Closing Bell - Closing Bell Overtime: Record close for Nasdaq and S&P, Zscaler sinks and Real Opportunities in Real Estate 2/29/24

Episode Date: February 29, 2024

The Nasdaq and S&P 500 closing at record highs as the major averages rally for a fourth straight month. Solus' Dan Greenhaus on whether the rally has legs and if Industrials can keep outperforming the broader market.  Zscaler shares getting crushed after earnings. Truist's Joel Fishbein says investors should buy the stock on the dip. The CEO of consumer products maker Compass Diversified tells us whether he sees any signs of slowing consumer spending. And Nuveen Real Estate's Head of Investments Carly Tripp on where she sees the biggest opportunities in the sector.

Well, there it is, record close for the NASDAQ and the S&P. Even the Dow decided to do something in the last hour, closing the green. This marks the first new closing high for the NASDAQ since 2021. So that's the scorecard on Wall Street, but winners stay late. Welcome to Closing Belt Overtime. I'm John Fort. Morgan Brennan is off today. The major averages now higher for a fourth straight month, with the S&P and NASDAQ posting the best monthly returns

since November. Now get set for another busy hour of overtime earnings. We're going to break down the results from HPE, Dell, Zscaler, Autodesk, SoundHound. As soon as they're released, get Elastic in there too, maybe. But we're going to begin with our market panel. Joining us now is Dan Greenhouse of Solus Alternative Asset Management and CNBC Senior Markets Commentator Mike Santoli back with us. Dan, great to have you here on set. So market today, reaction to better than feared, PCE, yields are down, all the major indices up. Dow was dragged down for a while by Boeing and Goldman. What does this moment mean as far

as believing in this market? Listen, there are a lot of people who are not believers in this market and haven't been for quite some time now. I don't know that new highs are going to do anything except reinforce a lot of the negative stereotypes that this group has for the market. But from my standpoint, I think points that have been made on air today include you have strong performance from the homebuilders, from a number of tech names outside of the Magnificent Seven, from trained technologies in the industrial space, from GE, a number of health care companies, not just Lilly, but how about Merck? I think there's a broad swath of stocks and industries that are doing quite well that are helping drive these gains across markets, not just the NASDAQ, but more generally. Okay. Mike Santelli, we're about to get some fresh information from these earnings from

Dell HPE NetApp. We're going to see who's getting a lift from AI, maybe like Supermicro, Pure Storage versus who's not. Same with Elastic and Zscaler on enterprise efficiency. You know, when it comes to security, CrowdStrike bad, Octaneutronics good on that. And then we'll get a look at Autodesk as well as applications and construction, that business play out because construction management, you're using a lot of Autodesk. I mean, what has the overall message been in some of these technology names? Semiconductors had another strong day and software has been doing pretty well. Yeah. I mean, the buying panic in semiconductors took like three days off and then it resumed today and it didn't seem to necessarily be triggered by a heck of a lot in

the way of the earnings reports. But I do think in general, we're in this mode of investors are craving the next play on the big themes because the absolute obvious ones have had their run to a fair degree. But I also think it's very notable that when you've been hitting these air pockets in earnings reports, something disappoints and it goes down a lot. You're not necessarily seeing it spread more broadly. And that just shows you the general, more forgiving tone of this market, the fact that people are allowing equity exposures to go up. They're riding the positive trend and allowing essentially rotation to take the place of outright selling now that's been a

great story a lot of the things that we feared coming into this year either that the market was too dependent on a few huge stocks or that the fed was going to have to cut rates soon to rescue this market or any of that it's all gone by the wayside. The question is, what's next? And what's going to be the next kind of impetus to get us well through these landmark levels that we're now hitting? Yeah, I do want to mention Autodesk numbers have crossed. We are going through them right now. Dan, while we await going into that, how do you play industrials here? S&P sector's up, I think, about 25 percent almost from the October lows, touching a 52-week high today. Yeah. Listen, there are two main themes that get most of the attention in markets right now. It's the GLPs, Eli Lilly, and it's obviously AI writ large. We're

going to talk about that, I assume, when Dell reports. But this other narrative in markets that gets considerably less play is just the amount of money that's being spent on electrification, grid reinforcement, EV charging, et cetera, et cetera. And there are a number of companies in the industrial space that the stocks of which are benefiting enormously, not just from government spending, but the incentives that are being aligned to drive private sector investment in a number of these names on building out data centers, on doing all the other things I just mentioned. You can look at charts of, I mentioned, train technologies earlier. Look at Eaton. Look at Vertiv. There's a whole group of companies that are doing phenomenally well.

They're getting much less attention from markets. And when you look at, if we could throw up a chart of the XLI, it looks like a tech stock right now and not for nothing. There's underlying fundamental drivers pushing those markets higher. All right. And we've got to hold on those Autodesk numbers out. Pippa Stevens has them. Pippa.

Hey, John. Autodesk shares are higher here after beating on the top and bottom line for the fourth quarter, earning an adjusted $2.09 per share. That was $0.14 ahead of estimates. Revenue coming in at $1.47 billion, also ahead of the $1.43 billion expected. Now, for Q1 and full year, the EPS guide was a little bit short of expectations, but the Q1 and full year revenue numbers coming in ahead of analysts. Estimates that stock up now 5.5%. John? All right, Pippa, thank you. HPE Zscaler numbers are crossing as well.

We are looking at those. As a matter of fact, Steve Kovac is done looking at HPE. Steve, how do they look? Hey there, John. Yeah, it's some mixed results here. Let's talk about EPS first. That is a beat, though. 48 cents adjusted versus the 45 cents adjusted Street was looking for. But you see shares falling here. We got miss on revenue, $6.76 billion versus a $7.11 billion the street was looking for. And also guidance, missing expectations here as well for the second quarter. A miss here at $0.36 to $0.41. The street was looking for bigger than that, even on the high end, $0.45 adjusted. And revenue guidance also missing. They're looking at a range here for $6.6 billion to $7 billion. Street was looking for slightly

above that at $7.1 billion. I also caught up with CEO Antonio Neri on these results and blaming several factors here for these missing. But what really stuck out to me, John, is a short supply of NVIDIA GPUs is a big headwind. Let me tell you what he told me, quote, in our case, we are buying directly from NVIDIA in on behalf of the customer. And then obviously we have to wait for the lead times. We've seen improvement, but not enough from the size of the order book that we have. So long story short, not enough NVIDIA chips out there for HPE to get done what they need to get done, guys. All right. Well, Jensen giveth and Jensen taketh away, depending on the company, I guess. Supermicro, Dan, didn't seem to have this problem. No,

that's right. They got a lot of NVIDIA chips. They sell high-end hardware. So maybe they got prioritized here. But you're seeing a bifurcation between those who have an AI story and the supply to fulfill their customer book and those who don't. Yeah, the HP story is a little bit to do with enterprise IT spending, and they're suffering a little bit there, whereas Dell, which we're going to hear from also at some point, they have these AI servers, the demand for which is enormous. The company mentioned on the last call that they saw the pipeline tripling for that segment of the business. And then you have Zscaler, which we haven't talked about yet, which I'm looking at the earnings. Phenomenal there.

So there's clearly a bifurcation, which is not unusual. There's always going to be winners and losers. But I think the AI story right now is so dominant throughout the market, and not unexpectedly so, or not unknown to the market, I should say, that it's creating a group of companies that are benefiting enormously. Those that are providing the infrastructure, dare I say the picks and shovels, a phrase no one has used before. Oh, wow, yeah. And those that just are simply being left behind and perhaps HP is finding itself in the latter camp. I don't know. It's not a name I follow.

I want to mention Dell is out as well. We're going to have the same question about those results. We are looking through them. Christina Partsenevelis has some numbers now. Christina. Yeah, let's just start with Q4 results first. You got EPS of $2.20, which is a large beat on revenues of $22.3 billion. Also a beat, but still down 11% year over year. When we're talking, oh, the company also mentioning that they're increasing their annual dividend by 20% and that they're optimistic about fiscal 2025. But to your conversation just now about AI and PCs, so the PCs would fall into the client solutions group. That was down to 11.7 billion. The street was anticipating 12 billion. And their infrastructure solutions group, which they're hoping to continue to grow

that beat at 9.3 billion with the company saying quote our strong ai optimized server momentum continues with orders increasing nearly 40 percent uh sequentially and backlog nearly doubling exiting our fiscal year at 2.9 billion recall last quarter, they put that number at $1.6. So now it's $2.9 billion in AI server backlogs. And you can see the stock reacting 14% higher right now. Wow. Christina Parson, that was, thank you. Mike Santoli, we're seeing a contrast here between HPE and Dell. And the first thing that jumps out is just, did they have AI-optimized servers to sell? Dell is talking about having them.

HPE is talking about not having enough. Yeah, I mean, HPE's server revenue in particular was down 23% year over year. It's like half the revenue of the last quarter. So clearly, massive headwind. Just also just basically the legacy businesses in runoff mode. So, yep, that's the difference. I would have thought that the bar was pretty high for Dell in terms of how the stock might react because it has been extremely strong for a while.

The market's in on the joke that they are pretty well positioned, it would seem here, even though it's not an expensive stock at all. It still has that kind of old tech multiple on it. All right. Let's see how Zscaler is doing. Dan Greenhouse mentioned it. Steve Kovach is ready with the numbers. Steve. Yeah, John, big beats here. EPS coming in at 76 cents adjusted.

Street was looking for 58 cents adjusted and also revenues a pretty healthy beat there at 525 million versus the 507 million adjusted. Also, I'd say guidance for Q3 very strong. It's unclear why shares are still down quite significantly here, 7%. So I'm going to keep digging through. But there's your top and bottom line numbers there, John. All right. Thank you, Steve Kovac. Dan Greenhouse, there might not be a reason in there. Sometimes these stocks move in crazy ways in overtime, right? Nutanix went down and then it went up, right? Listen, Zscaler is a $250 stock. They're going to earn three bucks next year. So it's not exactly a cheap stock.

There's not a value play. And when you are trading at that level of a multiple without commenting on the earnings or the value of the company as an investment, a 6% drop after hours, even an in-line report might be sufficient to drive that type of a result. Well, on this one, we're going to want to hear from the CEO. And not today, though. Jay Chaudhry is going to break down these results in exclusive tomorrow right here on Overtime. Mike, we've seen different storylines playing out in software, particularly in security, during this earnings season. CrowdStrike had a report where not only did – sorry, Palo Alto Networks had a report where not only did it go down,

it brought down CrowdStrike and Zscaler, but then they kind of bounced back from that. And now you've got some choppy action in Zscaler with this report in overtime today. Yeah, you know, it'll be a test of what I said earlier about how you've had these little mini blowups that have not necessarily held back the overall subsector for a while. And so we'll see if that if that does play out. I mean, I'm looking at things like Snowflake today. It didn't really seem to have coattails in terms of how the rest of the market reacted. So I don't know. At some point, it does feel as if people are getting a little bit overzealous in applying kind of an AI story on a lot of different things.

And you're going to have to separate the bogus ones from the real ones. And, you know, this is part of that process. I feel like we're in the market right now in this meta sort of way, Dan, because we were trying to talk about industrials. And then all of these AI related earnings started coming out. And we started paying attention to that instead. So when you look at where there's relative value, how does technology look and sort of this AI trade versus what you see in industrials, even though we've got industrials, a lot of them trading near 52-week

highs? Sure. Well, the thing with value is, well, let's take Dell and HP, for example. Both of these stocks are quite cheap. Hewlett Packard is actually cheaper, I believe, than Dell. Dell has called it a 15 times multiple. HPE might be a single digit multiple. And obviously, after posting earnings, Dell is up 15% and HPE is down six. So value is relative and it's in the eye of the beholder. It's the famous saying, price is what you pay, value is what you get. So whether it's the industrials trading in the mid-20s or some of the tech stocks like NVIDIA trading in perhaps the 30s

or even higher in some of the more volatile names, you're looking for investments that are giving you, that are on the leading edge, so to speak, to borrow a phrase, of this investment that's going on. And there's a big debate about whether this is 95 or 99. Dan Ives is a big proponent of this argument on air. And there's a lot of pushback on this, on the idea that the story is much more well-known. The AI story is much more

well-known today than was the internet story in, say, 94 or 95. And that's a larger conversation. But the point of the story is there is tremendous value being created here. And you see it, supply exceeding, demand exceeding supply, demand exceeding supply. That in the short term is going to trump any relative value argument between sectors or industries. Well, we've got demand exceeding supply of earnings as well, but we've still got more supply of earnings. Sweetgreen and NetApp, two very different companies, are out. Kate Rogers, though, has them both. Kate?

John, that's right. And both stocks are moving higher on their earnings reports. We'll start with Sweetgreen. That stock is up more than 8% now. The company reporting a gap loss of 24 cents. We are not going to compare that number. Revenue is a beat here, slightly higher than anticipated, $153 million versus estimates of $152 million for the quarter.

Same-store sales up 6% in this quarter, also giving an optimistic full-year 2024 outlook, with revenues ranging from $655 million to $670 million. That's slightly ahead of estimates. And also adjusted EBITDA, very important here, between $8 million and $15 million. Moving on to NetApp, as mentioned, that stock is also higher in the after hours here. Better than expected Q4 beat on EPS. $1.94 adjusted versus estimates of $1.69.

Revenue also beat $1.61 billion versus estimates of $1.59 billion for the quarter. And that stock is higher by just under 10% now, John. Back over to you. Kate, thank you. Mike Santoli. Whoa, we got another one. SoundHound AI earnings are up. Pippa Stevens has those.

Pippa. Hey, John. So SoundHound is lower in extended trading, although it did gain 17% earlier today. So take that with a grain of salt. It was a top and bottom line miss, reporting a seven cent loss. That was one cent larger than expected. Revenue coming in at 17.1 million, a little bit short of the 17.7 million the street was looking for. Revenue guidance for the full year essentially in line. The company did say that its revenue was up 80% year over year. They also noted their pace and agility amid this AI revolution, which the company says puts it ahead of the field when it comes to delivering real commercial value. And the stock up, of course, 250% this year.

John? Yeah, I got some recognition because of involvement with NVIDIA AI around voice. Thank you for that, Pippa. Mike Santoli, with NetApp and these results strong from them, it reminds me of Pure Storage last night. Two storage names. NetApp was really reliant on what the cloud players were going to do. It seems like that perhaps is shaping up for them as, again, this AI rush of data creates demand for storage as well. Yeah, without a doubt. And again, it fits right into that idea of people feeling like they have to go a little bit further downstream to find, you know, where the money is flowing. And that's going into these areas and these

hardware related, you know, things that have been around a while, like NetApp, they don't have the crazy valuations because people didn't presume huge growth rates. So I think that's why you get a little bit of a bump to say that they're part of the story. Although I would point out to something like SoundHound, which the revenue miss was $600,000 in the quarter. And it's a $1.8 billion market cap. So, you know, I think you have to keep in mind some of these things have just been, you know, anointed as players, and it remains to be seen. Yeah, they missed by a mortgage, you know, which is, which is, says something about inflation.

Yeah, well, you know, these days, housing's expensive. Mike, we're going to see you in just a bit. Dan Greenhouse, thanks for joining me here on set. Thank you. While still ahead, we're going to get analysts' reaction to the results from Dell and Zscaler as those earnings calls get set to begin. Plus, new data out this morning showed, we were just talking about homes, pending home sales dropping in January.

Naveen, real estate's head of investment, is going to tell us where she's finding opportunities in the underperforming real estate sector. Overtime is back in two. Welcome back to Overtime. Elastic third quarter earnings are out. The company beating on the top and bottom lines. Earnings coming in at $0.36 adjusted versus $0.32 expected. Revenue came in at $328 million versus $323 expected. Revenue came in at 328 million versus 323 expected. And guidance about looks bang on in line for the fourth quarter. Shares, though, you can see down 16%.

This is a name that some investors had gotten used to blowing out the numbers. So perhaps this is a reaction to that. I'm going to speak to the CEO actually on this tomorrow morning. We'll bring you more from what I learned. Shares of Dell, meanwhile, we're just talking about that, up nearly 19%, 18% now in overtime after beating on the top and bottom lines. Their earnings report crossed just moments ago. And joining me now to discuss ahead of the call is Evercore ISI's Amit Daryanani. Amit, good to have you with me here. We're seeing this bifurcation I was talking about in who's got more of an AI hardware story, who's got supply of NVIDIA chips, maybe based on demand for the systems and the margins they're able to get out of them. And who doesn't? HPE did not have results that made investors happy, but Dell does, right? Yeah, absolutely. And I think the single biggest number that matters at Dell is this AI backlog of

$2.9 billion that practically doubled for them on a sequential basis, right? To your point, they seem to be having the blessings of NVIDIA to get allocations, get chips, and that's only driving a lot of the upside momentum of the stock. So does buying Juniper fix the problem that HPE has here relative to Dell? I don't think it does, right? I mean, where Dell is winning is selling GPU-based servers right now to kind of the tier two cloud companies. Juniper is going to give HPE a really good presence in enterprise networking, but it doesn't really give them this AI server play that, you know, so far has been dominated by Supermicro,

but you're seeing it brought it out to a Dell right now. So when I look at Dell up like this after hours, but also NetApp doing well, Pure Storage doing well, I wonder if Dell's storage business is doing as well as it should, or if it's just, you know, outperforming here and there. No, listen, I think you hit a great point, which is if you look at Pure yesterday, NetApp today, and even Dell, Dell's storage business came in at about $4.8 billion. The stream was looking for $4.2 billion. I mean, this was the big reason why margins on infrastructure were up pretty dramatically. I think they were up like around 15.3%, much better than expected.

And that's really what drove the EPS upside in Jan. I think it's a better storage performance from Dell, and you certainly saw that with Pure and NetApp as well. So what about security? Some of these bigger players like Dell, like HPE, like Cisco even, which had a rough quarter for earnings reported, a rough quarter. They've got security businesses, but then you've got standalone, what they like to think of themselves as best-of-breed businesses, like Zscaler that reported today.

Its numbers were strong, not what investors were expecting, though. How are these bigger names faring versus those kind of newer age security platform entrants? Yeah, you know, it's sort of a great dynamic and security scene, which is it's almost a platform plays, right? And Cisco is only one of the bigger platform plays in security versus, you know, the pure play point solutions like a Z-scale, for example, right? And to some degree, I think what you're seeing right now that's helping Cisco is the more further away you get from the pandemic, our enterprise organizations are starting to consolidate their security sprawl.

And that suddenly seems to be helping someone like Cisco a little bit better versus not. So I do think you're seeing a bit more of a gravitation back to its platform assets versus not. The question would be, does that work up until you have this next big security breach and you need to go to a best breach solution or not? All right. Ahmed Dharianani, thank you. Dell up about, I think it was 14, 15, 16 percent, somewhere well above 10. Meanwhile, check out shares of C3 AI. That stock soaring in the regular trade today after reporting a revenue beat narrowed than expected loss in overtime yesterday, thanks to an 85 percent increase in booking.

Of course, the CEO, Tom Siebel, joined us on overtime yesterday, told us how the switch to consumption based pricing is helping sales. These language models, whether we're training them, whether we're doing inference, are using massive amounts of the GPU and CPU resources. So given the consumption pricing model, this foretells kind of substantial increase in top-line growth going forward. C3 was up 24. a half percent today. So while things might be looking up for C3, though, not all good news for everybody in the artificial

intelligence space. You can cue that QR code because that's the lead in to my latest installment of the On the Other Hand newsletter. The question is, are mistakes by Alphabet's Gemini AI model a cause for concern for the entire industry, for the world. You can scan that QR code on the screen to read both sides of the argument and find out. Well, real estate, just one of two sectors in the red so far this year. Up next, Nuvene Real Estate's head of investments on where she sees the biggest buying opportunities right now when overtime returns. Welcome back to Overtime. New data out today showed pending U.S. home sales fell in January as elevated mortgage rates impacted demand. Pending sales declined nearly 5%, which was way steeper than estimates. Joining me to discuss is Carly

Tripp, Nuveen Real Estate's Global Chief Investment Officer, Head of Investments. Carly, I mean, the lack of supply combined with these higher rates continues to be an issue for people looking for an on-ramp into residential. But then you've got the office market, which is confounding investment as well. What do you do here? Yeah, what do you do? the office market, which is confounding investment as well. What do you do here? Yeah, what do you do? That's a great question, John. Thanks for having me today. So on the residential market, you know, it's kind of like no new news. However, what's interesting is that the consumer is really starting to explain, I guess, their tolerance for mortgage rates, right? In December, we saw really strong numbers. Mortgage rates had come in about 50 basis points, bouncing around six and a half.

As they have steadily come up since then and hover above seven, consumers do not like that, right? And so we're seeing the results of that in pending home sales. So we expect that that is not going to improve. Inventory will remain low until rates come around 6%, in which case your cost to own versus cost to rent margin really, really starts to shrink. How does retail look? Retail is doing amazingly well. So retail has been, you know, the underdog of the last decade. And what we're seeing at our centers is increased activity, a lot of demand, increased sales.

The consumer is obviously very resilient and strong. That is accommodating to retail spending. Eighty percent of retail sales do involve a physical store, which is a positive for our centers. And not only that, there's no new supply added to retail. Over the last five years, about 130 million square feet of retail has been converted to other uses. So it's really been underinvested in. So the outlook for retail is very, very strong. So I keep hearing on Office, which many people are worried about, that there's the relatively new Class A Office that's actually doing fine. And then there's the other stuff,

which is some kind of a disaster waiting to happen. How does it look from your vantage? Yeah, absolutely. Winners and losers. Even if you look at the public rates, the large public office rates, you can gleam a lot by their return to office stats. The office rates that have really, really super high quality portfolios are above 90 percent return to office. That's really, really strong. Those with less quality, lesser quality portfolios, obviously in the 60 percent range. Right. So it's incredibly bifurcated and we've seen a flight to quality. But if you walk around a city like New York, activity is back. That said, structurally, long term, we do not need as much office space as we

have, which will kind of create this scenario of the haves and have nots. I keep hearing the best as well out there is in industrial, some of the strongest performance. How are you seeing that reflected in the market? Industrial has been incredible. It has performed exactly as real estate should perform. Income has outpaced inflation, right, which real estate is expected to be an inflation hedge. That's why it's such a great diversifier to a portfolio. And so we continue to see incredibly strong demand for industrial. Supply has slowed. That was the concern pre-pandemic. However, due to, you know, lack of construction lending, lack of financing, just generally speaking, bottlenecks in the

construction system, we expect that demand is just going to continue to flow. E-commerce spending is not going anywhere. Well, you took us around the market, every spot pretty much in real estate. Carly Tripp from Nuveen, thank you. Thank you. Well, we've got breaking news on New York Community Bank Corp. Kate Rogers has that. Kate. Yeah, John, we want to call attention to shares of that stock, which are lower by more than 13 percent now. On two pieces of news here, in an 8K filing, New York Community Bancorp says that they've identified material weaknesses in internal controls related to internal loan review. As you can see, sending the stock lower there. The company

also separately announced the appointment of a new president and CEO, Alessandro Dinello, who is executive chairman of the board, effective CEO, Alessandro Dinello, who's executive chairman of the board, effective immediately. He succeeds Thomas Kangemi, who stepped down as president and CEO after 27 years, but he will remain on the board. And in addition to that, Marshall Lux, a financial services industry leader who has been an independent director on the board since 2022, has now been named presiding director of the board effective immediately. But once again, the company saying it's identified material weaknesses and internal controls related to internal loan review. And the stock is lower on that news. John, back over to you. Yeah. After being up five and a half percent in the regular trade. Kate, thanks. Now let's get

a CNBC News update with Bertha Coombs. Bertha. John, President Biden will be speaking momentarily in Brownsville, Texas, where he met with border security agents and local officials to see the impacts of illegal immigration. Meantime, Republican challenger Donald Trump is also in Texas, about 300 miles away in Eagle Pass, underscoring just how immigration has become a top issue for the election. The Alabama State Senate passed a bill to protect IVF services after three providers in the state paused services in light of the Alabama Supreme Court's ruling that frozen embryos were considered children.

The governor is expected to sign that bill into law. And a former U.S. ambassador said he will plead guilty to charges of being a secret agent for Cuba going back decades, ending what prosecutors call one of the most brazen acts of betrayal in the history of U.S. Foreign Service. Manuel Rocha admitted to spying for Cuba since at least 1981, the year he joined the Foreign Service, meeting with Cuban intelligence and lying to the U.S. government about his contacts. Back over to you. Wow, Bertha, thank you. Up next, Mike Santoli is going to break down the resurgence in software stocks and the names driving the rally.

Plus, Zscaler's earnings call is now underway. A top analyst will react to what investors, what executives are saying and what analysts are asking. That's later on in Overtime. Welcome back to Overtime. While some say that software is eating the world lately, it's been eating well in the market too, right, Mike Santoli? Absolutely, John. It has been, although it had a real lean period there back in 2022. It fell off this precipitous peak in 2021. You remember the SaaS boom and all the

rest, but it has come back relative to equal weighted tech. And this ETF is not purely market cap weighted. It sort of puts a ceiling on anyone holding at 8.5%. So therefore, it's not just the Microsoft Salesforce index, but it has been working again. Now, Salesforce up today on those numbers last night, and it actually is now re-approaching the $300 billion market cap level. It's doing it kind of in a vertical fashion. And it's, again, almost back up to the same market cap as Oracle. Of course, Salesforce founder Mark Benioff had worked at Oracle before. They've kind of been considered in the same bucket, next generation in a sense. And you'll see the very brief periods when it has happened before that it had overcome. What I also find interesting at this point is 300 billion sounds kind of modestly sized at this

point because we keep talking about the trillion dollar plus giants out there. And that's how the market is acting, too, that there's somehow lots of upside because, you know, they're merely at these levels. It's interesting, Mike. Oracle has a hardware play that's been important for them to outperform some of the more traditional names. Salesforce, it was born in SaaS and hasn't had to do that. One wonders how those players with multiple angles on their story are going to perform from here. Yeah, no, excellent point. And I do think it is very, it is going to be an open question for Salesforce, just exactly how much heft you can get and how much scale.

Obviously, it's been a roll-up in the past. They've tried to be more capital disciplined. The story is about margins and sharing capital with shareholders. And, you know, we'll see if, in fact, they can be considered these comprehensive winners like some of the others in there. All right. Software it is. Mike Santoli, thank you. Retail CEOs have been raising a red flag about the state of the consumer. And up next, the CEO of the company that owns brands such as Ergobaby is going to tell us whether he's seeing a spending slowdown when overtime returns.

Welcome back. Many retailers have been issuing weak guidance this earnings season as concerns about consumer spending begin to worry investors. Our Courtney Reagan has some details. Hi there, John. So Best Buy's holiday quarter results did come in better than expected today. Still, the retailer warned of softer sales this year, saying also that there would be layoffs, store closures and other cost cuts. CEO Corey Berry told reporters shoppers are still dealing with inflation, driving prices higher for things like food and services, leaving less to spend on other categories like consumer electronics,

where prices are not driven by inflations. Macy's new CEO, Tony Spring, classified the consumer as under-presser, yet there's a resiliency. Denim maker Contour Brands, that CEO, calling consumer spending patterns uncertain. And then eBay. It also put up pretty strong results, but CEO Jamie Iannone told me consumers worldwide are looking for value, which is driving its pre-owned luxury and refurbishment product verticals. Retail CEO concerns about the consumer are leading many, including Lowe's, TJX, Steve Madden and Carter's, to issue disappointing forecasts. Of 140 retailers reporting fourth quarter earnings, 83 at least have mentioned inflation. Of the 22 giving first quarter earnings guidance, 20 are coming in below expectations, while 19 of 30 giving revenue guidance are below expectations.

This is according to tracking by Elseg. Interestingly, the retail ETFs, the XRT and the iBuy are outperforming the major indices week to date. And, John, I know your previous guest was talking about how there is some strength in retail. Yeah. Yeah. You know, Courtney, such a great overview. And I think TJX and Walmart in particular, I find interesting because Walmart, they tend to gain share during periods like this when the consumer is under pressure, in part because they're the biggest player in grocery. And TJX has been doing so well, even though the guide seemed disappointing. There are a lot of analysts who seem to expect that they're going to gain share in this period because of the problems at Macy's, the problems at, I guess, Bye Bye Baby going out as well.

Who benefits even as the consumer is under pressure in this kind of environment? Yeah, I mean, I think you're going to hear a lot of discussion about that barbell approach again, right? It's the lower end and the higher end, but we're seeing some cracks on the higher end. And that is often sort of the first consumer that starts to pull back, particularly when markets get a little rocky, the higher end luxury consumer. But the lower end, to your point about Walmart and TJX, they do often pick up share. And I think what's really interesting is after the financial crisis, TJX picked up some customers that maybe were actively trading down,

but they never really traded back up. And so they've held on to them. And I do think TJX has a history of conservative guidance, a history of sort of being generally conservative about what is to come. But they still end up often a beneficiary. And certainly if you're seeing retailers announcing store closures like Macy's just saying, look, over the next three years, we're going to close 150 stores. Yes, they will sell some of that inventory in other stores, but some of it also ends up in off price stores or other areas when they're trying ultimately to sort of clear it all out. All right. We're going to watch that along with the macro indicators as well. Courtney Reagan, thank you.

Thanks, John. Well, for more insights on the consumer, let's bring in Compass Diversified CEO Elias Sabo. His company manages a diverse group of middle market businesses, including names like Sterno and Ergo Baby. Elias, good to have you. Are you seeing that barbell affecting your business as Courtney just described? Yeah, thank you, John, for having me on. You know, we've been seeing a barbelling for a number of years. Most of our companies cater to the more affluent consumer.

And so, you know, we have a lot of more innovative, disruptive brands, you know, such as a Lugano Diamond, which the average ticket price is $300,000. So that's, you know, about as affluent as a consumer can be. We're seeing no slowdown in spending in that consumer. And I heard Courtney say that, you know, there is a barbelling and some of the retailers are issuing warnings. We just came and reported our Q4. We had great results, up 27% in EBITDA organic. We started out January really strong. So I know there's a lot of fear about the consumer right now, but we're not seeing it. We're seeing our products still sell extremely strong and, if anything, maintaining the momentum that we had in the fourth quarter.

How is the omni-channel trend affecting you? I mean, we talked about this at the platform scale for these large brands like Amazon and Walmart all the time, but when you're dealing with a higher-end consumer, how do you have to adjust to serve them? Yeah, so, you know, our brands are omnichannel. We have a direct-to-consumer in most of our brands as well as a consumer wholesale. You know, you really need to have all of the channels covered today to be able to meet your customer where they want to shop. And so I think, you know, some of the older legacy retailers are struggling because brands are going direct to consumer right now. And there is a shift in the way that consumers buying patterns are happening. But, you know, I think if you have

a good omni-channel presence, you have to be able to serve through all of the channels. You have to have good price discipline across all of the channels so that there's not distortions. And you have to have a lot of investments that are being made for consumer experiences across an omnichannel platform. And that's what our companies focus on, making sure that we meet our consumers where they want to be met and that we give them an extraordinary experience. All right. Yes, so far, so good. Elias Sabo from Compass. Thank you.

Thank you. Up next, much more on today's overtime earnings action, plus analyst reaction to Zscaler's results. And here's a programming note. Don't miss tonight's premiere of the CNBC documentary, Big Shot, The Ozempic Revolution, for a closer look at how weight loss drugs are treating the obesity epidemic in the U.S. That's tonight at 10 p.m. Be right back.

Got some breaking news on investment management company Vanguard. Vanguard CEO Tim Buckley is retiring at the end of the year after 33 years there. The board is conducting a CEO selection process meanwhile. Also, Chief Investment Officer Greg Davis has been given the additional role of president. Up next, an analyst with a buy rating on Zscaler on whether he likes what he's been hearing so far on the company's earnings call. Overtime, we'll be right back. Welcome back. We've got a news alert on Mattel. Pippa Stevens has the details. Pippa. Hey, John. Mattel saying just now that it cannot file its 10K on time since the company has identified certain deficiencies in its internal control over financial

reporting and that it's unable without unreasonable effort or expense to file that annual report. Now, the company said the issues stem from information technology general controls that management determined represent a material weakness in its internal control over financial reporting. Now, the company did file its Q4 results earlier this month, and it said that these issues they've identified do not impact their previously reported financial statements, and the company does not expect them to impact their already reported results. The stock down now 1%. John? Wow. First, New York Community Bancorp, then Mattel. Not a great hour for financial controls. Pippa, thank you. But meanwhile, let's take another look at Zscaler. Those shares are down about six and a half percent after hours, despite an earnings and revenue beat. The conference call now underway. Joining us now,

Joel Fishbein from Chewist. Joel, it seems to me on the call they're talking about, you know, 500 customers with at least a million dollars in annualized recurring revenue up 31 percent and they're landing and expanding. But, you know, in overtime, the stock is down. What do you say? I think two things. Number one, profit taking, right? Stock's been up 80 percent over the past year, up 30 percent over the past couple of months. And I think just people are digesting. I have been on the call. I just stepped off of it. They just got done their prepared mark. There's nothing that they said that changes my thesis on the name. If anything, I'm more bullish and with our $260 price target.

So we're buyers on any weakness. OK, but if you don't have that much yet and the Nasdaq is hitting new highs, what do you have to believe about what Zscaler can can accomplish from here? How long do you have to be willing to hold on to this stock to see gains from these heights? Well, it's interesting because, you know, a lot of the names that are making new highs don't have profits. They have a lot of growth, you know, but don't have a lot of profits. Zscaler has 35% growth. It's over $2 billion in annual recurring revenue, and it just is expanding margins. They're delivering cash flow. They grew their operating margins 700 basis points year over year. And this is pretty unprecedented for a company

this size. And what we see with a company that has a bigger market, as these guys do in cloud security, et cetera, that these guys go from being a mid-cap company to a large-cap company over the next five years. So we think this will continue to rise higher. We think over time this will be a $5 billion revenue company with substantial profitability. And that's why we like to stock you. As that plays out, though, I expect investors are going to compare it to CrowdStrike, to Palo Alto Network, which is trying to make inroads into endpoint security even now. How is it going to compare to those?

It's a great question. And I think that I think there's going to be a lot of parallels between this and Palo Alto because they're all talking about the platform, the power of the platform, which is true. We need vendor consolidation in this space. We need it for a long time. There's over 3,000 private companies that each have less than 1% market share. And so the platform is going to be powerful going forward. Where I think Zscaler is different is that they're coming from a cloud computing perspective, right? Cloud security. About 20% penetrated market. It's greenfield. They're in a pole position there. Palo Alto Networks, as you know, has been around for a long time selling network-based firewalls. That's a legacy business. Again, good business

for them. They sell a lot of attached to it. But they're coming at it from two different angles. And so Zscaler's coming at it from a greenfield perspective. You just, they had their best net acquisition, customer acquisition quarter ever. They added $500 million plus customers. You're talking about real growth at scale, whereas Palo Alto, I think, is running out of a little bit of steam in their core markets and they're having to go broader inside their install base to get the growth that they need to hit their numbers. Really talking apples to oranges in terms of looking at it, but I guess C-scalar is getting grouped into that group altogether.

We think this will continue to be a high growth story, over 30 percent for the foreseeable future. Well, investors who agree with you have an opportunity then, I guess, with the stock down about 7, 8 percent at this moment in overtime. We'll let you get back to the call, Joel. Thanks for joining us. In the meantime, don't miss Overtime's exclusive interview with the CEO of Zscaler, Jay Chowdhury. That's tomorrow at 4 p.m. Been a crazy hour of earnings here. Zscaler is down. Dell way up. A lot in between.

Hey, that's going to do it for now for us here on Overtime. More to come. Fast Money starts now.