Closing Bell - Closing Bell Overtime: Stocks Surge, Bank Balance Sheets & Intel's CEO 4/28/23

Episode Date: April 28, 2023

Stocks surging to close out the week as the Dow posts its best month since January. Intel CEO Pat Gelsinger discusses the chipmaker's latest earnings and the outlook for chip demand. Former FDIC Chair Sheila Bair reacts to the FEd's latest data on bank balance sheets. The Production Board CEO David Friedberg discusses how fears over banks is impacting the credit environment. And Cowen's Shaul Eyal on the cybersecurity stocks that could be the big winners from more industry consolidation.

Well, you got your scorecard on Wall Street, but winners stay late, even on a Friday. Welcome to Closing Bell Overtime. I'm John Ford. Morgan Brennan is off today. We've got a big hour coming your way as we wrap up the month of April and look ahead to May. We're going to hear from Pat Gelsinger, CEO of Intel, as that stock jumps, despite reporting its largest quarterly loss in company history and perhaps some light at the end of the inventory tunnel.

Plus, former FDIC chair Sheila Baer joins us to break down the latest on troubled lender First Republic and the Fed's findings on the collapse of SVB and Signature Bank. Let's get straight into today's market action. Joining us now are Victoria Green from G Squared Private Wealth and Matt Orton from Raymond James Investment Management. Happy Friday to both of you. Let's see, Victoria, what do you think the setup into May is, given we got through a bunch of the regional banks, we got some strong results from big companies, but still smaller stocks looking shaky? What should investors do here? Right. And I think you've got to be cautious right now. We've had a decent April. I think S&P up about 120 basis points on the month.

But when you look at it, what's going to be our catalyst going forward? I think we're going to turn attention to the Fed. And I think reality is going to come back and slap these markets back down. We are hitting this 41, 50, 4,200. We've stalled out here two, three times in the past. And so I think it's unlikely with the bulk of the mega cap earnings behind us and how much of the cap has reported. Yes, we have another busy earnings week next week and we have Fed week. I think you're just set up that I think it's a little more probable we could see some near term downside just because I think the Fed is going to have to fight inflation. Look at the banking system. I think it's stable enough, even if First Republic goes down. But the Fed and interest rates and maybe not a pause after May is going to be difficult.

Well, we got some interesting consumer names, Matt, coming up early in the week. Tuesday, we got Starbucks, Marriott, Molson Coors, which is interesting because beer is interesting these days. Perhaps some share gains to be had there. And then Zimmer Biomet, we heard from Boston Scientific this week. The returns to elective procedures might be positive for them. What do those reads tell us early in the week? So I think you can extrapolate a little bit from what we've already received thus far from a lot of consumer related names. And that's earnings haven't been as bad as feared.

You know, the economy has held up much better than I think a lot of folks have feared. And the consumer wallet is still open. is feared. The economy has held up much better than I think a lot of folks have feared, and the consumer wallet is still open. So I would expect that discretionary spending on coffee, people continuing to go back to work, I think all of that plays very well for companies like Starbucks. And healthcare has been a part of the market that I like a lot because it's more defensive in nature, but it still has impounded growth characteristics. And when you look at areas that have worked fairly well, equipment names are levered to more elective procedures. So I think there could be some upside from those names. But within healthcare, I still prefer the HMOs. I prefer healthcare service companies and pharmaceuticals simply

because of the expanding market aging population. I think there's a lot of long-term secular growth trends that support those names. But I would expect earnings to be fairly positive from them. But again, like Victoria said, the Fed is going to be the big question mark. And I fully expect 25 basis points and higher for longer to continue to be pushed by them. Yeah. So what about that, Victoria? Because the consumer is still spending. That's great in the near term. But for those who expect the Fed to be cutting at the end of the year, the case for that looks tough to me after this week's earnings. And if you then do have to factor in higher rates for a longer period of time, A, do more things break? B, do you have to kind of shift where you think you see opportunities in stocks? I think you want to be focused again on short duration, whether it's short duration on the fixed income or the equity side. You want to focus on quality and cash flows because this disconnect that we have between a pause versus a cut and then the Fed, I really think is going to be reluctant unless we see recontagion in the banking sector.

Then you should see them stay higher for longer, which is going to be a headwind. It's going to slow our lending. You have slower lending there. You have tightening conditions from the bank. But those things take time. And so if you look at what the yield curve is telling you, it's, I think, pricing at 89, 90 percent likelihood of a recession. It does look like a bit of a car crash coming in the second half. I agree. Earnings have been stable. The consumer had shifts continue to weather. We keep thinking the consumer is going to break. Now spending is going to slow. But we get more and more data that consumers continue to spend in those staples and discretionary, especially discretionary at Chipotle and McDonald's and Domino's all saying the consumer spending.

We are seeing changes in behavior. Both McDonald's and or I'm sorry, both Chipotle and Domino's said less delivery, more eating in because they don't want to pay the delivery fee. So maybe we are seeing some consumers start to look to save money. But for now, these sectors have remained extremely resilient and we haven't seen the boogeyman come out in key one earnings. Yeah. And Tuesday, we also get earnings from AMD on the semiconductor front, and that is after Intel finished the day up. What about four percent after earnings on evidence that the semiconductor front, and that is after Intel finished the day up. What about 4% after earnings on evidence that the chip giant's operating woes might be bottoming out? I spoke to CEO Pat Gelsinger last night after the analyst call and asked him about the trajectory

of margins, which are now pressured from underused manufacturing facilities. Yeah, and I think the way that you could think about our margins over time, it should be a fairly steady rise with some lumpiness up and down in a picture that is a general gradual rise. You know, the long-term model, you know, that we described as getting into the high 50s and maybe low 60s at the end of this five-year period. And at that point, we've largely finished our five nodes in four years. You know, we've done the capacity build-out, the shell building to support the foundry business.

Matt, it's a rough environment to operate in if you're firing on all cylinders. Look at some of these mega caps. But Intel trying to do a capital intensive turnaround in these times. How do you approach a stock like this as an investor? It's a stock that, frankly, even though they reported strong earnings, it's one that I want to stay away from. You know, you might be bottoming in terms of the earnings cycle. You saw Micron as well, highlighting that maybe we're finally coming to the bottom with respect to the earnings cycle. But there's a lot of enthusiasm around artificial intelligence. You've seen Nvidia move strongly on that. AMD has been continuing to take market share

from Intel. And I think that trend is likely going to continue because they've had challenges for such a long period of time. I'd rather be invested in some of the names, even though they are expensive, that are levered to a lot of these longer-term themes that have continued to do well and win market share. Semiconductors, though, I do think are a little bit of a risk because they are much higher duration. They're more expensive companies. And unless there's very specific idiosyncratic reasons for them to continue to do well, the big risk is what happens to the Fed and the fact that a lot of these names have moved not only based off of

these idiosyncratic growth themes, but based on the fact that rate cuts are being expected into the back half of this year. And I just don't see that playing out. So you're going to see a lot of those higher duration names, I think, possibly move after the Fed next week. Okay. Well, Victoria, on the other hand, I've covered a lot of turnarounds in my time looking at tech, including, I don't know, Apple, Microsoft, Nintendo. When, as an investor, do you decide that it's worth taking a look at the possibility? I think it's worth looking at them, but I'm a little bit more show me than one quarter. I'm not quite a hundred percent believer, especially with what we're seeing with the headwinds with the PC market. I find it really difficult that they've turned the turner if they're still having some inventory backlog, maybe not because it's their

fault in the supply chain problems, but more because the PC market has slowed so heavily. I think Apple can weigh in on that with Macs, but we saw it from Microsoft as well. So how are you really going to have this turnaround if some of your demand is kind of more of an economic quagmire? So yes, maybe the company does start to operate better. They have certainly been struggling to improve operations, improve margins, but they may be doing it at a very difficult time to actually improve their profits. So I'm a little bit more show me on them. Some of that more because of the macroeconomic, not just because of what they're trying to do. It's just like running uphill barefoot in the mud. It's even harder to do. Well, we're going to hear a lot more from Intel CEO Pat Gelsinger just a

little later in the hour, including on AI. Victoria, Matt, good to see you. Thanks. Have a good weekend. And we turn now to CNBC's senior market commentator, Mike Santoli, at the New York Stock Exchange, putting in double duty. Mike. Yeah, John. And really playing off that conversation with regard to semis, just want to illustrate on a sector by sector basis how uneven this market has been rewarding the big kind of consensus winners in the at the expense of the average member of that sector. So here's the NVIDIA relative to the equal weighted semiconductor sector. No stock is more than about three, three and a half percent of that particular ETF. And then, of course, Intel as the laggard. And you see nothing. Things were not too far out of whack back there in February. But since then and since maybe the SVB collapsed, you've really

seen investor money go toward that single dominant name in most of these groups. So there you have that divergence. Now, take a look. Similar dynamic in energy. We had ExxonMobil report earnings today. They were pretty well received. They're returning a ton of capital to shareholders. And you see here the separation as well of Exxon, the largest in the group, from the equal weighted energy S&P. So the big debate continues, John, which is, is this a sign of kind of an unhealthily narrow market that's going to kind of lose its ability to withstand the downside pressure if these handful of stocks falter? Or are we giving the rest of the market

a chance to rest and reset and come into line with fundamentals? And then maybe we can have a reversion of this tide. Mike, let's try to cut through some of the cliches here. Stock pickers market, you know, flight to safety. But as part of what's happening here, if you buy an ETF, they tend to be weighted more heavily toward the bigger names. And then at the same time, if you're going to buy one name in a market where people are feeling skittish, maybe they're going to buy the big, safer looking one. In what ways historically has that created some opportunities in the smaller names? Well, over time, it has done that. I mean, if you want to go back to some super extreme examples of that kind of dynamic where you had more and more money being funneled into fewer and fewer stocks, it was around the peak in the year 2000. That all

came tumbling down. Small caps really did not have much downside in that bear market. And in fact, on a relative basis, they outperformed by quite a lot. There's another version of that. It was about 30 years before. I wasn't quite around to see it up close. But the nifty 50 era was, again, these 50 stocks that worked. Nothing else did into the early 70s. And then you had a washout in the major indexes, the market cap weighted names. But it was the heyday of stock picking and of small cap outperformance. And a guy named Peter Lynch essentially made his career doing just that in that period. So for the folks at home who have a longer time horizon, five years plus, maybe even 10, 15. How do you approach this market thinking longer

term and about opportunity when, hey, the names that have won are expected to keep winning? Yeah, to me, it's not about making some kind of an outright bet against these particular, you know, by generally all very high quality stocks that have a reason for being very popular. It's much more about being balanced in your approach. If you say, OK, I'll get some exposure through the equally weighted Russell 1000, that's going to kind of participate in the the average stock doing better or maybe just kind of the few versus the I mean, the many versus the few type dynamic that might take hold. But again, we thought this might happen at the end of last year. I just want to make that clear. And all of a sudden,

we're back in the same narrow cycle, at least for the moment again. All right. Equally weighted, though, that is key, that discipline. Mike, thanks. After the break, First Republic on the brink, the lender getting slammed after David Faber reported it could be heading for FDIC receivership. We will talk to former FDIC chair Sheila Baer about that news and the regulator reports on SVB and signature banks. That's next. Welcome back. In just a few moments, we are expecting to get the latest data on the bank balance sheets, and it's already been a very busy day for the bank stocks. Check out shares of First Republic plunging today, down 97 percent on the

year, closing at $3.51 per share, dipping a little bit lower by about 2 percent after hours. Sources telling CNBC's David Faber the most likely outcome for the bank is that the FDIC takes it into receivership. And this news comes as the government releases a flurry of reports looking at what sparked last month's regional bank crisis. First, the Fed faulting bank mismanagement and central bank oversight for the failure of Silicon Valley Bank, all of which is compounded by a social media frenzy. Second, a report from the FDIC on signature banks collapse. That report also blaming mismanagement, adding it was not adequately staffed to monitor the bank. Joining us now, former FDIC chair Sheila Baer. Sheila, is this the kind of report you expected to see?

Yeah, I think they were good reports. They were candid. They were inward looking. I think the regulators are really trying to identify the key problems, including opportunities they had to do things better. And, you know, that's what you need. If you're going to improve the situation, you need to acknowledge the mistakes. So kudos to both the Fed and the FDIC for being very open and very candid. Senator Elizabeth Warren not holding back. I mean, why would she start now? A part of what she says about this, she calls this the investigation clearly identifies how the 2018 legislation that weakened our bank rules and the Fed's tailoring

in response to that legislation were major contributors to SVB's failure. She goes on to say those responsible for these failures must be held accountable, including Chair Powell, who failed in his responsibility to supervise and regulate banks that posed a systemic risk to our economy. Fair, Sheila? Too harsh? Yeah. Well, you know, I think the 2018 changes probably didn't help, but there were a lot of factors going on here. At the core, this was just basic mismanagement of interest rate risk in a rapidly rising interest rate environment that does create risk management challenges. But both these banks, especially Silicon Valley, were just really seriously badly managed.

And that, you know, they could have been a community bank, and this should have been caught earlier, and things should have happened quicker. Enhanced traditional standards, which they didn't have until recently with Silicon Valley, might have helped, but boy, really this was just bad management. And that's any size bank, any stringency of supervisor regime should have caught this. This is pretty obvious, pretty bad. Okay, now let's zero in on First Republic, down now 3% after hours, after plunging during the regular session. After the earnings reports that we've seen from regional banks, which seem to largely reassure investors with some exceptions, is this now just sort of an isolated case that doesn't have implications for the rest of the banking sector?

Well, I certainly hope so. I mean, one concern I do have is that the regulators, I think, ill-advisedly created an expectation that for any future bank failures, uninsured depositors are going to be protected. They don't really have the legal authority to make that promise. They have to do a systemic risk determination, which requires supermajority approvals by both the FDIC and Fed board to happen. It's not clear whether that supports there. And the reserves that the FDIC has established for bank payers are based on a $250,000 cap, not unlimited deposit coverage. So they created this expectation. Again, if they get super majorities of both the FDIC and Fed boards,

they can protect uninsured again. But if they don't, I do worry that that's going to surprise people and could be disruptive. So I think they're really in a very, very difficult situation on the uninsured question. As I've said before on this program, I'll say again, I do think they need to go to the Hill and get proper legal authorization to at least protect transaction accounts, operational accounts where you make your payroll, et cetera. We did that during the great financial crisis. It was very successful in stabilizing uninsured. But this is a unique problem they have now with this expectation. And it's going to be an expensive failure. I don't have any question about that. You know, the situation is not getting better every day. The franchise value is eroding.

The customers are leaving uninsured deposits or becoming insured deposits, even if they don't protect the uninsured. So it's going to be expensive. And I think it's probably better to happen sooner than later. But Sheila, is that fear factor still there where people think, oh, if First Republic goes this way, I'm worried about my bank and I'm going to line up outside over the weekend. For some reason, it feels to me like it's not, but maybe I'm wrong. Well, I hope it isn't. And again, ordinarily, I would say no, this is a very badly managed, appears to be a very badly managed bank. There may be a few more out there. But again, my only concern, my only caveat is that the expectation has been raised now that uninsured are going to be protected. So if they are not, that could be unsettling.

But I will say, as I've always said, the vast majority of banks are perfectly fine. If you are a household, stay below the insured deposit limits. You should absolutely be doing that for any bank, anytime, anywhere. Well, Sheila, hold on for a moment. I think we've got those bank balance sheet numbers from the Fed. Steve Leisman, you got the details? Yeah, John, I think the story here is a little bit of stability

returning to the banks. Just remember that big $76 billion decline in deposits last week. Well, now they're up $21 billion, kind of suggesting the idea that at least some of the decline last week could have been related to tax payments,

but certainly a little bit more stability or deposit. Domestic banks up $9 billion. For large banks, it's $10 billion. For small banks, it was down a little bit, $1.2 billion, but nothing like the kind of outflows we've seen. Overall, year over year, in domestic banks, deposits are down 4.8%. And that's a pretty big change from what it was last week, where it was down 5.5%. So still down overall for the year. We had some big outflows, John, over the course of the last several weeks. At least for this week, it seems like it's a little more stable, John.

All right, Steve Leisman, thank you. Sheila, sigh of relief here? Yeah, no, I'm not surprised. Yes, it is a relief, but it doesn't surprise me. I think, you know, overall, the banking system is sound. As I said before, I think the systemic risk determinations for the previous two failures does not appear to me they were justified based on the soundness of the system. So that is good news. Fingers crossed, First Republic. You know, I have a lot of confidence in my former agency. If anybody's up to the test, they are to handle this, if it is a

resolution, handle it smoothly without any kind of additional disruption in the market. So fingers crossed. But yeah, that is good news. OK, thanks to our Steve Leisman. And thank you, Sheila Baer as well. Thanks for having me. Intel, as mentioned, finishing the day in the green, but off its best levels of the session following last night's earnings report. Up next, we will hear what CEO Pat Gelsinger had to say about the company's prospects in AI, what's going on in China, and the potential impact of the debt ceiling standoff. We'll be right back. Let's get back to Intel, which ended the day 4% higher after earnings, but a lot of questions about growth.

A stabilizing PC business is one thing, but for Intel stock to be worth buying, the company's got to show its chips pull their own weight in the AI era. I asked CEO Pat Gelsinger how he'll compete about the homemade AI chip designs from Amazon, Microsoft, and Google. We also talked about the debt ceiling, China, and closing the tower semiconductor acquisition. Yeah, and we're going to compete. We're delivering products like our Gaudi 2. We just taped out Gaudi 3. We're delivering some incredible performance results, but that's this generation or essentially the learning part of it.

It's much more the inferencing part, and we expect the vast majority of the workloads will be how do you use those models. And some of that will happen in the cloud with what we'll call batch inferencing, but much more that's going to happen on premise. If I'm an enterprise customer, you know, I'm going to take those models and run them on-prem with my local data. And we see that as being a driver for the enterprise server business. We're also going to compete for the batch inferencing in the cloud, but it's also going to happen on your PC, right? You're going to start using AI capabilities on your local PC. That's going to be, you know, like generating that next sentence for you. That's going to be doing eye tracking when you're in Teams or Zoom, right? It's going to be doing language translation, you know, for you in real time when you speak to somebody from another location. All of that's going to happen primarily at the client

or at the edge. So we see these AI use cases, these AI workloads being across every dimension. Some will be in the cloud, but many are going to be on the edge and in your client. And we're going to make all of that happen. We're democratizing AI for everyone. Let me ask you about Tower Semiconductor and that key important approval in China. Recently in comments to the Wall Street Journal, you said you feel like that's making progress. How much progress is that making? And are you in position of possibly being a bargaining chip in a geopolitical tug of war, which seems to flare up unexpectedly at any given moment. Yeah, overall, and I was just in China a couple of weeks ago, and it was a great

trip to China. You know, extraordinary enthusiasm from my employees there, you know, strong response from the customers, an important market for us, but reinforced this in every one of the government meetings that we had. And the simple message from the Chinese government meetings was open for business. And we're seeing some of that economic green shoots emerging there. You know, that said, we raised tower in every one of those conversations, the importance to us. Obviously, there's a level of geopolitic here, but we're seeing progress and we're enthused to finish that deal as part of our overall foundry strategy. We want to fill in more of the node capabilities

that Tower will give us. And we're working hard to get this done as quickly as possible. Are you factoring in the latest Washington friction, the debt ceiling standoff, into how you look at the rest of the year? And do you have any kind of message about that to the market? Well, you know, overall, and I think every business leader would say the same thing, you know, let's not trifle with a fairly fragile economic outlook. You know, this is something that, you know, debt ceilings, politics, you know, continue to help us to move forward with a positive economic cycle. There's still a lot of uncertainty in the macro.

You know, we have assumed a fairly modest view of the macro. We think there's a lot of uncertainty around the world and that's so our outlooks and our guidance is quite tempered as a result because we believe there's still great risk in the macro, you know, for many reasons, that being just one of them, you know, but we're still in a armed conflict in Europe, uncertainty in Asia. All right. Now, Mike Santoli, come join me on this one. We saw a couple of, come join me on this one. We saw a couple of analysts make some moves on Intel after that report, a move from sell to hold, from underweight to neutral. I mean, Intel's got a long way to go. But what does that say to the investing public?

Yeah, it suggests to me, John, that sell side sentiment probably got washed out, as did investor sentiment near the lows. Even after those upgrades, I think you're looking at like one out of six analysts is now recommending Intel with a buy rating. So it still seems as if there's a tremendous reservoir of skepticism that can continue kind of to flow into the stock over time. But it's been such a real radical change in the whole narrative. So the whole way from when the stock was in the mid 50s, let's say a year, year and a half ago, all the way down to 25, it was, hey, it's a cheap stock if you believe the earnings estimates, pretty good dividend yield, looks like it's a blue chip out of favor. And then, of course, they reset the whole earnings picture because clearly they were over earning for a while. They cut the dividend and now it's different. Now it's about trying to figure out the turn in a capital investment,

capital intensive business still, where it seems like you're starting to get maybe a little bit of cyclical help, but nobody is quite a believer that the stock's going to run away. So it's an interesting bottoming process because that psychology has to be a part of that of that path. More and more people willing to answer my questions about the debt ceiling, Mike, and potential impacts there. But at the same time, it seems like we got a batch of tax receipts in that perhaps push the X date out of June a little bit later. Are you seeing any market signals there that are putting pressure on the folks in Washington to get something done? The observable market signals are strictly in on a technical basis in the bond market, where you see just kind of these unusual setups with yields for T-bills that expire around the potential deadline. So that's just somewhat noisy. But I do see the effect as one more

layer of concern on top of on top of other things going on in terms of the macro outlook. And it's an excuse for a lot of investors to remain a little bit cautious about stocks and I think maybe remain underinvested and say, I can stick in cash with, you know, four or five percent yields without having to take on that extra risk. Now, the market doesn't always wait for you. I know everyone's pointing to 2011. The market did have a panic attack before and through that deadline. We did get a debt downgrade. But in retrospect, do investors feel smart for having panicked out at that point? So that's the game that I think we're playing with ourselves, frankly. We know it's going to get done, but who's going to get scared the most on the way to it potentially getting done and what has to happen along the way? Yeah, well, we'll see for sure. You know, remember Tina? With all these yields on cash,

it's, you know, miss her in a way. All right, time for a CNBC News update with Seema Modi. Seema. John, here's your CNBC News update at this hour. House Minority Leader Hakeem Jeffries addressed the GOP debt limit plan during a press conference today. Jeffries said House Republicans are seeking an extreme position, which is to, quote, risk a catastrophic and dangerous default. This comes days after the House Speaker passed Kevin House Speaker Kevin McCarthy passed a debt ceiling bill on his way to that. President Biden saying he will veto the proposal if it reaches his desk. Colorado's Democratic Governor Jared Polis signed four gun control bills today. The new laws are aimed at preventing mass shootings and youth violence. Gun rights groups have already sued to reverse two of the measures, including raising the buying age for any gun. And President Biden welcomed the Air Force Falcons, the U.S. Air Force Academy football team, to the White House today. Biden

presented the team with the Commander-in-Chief's trophy for the 2022 college football season wins. The team gave Biden a customized jersey. John, back to you. All right, Seema, thank you. After the break, we will be joined by former Google executive and venture capitalist currently, David Friedberg, who is also the co-host of the popular All In podcast. We're going to get his take on tech and the credit environment. And speaking of popular podcasts, don't forget to follow ours. The Closing Bell Overtime podcast is available on your favorite podcast app whatever it is we'll be right back welcome back shares of first republic tanking after hours our david faber reporting earlier today that the fdic receivership is the most likely scenario for the firm reuters headlines just crossing saying that move could be imminent as Wall Street awaits the fate of First Republic. Concerns are rising over the impact on the credit environment. Joining us now is David Friedberg, founder and CEO of the Production Board, co-host of the All In podcast.

Dave, good to see you. Quite a 60 days that we've had in the bank space. I mean, SVB, then a bunch of regional bank reports. People seem calmer now. First Republic, though, showing that all is not done. What's the lesson and what do investors do here? It feels like it's probably still a bit of a hangover problem from the SVB fallout. A lot of folks that are in Silicon Valley were big investors or had capital deposits and accounts set up and within this ecosystem at First Republic. And so, you know, they seem to be a pretty kind of unfortunate side effect of the fallout there and with a pretty illiquid loan portfolio, you know, find themselves in this pretty crippling condition as they had the $100 billion deposit withdrawals happen in the last quarter. So a pretty unfortunate side effect and circumstance to SVB. But, you know, I don't

necessarily kind of view this as something that we would say is a broader, more systemic problem. I think a lot of folks consider this to be a more localized issue and very tightly coupled with what's happened around the SVB fallout. Now, I remember a few months ago, Jamie Dimon and some others saying that the U.S. consumer was going to be largely tapped out when it comes to ability to spend and credit conditions by about the middle of the year. Now we've got this debt ceiling drama in a flashback to 2011. Are we whistling past the graveyard here or are we just not as a market getting too worried about things that are going to fix themselves? It's frightening. I mean,

look, household revolving credit, I think, is at a trillion dollars right now. It's up from about 800 billion just kind of right pre-COVID. And, you know, meanwhile, you know, interest rates, central banks' interest rates have climbed. But, you know, the other kind of circumstance arising from the SVB fallout and the concerns around the banking sector is that we're now seeing credit spreads widening. So, you know, with tighter credit and, you know, more debt and higher interest rates, it's going to become more difficult for consumers to make these payments. And just like we're seeing in commercial real estate, there is the concern that there is more of a credit crisis looming here than I think we're necessarily accounting for

in how we trade things. I think that this debt ceiling thing is such a big uncertainty. Everyone's kind of got their read on it and their analysis on it, but we really don't know. It could be something that drags on for days, weeks, months, final hour, maybe we resolve it. But if it goes past the final hour, we don't know, crossing that frontier, what happens. It's just not something that we've necessarily dealt with. So we've almost got like a bit of a matchbox Tinder problem here. This could be the match and the Tinder is all pretty well set. And so something to be concerned about.

Yeah. I want to get to AI with you. I do want to note this continuing move in First Republic. It's moving around a lot, but mostly down, down more now than 40 percent after hours. But yes, moving around quite a bit. And we do await to see if there's any news on that. David, let's talk about AI. We did get reports from a number of big companies, hyperscalers, players also in AI. There are big hopes from Microsoft where this is concerned. How should investors think about the stages of enthusiasm for this and what should they be targeting?

You think what kinds of news should they believe about AI that's worth investing in? So, look, I think that there is three stages to the shock and awe of AI as we've seen it evolve in the last couple of months and particularly this quarter. The first is just, it's unbelievable it can do these things. And everyone had that moment with chat GPT and in the various evolutions and iterations since then. The second is the implications, which immediately everyone goes to, oh my gosh, this is going to eradicate jobs and costs are going to decline. Everything from service fees to legal fees are going to decline, et cetera. The third thing that happens, which I think we're on the brink of seeing, is all of this evolutionary product, business, and market stuff that we literally could not have imagined a year ago. And I shared on my podcast and on Twitter this one guy who put together, in a couple of hours, an object recognition package with chat GPT

with Google text to voice on his computer. And he could hold up a Diet Coke can and other objects on his computer and ask the computer questions about the objects. He said, what is this product? How many calories are in it? The computer says it's a Diet Coke. It's got no calories. You can buy it on Amazon for this amount. Do you want me to order it for you? And he strung this all together in a couple of hours. And that's where your mind starts to blow. And you're like, oh, my gosh, this is level three. This is that third thing that happens. It's no longer about losing jobs and saving money.

It's like there are these incredible new products and markets and business models that are going to evolve. Now, who benefits? You know, Google's got 10,000 employees working on AI. That's far more. That's 10x or more than the resources at OpenAI. Microsoft is almost entirely dependent on OpenAI. So, you know, I think you could argue that Google is probably in the pole position on AI. They've just totally failed to convince the street of that at this point, particularly in the silence, the deafening silence around AI in this last

earnings call. Sometimes too many people is a bad thing if you don't have clear direction, a plan for what you're doing, which they say they do, but we'll see. David, it's good to see you. Have to have you back soon. Thanks, John. Talk soon. All right. Bye.

Up next, Mike Santoli is going to look at this year's rebound in traditional stock bond portfolios, whether they can keep heading higher. And do not miss CNBC's virtual small business playbook on May 4th on how entrepreneurs can succeed while dealing with economic uncertainty and inflation. We've got plenty of both. Scan the QR code to register now. We'll be right back. Welcome back. You are looking there at shares of First Republic. It was down 43% in the regular session to $3.51.

It is trading down in the $2 range after hours on news headlines that FDIC receivership could be imminent. Our own David Faber broke the news that that was likely earlier today. For now, let's get back to the Santoli sequel, Mike Santoli at the New York Stock Exchange, taking a look this time at the performance of the classic 60-40 portfolio. Mike? Yeah, John, we're now one third of the way through the year, believe it or not. We all remember last year how it was basically the worst stretch of returns for that traditional 60-40 stock bond portfolio in decades. Big comeback, at least on a year-to-date basis.

So these are the total returns, including dividend payments and bond interest payments of the total stock market index, the Vanguard total stock market, not just the big caps, not just the S&P, as well as the aggregate bond index. See, they perform very, very closely in line. In fact, that goes back really two years. They've performed relatively in lockstep. And then, of course, you have the growth allocation ETF, which is basically a proxy for the 60-40. And that is also done pretty well. Your total returns here in the 7 percent range

would send us well ahead of expectations for anticipated returns for any given year. But we're still underwater on a two year basis. So at this point, as much as you'd like to quibble about why the market might be up and whether, in fact, it's durable, so far it shows you that when you do have these huge downdrafts in the value of that balanced portfolio, usually the forces of mean reversion start to help you out before too long. Mike, I just wonder, have you seen any evidence of a similar flight to safety in bonds as we were just talking about in stocks? Because when I talk, when I ask about fixed income, so many of our guests have said, oh, just, you know, buy what's safe, blah, blah, blah. Is there opportunity in taking on maybe a little bit

of risk in this environment, but not too much? Well, there certainly is additional yield to be gotten by taking on a little bit more risk. I guess there's two ways to answer that. One is the aggregate flow of money, the predominant direction it's going in, is into very safe stuff. Short-term treasury bond funds, money market funds, that's not taking any kind of risk at all, whether credit risk or really even duration risk for longer-term bonds. But the credit markets have held together OK. So if you did want to if you were buying things like corporate investment grade or even junk bonds, you've actually done very well because the spreads have been pretty contained. And of course, they have higher outright nominal yield. So,

yeah, there might be opportunity there. But that always comes with the idea that if we're going to hit a recession before too long, and who knows if that's the case, high yield is probably not going to be immune to it. That's where the defaults start to happen quick. Well, one thing's for sure. We always feel smarter after talking to Mike Santoli. Thanks, Mike. Thank you.

Up next, we will discuss whether a new wave of cybersecurity consolidation is on the horizon and the stocks that could be the most attractive takeover targets when we come back. Welcome back. You are looking there at shares of First Republic. It was down 43 percent in the regular2 range after hours on news headlines that FDIC receivership could be imminent. Our own David Faber broke the news that that was likely earlier today. For now, let's get back to the Santoli sequel. Mike Santoli at the New York Stock Exchange taking a look this time at the performance of the classic 60-40 portfolio. Mike? Yeah, John, we're now one third of the way of the classic 60-40 portfolio. Mike?

Yeah, John, we're now one-third of the way through the year, believe it or not. We all remember last year how it was basically the worst stretch of returns for that traditional 60-40 stock bond portfolio in decades. Big comeback, at least on a year-to-date basis. So these are the total returns, including dividend payments and bond interest payments, of the total stock market index, the Vanguard total stock market, not just the big caps, not just the S&P, as well as the aggregate bond index.

See, they perform very, very closely in line. In fact, that goes back really two years. They've performed relatively in lockstep. And then, of course, you have the growth allocation ETF, which is basically a proxy for the 60-40. And that is also done pretty well. Your total returns here in the 7 percent range would send us well ahead of expectations for anticipated returns for any given year. But we're still underwater on a two year basis. So at this point, as much as you'd like to quibble about why the market might be up and whether,

in fact, it's durable. So far, it shows you that when you do have these huge downdrafts in the value of that balanced portfolio, usually the forces of mean reversion start to help you out before too long. Mike, I just wonder, have you seen any evidence of a similar flight to safety in bonds as we were just talking about in stocks? Because when I talk, when I ask about fixed income, so many of our guests have said, oh, just, you know, buy what's safe, blah, blah, blah. Is there opportunity in taking on maybe a little bit of risk in this environment, but not too much? Well, there certainly is additional yield to be gotten by taking on a little bit more risk. I guess there's two ways to answer that. One is the aggregate flow of money, the predominant direction it's going in,

is into very safe stuff. Short term treasury bond funds, money market funds, that's not taking any kind of risk at all, whether credit risk or really even duration risk for longer term bonds. But the credit markets have held together OK. So if you did want to if you were buying things like corporate investment grade or even junk bonds, you've actually done very well because the spreads have been pretty contained. And, of course, they have higher outright nominal yield. So, yeah, there might be opportunity there. But that always comes with the idea that if we're going to hit a recession before too long, and who knows if that's the case, high yield is probably not going to be immune to it. That's where the defaults start to happen quick.

Well, one thing's for sure. We always feel smarter after talking to Mike Santoli. Thanks, Mike. Thank you. Up next, we will discuss whether a new wave of cybersecurity consolidation is on the horizon and the stocks that could be the most attractive takeover targets when we come back. Welcome back. A busy week in cyber on the heels of the RSA Security Conference in San Francisco. Check out shares of Cloudflare. That stock plunging 21 percent during the session on the back of an earnings report. Muted guidance there for the upcoming quarter and year. Meantime, Tenable also under pressure, falling 20 percent this week on the back of a disappointing outlook. Joining us now, Cowan senior analyst Shaul Eyal. Shaul, what gives? I mean, weren't we told

just a few months ago that cyber was going to hold up because everybody needs protection? What is it that happens here with cyber stucks? It's like it's like biotech or something. Are the valuations too high and so they're super sensitive? What? It is probably, John, a combination. What we have seen is initial cracks within the cyber arena back in the second quarter of 22. We've seen a little bit of bounce back in the second half of 2022. But when companies started projecting into 2023, maybe it was a little bit of calm. But I think actually, when it rains, everybody gets wet. And I think this is what we have been seeing over the course of the past few days from cybersecurity. So a mixed message. On the one hand, it's a must-have category from an investment perspective.

On the other hand, some names, product-depending, category-depending, are slightly more exposed to some of the macro weakness and some elongated sales cycles we have been seeing over the course of the past few months now. So are we going to see consolidation soon? And if so, what are some names that have good technology and perhaps are vulnerable to be taken out? Absolutely. I think what we have seen for the lion's share of 2022 is actually the private equity funds pursuing some cyber targets, Fordrock, Ping Identity, Nobifor,

were taken out by Toma Bravo, and Nobifor actually was taken out by Vista. I think if the valuation levels hold as low as 4X, 5X, where pretty much our industry is trading right now, it might potentially bring back some

of the big tech that didn't take place within the arena. And in that respect, we actually think that Sentinel-1 could be an attractive takeout candidate, given its technology, its current valuation, and the fact that it got de-risked. One more for you. I'm hearing about some price, maybe price wars is too strong, but Palo Alto Network networks doing some heavy discounts, Zscaler getting some criticism in that Gartner report, perhaps for not being as flexible on price as some would like. What's the impact of that? Sure. I think what we're seeing definitely some pricing pressures out there, whether it's from the public cloud providers, maybe coming also from some of

the growing private companies within the space. So pricing, without a doubt, is an issue we are monitoring very closely. I'll say that when we look at it from a gross margin perspective, they have been holding up fairly stable, but without a doubt, a red flag to look into as we shift into the second half of calendar 2023. We'll see how many people buy home security systems on price. Shaul, thank you. Thank you for having me. All right. The earnings barrage continues next week. We've got the big one, Apple, also Starbucks, much more up next. What this week's results from Intel and Microsoft might mean for at least one of next week's results from Intel and Microsoft might mean for at least one of next week's biggest names. We'll be right back.

Welcome back. We're looking again at shares of First Republic. If you were short First Republic this week, I would say you're definitely buying tonight. Mike Santoli, there are, we've had headlines from our David Faber saying that this bank most likely heading into FDIC receivership. Reuters echoing that after hours, saying that that could be imminent. If you weren't already in this trade, but hey, if you were in the KRE, the regional bank, I mean, things feel more stable perhaps in the regional banks, but you wouldn't know it from looking at the KRE. What does all this mean?

Well, for sure. I mean, obviously, the KRE was up just a little bit today. It's not far off its lows. There's certainly still some ongoing profitability concerns about the typical regional bank. But I do think there's a way of looking at it as kind of a glass half full when it comes to over the six or seven weeks since SVB, we have had First Republic absolutely in everybody's sights as a vulnerable institution in a similar vein. And it seems like it's at this point really only First Republic that needs acute care, needs perhaps this receivership, in which case, of course, the common equity will likely go away, be delisted,

and depositors will get whatever value is there, and then clearly a new bank buyer will get the rest of the business. So it's from a market-wide perspective, not the worst thing in the world to have this, essentially this escape, have this problem asset being taken off the board. And now we see what's left in terms of the other regional banks, which, you know, might not be great. Credit conditions might not be all that super in the rest of the year. The consumer might be stressed. But that's regular business and macro issues. That's not deposit flight and not the risk of survival.

Arguably, Mike Santoli, the opposite of First Republic in this market is Apple, and we're going to get the numbers on earnings from the biggest one. So look forward to covering that with you next week. Meanwhile, that's going to do it for us here on Overtime. Have a good weekend. But first, fast money. Don't want to miss that. Starts right now.