Closing Bell - Closing Bell Overtime: Sirius XM CEO On Business Outlook, Meta’s Fact-Checking Push, and a Silicon Valley Investigation 1/7/25

Episode Date: January 7, 2025

Top financial insights with Kara Murphy of Kestra Investment Management and Adam Crisafulli of Vital Knowledge kicking off with the market panel. Earnings from Cal-Maine, while Mark Mahaney of Evercore ISI dives into Meta's fact-checking efforts amidst social media changes. Sirius XM CEO Jennifer Witz talks the year ahead for audio and podcasts and the platform's growth strategy. Plus, the outlook for banking with BofA's Ebrahim Poonawala.

That bell marks the end of regulation. Bond blocks ring and close in bell at the New York Stock Exchange. Athletic News doing the honors at the Nasdaq and high flyers by Talenteer, Nvidia, Tesla, and Bitcoin leading the declines today as stocks close firmly in the red and bond yields move higher. That's the scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. Coming up this hour, a rare interview with the CEO of Sirius XM from CES in Vegas as the Berkshire Hathaway holding comes off a rough year of stock losses. We'll talk about what's ahead for the company and the big changes afoot in the entertainment

industry. Plus, we'll talk to longtime internet analyst Mark Mahaney about Meadows' surprise decision to scrap fact-checking and bring back political content. And NVIDIA's CEO Jensen Huang is holding a Q&A with analysts right now at CES. We're going to bring you those headlines as we get them. But first, let's get to the markets and this pullback. Joining us now is Chief Investment Officer at Kestra Investment Management, Cara Murphy, and founder and president of Vital Knowledge, Adam Christofoli. Guys, happy Tuesday. Cara, last year's winners did relatively poorly today. Losers did well. Still, you point out that the top 10 stocks in the S&P, 2%, are 36% of the market

cap. Now, if this balances out and you expect that the market to do domestic market to do well, it could be because the other 98 percent rise in valuation or because those 10 fall. Which do you think is more likely? I think it's more likely that we start to see some of the others share the spotlight. So as we look forward, I mean, you mentioned that the largest names in the S&P 500 are more than a third of the market cap of the S&P 500. That is 10 percentage points higher than where we peaked in 2000. Now, you can argue that a lot of that has been driven on forward earnings expectations. Fine. But there's a lot of anticipation that's built into those numbers that's reflected in the high valuations. So if you roll forward four quarters,

what you start to see is everybody else in the S&P starts to have earnings growth that actually comes closer to what the top tens are seeing. So I think what happens is that the market attention starts to shift to the rest of the S&P 500, and they begin to get credit for those climbing earnings. Interesting. Okay. So Adam, we saw higher treasury yields again today. What's the impact of that you're seeing in stocks and which ones? That's really kind of the dominant macro theme. It was last year and it's so far is dominating the conversation in 2025. And I think a variety of factors are causing it, one of which is relatively healthy growth. And you saw that this morning in some of the economic data, specifically the services ISM. A slowdown, if not an outright reversal in the disinflationary process. And you also saw that in the ISM. You

had a big jump in the prices component of that up to the highest level in more than a year. And so you definitely have some evidence that inflation, the disinflationary process is at least stalling. And then you also have the fiscal dimension inflation, the disinflationary process is at least stalling. And then you also have the fiscal dimension to it as well, where there's a lot of talk in Washington about this massive reconciliation bill. It's going to include a lot of tax cuts. You're already on a very unsustainable fiscal trajectory in Washington. And this bill could add to that. And so those three forces, not all of which are negative, if it's all just growth that's driving yields higher, then stocks can withstand that.

But if it's inflation and if it's more fiscal policy, then that's where the entire market is going to start to really crack. You know, the price action today was definitely ugly, but beneath the surface, the equal weight S&P didn't get hit really all that hard. And it seemed like it was more of a rotation trade than an outright exodus from stocks. And so I think investors are now really trying to decipher what precisely is causing the majority of the move up in yield. Is it growth? Is it inflation? Is it fiscal policy? Yeah, a lot to digest there. Kara, and certainly some of the high flyers of 2024, they're selling off the most now and into the beginning of 2025. Signals to a certain extent, some tax culling as well, some tax movements by investors.

I'd imagine, too, doing some profit taking here in a new calendar year. But given the fact that we have had this hawkish macro data, we have had this upward pressure on bonds, on the dollar. You do have a new administration coming in in about a week, week and a half. Where do you put your money to work looking across the stock market? I mean, is it still the mega cap tech names that have led the way for the last couple of years? Or to your point where you're talking about broadening out earlier, is it still S&P or is it smaller cap names and mid cap names and some of the less loved parts of the market? Well, the good news is there's a lot to choose from in the less loved parts of the market? Well, the good news is there's a lot to

choose from in the less loved area of the market because there's a lot that hasn't been loved. But when we think about the biggest opportunity going forward, we see mid caps as an area that's really ripe for pickings. You have the percentage of market cap of the mid cap index relative to the Russell 1000 is at the lowest it's been since the 1960s. I mean, holy cow. But meanwhile, there too, you're going to start to see some earnings recovery in the latter part of the year. And by the way, over the last 25 years, despite how poorly mid-caps have done over the very recent past, mid-caps have actually outperformed large caps over the last 25 years. And then also when you look at that index, it's much more diversified than what you find at, say, S&P 500.

Technology sector is half the weight in mid-cap than it is in large cap. So I think just your starting point is a much better opportunity going forward. All right. Adam, the fact that, I mean, just sticking with the AI trade and the fact that we're monitoring for headlines out of CES regarding NVIDIA right now, we got a lot of bullish commentary from Jensen Huang last night, but it didn't necessarily change the narrative that's already been out there in the market. So how much still hinges on the tech companies, on the AI trade, and seeing that come to fruition in a more meaningful way? No, I agree with kind of what Kara is saying. I think tech fundamentals are going to stay very strong. You're going to see healthy numbers and commentary out of a lot of these companies.

You know, like you said, Jensen last night was very bullish on the outlook, not just on the core data center business, but on gaming, on the auto market, and then robotics. But I do think that, you you know a lot of that is embedded within these stocks already and you kind of see that in the price section nvidia where there was a lot of anticipation in this keynote and there wasn't a lot of incremental information the stock suffers a pretty heavy fine so you know i think the macro backdrop for the overall economy is relatively healthy and so to mitigate to some of the valuation risks that exist in tech, I think investors should be biasing more of the equal weight S&P, the rest of the market,

rather than the mega cap tech names, even though the fundamentals for that group are going to stay healthy throughout the year. Okay. We're going to leave the conversation there. Adam Christofouli and Karen Murphy, thanks for kicking off the hour with us with the major averages all finishing in the red. The S&P down 1.1 percent and the Nasdaq down almost 1.9 percent. The Dow, the least, I guess, underperforming, down about four tenths of one percent. Let's get to senior markets commentator Mike Santoli for more on today's pullback and a key tactical level to watch in the S&P 500. Mike. Yeah, Morgan. So this is a snapshot of the S&P 500 over the last six months using these daily bars, because I want to show where we've kind of

put in so far anyway, a floor since the election. And it's right in this gap. This is the day after the presidential election. You have more than a one percent spread between the close on election day and the low from the following day, November 6th. And we've bottomed two or three times right in there, right in this gap. So there's this sort of, I wouldn't say a principle, but this hypothesis that most gaps get tested and filled ultimately. It's demonstrably not true that they all get filled, but it does show you that there has been an unwillingness to sell into or below that level so far. Today, we finished just above 5,900 on the S&P. And as everyone's been talking about, there's been this rotational churn inside of it.

So, so far, that's the first line to look at to say, OK, is the character of this market changing? Are we rethinking the premise of what got us a little bit of relief to the upside after the presidential election? Obviously, that doesn't mean game over for the bull market. A lot of folks are pointing to these levels around 5600 that would take you back to mid 2024 levels. That would say a good reset had been underway. Now, take a look at some of the retail investor activity, mostly retail investor in the more aggressive types of ETFs. This is the assets under management in leveraged long ETFs. This is leveraged long the individual indexes or sectors or individual stocks. And you see it's just ballooned. And the short biased ETFs, the

ones that are inverse to the market direction, are kind of rock bottom asset levels. This is from Strategas. Todd Stone over there tracks the flows. Now, you need bulls and bullish behavior to maintain a bull market. So it's not surprising that as these new instruments are introduced and they get adopted and prices go up and people double down, that this spread is going to widen out in an uptrending tape. But this is getting maybe a little bit extreme, and it shouldn't be a surprise if you start to see a little bit of chop around, maybe some convergence in these numbers, guys. So if I look at this chart then and we talk about retail investor activity and things like these leveraged ETFs, is that a

lagging indicator of what's happening in the market given the churn you just laid out and what's arguably a pullback, if not a correction underway right now? I think it's a little more coincident, Morgan, than lagging. I mean, it is a pretty much, these are instruments that are built for day trading, right? They're not buy and hold because you kind of have this whipsaw effect on the magnification of single day moves. So it really, to me, is telling you the metabolism of the market on a real-time basis, even though we did get this little bit of a gut check in the last couple of days in the average stock. Yeah. If this bull market does fail, I wonder if the Barron story or journal story focuses a lot on these ETFs, Mike. Thanks. Well, CalMain Foods earnings are out. Kate Rooney

has the numbers. Kate. Hey, John. Yeah. So this is the largest egg producer in the U.S. We are going to bring in numbers. We're not going to compare these numbers due to pretty thin analyst coverage on this name. Only a couple estimates on the stock. But EPS coming in at $4.47 and revenue of $954.7 million for the quarter. Some commentary here on egg prices. Those were up 58% year over year. That's about a dollar per dozen due in part to this bird flu outbreak, which they talk about here. There is a keynote here about facilities in Kansas and Texas, which did experience outbreaks in 2024. They do say those are now fully operational. A lot of talk about the cost of egg purchases, seasonal demand and talking here about the nation experiencing lower supply due to that bird flu outbreak. You can see shares up more than 4%, guys. Back over to you.

All right. Okay, thank you. Well, after the break, we will talk to noted internet analyst Mark Mahaney about Meta's decision to eliminate third-party fact-checking and if the move could have any meaningful impact on advertisers and shareholders. Plus, some big bank stocks outperforming in a down market today as Wall Street sees signs of a lighter touch on regulation. We're going to talk to the Bank of America's analyst about the names he thinks could benefit the most. Overtime is back in two. Welcome back to Overtime. It is Consumer Tech Week on Overtime, and far from the halls of CES in Las Vegas, Meta CEO Mark Zuckerberg just reminded the world of the unique power of social media. Zuckerberg today announced a lighter touch in how the company will moderate posts on Instagram and Facebook,

a shift that could affect the way billions of people see the world. As of this fall, about 3.3 billion users logged into one of Meta's family of apps every day. Research firm GWI suggests typical social media users spends almost two and a half hours on social a day. In 2025, the major tension, though, in the business of communication is between the power of free speech and the poison of corrupting influence. Critics of TikTok say it's a tool of the Chinese Communist Party to push its ideas and collect our data. TikTok argues it's just another avenue for expression. Meta is grappling with a different angle on the same problem. Zuckerberg said he's relaxing moderation because the rules he intended to limit harmful content actually ended up damaging free speech globally.

Several tech insiders seem to applaud the move. Shopify CEO Toby Lutke posted on X that Zuckerberg's move is a huge and important change. David Marcus, former PayPal CEO and Meta executive, called it a massive step in the right direction towards free expression for Meta. We'll see whether these trade-offs are worth it and whether Meta's advertisers agree, Morgan. Yeah, and that's exactly what we're going to talk about with our next guest. Meta finished the day lower by nearly 2%. For more on Meta's decision, let's bring in Mark Mahaney from Evercore ISI. He has an outperform rating, a $675 price target on the stock. And Mark, it's great to have you back on the program. Let's start right there. This decision to end

fact-checking, to basically crowdsource and move to a community notes model. What do you think the business impact is going to be on the stock, both from an advertiser standpoint and also from an internal spending one? Okay. So I don't think, Morgan, it's going to be material on either of those points. I think advertisers have used Meta as a platform to reach people because of its massive reach, the frequency with which people engage on Meta, Instagram, and Facebook. John referred to over two hours a day. And then the tools, the ability to do targeting there, the ability to monitor your campaign, the ability to really track your return on ad spend, ROAS, that's been as good or

better than anything else there on the internet. So that's why you've seen, despite its massive scale, Meta being able to grow its ad business faster than competitors. So I don't think this changes really at all the appeal of Meta as a platform for marketers. And in terms of internal costs, I think this is pretty small stuff. This company is running at such a scale, $160 billion a year in revenue with 40% plus operating margins. I just don't think these kind of compliance costs one way or the other were that material to the P&L. So I sort of see it as a financial non-issue. Okay. Let me know your price target is $700 per share.

So a little higher than what I stated before. In light of this, and it's talked about in the blog post, you mention it in your notes as well, the fact that Zuckerberg gave a speech at Georgetown five years ago talking about this. Why has it taken so long to implement it, especially given the fact that he had a correspondence last summer with lawmakers saying that, and he uses the word censor, that the Biden administration, for example, pressured Meta to censor COVID-19 content. There's obviously been a dynamic here for a while. Yeah, I like the fact that Zuckerberg referred to his Georgetown speech. I remember that speech. I wrote about it in a book that I wrote on Internet stocks. I wrote about that speech. This is a person with classically libertarian background that got enormous amount of pressure

prior to COVID, and that just added to it, enormous amount of pressure related to some of the content. And some of it is terrible. That's on Facebook. And the question was, what's the best way to address that? And I think he's always been of the school that sunshine is the best elixir or- Disinfectant. Best disinfectant. That's the word. Thank you. And I think he's kind of going back to that. And it's just very hard to fact check. I think community notes is an interesting idea. Look, we're going to have more bad content on there because it reflects you have point one percent of users on meta put up, you know, disreputable content, however you want to define that. And that's a lot of content just given the size of the platform. So it seems to me like he's doing his best to try to handle, which is what is a really difficult situation. I think you need a lot of adults in the room, and I'll give him credit. I think they've got adults in the room at Meta, and I think they'll handle this transition well. I know some people won't be happy with it, but this is not a business

decision. I think there's a good principle here, and I think he's getting back to his original principle on this. Mark, part of what this made me think of, this speech by Zuckerberg, was the end of the apology era, right? There was this period of time Sheryl Sandberg would get hauled out in front of Congress and, you know, Jack Dorsey and whomever else. And the idea was, wow, social media has become so powerful. It's corrupting, changing the world. What are you going to do to get this thing under control?

It's your responsibility. And, you know, Facebook, now Meta, sort of wrung its hands without maybe directly saying. So kind of apologized and said, yeah, we know we've got to do better. And it seems like he's saying we tried to do what the crowd wanted. We got our wrists slapped. And then all these unintended consequences cropped up. So now I'm going to go back to my first inclination, follow my principles, wanted. We got our wrists slapped. And then all these unintended consequences cropped up. So now I'm going to go back to my first inclination, follow my principles,

and we'll work it out from there. And he even looped in his intention to work with President elect Trump towards some of those goals into direction of what he was saying. Did you get the same impression? Yeah, I did. And again, trying to run the world's largest social media platform and handle all the diffuse type of content that goes on there, I mean, I wouldn't wish that job on anybody. But, you know, they've been, I think, generally, you know, nobody's perfect, but I think they've generally handled it pretty responsibly. Maybe that's a contrarian point of view, but I think that's true, and that's a very difficult thing to do.

They tried to create an oversight committee. I don't think that really worked out, but at least they tried. They triedian point of view. But I think that's true. And that's a very difficult thing to do. They tried to create an oversight committee. I don't think that really worked out. But at least they tried. They tried a lot of things. I don't think, by the way, that they're making it a free-for-all. That was the problem with Twitter. Twitter turned out to be really a cesspool of content several years ago. In part, that was because of the anonymity of the platform.

Facebook didn't allow the anonymity of posting. And I think that when you put names against content, people usually guard themselves a little bit more. That was the mistake that Twitter made. And I think they've cleaned that up a little bit, Twitter X now. And I still think there's some provisions that Meta needs to put in to at least stop some sort of content that 99 percent of people would agree should not be on that platform. So there are some categories that will still be way off limits, and they should be. But anyway, I just think this is a very, it's a very complicated issue. There's been a lot of pushing on all sides, all political sides on Meta. And I think they've kind of come through

with best efforts. And I give them credit for that. Well, Mark, that responsibility does come with getting to be the controlling shareholder of a $1.5 trillion market cap company. So you can wish that on me if you want. I'll allow it. Mark Mahaney, thank you. Thanks, John. Well, after the break, plans for serious growth. We will talk to the CEO of SiriusXM, which saw its share price cut in half last year about her strategy to turn the stock around.

And later, the CEO of U.S. Steel sounding off on CNBC today about President Biden's decision to ax the company's deal with Nippon Steel. We'll hear what he hopes will happen next in this deal saga. That's ahead on Overtime. Welcome back. Shares of Flutter Entertainment are moving lower in overtime. Kate Rooney has the details. Kate. Hey there, Morgan. So Flutter issuing a warning here to investors after hour. They're lowering their 2024 numbers due to what they describe as very unfavorable sports results due to higher win rates for gamblers. This has to do with the current NFL season. They say to date, this NFL season has seen the highest rates of favorites winning in nearly 20 years.

So as a result, company giving a bleaker view of their Q4 numbers. They say here 2024 U.S. adjusted EBITDA estimated to be about $205 million lower than that previous guidance midpoint. Same thing with revenue looking at $370 million lower than the previous midpoint. Shares, you can see, down slightly here after hours, guys. But that's the latest on Flutter. Back over to you. All right. Blame the Chiefs.

Thanks, Kate. Well, SiriusXM CEO Jennifer Witts just delivering a keynote speech at CES in Las Vegas on the evolution of audio and the changes in the entertainment industry. It comes after a rough year for the stock. Sirius XM fell more than 50% in 2024. The company warned of revenue declines in 2025. Joining us now from CES is Jennifer Witts, along with our own Julia Borsten. Julia. John, thanks so much. And Jennifer, thanks so much for joining us here at CES on the heels of your keynote interview with so much technology around us such a big emphasis on AI how are you thinking about deploying technology especially as you work to address that decline in your

stock a decline which only hastened on the heels of your updated guidance for this year well first of all thank you for having me and AI is fundamental as a technology to support our overall value proposition, but that's based on human curation and human creation of content. So we're going to lean into what we're really good at. We're audio first. We're focused on our position in the car, where we've always had a strong foothold. And we'll continue to look for AI to support that human curation with improvements in discovery, personalization through 360L,

which is both satellite and streaming delivered, and also to drive efficiencies across the business, right? So more efficient and streamlined personalized marketing and also better customer service. And I think there'll be real opportunities for us to address the cost structure leveraging AI. Now, 20% of your overall revenue comes from advertising. We've been talking a lot about advertising today on the heels of Meta announcing that it's going to be replacing third-party moderation with sort of the self-policing of its users making comments on the content on the platform. Your business is that of premium content, and you're here in CES meeting with a ton of advertisers. That's what you're going to be doing all day tomorrow.

What is your response to Meta's move, and how do you think advertisers will respond? I think we have a great position because, as you mentioned, we're all about premium content, whether it's the SiriusXM service or Pandora or our broader podcast network. We're very curated in terms of the content we provide. And we offer brands a lot of solutions to make sure that they're advertising against the content that makes sense for them. And that's not just brand safety, but brand suitability as well.

So it really is about the nature of the content we have and providing advertisers with even more solutions on targeting and measurement to make sure that audio is part of their buying portfolio. And those are the conversations we're having here. We're meeting with a lot of advertisers over the next few days, and we think there's real opportunity in our business. 20% of our revenue, and with the great podcast network we have, whether it's Crime Junkie or Conan O'Brien or SmartList or now Call Her Daddy, we have a really powerful portfolio to offer advertisers.

Hi, Jennifer. It's John Ford. So you just hinted at some of it, but you're backing away from streaming, doubling down on in-car where you get a lot of revenue per user and high loyalty. And you talked about extending the value of that customer, that relationship. How do you do it? Where does that volume of revenue come from to actually move the needle, raise the percentage? Is it more in that podcast business? Is there something even more tactical and higher value you can do with data and targeting the advertising? So I think there's two things. First of all, we're not backing away from

streaming. It's really critical to the future of our business. It shows up in the fact that we leveraged our streaming platform to launch across Teslas and Rivians that are on the road already with an over-the-air update. It's important to our customers being able to listen outside of the car, but where we're doubling down is on the car because 90% of our subscribers are engaging with us through that embedded radio in the car. And because of that really strong foothold we have in the car, we actually can leverage the ad business to create new ad supported services with SiriusXM in the car, not only to attract more price sensitive customers, but also to offer advertisers solutions and

really what is the last frontier for digital ad-supported advertising, right? So there's not a lot of targeting opportunities in car, and we have this great opportunity with our 360L platform to provide that for advertisers. Jennifer, it's Morgan. It's great to have you on the show. I want to dig a little deeper on the podcast piece of this because you have been spending a lot of money on podcasts, a couple of seven-figure or nine-figure, excuse me, deals like Call Her Daddy and SmartList. How are you thinking about return on investment around that podcasting strategy?

How does this landscape continue to evolve as you do counter Spotify? We're really excited about the podcast talent we're working with. And we look at it from an audience standpoint in terms of what makes the most sense to support the overall ad business. And with the premium content we have, we're really well positioned to bundle that with our streaming music properties, Pandora, SoundCloud, and others, as well as SiriusXM. So there's a real opportunity for us in advertising. I think podcasting clearly is a big piece of that. And it represents, you know, Pandora's about 60% of our ad revenue, and podcasting

has been growing significantly. And there's more tech solutions that we can bring there to continue to grow that. But our relationships with the podcast creators also give us an opportunity to provide exclusive content to our SiriusXM subscribers. So, for instance, with Alex Cooper of Call Her Daddy, she's going to be developing two channels for SiriusXM with exclusive content just for our subscribers. So there's a real opportunity for us to address podcasting in a unique way to serve both parts of our business, advertising and subscription. Well, we're so sorry to be out of time. So much that we've covered here and so much more to talk

about in the world of subscriptions, advertising, and the role that AI plays expanding all this. Thanks so much for joining us. Sirius XM CEO Jennifer Witts. Guys, I'll send it back over to you. All right. And our thank you to you, Julia Boorstin from CES. Time now for a CNBC News update with Pippa Stevens. Pippa. Hey, Morgan. Former President Carter's casket arrived in D.C. this afternoon and traveled in a procession from the U.S. Navy Memorial to the Capitol. The former president will lie in state until Thursday, following a memorial service that is set to begin in just moments. The White House is set to announce a sweeping final weapons aid package for Ukraine. Sources tell the Associated Press the package would be, quote, substantial, but won't include all of the roughly $4 billion left in congressional funding for Ukraine.

The package comes ahead of Defense Secretary Lloyd Austin's visit to Germany on Thursday to meet with the 50 nations that have come to Ukraine's aid. And 19 million residents in Southern California are facing wildfire risk as a dangerous windstorm threatens the area, with gusts of more than 80 miles an hour predicted. The National Weather Service said the fire threat is expected to last through Friday. Already, a fire in the Pacific Palisades area of L.A. has forced some evacuations, as Cal Fire says it has quickly grown to 200 acres. Morgan.

Pippa Stevens, thank you. Coming up, a jolt of reality. Today's data showed a jump in job openings, but weakness in two other key areas. We're going to break down what the data says about the employment situation in America. Also about inflation next. Welcome back. Mike Santoli returns for his take on this morning's mixed jolt report. Mike.

Yeah, Morgan, the headline number, the job openings themselves, was an upside surprise back over eight million total. This is the rate of job openings compared to the total labor force. You see, we're still basically at the pre-pandemic peak for that measure. Now, the things like hiring rate, though, is much more moderate. It actually took another downtick. So it's a sort of a static, stable job market, not one that seems to be accelerating. In fact, if you look at the hiring rate, you're kind of going all the way back to, you know, early 2010s type levels. Again, this is as a percentage of total employed. Similarly, quit rate is way off the boil. That usually means that there's a little less tightness in the labor market.

Layoffs just ticked higher, but still at rock bottom level. So I don't think the Fed is going to look at this and say, oh, we have a reacceleration of tightness in the labor market. But, you know, they have said, Powell has said, they're not looking for incremental weakness from here. They view these types of numbers as kind of a mission accomplished level. And they're sort of fixated on the actual inflation numbers instead of looking to make a bank shot based on job openings and labor tightness. Maybe don't say mission accomplished, though. That sounds like a jinx. Yeah, I guess it still is 20 years on. Thank you. Well, coming up, a CNBC investigation into what happens when the Silicon Valley dream of big payouts for early investors doesn't pan out.

Be right back. Welcome back to Overtime. The Silicon Valley story we usually hear has founders and investors teaming up to launch big ideas and when it works, making millions or even billions of dollars. But there's a darker side when startup founders and financial backers clash, going to battle over control, money, and reputation. This next story is exactly that kind of battle.

Now, we rarely get to see these details, but this time it was all exposed in court, captured on camera. The characters might be new to you, but insiders tell me the plot that unfolds, all too common. Here's the story. At the center of this battle, the startup Top Top, short for Top Talent. It connects companies with highly skilled freelancers. In one corner, founder Taso Duval. I started Top Talent in 2010. In the other corner, financial backer Dennis Gross.

I was also giving them a million dollars at a very fragile point in their history. From 2011 to 2012, Duvall sought capital to fuel Toptel's growth. So the founder entered into agreements with financial backers, including Gross, who loaned Toptel $1 million for less than two years at 4% interest. Gross also signed an advisor agreement with the company. He delivered expertise on search engine optimization to help TopTile grow. And the startup did.

In between 2012 and 2019, TopTile experiences dramatic growth. Correct. Some years growing 4 or 5x. Yes. According to this loan agreement, the million-dollar credit line could convert into shares of TopTal, but that was only under certain conditions, including if Duvall raised money from venture capitalists before the loan was repaid.

Despite what Gross claims were handshake promises that Duvall would raise more capital to trigger an equity conversion of the loan, TopTal never did. So the founder maintained 100% control of his company. And because of the way that million-dollar loan was written, Duvall says Gross had no legal claim to an ownership stake in TopTal. Duvall says he only found out something was wrong after he was sent this document showing Gross had formed a company called Mechanism Ventures, a venture capital firm that invests in early stage technology startups. I knew he wasn't up to any good at that point in time.

The full extent of Gross' plan was revealed during a legal battle in 2023. Gross declined an interview with CNBC, but in court he presented a different story than Duvall's. All rise. He argued Duvall built a successful company with the help of early employees and lenders, who all believed that in exchange for their efforts, they would get an ownership stake in Top Top. I was promised an equity share in that company. The company grew tremendously, and I think I played a role in that, a very important role.

And I'm here today because I received zero compensation for that, and they sued me. Gross testified that in his early conversations, Duvall repeatedly assured him that the million-dollar loan would become a stake in the company. I couldn't imagine that someone would convey to me and do a deal like this and not live up to their side of the deal. In his cross-examination, evidence revealed Gross also planned to create a company called Cavalry to directly compete with TopTal. You just tell him we are launching a competitor, referring to TopTal, correct? Correct.

Gross also planned to poach several executives and top employees from TopTal. In this document, Gross laid out three possible options. The third option that you lay out is start a competitor, poach aggressively. Do you see that? Yes. By poach aggressively, that refers to taking employees from TopTal. Is that correct? I think that's what's meant by the term here.

Court evidence also shows Gross orchestrated a media campaign that presented Duvall as a greedy boss who didn't keep his promises, resulting in negative coverage like this podcast by Jason Calacanis. This horrible human being, Tasso Duvall, who screwed his investors. Calacanis did not respond to CNBC's request for comment. Duvall fought back in court. In a unanimous decision, the eight-person jury found Mechanism Ventures liable for intentional interference, awarding Duvall $15 million in punitive damages and more than $500,000 in compensatory damages. The judge denied Mechanism Ventures' motion for a new trial, but did reduce the award

of punitive damages to $1.6 million. The judge wrote, the evidence presented at trial revealed a deliberate, purposeful plot committed to writing to attack Toptal with the ultimate goal of bankrupting the company. Gross and Mechanism Ventures have filed an appeal. Does it all boil down to greed? Ego and greed.

Well, story doesn't end there. Toptal still has a $31 million fee petition. Ego and greed. The story doesn't end there. TopTal still has a $31 million fee petition. The amount of legal fees it's attempting to recoup from Mechanism Ventures. And for more details about how all of this unfolded, you can go to CNBC.com. Watch the full version. Morgan, it's the wildest startup tale probably that I've covered in my 25 years. I am going to CNBC.com and watching this entire thing because, to your point, it is pretty wild.

But you also said at the very beginning of this that this is a scenario that is all too common. So have we seen other examples of this? This dynamic is similar to what you might see. Think back to Travis Kalanick and Uber, and how the investors wanted something different from he wanted, and then he wasn't part of the company anymore, and there were attacks on him personally. It might make sense to revisit how all of that unfolded. Or look at what's happening now between Sam Altman and Elon Musk, and you've got a founder, an investor who had different ideas, maybe an investor who feels like they

deserved more than they got, even though on paper, right, they did what they did. What's so unusual about this is that Tasso Duvall, who's a high school dropout, by the way, he decided to keep full control of this company. He had his legal documents kind of tied up the way that he did, and he decided to fight this in court. Usually, if you've got investors who have a stake in the company, they're telling you, look, we're not wasting our money on legal fees. You need to figure out a way to settle this. Tasso did not. That's really interesting. The other question I would have for you is, what should retail investors take away from the story, especially when it comes to startups and investing? More and more retail investors are being invited into private companies. Things like this do exist. It's complicated. Buyer beware.

Great stuff, John. Up next, why U.S. Steel CEO thinks he can convince President-elect Trump to reverse the White House's decision to block his company's merger with Nippon Steel, even though Trump has said he was totally against that deal. Plus, Bank On It, a top analyst on which banks could make investors the most money this year. We'll be right back. Welcome back. Shares of U.S. Steel higher day after the company and Nippon Steel sued the White House over President Biden's move to block their more than $14 billion merger. Earlier today on Squawk on the Street, U.S. Steel CEO David Burrett urged incoming President Trump to reverse that decision, even though Trump

also has vocally opposed the acquisition. What we want is for due process to work. And obviously, we have a new president that will take a fresh look at this. We understand what his current views are, but he's a smart guy. He has the opportunity to have fresh eyes and do what's right, and I believe strongly that he will. Well, Burt adding he welcomes the opportunity to speak with the president-elect and convince him the deal will make U.S. steel great again. Well, are bank stocks ready to boom? A top analyst reveals his top picks ahead of earnings season, which begins next week. Welcome back. Big banks standing tall today. Bank of America, Citi and J.P. Morgan were some of the top performers in the S&P 500, even as the index fell more than one percent. Now, this comes after

Fed Vice Chair for Supervision Michael Barr announced he will step down next month, which could lead to more gains ahead for the sector, according to several analysts, including our next guest. Joining us now is Senior North America Banks Analyst of B of A Securities, Ibrahim Poonawalla. Ibrahim, it's great to have you on. And that's exactly where I want to start with you. What does a changing of the guard at a time where investors are already eager to see deregulation in financials take place mean? Morgan, thanks for having me. So I think the announcement that you saw, I think what you're referring to is Fed Vice Chair Michael Barr stepping down from his role as the vice chair of supervision. I think it's essentially the start of what we've been expecting over the last few months, that we are getting into a 15-year change in the regulatory regime for the U.S. banks,

particularly the largest U.S. banks. And what this means is a more predictable regulatory environment, a more balanced regulatory environment. So you saw the announcement yesterday, and I think as we get into a period where the Trump appointees take office, be it at the OCC, FDIC, and other senior leadership positions, we start hearing the messaging from the Fed that should indicate things that I mentioned. Ibrahim, let's see. The KRE, Regional bank index, got up as high as close to 69. Now it's back down around to 60. Rebounding loan demand, you said, should help smaller and mid-sized banks. Are those regionals the ones that investors should be thinking about there? And do you expect that

to have a positive impact, rebounding loan demand on the KRE? So, hey, John, yes. So I think there are two pieces to it, right? There's the first piece is a pickup in capital markets, M&A, IPO, so the likes of Goldman Sachs, JPMorgan, and others should benefit from that. And as you move through the year, the bigger sort of bang for your buck from a pickup in loan demand, if the Trump agenda leads to a pickup in the U.S. domestic capex, you should see a lot more of that in the regional banks that are more lending heavy. We're already starting to see

this uptick in M&A activity. There's an expectation that at some point we're going to perhaps finally see this IPO pipeline begin to burst forth and yield more activity on that front, too. How much does that matter to the banks? And if so, who's best positioned for it? So it matters a lot. And I think if you think about the largest banks, all of them have big Wall Street capital markets presence. The pure play name in our view to play that is Goldman Sachs. You've seen the stock do extremely well. But if M&A and IPO activity show momentum as we move through the year, we don't think any other institution, large or small, better positioned than Goldman Sachs to benefit from that. On top of that, I think Goldman is

at the heart of some of the regulatory relief that we expect for the sector as well. So you get a dual play between capital markets pickup as well as regulatory relief with Goldman. How concerned should bank investors be about the degree to which working class Americans are credit stretched right now? So I think it's a tale of two cities. I think inflation has hurt in an outsized way the lower income, lower credit score consumer. And that goes at the heart of whether or not inflation is under control. If inflation doesn't, to me, the pressure on the consumer will remain. If inflation doesn't come under control or we see a resurgence, it's going to manifest itself in a higher treasury yield environment, which could be negative if we get a rate shock in the markets. But beyond that, what I would say

that the economy holds up, if the job market is strong, there's plenty of credit availability when you look at the big U.S. banks and the regional banks in terms of their willingness to sort of lean in and lend. Okay. Ibrahim Poonawalla, thanks for joining us. Good to see you. Morgan, we're sort of trading in this range off the highs, but above that level from the post-election bump. But maybe we stay here until we see those first executive orders. I don't know. Yeah.

I mean, also keep an eye on the bond market and the backup we have seen in yields. Tomorrow we're going to get more macro data, including some jobs data, ADP tomorrow, minutes as well, the FOMC minutes, and U.S. consumer credit in the afternoon. So some key reports to watch as we try and make sense of all of this. And we're starting to talk more about banks, which makes sense because those earnings are right around the corner. It's the first group to come out. Yeah, we'll be watching to that next week. That's going to do it for us here at Overtime. Fast money starts now.