Closing Bell - Closing Bell Overtime: T-Mobile CEO Talks Latest Quarter; Earnings From Intel, Visa 1/25/24

Episode Date: January 25, 2024

Another busy day of earnings with Intel, Visa, T-Mobile, L3Harris, Western Digital and more reporting numbers. T-Mobile CEO Mike Sievert talks the latest quarter and how the company is competing with Verizon, AT&T. Moor Insights & Strategy CEO Patrick Moorhead breaks down Intel’s quarter. Mizuho’s Dan Dolev on Visa earnings. Franklin Equity Group Portfolio Manager Sara Araghi on earnings season so far.  

It's a lot of green on the screen. The S&P 500 closing at a record high for a fifth straight day. That is the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Ford. And sector-wise, the energy, comm services, and utility sectors fueling today's rally. Consumer discretionary, health care, the only sectors in the red. Now, let's get ready for another wild hour of earnings. We're going to have instant analysis of the numbers from Intel, Visa, T-Mobile, Levi Strauss, Capital One, Reston Digital, KLA and L3 Harris as soon as they're released.

Plus, T-Mobile CEO Mike Sievert breaks down the mobile carrier's earnings right here on Overtime before he dials in to the conference call. Let's bring in our market panel. Meantime, though, joining us now is Paul Hickey from Bespoke and CNBC Senior Markets commentator Mike Santoli. Mike, I'm going to start with you because we have a record high, another one for the S&P 500. 48.94 is looking like where we're settling here. We had a record high for the Nasdaq 100 again today, too. But it does seem like perhaps this rally is broadening out a bit. It has shown signs of that. And today was a decent one on that score.

You did have a lot more stocks up than down. When treasury yields are tame and when you actually have the resilient economy showing up in the data, usually that's a formula for the majority of stocks to do better. John mentioned consumer discretionary being down. That's all Tesla. The equal weighted consumer discretionary ETF today is up almost 1%. So that shows you that in terms of the basic fundamentals of the spending power of the economy, people got some reassurance today. Yeah. Paul, I mean, you could argue, especially with the South, we've seen recently in, you know what? We've got T-Mobile earnings. Those are out. Julia Boorstin has the numbers. Julia. Hey, Morgan. That's right. T-Mobile's earnings missing estimates coming in at $1.67

versus the $1.90 that was estimates. But revenues beat estimates here at $20.48 billion versus the $19.64 billion that analysts had anticipated. Now, looking at the stock and why it's down in after-hours trading, the company reported lower-than-expected post-paid net ads, $1.57 million versus the $1.7 million that was expected. And it looks like that makes T-Mobile the only one of the big three to miss on the wireless post-paid net ads. Now, if you look at the total postpaid phone net ads, they did come in ahead of expectations at $934,000 versus the

$874,000 expected. But that stock is trading lower on the earnings miss and the lower than expected postpaid net ads. Back to you. Okay. Julia Borson, thank you. Coming up, T-Mobile CEO Mike Sievert is going to break down those results with us before he discusses them on the call with analysts. That is in just a few moments. Yes. In the meantime, Intel earnings are out. The initial move is down and quite a bit more than six percent. Christina Parts Nevelis has the numbers. Christina. Yeah, a lot of that big drop in the stock has to do with the Q1 revenue guidance. It was a big miss. A lot of analysts were anticipating a miss, and that's what we got. I'm going to start with the guidance because that's

the important part. The range for Q1 revenue was $12.2 to $13.2 billion when the street was anticipating a little bit over $14 billion. So it's quite a discrepancy there. For the actual quarter for Q4, we did see a beat on the top and bottom line, 54 cents on revenues of 15.4 billion. So both of those are a beat. And I'll continue to go through the report and get back to you. All right, Christina, thank you. Back to the panel now. Mike, this Intel miss comes on the heels of a couple quarters where they had a surprise to the upside,

but it makes you wonder about inventories and especially with the economy overall looking pretty strong. I imagine it's going to raise a lot of questions. Yeah. And, you know, there were whispers for those who try to track those things of a beat of about 51 cents. So for the current quarter, I mean, pretty much came in line. But even if you look at the revenue outperformance in the past quarter, about $300 billion, it doesn't make up for that shortfall in first quarter revenue guidance. So that does show you that just a lumpy pacing of the business. We'll see what they say about exactly where that's coming from. But a 6% move was indicated by the options in Intel. It looks like we got just about that. All right,

Paul, I want to get your thoughts on the semis more broadly, because the SMH has just been on a tear as of late. We know that tends to be an economic indicator so far and particularly now with Intel. Some questions about what's being indicated. No, I mean, I think Intel is a story unto itself. You know, it's a turnaround story. There's going to be a lot of noise in that company in the short term. And longer term, a year from now, it's not going to matter what happened this quarter for Intel. It's going to matter how their turnaround story is going. Semis overall, though, we've seen massive outperformance on the part of the semis, not only price, but relative strength hitting new highs. And that's a

good omen for the broader market and the economy and that's what we've seen back when the fed pivoted in december we moved to an environment where good news is good again now all we only needed economic data to live up to its end of the bargain and we've really seen that especially this year uh just recent reports like retail sales, GDP, inflation data coming in lower than expected. We're in the point now where the GDP growth is on a real term, real basis is higher than the rate of inflation. So that's a really positive environment, I think, for the stock market going forward, even if we are overbought in the short term here. And Paul, I want to get your take, too, on just how the market is likely to react, given the strong overall economic data that we've been seeing.

T-Mobile a little weaker on the net ads than analysts were hoping to see. Also on EPS, the consumer overall seems to be doing fine. So how does that get digested by investors in this environment? I think it gets digested in what we've seen in the market so far this year. We've seen strength following up from the strength we saw in the fourth quarter. So that's a good sign for the overall market. I know we haven't seen the broadening of the rally that we expected to see. It's taken a real stumble so far this year. But these mega cap stocks can't keep going up forever while the rest of the market stalls out.

And if AI is going to be the big productivity enhancer that it's built to be is not only going to impact the mag 7x tesla it's going to it's going to benefit all the other companies in corporate america too and you just look at the top six market cap companies their combined market cap is over 12 trillion the 200 day moving average of that market cap is 1010 trillion. So it's $2 trillion above its 200-day moving average. It was only a couple of years ago we were looking for a stock to hit a trillion-dollar market cap. And now we have this massive rally that we've seen in the short term. And just to put that in perspective, that $2 trillion is the equivalent of two-thirds of the entire Russell 2000. So I think there's, even if you saw a little bit of rotation out of these mega caps, it would really spark a light under the smaller cap areas of the market.

Yeah, which you could argue we had a taste of looking at December when small caps had a moment. Mike, I want to get your thoughts on the whole soft landing or perhaps even no landing narrative that is circulating, continues to circulate for investors here. I mean, 3.3 percent GDP reading for Q4 today, so much higher than expectations. It's actually something I spoke to CSX's CEO about earlier on CNBC in light of what he's seeing from a transportation and freight lens. And he basically said, yeah, this is what it feels like right now. And it feels like it's going to be a strong economy into 2024 as well. I mean, how does that set us up when we look to the all important PC reading tomorrow and Fed and

jobs and all the other macro data over the coming days that that that we know have sort of shifted from bad news to good news to just good news is good news. Yeah, I mean, we've been in that mode, I think, for at least two months. I think the October inflation numbers got us in that good news is good news mode. Now, the GDP beat for the latest reported fourth quarter, definitely welcome, definitely shows you nominal GDP growth above 5 percent. That should be a comfortable environment for companies. But the fact that it was inventories that were a beat, I think that also almost calmed the market down because that's not something you extrapolate indefinitely. Consumer spending basically came in on target. You know, we keep waiting for a slowdown that's not coming. That's the good news.

And it's disinflationary. So it's very difficult to twist those numbers into saying that something's going to get in the way of the market feeling as if it's in a pretty decent spot in terms of the macro backdrop. OK, we got another earnings mover, Visa. Those results are out. Kate Rooney has the numbers. Kate. Hey, Morgan. So a beat here for Visa's fiscal first quarter. Let's start with that adjusted EPS number. This was a seven cent beat. Two dollars forty one cent. Street was looking for two thirty four. Also a beat on the top line. Net revenue is of $8.63 billion. Strong beat there. We've also got some numbers here on cross-border. That's a key metric for Visa. 16% rise for 2024 Q1. Payments volume up 8%, guys. And processed transactions

were up 9%. We've got a quote here from the CEO, Ryan McInerney. He talks about the resilient consumer. That's what we've really heard from Visa in the last three or four quarters. That appears to be continuing. He talks here about consumer spending being resilient and then strong cross-border volume as well. You can see shares pretty much flat here on that news, but a beat for Visa.

Back over to you. All right, Kate. Thanks, Levi Strauss. Earnings are out. Courtney Reagan has those numbers. Court. Hi, John. Yeah, so for Levi's first quarter, which I think is important to note, did include Black Friday, but not Cyber Monday because it ended November 26th. Earnings per share coming in at 44 cents compared to 43 cents adjusted, so a slight beat there. Revenues, however, coming in a bit light at 1.642 billion. The street was looking for 1.658 billion.

Guidance for the full year for both earnings and revenue, also slightly below streets' expectations. I will say that gross margin did come in slightly higher than expected and better than last year. Net income, though, again, lower than last year. The company talking about there were lower product costs and higher average price selling, which is good. America's was the strongest and the biggest beat with revenues up 6 percent there. Europe was the weakest, up just 2 percent for its revenues direct to consumer.

That business, which is something they're going to expand in the coming year under new CEO Michelle Goss, is up 11%. And that made up 42% of total revenue. Wholesale revenues down just 2%. And another thing I would point out here is they are announcing a new global productivity initiative. This is a multi-year strategy. It does generate cost savings, but also reduces the global workforce between 10 and 15 percent. It will have a further emphasis on direct to consumer. And again, Michelle Goss officially takes over as CEO next week. Shares of Levi are down here in the initial response.

Back over to you, Morgan. All right. Courtney Reagan, thanks. Yeah, Mike Santoli, this reminds me, what we just heard, particularly from Levi, of some things that we've been hearing consistently. The economy's doing well, but a lot of companies are saying demand slowing somewhat. We've had some top line either just barely meets or misses, and then their costs are higher. They're doing cuts. How should investors, how are investors responding to that kind of mix of news?

You know, I think with essentially a mix of impressions off of that, I don't think anyone is willing to say that companies are going to become radically conservative and start to really cut, assuming a recession. We've been in this ongoing mode of, especially the goods sector, trying to rationalize costs as we came off the heavy demand. I do think that you can see productivity growth in aggregate in those GDP numbers. If you think about it, you have very strong real GDP growth with modest increase in hours worked and and and people employed. That does show

you that there is a productivity orientation among the private sector that's in place right now. So if the overall top line of the economy continues to grow, the market usually finds a way to follow it as long as the Fed's not really trying to attack growth. So, again, it's an ambiguous environment. It's part of the explanation for why we've had narrow leadership in the indexes and also why the bulk of the earnings growth is also coming from a relatively small number of secular growth companies. OK. Paul Hickey, thanks for joining us. Mike, we'll see you again in a few minutes.

A lot of red on the screen right now as investors do digest the earnings we've gotten so far. T-Mobile shares falling after an earnings miss and lower than expected postpaid net ads. But joining us now, ahead of the earnings call, T-Mobile shares falling after an earnings miss and lower than expected postpaid net ads, but joining us now ahead of the earnings call, T-Mobile CEO and President Mike Sievert. Mike, it's great to have you on. Thanks for being with us. I am going to start right there with the $1.57 million in wireless postpaid net ads. So much stronger than the rest of the industry, but in a week where we saw AT&T and Verizon add more subscribers than expected, this number falling a bit short of street expectations. Walk us through it. Well, you're right. It's definitely the best in the industry. And where investors really focus

their attention is postpaid phone net additions, where we beat handily the expectations as well as our guidance numbers. And so it's really nice to see that the core business is operating exactly as investors expect. And I think when they double click on those postpaid overall additions tomorrow, they'll see exactly what's happening, which is some disconnect of some lower value COVID-related school district net additions, which aren't going to affect materially any results in 24. So overall on customers, this is a big beat because postpaid phones are where everybody focuses. OK. And service revenue basically in line. Adjusted free cash flow looks like slightly higher than expectations and certainly continues to represent a very strong growth rate for you.

I'm going to ask you a question I think you get probably from myself and my colleagues every quarter. But I'm going to ask it again. And that is how are you thinking about pricing, especially at a time where one of your competitors, Verizon, just recently announced a price increase that's going to affect 30 million of their subscribers? How are you thinking about it? Is there room for you to start raising your own? Well, we're the value leader in this industry, Morgan, and we have no expectation that that will ever change. We intend to defend that position. That being said, what you saw this quarter is that average revenue per account rose nearly 2% while we delivered better than expected postpaid phone net additions. And so that's a great formula. Customers are self-selecting up our rate card and they're buying our very best

plans. And so revenue per customer is rising and without the shenanigans. You know, that being said, I'll tell you one thing. Customers are getting more across this entire industry, not just T-Mobile, than ever before from this category. I mean, with relatively consistent prices, they're using three times more data than five years ago and experiencing four times better speeds as an industry. So values are better than they've ever been. And if we look for places where we can optimize our operations, you know, through the year, you know, we'll find those opportunities. And we took some of those opportunities in Q4. Yeah, you mentioned operations. I'm going to ask you about job cuts. You did some in August, talked about those last quarter on the call. We were seeing some other companies, just talking about Levi and them going through a bit of a reorganization, trying to get their costs in line in this environment

where the top line growth, perhaps not as strong as some would hope. How do you feel about where you are operationally now, where you are on headcount now versus the kind of cash flow that you expect to see from T-Mobile by year end? Thanks, John. You know, it's nice that we were able to beat on top line, beat on service revenues, and cash flow is the real story here with nearly 80% year-over-year growth and a strong guide next year with cash flow at the midpoint of 22%, about five times the rate of our next year's competitor. And to the premise of your question, that's really about making sure that our operation, now that it's fully scaled, we're the best version of ourselves. We've got our folks focused in the right departments and the right numbers.

And as you saw in this quarter, we took some technology depreciation acceleration because we're living in an unprecedented time and T-Mobile is not going to miss the moment on making sure we have the most modern technology capabilities. And all those things you see reflected in a really confident 2024 guide. I'm going to ask you about iPhone 15 and Apple in general and what you saw in the quarter, the key holiday quarter, in terms of customers trading up to new devices. Well, it is an intensely competitive market and it has been for a long time. And you saw that we were able to navigate that and deliver a big win in postpaid net additions. And we were able to do that with upgrade rates that were a little lower than our competitors. And what that means is we're very

surgical and guided by the customer. Customers are getting those upgrades from T-Mobile. We have no interest in slamming people with upgrades until they're ready for them, and just to get them locked down into payment plans. And you see that reflected in our numbers. It's exactly what you want. Upgrades in line and reasonable, a little better than our competitors in terms of being lower. But postpaid net additions, net of churn, best in the industry, about twice the run rate of either of our principal competitors. Quickly, I got to ask you about SpaceX. You have this partnership that you announced back in 2022, The first satellites that you're going to be using via Starlink for supplemental T-Mobile connectivity were launched just a couple of weeks ago. And just earlier this

month, the first text sent via those Starlinks on the T-Mobile network. Talk to me about that partnership and what it's going to enable. Well, we're really excited about it. To your point, we were able to make the first T-Mobile to T-Mobile text messaging via direct-to-satellite the week before last, a huge moment for our industry. And we're really excited about what's possible. You know, this year is going to be a year about getting those density of satellites in the air, as well as getting ready for a customer beta that I expect we'll be able to start before the year's out. All right. Mike Sievert of T-Mobile, thanks for joining us. Great to see you. Breaking news on J.P. Morgan. Leslie Picker has details. Leslie. Hey, John. Yeah, J.P. Morgan announcing some new changes among the top leaders of the firm. It's

an effort essentially to give more experience to those toward the top of the firm. In a memo from CEO Jamie Dimon obtained by CNBC, Dimon said, quote, I'm pleased to share some organizational and senior management changes, importantly, giving new and increased responsibilities to a number of our key executives that will help build upon our successes

and position us for the future. Some of the names I'm about to share with you have been floated as successor candidates for Diamond, although sources familiar with the matter tell me these changes announced today do not mean that Diamond is about to leave. So here are some of the highlights. Jennifer Piepsak, co-CEO of Consumer and Community Banking, and Troy Rohrbaugh, co-head of Markets and Security Services. Those two will become co-CEOshead of Markets and Security Services. Those two will become co-CEOs of an expanded commercial and investment bank. Marianne Lake, who was co-CEO

of Chase Consumer and Community Banking alongside with Jen Pivsack, will become sole CEO of that group. And that group comprises banking, wealth management, and that includes consumer and business banking and U.S. wealth management, as well as consumer and business banking and U.S. wealth management, as well as payments, lending, and commerce. And last of kind of the highlights I'm going to share with you today is Doug Pentno, CEO of Commercial Banking, Haleed and Expanded Commercial Banking Business, which will also encompass global corporate banking. So a lot of big changes. Some individuals will depart as a result of this. Some are getting expanded roles here. But noteworthy, of course, that J.P. Morgan is not making these moves and it shouldn't be read

as a signal that Diamond is about to leave. They're giving expanded responsibility for those toward the top of the firm, Morgan. OK, so maybe we won't read through on succession, but certainly a strengthening or continual robustness of that bench of talent. The bench. Leslie Picker, thank you. Western Digital and KLA earnings are out. Christina Parts Nevelis has those numbers. I'll start with Western Digital. That is a data storage manufacturer. The shares are down about 4 percent. Part of that reason, there is a beat on the top and bottom line. The company posted a loss of 69 cents per share. That was stronger than what the street was anticipating on revenues of $3.03 billion. But if you zoom out on a yearly basis, revenues did decline year over

year, down about 2%. For Q3 guidance, that was still a beat for EPS as well as revenue. But more specifically, we did see a slight drop in client revenue. So they pointed out cloud revenue is doing really well, but client revenue declined 2%. So that might be part of the reason why you're seeing shares drop about 4%. Let's move on now to KLA, a chip equipment maker now. So for KLA, it was a beat, $6.16 for EPS, adjusted EPS on revenues of 2.49 billion.

And even the guidance though came in a little bit light, but the company said, adjusted EPS, on revenues of $2.49 billion. And even the guidance, though, came in a little bit light. But the company said, and I quote, we believe our business has stabilized. So I guess positive words, sort of, but the stock is down 5.5% on that light guidance. All right, Christina, thanks. Yeah, Capital One earnings, meantime, are out to Kate Rooney. Back with the numbers. Kate? Hey, John, yes, it was a beat on the top line, at least for Capital One in the fourth quarter. Total net revenue increased about 1% to 9.5. One billion. Street was looking for 9.46 billion. Thereabouts. Bottom line, EPS here, $2.24.

That's the adjusted number. We're not going to compare that to street estimates. But then I'm going to talk about loan loss provisions. This was in line, but net charge-offs climbed to compare that to street estimates. But then I'm going to talk about loan loss provisions. This was in line, but net charge-offs climbed to $2.5 billion. That was up from $2 billion in the prior quarter. And then delinquencies, that's something the street is watching very closely, especially after Discover, the 30-day delinquency rate climbed to almost 4%,

3.99% up from 3.7%. Could be what's weighing on the stock here slightly after hours, but at least a beat on revenue for Capital One guys. Back to you. All right. Okay. Thanks. Everybody take a quick stretch. That's just the start of another whirlwind hour of earnings. Still ahead, analyst reaction to all these results from Intel and Visa as we count you down to those earnings calls. Overtime's back in two. Checking in on Intel shares right now. They are still down more than six and a half percent in overtime, some weaker than expected. Q1 guidance giving investors pause. Joining us now is Pat Moorhead, CEO, Chief Analyst of Moore Insights and Strategy. Pat, welcome.

So client computing came in a little stronger than the midpoint of consensus for Q4. PCs overall. Data center just about in line. But the question is, is the inventory thing, I mean, that's my, what I wonder, is the inventory thing still an issue? What's the problem with this guide? Yeah, so, John, a couple things are going on. You know, the core business, right, low end of seasonality. You've got a billion dollars of headwinds from areas that were typically contributors, like Mobileye, the 5G, telco business, even FPGA.

But on the server side, it's an interesting thing going on. There's so much demand for GPUs that the big cloud guys sometimes will just upgrade the GPU and not the full server. And there are some GPU-based servers that can't ship because they can't get GPUs. And then there's this ever present challenge from AMD. So all of those elements combined lead to a disappointing Q1 forecast. So is this a disappointing from an operational perspective? Or is this Intel getting caught in kind of the vagaries of GPU demand? And for an investor who's betting on whether or not they think Pat Gelsinger is going to pull off this turnaround, does this quarter, based on the numbers we see thus far, pose a

problem? I think it just depends on the variability of the patience of the investor. I mean, if I look at Intel, I mean, they hit their $3 billion OPEX goal. Their gross margins were up 3% sequentially, 6.5% year on year. On track, five nodes in four years. And if I look at 2024, Intel 3 looks to be on track, 20 Angstrom with Arrow Lake on track. 18A, brand new second half servers. You got Panther Lake PC after that. Yeah, I mean, I think the company's been doing an incredible amount of change. And day one, when Pat Gelsinger walked in, he made the big commitment of five nodes in four years. Intel is sticking to that. I do believe this is a temporary speed bump. And back to

bumps that weren't expected that are market-inflicted, not company-inflicted, like Mobileye, 5G telco business, FPGAs, all those businesses are down from a market perspective. Okay. So I guess that's a big part of my question. So on the call, what should investors listen for to make sure that that whole story still checks out? Yes, longer term, those commitments, five nodes in four years, et cetera, on track. Of course, they have this announcement today of the older process technology partnership that's going to, on the foundry side, give them access to additional capacity. What are the questions about Intel's readiness that investors should listen for, just in case there's some other problem in there? Yeah, so we talked about process and technology, and they were very overt. They put that right in their press release. So we have a good idea, but drilling down, I think

investors should know about a potential super cycle coming up in the third or fourth quarter with AI PCs and what's the meaning of that and how competitive are they versus AMD and then Qualcomm. And then the follow-ons to Sapphire Rapids on the data center side, how they think they're going to play in. And then finally, something that's been a drag on the stock compared to, let's say, NVIDIA and AMD is when will we see some more meaningful, I mean, revenues for Gaudi, their data center accelerators are meaningful, but when will we see a force multiplier? Maybe similar to the multiple, I think AMD will probably

do $10 billion in AI accelerators. When does that start to kick in? Right now, we know what's going to happen in 2025. There's a data center GPU coming out. But what can Intel do in 2024 with their accelerator non-GPU called Gaudi 3? I want to go back. You just mentioned super cycle for AI computers. Do you really think we're going to get a super cycle? And if so, is it a tide that lifts all boats, a rising tide that lifts all boats, or is this one for Intel to really win? So I think it is a tide that's going to raise all the PC makers, Qualcomm, AMD and Intel. And I think you're going to start to see most of the action in the middle of the year kicking in when Qualcomm announces their new or they ship their new product. I think Intel, though, in the first half is setting the stage to raise all boats in this. And I think AMD is in the mix as well. I've been in the

industry over 30 years. And with these AI PCs, not the ones we see today, but the ones that I know are coming up will be the biggest shift in PC computing probably since the age of Internet connectivity or thin and light notebooks. It's going to be super exciting. All right. Pat, thank you. And just in case they don't get, the analysts don't get to these questions on the call, I'm going to be speaking with Intel CEO Pat Gelsinger just after the call. You can hear part of that interview tonight on Last Call. That's 7 p.m. Eastern time and a lot more tomorrow. Yeah, a lot of calls. Good calls. Looking forward to that. All right, we've got more earnings to

bring you as well. L3 Harris, those results are out. And for the defense contractor, it was a beat on the top and bottom lines. EPS coming in at $3.35 per share, four cents better than street expectations. Revenue, $5.34 billion, also better than expectations. 2024 guidance, though a little more mixed. It looks like the revenue guidance a tad light, $20.7 billion to $21.3 billion for this new year versus estimates of $2.45 billion. Record backlog, $33 billion there. One of the other things that could be pressuring the stock right now is the fact that you saw a margin decrease for the fourth quarter, too.

The operating margin of 2.9%. That reflects, though, a goodwill impairment for a pending business sale. That's commercial aviation solutions. Also, you're seeing with the top line growth of 17 percent for the quarter, Aerojet Rocketdyne, which acquired last year, the rocket motor maker also folded into these results. So a little bit noisy. I think the big takeaway here, John, is that and you could say this about L3 Harris, which is down two and a half percent right now. You could even say it about Northrop Grumman, which finished the day down about 6 percent.

Northrop Grumman took a billion-dollar-plus charge tied to its B-21 bomber as the initial production begins for its first five aircraft. It's a fixed-price contract because of inflation and everything. We've seen over the last couple of years they're going to take a loss on those first five aircraft. If you strip that out, if you strip some of the stuff out in this report, some of the other reports we've seen from defense companies, demand is very, very strong domestically and internationally, given the geopolitical tensions and the global conflict that's playing out, not necessarily showing up in the bottom line for these companies and the margins so far because some of this noise, but the demand picture, very strong. Unfortunate reason for it, but the numbers are what they are. All right. Now, the U.S. economy

grew more than 3% in the fourth quarter, supporting the probability of a soft landing. Mike Santoli returns with a look at the impact that the first rate cut tends to have on stocks. Mike? Yeah, John, and it all does depend on whether that first cut comes within a year of a recession taking hold or not. So Ned Davis research goes back all the way to the 1920s. Look at the first Federal Reserve rate cut in a cycle. What did stocks in the form of the Dow Jones Industrials do before, you know, the 12 months before that and the 12 months after that? What you see is this is the no recession within a year basket right here. There's a couple of them in the 90s, 98, 95 was another one. And

you see the market has tended to rally into it and then accelerate higher thereafter. No surprise, right? You're getting lower rates and no immediate payback in the form of a recession. Now, you also see the market lift down into the first rate cut if you are headed for a recession in a year and then less upside. But it's really nuanced. It's really kind of when the Fed manages to make that cut in a lot of cycles. They don't do it till almost the end of the recession. So the market's already taken the medicine in 07. It was before the recession. Didn't help at all. So essentially that call, are we headed for a recession in the next 12 months? And this cycle has been a weird one. It's very hard to handicap how it's going to play and how

the market's going to interact with that. But right now, it looks as if this is why the market's excited about the Fed starting to ease before we see the economy buckling, Morgan. All right. Mike Santoli, great stuff, as always. Thank you. Time for a CNBC News update with Bertha Coombs. Bertha. Former President Donald Trump testified earlier this afternoon for just under five minutes in the damages trial related to the E. Jean Carroll defamation case. Trump claimed Carroll's sexual assault allegations were false and that he wanted to defend himself in the presidency. But jurors were told to disregard his comments as they consider what damages Trump must pay Carroll after having already

been found liable for defamation. Turkish President Erdogan signed off on the country's ratification of Sweden's NATO membership bid today, clearing a major hurdle for Sweden after a 20-month delay. Hungary is now the last nation that has yet to ratify Sweden's accession into the alliance. And in Connecticut, the roof of a new London church collapsed, leaving a gaping hole and large amounts of debris. The pastor of the engaging Heaven Church said, however, in a Facebook post, that everyone is believed to be fine and accounted for. Hopefully they all are. Back over to you.

All right. Bertha Coombs, thank you. PayPal, one of the worst performers in the S&P 500 today after launching new AI products. Up next, a top analyst tells us why Wall Street was disappointed by this news. Stay with us. Welcome back to Overtime. Visa shares in the red despite beating on the top and bottom lines. Shares are down about 2.5% right now. Joining us here on set, Mizzou host Dan Doliff. Dan, it's great to have you here. Okay, so they posted a beat for Q4.

They also talked about consumer spending remaining resilient. Cross-border volumes are still strong, and yet the stock's down. Why? Because there's nothing to hope for right now. Basically, they beat a little bit. They raised expense guidance, which is not a good thing a little bit. They didn't raise the fiscal year revenue guidance. So there's really, like, stocks work when there's something to hope for, when there's, like, a beat and raise, right? And they beat, but there's no raise. And in U.S. volumes, especially debit are decelerating pretty heavily in January. And I think a lot of people are looking at that

and they're saying, well, things are good, but you're giving me volumes that are decelerating. What's good about that? Yeah, you were neutral on the name going into the print. Sounds like you're not going to change that thesis. But I do wonder if there's read through here, too. I know you don't cover Amex. They're reporting tomorrow morning. You do cover MasterCard, though. Is there read-through to some of these other names? Yeah, I think it's a read-through to the overall economy. I've always said that Visa is a little bit of a, kind of call it like a lazy long, right? Because there's no alpha. It's just beta. It's just macro, plus pricing, plus cash to card, right? So if you get that downward trend in volumes and it's real, then it reads across to Amex. It reads across to MasterCard.

It reads across to the entire U.S. economy. All right. Let's talk about PayPal. Now, about a week ago, you came out here on CNBC, said they're going to shock the world with AI products. New CEO. The world does not appear to be shocked by what actually got announced. 17 minute pre-recorded video. And it's like, OK, well, this is the stuff that you'd expect, you know, PayPal to just kind of announce and

not necessarily generative AI driven either. But the stock is just right back down to where it was before he said they were going to shock the world. So is this bad? Well, I think, you know, we downgraded a week ago, right before he went on CNBC. And I have a lot of respect for the PayPal management team. But I think today's announcement was shockingly unshocking. There was not much there. It was a bit underwhelming. The biggest problem, and I think that's why the stock is trading down today, is that they

cannot fight Apple Pay. They're losing share to Apple Pay. They have an age demographic issue. Young people don't use it. More older people use it. So our data shows that. And they're facing competition to Venmo from Zelle. So all these three issues,

while these new products are really cool and I love them, I don't think they're going to solve the problem. So what would it take to shock the world right now across not just PayPal, Visa, but say Shopify, Klarna, some of these other companies that are not specifically payments companies, but they're engaging directly with users and trying to ease the experience of showing them and then getting them what they want. Give you a perfect example. My favorite stock, Affirm, right? You mentioned Klarna. Let me talk about another buy now, pay later company.

They're shocking the world. A, they're going to, I think they're going to beat significantly. But the most important thing is they have a card now. And so they're shocking the world because now people are starting to use the card. The attach rate on the card goes up. And now with direct deposits, people are starting to use the card more frequently. So you get like a one punch, two punch on this. And now with direct deposits, people are starting to use the card more frequently. So you get like a one punch, two punch on this.

And that's the magic. The magic is like you're getting close to the customer and you're getting the customer to do more. And there's no sort of secular threat against you, which is what's happening to PayPal, for example, right now. Yeah, and Affirm certainly has been getting some love from investors, but in general, when you look across the broader fintech universe,

every time PayPal has a down day, it seems like everybody's having a down day, whether they're related, whether they're a peer or not. What does it take to disentangle that broader market narrative? You're starting to see that already. It's a good question. You're starting to see that bifurcation, like PayPal had a terrible year last year and the firm was at an all-time high so i think you know you're starting to see that you know the market's starting to distill the you know real quality from just sort of like okay this is an econ play or this is just what we said about visa which is not a problem but it's there's no alpha it's just beta it's pricing plus pce plus cash to card conversion all right yeah we'll see if this is that kind of a separation year. Dan, thanks for coming in. My pleasure. All right. Up next, we're going to discuss the big takeaway so far from earnings season.

What they mean for your money with the portfolio manager of the Franklin Growth Opportunities Fund. We'll be right back. Welcome back to Overtime. We have had a lot of earnings already this hour, a lot of red on the screen here in Overtime, especially you can see Intel there, T-Mobile Visa also slightly lower. Levi Strauss about even right now, but the S&P did close at a record for the fifth straight day.

And joining us now to discuss is Franklin Equity Group Portfolio Manager, Sara Aragi. Sara, great to have you. And I want to start with Levi here and the consumer in general. This is a company where revenue, the top line, maybe not as strong as some might have hoped, but they're cutting 10 percent as a number of others are. What does that signal about consumer demand, even as GDP is strong and the need for cost controls? Yeah, thank you so much, John, for having me here today. So look, listen, I think Levi's specifically, if you look at their numbers, their DTC, direct to consumer numbers, were pretty strong, still up 11 percent. One of the areas that they've had some challenges in this

last year has been in the wholesale side. And the wholesale side was down low single digits for them this quarter. And also they're exposed to other markets such as Europe and Asia. And in those markets, we've seen the consumer is not as strong as we've seen here in the U.S. So I wouldn't take necessarily the information that we saw on Levi's earnings as something to derail this narrative around the health of the consumer, the U.S. consumer continuing to be strong here. So now I want to zoom out on that same theme of direct to consumer versus wholesale, because I think even in areas like media, you can look at things that way. Netflix is built for direct to consumer and some of the other players that were trying to out-Netflix, Netflix now have limited resources to invest

in those things. So in this economy, which has been pretty darn strong, but a lot of executives are expressing doubts about continued demand strength, how should investors think about investing in companies that are already strong in D2C and have that relationship in data versus those who have ambitions in that direction? Yeah, I mean, that's a very good question. And it plays into the idea that, you know, companies that have digitally transformed, companies that have invested in their omni-channel capabilities, companies that are even looking at generative AI right now, those companies are targeting and attracting consumers. They are creating personalized experiences for consumers. They're marketing in an effective way to consumers. And so the consumer is being more selective.

Even though spending is strong, the consumer is being selective and making sure that they go to the places that offer value to them and offer the experience or the product that they want. So ensuring that we are on the right side of that and ensuring that we're invested in areas that we know the consumer wants to go to is very important. I want to go back. You just mentioned generative AI. And I want to go back to that because we are seeing the realization of it even this early into earnings season, whether it was ServiceNow yesterday or Intel today. Yeah, stocks under pressure right now.

But a lot of discussion around when you start to see this AI pickup meaningfully affect those results as well. You look to next week with more of the Magnificent Seven reporting. How do you expect this to take shape and where would you be investing to play it right now? Yeah, look, so we've obviously seen the market and investors take advantage of just the picks and shovels piece of this, right? The NVIDIAs of the world, AMD, all of that has been a beneficiary. But we do expect us to start seeing some of this trickle into the consumer companies, other areas of the economy, industrial companies. We're starting to see this come through. Just early on investments and early signs of taking advantage of this. So within consumer

specifically, you're going to start to see some talk about personalization, personalization of the offering for the consumer, inventory tracking, better inventory forecasting. These are signs that we're looking for. We're really way too early on this right now, but that's ultimately what we want to hope to see. And then, you know, it also plays into the theme of broadening out of the market. We do expect, while I know year to date we haven't seen that as much, maybe today was a little bit of that, but more broadening into smaller, mid-cap, large-cap companies where they're going to start to see the benefits of generative AI. Okay. Sara Aragi, thanks for joining us. Thank you for having me. Up next, a look at some of the other overtime earnings

movers that need to be on your radar as we count down to the calls from Intel, Visa, and many more. Stay with us. Regional Bank Western Alliance reporting today, shares falling in overtime down about 1%. The company reporting earnings per share of $1.33 per share and revenue that missed analyst estimates. Net interest income and loan loss provisions in line. Fair Isaac, FICO, also lower. Revenue and guidance coming in light. The company cited lower volumes on its MyFICO website. As an issue, you could see those shares are down about 6.5%. A lot of red today. I think almost everything we've reported on has been lower during the hour. But a lot of green before overtime. So, you know, OK, we'll see where it

balances out. I'm channeling my inner Mike Santoli. Up next, we're going to round up earnings and economic data that could move the market tomorrow, including a key read on inflation. And before we go to break, let's cue that QR code. It is Thursday. Yes. The latest installment of I On the Other Hand newsletter this week's debate was has Netflix officially won the streaming wars after strong earnings and this new deal with WWE? Well, you can sign up for the newsletter, read the argument, share it, et cetera, using that QR code on the screen, or you can go to CNBC dot com slash OTOH overtime. We'll be right back. Welcome back to overtime.

Tomorrow is going to be another big day on the earnings and economic front. American Express. We just had Visa, Colgate, Palmolive and Norfolk Southern all report results. Plus, investors are going to digest the core PCE price index for a key reading on inflation, as well as the latest pending home sales report. And Morgan, we're going to hear more from Pat Gelsinger, Intel's CEO, about exactly what's behind this guide. In the past, they've had issues with execution in their core business. But Pat Morehead suggesting to us maybe that's not the case in this case. Yeah. And of course, we know a number of analysts have basically said this is going to be do or die year for Intel. So it'll be key to hear what he has to say to you as well. PCE going to be watching

that one closely. We've had every Fed official up until the recent blackout basically say this is the number that matters to them ahead of the Fed decision and to know that disinflation is continuing to gain traction as they think about rate cuts. So we'll see what that number tells us. I mean, yeah. How many rate cuts? How soon? Given how strong GDP was, this number tomorrow is going to be once again a big deal. Meantime, we did get another record high on the S&P and that's going to do it for us here at Overtime. Fast Money starts now.