seeking a partial gag order that bars former President Trump from talking about witnesses and court staff ahead of next month's trial

on charges of falsified business records. Manhattan D.A. says it's necessary to, quote, protect the integrity of the case because of Trump's history of verbally intimidating people related to cases against him. Refugees seeking shelter in Rafah will be allowed to escape to other parts of southern Gaza before an Israeli strike, according to two Israeli officials who spoke with NBC News. It comes as the Israeli military submitted its civilian evacuation plan to President Netanyahu today. And for the nearly 20 million Americans, including four million children, suffering from multiple food allergies, there's a new way to reduce the risk of severe allergic reactions. According to a new study published in the New England Journal of

Medicine this weekend, the drug Zolair, originally used to treat allergic asthma, the study found that it can be an effective allergy treatment for people who have severe reactions to things like peanuts or other nut trees or even eggs or dairy. It's really nice to have another tool in the toolbox. Absolutely. Bertha Coombs, thank you. We want to update you on a stock that we've been following closely here on Overtime. Intuitive Machines plunging today after the space company said its Odysseus lunar lander mission will be cut short.

Now, it made history last Thursday when the lander became the first commercial spacecraft to successfully land on the lunar surface. The stock had surged with a launch and then the landing, but began plunging in after hours trading Friday after it was disclosed that the lander had tipped over on its side. Odysseus has been operating its M1 mission, but Intuitive Machines saying today, quote, based on Earth and moon positioning, we believe flight controllers will continue to communicate with Odysseus until Tuesday morning. So it's shorter than the seven days that had been planned. The stock fell 34 percent in trading today.

It's been a wild ride for this name and had run up as much as 250 percent this month, trading as high as $12 and change a share. It has since plunged from there. It's now down about 70 percent over the last year. But, John, keep in mind, still up about 140 percent this month amid this mission. Yeah, quite a ride. Up next, Mike Santoli is going to break down the market rally and where we are in the current cycle. Plus, the market punishing Alphabet over problems with its AI model Gemini. Coming up, a top analyst on why that may not be the only problem facing Alphabet over problems with its AI model Gemini. Coming up, a top analyst on why that may not be the only problem facing Alphabet right now. Welcome back to Overtime. Check out

shares of HashiCorp surging today a little over 14 percent after Morgan Stanley upgraded the software company to overweight from equal weight, hiked its price target on the stock to $30 from 23. Analysts there citing a resurgence in cloud initiatives and valuation. This is a company that works in multi-cloud. Now, despite today's gains, the stock is down about 13 percent over the last six months. Morgan. All right. Well, now let's turn to Mike Santoli. He is back with a look at the big macro debate that's happening in the markets right now. Mike. Yeah, Morgan, it's been happening for a while, too. What phase of the economic cycle are we in? Does the current cycle even map to prior ones? But I mean, it's been an assumption for

over a year that we are somewhat late cycle because unemployment's already low. We've already been through probably a full Fed tightening cycle. A lot of the other indicators are there to suggest that there's maybe not that much running room. However, these equity baskets that are constructed by Deutsche Bank to track what types of stocks are working in different phases show that mid cycle stocks, those that just do well when you're kind of in the heart of an expansion, are continuing to lead, certainly over late cycle ones. Now, this, to be clear, is long the stocks that do well in the mid cycle and short the ones that are supposed to not do well in mid cycle based on past patterns. And I'll point out also early cycle and end cycle are different stock baskets and mid cycle is outperforming all of them right now.

So this doesn't necessarily settle the question, but it does fit with some other indications, such as Fed not really feeling like it needs to cut for any reason. And of course, economic growth continuing somewhat above trend, at least at last measure, Morgan. All right. You may have said this, but I may have missed it, but I just want to go back. What what are example of mid-cycle and how is that? And to that point, I mean, when you see stuff like industrials, which have been a stealth mover higher this year, is that an example of that? Absolutely. So it would be things like industrials. So if it's in the early cycle, usually it might be deep, deep cyclical stuff like autos that got really beaten

up and banks, things like that. And then, you know, you kind of hand it off to those more steady growers. Industrials would be part of it. They are beneficiaries of CapEx and some areas of consumer as well. So it's not necessarily, you know, all or nothing when it comes to these sectors, but that is an example of what might be working right now. All right. Mike, thank you. And now Macy's headlining a big day for retail earnings tomorrow. Coming up, former Toys R Us CEO Jerry Storch is going to give us his insight into the state of consumer spending.

Plus, the board battle at Norfolk Southern is heating up. The latest details and the impact on investors when Overtime returns. Welcome back to Overtime. Norfolk Southern releasing preliminary proxy materials today amid its leadership fight with activist investor Ancora. The railroad nominating two new candidates to the board, former Amtrak and Delta CEO Richard Anderson and former Senator Heidi Heitkamp, who's also a CNBC contributor, confirming, quote, unanimous support for the company's strategy under CEO and President Alan Shaw. And Cora, which is seeking to overhaul both the C-suite with former UPS exec Jim Barber and railroader Jamie Boychuk and the board with eight nominees, responding, quote, since Mr. Shaw and his boardroom allies have no credible plan and no viable record to run on, it makes

sense that they would initiate a weekend reactionary refresh. Now, the activist campaign coming amid underperformance by Norfolk Southern versus direct pure CSX and other class one railroads and a year after a disastrous derailment in Ohio that helped spur regulators to take the unusual step last week of actually warning against, quote-unquote, backsliding on safety amid this proxy battle. The investor battle taking place amid a tough market for freight overall, as evidenced by BNSF and Berkshire Hathaway's earnings over the weekend. BNSF is the only railroad posting weaker margins than Norfolk Southern, with operating earnings falling 14 percent last year. And Warren Buffett writing,

quote, though BNSF carries more freight and spends more on capital expenditures than any of the five other major North American railroads, its profit margins have slipped relative to all five since our purchase. I believe that our vast service territory is second to none, and therefore our margin comparisons can and should improve. Pretty pointed commentary there from Buffett. BNSF is also the only Class 1 railroad to fully resist, in all aspects, precision-scheduled railroading in recent years. But the broader context. Freight has been in recession, normalizing post-COVID. Rail volumes down across the board, as you can see right there last year, though starting to show some early signs of recovery in recent months. As one analyst told

me, the rails have been pivoting in anticipation of growth and have been less worried about margins with volumes down, headcount up. That's what Norfolk's team is betting on, a strategy designed to be ready for volume to come back. The question is, will investors get on board or derail that current plan? I'd also note, despite some weakness in that stock today, those shares have been trading around 52-week highs amid all of this activist investor angst, John. OK, so timeline here for context. Was Ancora on Norfolk Southern's case before the derailment or no? Was this just something that exacerbated that situation? I think it's interesting that the unions seem to be backing Norfolk Southern's current management

and not these activists. Yeah, and it's been interesting to see regulators like the FRA issuing notes in the midst of all of this. You don't typically see that in the middle of a proxy fight around safety and around leadership, warning about leadership changes. And CORE has been an investor for a little while. There were talks between the two about finding some sort of agreement in recent months. Those have broken down. It would seem, based on the filings we got today and some of my reporting and talking to some folks on background on both sides, that this is really it's really about leadership in the C-suite. And it see it would seem that the sticking point here is a change in management for Ancora. Now, keep in mind, anything could happen in coming weeks in terms of some sort of deal getting struck.

But as it stands, I think probably some of the next milestones are going to involve what comes out of ISS and Glass-Lewis in terms of board selection, future for management, what they recommend, and then how that plays out, say, April. We don't have a date yet for that meeting, but how that plays out in the spring, we'll say. Okay. All that tracks. Up next. I see what you did there. Yes. An analyst explains why Alphabet shares are looking cheap and why that doesn't mean investors should buy the stock. And

check out shares of hims and hers help. They are surging in overtime after beating Wall Street's earnings estimates, issuing strong guidance up 15%. We'll be right back. Welcome back to Overtime. Alphabet taking a hit today. Shares falling 4%. This coming after the company announced a pause of AI image generator Gemini due to inaccuracies in some of the images that it was creating. Well, joining us now to discuss why he thinks Alphabet stock is cheap for a reason, Ben Reitzis, tech lead at Mellius Research. Ben, I understand that there's a lot of criticism of Google right now, in part because of this AI thing. There was already this overhang about them possibly being behind Microsoft. But is there a chance that this is

like the pile on to meta a couple of years ago that turned out to be overdone? Well, there's a chance. Of course, there is. What we really need to see from them is perhaps the initiatives that they're taking to make their AI more reliable and probably more importantly, real efficiency. Not just saying it a few times on the conference call, but something more quantifiable. But to date, we really haven't seen it. There's been, frankly, a lot of confusing launches. And we're a little bit saying it today. It's cheap for a reason.

And you picked up on that. Yeah. So you're saying you want them to be a little bit more specific in their guidance about things like cost cuts and their care for margins. I mean, they've got a new C more specific in their guidance about things like cost cuts and their care for margins? I mean, they've got a new CFO coming in, so there's an opportunity to do this. Do you think it's going to happen? I don't know. It's a little, so far, it's a little un-Google-like to come out with targets and guidance and things that both Meta and other Mag7 companies have done to kind of shepherd us through some of the growth phases

and turnaround phases that they've all gone through. But I think it's time to turn over a new leaf. That would be welcome to kind of have real margin targets for the cloud business, which is sub 10%. I mean, their competitors are way ahead of that. And that would add a lot to EPS. Obviously other bets they're talking about, thinking about doing things there. Let's do it. That would add. And then we would like to just see

more, these launches have been a bit jumbled. You know, you don't see like something like this, you know, Apple gets a lot of criticism, but when they kind of launch something, you kind of know what it is and they don't rename it three days later. So we kind of need to see tightening up the message here on AI as well so they can be the trusted brand that leads us forward and show us how they're going to monetize search with AI-infused features. You have a hold rating on the stock. What would it take to get you to a buy then? Well, exactly kind of how John said it here. I mean mark zuckerberg has shown that he thinks his stock's a scoreboard okay he cares and he's gone through and he's been become more efficient and we've seen it in the results and he's hustling on ai open sourcing models and using ai features to

improve his ad business we just got to see proof We got to see proof that they care and they're doing it. And to date, we haven't seen it. It seems like they're saying certain things that allude to it. But look, it's real easy to buy another Mag 7 stock. Obviously, a lot of folks are criticizing Tesla these days, but, you know, three or four of them are just doing a bang up job, obviously, NVIDIA. But, you know, Amazon and Meta as well, they're showing that they care about their P&L. So there's alternatives for folks. And if search is secularly challenged, you can get a little cheaper. So in a week where you have DeepMind CEO making comments, you've got the Mobile World Congress in general, a big focus there is AI and smartphones. How much does that matter to Alphabet and Google? How much does that matter to Alphabet and Google?

How much does that matter to the broader ecosystem as we do start to see this real time, real world rollout of these applications? Well, I think that, you know, in terms of the stuff coming out of Mobile World Congress, I haven't seen anything that's revolutionary yet. Maybe I'm wrong. I mean, it's hard to keep up with anything.

I think what we need to see from Google specifically, though, is a plan to monetize SGE where we all feel good about it. We're seeing the rise of some new competitors. If you go to Perplexity AI's site and start playing with their AI, it looks pretty good. You don't need to be too much of an expert here to know that that might be part of the future that we are working with here. So I just think they need to be more explicit on how we're going to monetize the dashboards that their ad buyers know with AI infused and make us feel good that this can accelerate in an AI world. We're in a once in a generation handoff here in search, from good old search for decades that we knew at Google to something that's AI infused. This is a big transition. And I think a lot of the sell side has been pretty lackadaisical about it,

frankly. Ben Reitzes, thanks for joining us. Thank you. It's been a pleasure. Shares of Alphabet down 4% today. One of the worst performers up next, former Toys R Us CEO Jerry Storch and what he's expecting for Macy's earnings tomorrow and what the results could say about the outlook for consumer spending in what's a very heavy week for retail results. Stay with us. Welcome back to Overtime. A number of retailers reporting this week, including Macy's, Lowe's, Best Buy, Birkenstock, and TJ Maxx.

That's touching an all-time high today. But joining us now on retail and the state of the consumer is Jerry Storch. He's currently the CEO of Storch Advisors. He was the former CEO of Toys R Us and more. Jerry, it's good to have you back on the show. Before I start getting into what to expect from Macy's and the others, the strength and resiliency of the consumer. I mean, I can think about you coming on the show last year and saying that you were concerned about it. It's held up pretty well despite inflation. Your thoughts now? Well, look, two things we know for sure about the consumer. First

is they've held up a lot better than most people, including me, thought they would. Secondly, most of the overhangs, the factors that had people worried, are still there. They still have rising consumer debt, decreased savings, and of course, ongoing inflation. So there's reasons to still have some concern. When you look at the retailers that reported so far, it's early in this earnings season. We're going to get a slew more, as you point out, this week and next week. So far, we're looking at two big ones, though, Walmart and Home Depot, and it's a mixed bag. So if you look at same-store sales, which is the gold standard for retailing, Walmart reported for the fourth quarter 4.0% same-store sales growth.

In the third quarter, it was 4.9%. Home Depot reported negative 3 for this fourth quarter. And in the third quarter, it was negative 3.9%. So basically, they're clones of the prior quarter. So we wonder whether that's what we're going to see when retailers report. We don't know yet. We're going to find out soon. Okay.

So Macy's specifically, which reports tomorrow. We know activist investor Ark House Management is involved there, nominated nine people to the board. The company rejected an unsolicited takeover bid from an investor group led by them as well. How much is riding on results tomorrow and an outlook that is going to be impressive to Wall Street given that proxy fight? Morgan, Morgan, I love you dearly, but I'm conflicted in that situation. So I'm really unable to talk about it today. In general, what we see is that value retailers are thriving. So people like Walmart, like Costco, like TJX.

Food is taking a lot of the consumer dollar. There's been a lot of documentation that that's where the money is going. Discretionary products are not doing as well, whether that's apparel, homeishings building materials electronics those are tougher categories jerry i'm particularly eager to see tjx results because the off-price retailer has been performing so well its operations seem tight but comparing it to walmart walmart is moving more into advertising even digital it's doing more with Omnichannel and online. Am I wrong here, or is TJ Maxx a really interesting gut check on whether it can continue growing into its valuation in this environment?

Hey, they proved all the naysayers wrong. I'll tell you a quick story. When I was at McKinsey many decades ago, seriously, I worked at TJ Maxx, and they thought the whole country might hold 500 stores, and then they'd be maxed out, and they couldn't even build anymore. Now they've got thousands of stores. They keep growing. The company's worth $100 billion, so I'm not going to start capping their growth. And they're doing it without much of an internet to speak of, as you point out, and without going to all these finagling marketplaces and advertising services, they're just offering tremendous value every single day. And that continues to work for them, as it does for Walmart, as it does for Costco, as it does for the dollar stores. You're doing much better right now.

And, of course, don't forget Amazon when you put together your wish list of companies that are thriving in this environment. But Walmart's going after more, as I mentioned, more aggressively, I think, than TJX is. So not saying can TJX continue to perform, but can it continue to perform up to how it's priced? You know, I think they can. They're just, because people, you know, it used to be that their slogan was, why pay department store prices?

Now, you know, they're much larger than the entire department store sector. So as I've said many, many times on this show and elsewhere, the parasite has devoured the host and they're growing like crazy. People love it. I think they're growing. Walmart's no slacker. They've always been one of my picks. Go back and check. For two years, I've said Walmart, Walmart, Walmart, Costco. Those are huge winners in this environment. Walmart, never forget, is the leading grocer in the country. And as I mentioned earlier, money is going to grocery. And that grocery drives frequency and trips.

And while they're there, they buy everything else because they know that the prices at Walmart are good. They have a well-developed Internet. The in-store pickup has been growing very, very rapidly. We buy in line and pick up in the store. So they're doing quite well. And they're growing services, growing everywhere. So I would never knock Walmart, but TJ Maxx can still do great. And, of course, advertising now with acquisition of Vizio.

Jerry Storch, thanks for joining us. Well, the major averages finished lower, including the Dow, despite Amazon's addition to the industrials. That's going to do it for us here at Overtime. Fast Money starts now.