Closing Bell - Closing Bell Overtime: Tech’s AI Surge; Investing In Top Private Companies With Liberty Street CIO Christian Munafo 5/26/23

Episode Date: May 26, 2023

Tech stocks extended gains on AI tailwinds as the major averages all closed higher to end the week. Vital Knowledge’s Adam Crisafulli breaks down the market action ahead of the holiday weekend. Marvell jumped 30% today and we replay major AI moments from top CEOs over the past two weeks. Invitation Homes’ CEO Dallas Tanner talks the state of a housing market dealing with sticky inflation and slowing growth. Liberty Street runs an open private fund that lets clients invest in high-profile private companies. CIO Christian Munafo discusses hot names and strategy. Autodesk CEO Andrew Anagnost on the company’s quarter and its opportunities in AI. Plus, Velocity Global CEO Frank Calderoni on offshoring and our Phil LeBeau on what is expected to be a crazy travel weekend. 

Well, you've got to rally into the holiday weekend, but we're not done. Winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. Breaking news this hour as we await the latest bank balance sheet data from the Fed. We're going to bring that to you as soon as it crosses. Plus, we're on debt ceiling deal watch as we head into the holiday weekend, an inch ever closer to Janet Yellen's June 1st deadline,

or what we'll call an X date, because nobody really knows the actual deadline. Well, you know, it's money flowing. We'll see. Let's get to the market action. Speaking of money flowing, NVIDIA and other AI names boosting tech this week. The NASDAQ closing up more than 2% for its fifth straight weekly gain, but the Dow closing down 1%.

Joining us now is Vital Knowledge founder Adam Crisafulli. Adam, so PCE was actually a bit hot. Stocks are up. Debt ceiling wasn't solved yet. Next week starts the last month of the first half. So what should investors brace for with that setup? So I think the North Star for all investors should be earnings. I think that's kind of been the story of this market for the last several months. And it's still, I don't think, appreciated enough. I know NVIDIA this week was a huge blowout. But, you know, aside from NVIDIA, going back to the Q1 March end quarter companies and now with the April end quarter companies, there have certainly been a handful of disappointments. But in general,

I think corporate America continues to outperform expectations. And that, to me, is still the single most important driver of why stocks have been so resilient now, you know, for the last several months. The PCE definitely, you know, creates some complications for the Fed. You had yesterday's data also, the weekly claims, and then the Q1 PCE was revised higher. That's going to complicate life for the Fed a little bit as we head into the June meeting. We get a lot of data next week. It's jolts. You get the ISM.

You get the jobs report on Friday. That will play a big role into what happens at the June meeting. You know, I do think that the Fed, the bar for incremental rate hikes is very high. You know, you still have a lot of tightening that's occurring right now in the market. That 500 basis points of hikes and a little bit over a year, ongoing quantitative tightening, you know, the ongoing fallout from tightening bank lending standards. So the Fed, I think, wants to wait and see how all that plays out. But, you know, the data next week, I think, will be very important to what happens at the June meeting.

Although, you know, we should note, Loretta Messer was very hawkish on our air just earlier today. We have had a number of officials who have come out and basically suggested that maybe next meeting, next Fed meeting is potentially a live meeting if we continue to get this stronger than expected data. The fact that we closed at 4205, how significant is that when we start getting into technicals, Adam? I think the 4,200 level was watched very, very closely. It's still watched very closely. I think people will want to see if we can sustain here for a couple of days to see if this isn't just a head fake fluke. But you definitely saw, I think, starting yesterday and certainly today, the psychology of the market is definitely shifting. There's a lot more, you know, quote unquote FOMO type of behavior where people who had been skeptical of the market

are now turning around and chasing certain sectors, just seeing it, you know, to a big extent within technology. But this 4200 level, I think, was very important. Speaking of technology, let's get into AI a little bit. I think some people might be missing that in these transitions, most companies don't benefit meaningfully. Like there's some that go up a lot, but they're the exception to the rule. If you think about who really won in the smartphone transition or who really won in the cloud transition, it wasn't everybody. So is there, you know, when you look across all of the different excited reactions here, is that because some companies were undervalued up to this point?

Or is there some euphoria perhaps moving into some of these stocks, you think? I think there's a lot of euphoria moving in. I think NVIDIA was very real and legitimate. The guidance from that company is spectacular. spectacular they own, this critical chip market right now that is absolutely integral to what's occurring with AI and these new technologies that are being rolled out. But as far as extrapolating that to the overall semiconductor industry and even all of tech, I agree. I think there's a lot of enthusiasm. You know, I think the more important semiconductor report this week, if you want to extrapolate to the broader industry, was analog devices, not NVIDIA. And NVIDIA is a very

company-specific, unique story. Analog devices has very broad exposure and the guidance from that company, the tone from that company was certainly a lot more cautious than it's been. And I think that is the more, again, the one you should be extrapolating to the rest of the industry. As far as the technology for AI and the GPUs people are buying, it's almost table stakes right now. It's a requirement, I think, for most companies just to maintain their current competitive position. You know, Marvel last night was very, very bullish and enthusiastic. But you're talking about the AI part of the business is less than 10 percent of revenue this year.

And that's after it's going to be doubling. So just to keep it in perspective, we have another big week of tech earnings coming up. You're going to have a lot of companies come out and explain why they are also AI plays. But I think it's just important for investors to keep it in perspective. Yeah, I mean, speaking of that, you're talking about Marvell. That was up 30% today after very positive guidance is mentioned, quadrupling AI revenue by fiscal 25, they said. There's some other names getting a boost from the AI halo. Supermicro, that was up 37% this week. Monolithic Power, up 22%.

Synopsys, up almost 10%. That was up 37 percent this week. Monolithic power up 22 percent. Synopsis up almost 10. We've talked with several leading CEOs in the past couple of weeks right here on Overtime. Here are some of the key themes we heard. In 40 years in the information technology business, I've never seen anything quite like this. The demand for enterprise AI is huge and it's soaring. This is on the tip of the tongue of every CEO, every government regulator, and every manager. How can I use AI to improve my business operations? AI is the next wave of computers. The way to think about the next computer is it's this piece of software sitting on this accelerated computing system

and this computer knows any programming language it can do anything it's instructed to do that's why i called it the iphone moment we've taken i.t and we put it into the hands of literally every single consumer in the world when we think about ai and specifically generative ai i think it's the combination that adobe has the data we have the models and then the combination that Adobe has the data, we have the models, and then the surfaces that people can use, the interfaces, whether that's Illustrator or Photoshop or Premiere,

that's where the magic comes to life for a customer. So of course it raises the question, Adam, heavy hitters there, big names, big names layering AI into their business models in a meaningful way right now. But given the crazy moves we've seen in some of these stocks this week, do you buy in at these levels or do you wait for some sort of pullback or some sort of dip? I mean, how to think about how frothy this market overall is. I think it's very frothy. Like I said, I also think there's kind of a misinterpretation sometimes. Again, NVIDIA, Jensen was absolutely right as this being an iPhone moment. He talked

about a trillion dollars worth of data centers that are all based on CPUs. They have to be all reconfigured to be based on GPUs. That's a real theme that's going to happen and that will benefit NVIDIA. I think for a lot of these other companies, though, I think the effect will be a lot more muted and will not be nearly as instantaneous or dramatic as it was with NVIDIA. So I just think investors need to kind of keep things in perspective before they, you know, they kind of embrace a lot of the enthusiasm. So it's not nearly as broad. At the same time, at the same time, though, it's interesting. Supermicro, who I happened to be talking to before NVIDIA's numbers came out, they make high-performance computing systems, many of them based on NVIDIA's technology.

You know, we got Computex coming next week, where we expect to have more announcements from the likes of NVIDIA and Supermicro. It's not necessarily as expensive as NVIDIA. And so there are perhaps certain read-throughs within industries for investors who do their homework now? Yeah, no, definitely. I think there are certainly going to be individual names. I think from just a broader perspective, like the whole SOX today, the Semiconductor Index. Again, going back to just analog devices, a lot of the analog devices peers, they all rallied today. There seems to be just an assumption that a lot of the tech industry-advanced semiconductor companies are going to see this wave of business.

And I think that's incorrect right now. So yes, NVIDIA, Supermicro is another one that's levered. There are a handful of them. But I think as a general broad theme, it won't create a wave of demand for tech overall. All right. Well, we're going to watch it get through this holiday weekend and then we'll pick up the thread again on Tuesday. Adam Crisafulli, thank you. We did get a batch of economic data this morning. So let's break it down in a little more detail. The PCE price index coming in at 0.4 percent in April. That was higher and hotter than what was expected. Consumer spending jumping 0.8 in the month, and personal income also saw an increase up 0.4 percent. CNBC senior markets commentator Michael Santoli, who's here, he's here with us on set, joins us for a look at Fed expectations. On the back of all those reports and all the Fed speak.

And then, of course, the debt ceiling right here. Close enough for you to throw something at me after I finish this up, Morgan. Yeah, we actually got this batch of warmer than anticipated data, and it has made its way into expectations for what the Fed is going to do. Now, the Fed has been talking, most officials, about being open to a hike. This is the implied Fed funds rate for January of 2024. So this obviously goes out, let's say, eight months. And you see how it's gyrated all over the place over the course of this year, right? So it shot up here when basically we got very, very good January numbers, seemed like the economy was accelerating. People thought 6% might be where the Fed would have to end up. And then immediately with the SVB stress, we priced in cuts pretty radically. Now we're up in the zone of exactly 5%, which implies where we are, give or take a little bit, is kind of the way to interpret that.

Now, there probably are a little bit of distortion in here from the debt ceiling talk. Some of the short-term Treasury bills have very elevated yields because of an uncertainty about maybe a missed payment if they don't get a deal in time. And here you can see the one year T-bill. It kind of tells a similar story. Presumably in one year's time, any distortions from the debt ceiling flap is going to be passed. So we're sort of rebuilding toward those March highs. So higher for longer is kind of getting in the market. Question is, can the equity market continue to be OK with that? So far, it has because the economy seems like it's holding up reasonably well. And then, of course, we have to keep in mind a lot of the stocks connected more directly

to financial conditions like small caps have been suffering. So maybe that's where it's registering, guys. Yeah, I know. We're literally sitting here. I got to it. It's better than tomatoes. Yes. Yeah, I know. We're literally sitting here. I got to him. It's better than tomatoes. Yes. No tomatoes.

I'll take it. It's too good. The stuff you're bringing us is too good. Yeah, but I do. I mean, just to go back to this, it is pretty incredible. And we were just talking about it, the fact that tech has been fueling the gains for the broader averages the last couple of days. And it's the reason the NASDAQ 100, for example, finished the week up almost 3.6 percent in spite of what we're talking about in the Treasury market. Do we know how much the debt ceiling is distorting the fundamental dynamics in Treasuries right now? And by the way,

including in Fed funds futures? It's difficult to isolate that, Morgan, but I would say probably giving it just a little bit of a boost or maybe making it just a little more staticky. I don't think, though, the January 24 contract is really significantly influenced by it at this point. It really is the one to three month bills that look like they're way out of whack. So, you know, we'll see. It is interesting that tech has been able to rally, even as the Fed seems like it might be less friendly, even as 10-year yields have edged higher. It shows you it hasn't all been a yield story. Sometimes you get excitement about earnings, excitement about disruptive technology. It's going to overtake the yield effect.

Yeah, we're going to get that deposit data, too, that Fed deposit data in just a little while. So we're going to watch that as well in the midst of all of this. All right, Mike Santoli, thank you. We're going to see you in a bit. We're going to talk to the CEO of Invitation Homes next about the outlook for residential real estate and rentals ahead of a big week of housing data. Overtime's back in two. Welcome back to Overtime. We are just a few weeks away from the Fed's June meeting. And this morning, we got another key piece of the data puzzle in the form of PCE inflation.

Cleveland Fed President Loretta Mester spoke on CNBC earlier about that and more. Our Steve Leisman joins us with highlights. Steve. Hey, John. Yeah, the Cleveland Fed President Loretta Mester reacting to that disappointing inflation data, saying inflation remains too high. And she made reasonably clear she doesn't think the Fed has reached a point where it could feel safe to pause.

The way I view it is I would like to get to a point in the funds rate where I feel that whatever the next move is and whenever that is, it's about equally weighted between an up move and a down groove. And given the data that we've had so far, I don't think we're at that level yet. No matter how you slice it, the inflation index for consumers spending, that's the Fed's preferred inflation indicator. It was up for April and remains far above the 2% target. You can take a look here. Headline PCE up 17 basis points.

Core PCE at 4.7, up 17 basis points core pce at four seven up seven basis points all this was supposed to be coming down there's that core pcex housing the one that fed chair jay powell focuses on up nine basis points what's left before the june meeting well a couple things you got the payroll report june 2nd cpi report june 13th that payroll report looks to be you know i'm seeing estimates near 200,000. The unknowns, the debt ceiling outcome and bank lending stresses how they affect the economy, whether banks pull back. Good news is that data this morning showed the consumer refuses to quit. And so far, so has business spending, interestingly. Bad news, Fed clearly wants to see a softer economy and seems

likely to keep hiking, John, until it gets it. Steve, given that the data has remained stubbornly where it has over the past few weeks, why is the betting line toward a pause? You know, it's not, John. And you guys were talking about this. I'm going to take a quick look to make sure I give you a fresh quote here. Things have changed a lot, and we don't know how much of that is the impact of the debt ceiling on the short end of the bill market. But it's a 64 chance probability right now of a June hike. It's been a big change. I think a lot of that could be. I think it may be more like 50-50. But John, here's what happened. You had a neutral Fed chairman.

I thought he could have gone either way. You've had a lot of hawkish Fed speak. People like Logan, people like Bostick, and then now you have Nestor and others. That seemed to me, if you do not have the banking stresses, I think they're probably going to hike in June. Yeah. Interesting. It's going to make it a very key meeting to watch. I feel like we say that about every Fed meeting. But I'm even hearing whispers now about 6% terminal rate again. It's been a

while since we've been hearing that. Steve Leisman. Well, that math is out there, Morgan, and it's not hard to get there, actually. Think about how tight the Fed should be on a real rate. Yeah. Right now, 4.6% underlying inflation, put a 6 percent Fed funds on it. That gives you one and a half real. That's a restrictive rate the Fed may need to get to. All right. Steve Leisman, thank you. Well, speaking of rising interest rates, how does that impact the rental market and the housing market? Joining us now, Dallas Tanner, CEO of Invitation Homes. Dallas, great to have you on Overtime. I do want to start with some of this macro data that we have got, including PCE this morning, where shelter prices are such a big part of services component. And we see them, rent prices staying elevated. A lot of folks on Wall Street

are saying, hey, listen, this data is lagging. Disinflation is here. You can't count on that. It goes back to the conversation we were just having with Steve about the Fed. What are you seeing in the rental market in real time right now? Well, rates certainly isn't as elevated as it was this time last year. I think we are still seeing a consumer that lines up with all the points made previously in the program that is really healthy. Our rent to income ratios and metrics that we look at on incoming customers have been about as strong as they've been the last three years. That being said, I do believe the market's coming down to more normalized levels. It's still elevated, to be clear. There's plenty of demand for product. And I think it speaks more to some of the supply challenges in

housing. There's a lot of different metrics you can look at. But bottom line, we just don't have enough housing units in this country. We need to find ways to build more. Yeah. So how are you managing that from a supply standpoint? Because last quarter, you were actually a net seller. But I know you've also inked some deals with home builders like Pulte Group to bring more inventory onto your own portfolio? Yeah, there's no doubt. I mean, people want choice. And about two-thirds of the country are going to own something.

And about a third of the country want to lease something for a variety of reasons. We are continually finding ways to invest creatively in new communities and build new communities with both national partners like Pulte and other regional builders across our 16 markets. We view that new home product as something that is extremely attractive to our customer. They can be down payment light, and they can get into a brand new community of access to better schools and amenities. And so we do that as a continuing option for people as the market evolves and gets more sophisticated, that people just want choice. And it doesn't always have to be an apartment. It can definitely be a single family home. Okay. Dallas, tell me, is employment the key

to a continued strong rental market in single family for you? I mean, it seems like inventory is so low. You're buying and selling for around $350,000 per, you know, plus minus, which seems to be historically very high. Is it that people are remaining employed and being paid more? Is that what allows you to keep these penciling out? Well, I think we've seen in our wage data, as people have come into the portfolio the last several years, we've seen wage creep for sure in terms of, call it the average invitation homes customer. That customer today is typically two owners,

has a household combined income of probably somewhere around $140,000. And typically that's an opportunity where mom and dad are both working and there's, you know, two children in the home. Dallas, I'm going to break in right here for a moment. We've got some breaking news out of the Treasury Department. We just want to get to Kayla Tausche with those details. Hi, Kayla. Hi, Morgan. Secretary of the Treasury Janet Yellen sending another letter to Congress updating the date after which Treasury would not be able to pay its bills to June 5th

from the prior estimate of June 1st. Secretary Yellen in this letter to leadership says that Treasury will plan to go ahead with about $130 billion in scheduled payments covering Social Security and military benefits and other things the first two days of June. But then starting the week of June 5th, Treasury will face obligations of about $92 billion and would have insufficient resources to cover those bills. Again, she is urging Congress to reach a deal to raise the debt limit and avoid any potentially catastrophic outcomes. But June 5th is the new date as we're getting no signs here at the White House of a deal brewing. Both sides of Pennsylvania Avenue see negotiators huddling, figuring out next steps. Pessimism is abounding that we would see anything by the end of the day today. And as far as what the government's finances look, we should also note that Treasury's borrowing capacity, according to the agency's funding

statement, its most recent statement, is just $67 billion as of today. So we will see what happens over the next week. But Janet Yellen just bought negotiators four extra days to get a deal done. All right, guys. Kayla Tausche, thank you. I wonder how how aggressively folks are going to be working over the weekends now. Dallas, appreciate your patience here. To circle back on the conversation we were just having, though, we have mortgage rates hitting 7 percent again today. I got to think that's a tailwind for your business.

Yeah, the differential between what it costs to own versus what it costs to lease in our market's kind of similar footprints, about $900 cheaper on a monthly basis for our customers to lease than to own in today's market. And I think you're right. I think it's a tailwind for anyone that's sitting in a position of being a real estate operator just because of those natural headwinds that are impeding new supply coming into the market. And mortgage rates are certainly not helping anything. All right. Dallas Tanner, thanks for joining us. Thanks for having me. CEO of Invitation Homes. Now we've got breaking news on the banks. Leslie Picker has details. Leslie.

Hey, John. Yeah, we're seeing a turnaround in deposit levels in the week through May 17th. That data just released from the Fed, H8 data, which comes out every Friday for the loyal viewers of this show, for commercial banks in the U.S. Those deposits were actually up $30 billion week over week, gains of 0.17% over that time frame. That kind of changes the pattern that we saw over the last three weeks in a row where deposit levels across commercial banks were actually declining week over week. So we saw a nice reversal there. All across various sizes of banks, we saw gains. Large banks saw deposits increase about $10.6 billion in that week. Small banks saw gains as well, saw increases of about $6 billion in their deposits, which was about 0.1%

on a week-over-week basis. So kind of an interesting reversal as we've seen kind of the market dynamic improve as well across regional banks in particular ever since May 10th, which was the prior date by which we got this data last week. So potentially we are seeing some positive developments across even the small banking world as we kind of muddle our way through the banking turmoil we saw largely in March, but has kind of had ripple effects afterward, guys. Wow. Okay. Money flowing back in, Leslie. Thanks. Remember when we were talking about regional banks going down before we were talking about

NVIDIA going up? It hasn't been that long. Well, ever wish you could invest in private market companies like SpaceX and Masterclass? Our next guest runs a fund that allows access to those companies and more. We'll discuss the top startup opportunities when Overtime comes right back. Welcome back. If you're just joining us, breaking news this hour from the Treasury Department. Treasury Secretary Janet Yellen now says the U.S. could default as early as June 5th.

That's different than the June 1st date before. It's actually kind of a big difference. June 1st was two days after Memorial Day. June 5th, you got a whole other weekend, and then it's the next Monday. The Treasury has $67 billion of borrowing capacity left using so-called extraordinary measures. Morgan. All right. We continue to monitor these developments. Atmosfiltration technologies, ticker ATMU, going public today. The spinoff of Cummins closing the day up by more than 11 percent, joining the trend of IPO spinoffs like GE Healthcare and Kenview from Johnson & Johnson. But overall, it's been a slow go for IPOs over the past year. So how can investors get

exposure to companies that haven't gone public yet? Well, joining us now is Liberty Street Advisors CIO and the Private Shares Fund Portfolio Manager, Christian Manafo. Christian, great to have you on the show. And let's start right there. How can investors get exposure? Talk to me a little bit about your fund, which is different than a more traditional closed-end fund. That's great to be with you as well. Yes, it is. Yeah, so unlike traditional private equity venture capital style funds, which have a 10-year fund life, which ends up being much longer than that in most situations, large minimum investments, extensive subscription documents, tax burdens, etc., We have a fund that's utilizing something called the 1940 Act Interval Structure, which in a sense provides for democratization

of access to what we focus on, which is late stage venture and growth strategies. And it does so with a variety of operational efficiencies. It can be purchased with a ticker. It's designed primarily for retail and for registered investment advisors. There's more friendly tax treatment. There's lower minimum investment sizes. For instance, an investor can access our portfolio of nearly 100 late-stage innovation companies for as little as $2,500 investment. So there's a lot of operational efficiencies that come with it.

Yeah. So J.P. Morgan saying, quote, we remain cautious overall on alternatives versus publicly traded traditional asset classes, given a still significant gap between private asset versus public market valuations. If an investor was going to put money to work in the private shares fund, how can you ensure that the shares of the stocks underlying the fund are not overvalued here? Yeah, it's a fantastic question. So historically, the way that most private equity and venture firms are required to value their portfolios is on a quarterly basis. And they often have time after the end of that quarter to adjust those, to publish those capital account statements.

But they almost always use the last round valuation. When you're managing a fund like ours, which allows for daily buys, meaning investors can purchase it daily, you have to incorporate more dynamic pricing mechanisms. So we not only look at last round, we also factor in things such as public comps, so training comparables for our companies. If there happens to be exit activity, as you mentioned, Morgan, there hasn't been a lot of that lately, but we'll look at exit activity. As you mentioned, Morgan, there hasn't been a lot of that lately, but we'll look at exit activity. In the private market, some of these securities will trade privately.

That's sometimes how we access them. It's called the secondary market. So we'll look at how trading activity is behaving for secondary trading prices of companies. So we essentially look to integrate a variety of more dynamic valuation inputs to provide what we think is a generally more direct indication of current fair market value. There's no exact science to perfect this, but we think that provides a better indication than just looking at last round, which could have happened two years ago, as you know. Christian, maybe better, but it still seems

awfully dangerous. I'm taking a look at your fund. It looks like the price peaked, as one would expect, in late 2021. You're only off maybe a little bit more than 10% from there. Meanwhile, a lot of these newer, earlier stage public companies have come way down, way, way down from there. So it seems like there might still be a lot of revaluing to come. So should investors be aware of that, that this is not as liquid as the public markets if they're thinking about putting in money at a time like this? Well, investors absolutely need to be aware when they're going into any private market strategy of the liquidity profile that you mentioned, John, so a thousand percent. However, you have to understand there's a bifurcation in the market, kind of like the public market. So in the private market, for

instance, in our portfolio, we've had many up rounds over the past couple of years, even in face of a more challenging environment, because high-performing businesses are still raising capital. Now, it may take longer. They may not get the same multiples they had 20 months ago, 24 months ago, but the high-performing businesses are still not having too much trouble raising capital at flat or up around valuations. Companies that are not as differentiated, that are experiencing more challenges to their operating metrics, and that are more capital constrained, those are absolutely more prone to down rounds, perhaps being sold off on the cheap or perhaps going away.

So your analysis is not wrong, but there is a bifurcation in the market. You have to be careful about that. But there is absolutely risk to liquidity in any type of strategy like this. So investors need a long-term perspective and multiple years to eventually see the capital appreciation payoff. All right. And I'm noticing here we got a number of cnbc disruptor 50 companies that are in this fund like relativity space and databricks and flexport and a former disruptor named spacex christian we appreciate the time today thanks for joining us christian

monafo thank you the national reconnaissance office is the secretive agency overseeing america's extensive network of spy satellites. Director Chris Galise plans to quadruple the number of satellites the NRO has on orbit over the next decade. It's an ambitious plan that's possible in large part because of commercial space companies that have lowered the cost of launch and the cost to make satellites and other hardware. It's really been a combination of our partnerships with industry, the advancement of technology, and the the coincident reduction in cost of all of those systems. And at the same time it's helped to improve our reliability so that we can achieve more with more capability at

a lower cost. So we don't know how much the ambitious plan will cost over these coming years because the NRO's budget is classified, but the agency has already been getting creative in its partnerships with space startups, its awarded contracts to the likes of Planet and Black Sky and Spire Global and Maxar, among others. Under a new framework it established several years ago,

next week, the NRO will host a tech forum and Dr. Scalise telling me a goal is to advance technologies like AI, which the NRO is already using in certain capacities, and help propel new ones like quantum communications and sensing, which collects data at an atomic level. For more on my rare one-on-one interview with the Intelligence Agency's director, check out Manifest Space. It's the latest episode and you can get it wherever you get your podcasts. All right. A lot of technology at play there for sure.

Thought you'd like that. Yeah. Time now for a news update with Contessa Brewer. Contessa. John, thanks. The State Department says Russia denied a third consular request today for access to detained journalist Evan Gershkovich. An ambassador visited the Wall Street Journal reporter in prison in April, but Moscow has refused access ever since, according to an embassy spokesman. Russian authorities arrested Gershkovich on espionage charges in March. The Wall Street Journal says his lawyers are appealing a Russian court decision from earlier this week to extend his pretrial detention by three months. Former special counsel John Durham is scheduled to testify next month before a House committee. He's going to answer questions about his recently completed report on the FBI's investigation into potential ties between Russia and Donald Trump's 2016 campaign.

Durham's report concluded the FBI acted too hastily and without sufficient justification to launch a full investigation. And the winner of last year's record-breaking $2 billion Powerball ticket has been accused of stealing the ticket in a new lawsuit. California man made those claims in court this week, but he didn't detail how the alleged theft happened. NBC News has reached out to the winner for comment. He has not yet responded,

but this just adds more drama to an already very expensive, dramatic story. Morgan. Oh my goodness. All right, well, Contessa Brewer, thank you. Sure. Up next, the CEO of a $40 billion software startup, Autodesk, joins us to break down last night's earnings report and the company's plans around, you guessed it, AI. Stay with us.

Welcome back. Design software company Autodesk reporting solid earnings this week. Revenue grew 12% in constant currency. The stock finishing the day fractionally higher. Joining us now, CEO Andrew Anagnost. Andrew, welcome. So I'm seeing from you guys and from some others in enterprise software the shift toward customers wanting to take smaller bites financially versus make larger financial commitments. And you shifted to annual billing in part reflecting that, something Snowflake's been dealing with too. But customers are still making technology commitments, right? And I think that's

a difference investors need to understand. Unpack that for us. Yeah, big technology commitments. And you know, John, one of the big things in our sector is just the fundamental capacity problem that people have. There's not enough people. There's not enough money. There's not enough material to actually build everything that needs to be built. And I think a lot of our customers are starting to realize that their challenges with staffing, with team sizes, with people on the field, these things aren't going to go away. They're persistent challenges. And productivity, especially with tools that connect processes more efficiently, is just something they need to invest in. And they're investing in it actively. Productivity is really important right now. So one of the metrics that I'm looking out for is remaining performance obligations, basically money that customers have committed to spend that they haven't spent yet. But as you change your billing cycles, and you warned about this on the call, some customers might not make multi-year commitments.

They might go year to year, even if they're going to stick with you. So does that make RPO a less valuable metric for investors to judge customer loyalty and your ability to retain customers? Really only during our transition, John, because, you know, during the transition, you get this mix of some people opting for long term contracts, others not. But remember, long term contracts still have a price locket associated with them. So as we go into the transition, you will see some, you know, maybe off kind of trend type behavior in our RPO trends. But as we head out of the transition and go to a world where, you know, multi-year contracts

build annually as the norm, customers are still going to be locking in price through multi-year contracts. And the metric will revert to being something that really shows you a lot about the stickiness of the customer base. Just going through your results, it looks like maybe decelerating subgrowth in North America. I guess when we see macro data that's showing industrial and manufacturing data here in the U.S. is slowing down, it's showing signs of contraction on the one hand, and on the other, you've got stimulus and all that government funding flowing into infrastructure projects and major, major construction projects over the coming years. How are you thinking about this market? Yeah, so Morgan, one of the things we really watch, because you're right, there are kind of contradictory signals here, is we watch the monthly active usage of our products really closely. Because the monthly active usage not only

captures, you know, early design activity, it also captures in-process activities. And we kind of see exactly what you would have expected. There's a slight deceleration in monthly active use growth year over year in the U.S., but there's an acceleration of monthly active use growth in Europe. And the construction pipeline we're seeing with bid activity on our building-connected bid board product, it's up. It's continuing to be up. It continues to hit records high. So there's this contradiction between some of the indicators and actually some of the activity that's going on. And you're absolutely right, Morgan. Part of that activity

is people are getting ready to spend money on demand that they haven't yet fulfilled. So we're seeing increases in monthly active usage. Finally, artificial intelligence, last time we talked about it, you talked about it as a way to increase the data flow between customers and make sure that they understand their own supply chain better. How should we expect to see that play out? Yeah, so there's two ways we talk about artificial intelligence. One is this notion of being that co-creator that sits next to you and helps you to explore lots of different ideas. And the other one's kind of this master builder that

you talked about, this thing that can translate between various disciplines. So the way you're going to see that play out over time, and probably more so in the near term, is we're going to make sure that the right information gets to the right people at various stages in the project based on the changes people are making. So there's always going to be kind of AI watching the project, watching what people are doing, watching when somebody is making a change that impacts somebody else, and giving them automatically a heads up about the potential impact of that change instead of having people push those impacts or actually have to explain those impacts with notes and other things.

AI is going to be that master builder interpreting the things for everyone. All right. We'll be on the lookout for that. Andrew Anagnost, CEO of Autodesk. Thank you. Pleasure. From picks and shovels to master builder. After the break, what we've learned from earnings, the reporting season is nearly over and corporate profits have proven to be resilient. Mike Santoli has a scorecard when we come back. Welcome back to Overtime. Mike Santoli is back with a look at corporate profits. Mike. Yeah, the earnings downturn that most people anticipated really hasn't materialized. There

definitely was a dip. This is the reported S&P 500 earnings. And then, of course, this piece of it is projected. And you see, we've kind of had this little bit of a lull and now they're picking up again. Now, just like the S&P 500 performance has been driven by very, very large stocks piling on market cap. This is also a top heavy indicator because it is the very largest companies that have had revised earnings higher. And also, first quarter was better than expected across the board. So that's working its way through the numbers. So if nothing else, it makes the idea that the market is kind of overvalued and extremely vulnerable to things like Fed rate hikes just a little bit less critical,

at least at this moment, if assuming these numbers roughly come through, guys. Should we assume the numbers roughly come through, Mike? Are people expecting the impact of a recession in the second half? Or are people still thinking, yeah, maybe soft landing, but somehow at the same time, the Fed is cutting by the end of Q4? I think people are alternately on any given day thinking all those things at once. There's no way that these earnings on paper really build in anything like a traditional recession. Anything that's broad, that has unemployment going up a lot from here, is going to definitely hit those earnings estimates. But for now, I think people company by company, they're

working their way through. And again, a lot of it is just that the first quarter came in a lot better than feared, and that's bolstering the longer-term numbers. So historically, when recessions hit, you get at least a double-digit drop in S&P earnings, and we haven't approached anything like that. I don't want to say it's different this time, but the companies that dominate the index are a little bit less cyclical than they used to be in past cycles, and they seem to have more durable profit margins, at least for now. Yeah, and of course we've seen cost-cutting, and that continues. And we've seen the costs of certain types of commodities come down. We've seen some of the labor costs in certain sectors at least plateau. So you've got to think that

that's also helping to realize a boost in earnings or better than expected. Yeah. I mean, the huge kind of margin, you know, reality check that a lot of people thought would hit, going back to historical averages and profit margins, or even below that, which just happens during recessions, it doesn't really seem like it's close, if it's going to happen at all. Profit margins have been interesting, because I remember a decade ago, people saying, this is the most kind of mean reverting thing in the world. It always just goes up to this level of expansion and down. And then we broke that. There's been a longer term uptrend in profit margins. It could be taxes are lower, could be companies are more global and better run. It could be the mix of

sectors that we have in the S&P. But so far, the profit story is not really a friend to the bears at the moment. Yeah. And you've seen some economists start to increasingly float the theory that maybe it's contributing to inflation, too. Absolutely. It's a big piece of the inflation story. Yeah. Well, tonight, 6 p.m., Mike Santoli will be hosting a CNBC special, taking stock right here on CNBC. We're looking forward to that. Always go for some more Santoli. After the break, the surprising part of the world that's seen a recent boom in offshore jobs. Not Asia.

We'll explain next. Inflation is still a problem for consumers, as we saw in today's personal consumption gauge, PCE. It's a problem for companies, too, and labor is a big part of it. Offshoring is on the rise again as a solution, I spoke with velocity global CEO Frank Calderoni about it I think from the perspective of getting that talent at a good cost with the right type of structure in place that's where there's there's a need as far as markets right now that I think I've seen even in the last more recent times is South America. Many companies are now looking at South

America, ourselves included. We just opened a design team in Brazil. Brazil seems to be a hot market. Argentina seems to be a hot market. Again, looking for other talent because it's limited in let's say the United States or in Europe and kind of broadening out from that perspective you can get great talent at a reasonable cost and if you leverage velocity global to provide that infrastructure there you're able to move pretty quickly so say you want to open an office in Brazil paperwork regulations could take 18 months velocities pitch is to cut that down to week. Velocity hires the employees, sets them up working for your business. So, yeah. Near shoring. Another way to think about near shoring.

Well, after the break, how a debt ceiling default would impact funding for the FAA as American airports prepare for millions of travelers this holiday weekend. Welcome back to Overtime. America's airports are bracing for the busiest Memorial Day weekend in years, as questions still remain about funding for the FAA during this debt ceiling standoff. Phil LeBeau joins us now from Chicago O'Hare Airport, which is one of the busiest. Hi, Phil. Hi, Morgan. It is one of the busiest, and today it is relatively

calm. That's the good news. Great weather across the country means we're seeing very few delays or cancellations here in the U.S., and for the airlines, this is a big test of a weekend. Just under three million people will fly today, and this is the busiest Memorial Day weekend since 2019. It comes as there's a debate in Washington about a spending cap. And by the way, that would hit the FAA because we're talking about discretionary non-defense spending. The FAA budget this year, $19 billion, up about 3.5% compared to last year. Facilities and equipment of $3 billion. Why am I putting this in there? Because if they say we're going to have to cut some budget at the FAA, that's where it would happen. You're talking about future technology, not manpower. They are in the process of hiring 1,500 air traffic

controllers. Here's the Secretary of Transportation talking about what he sees right now in terms of the budget for the FAA. I think FAA is a great example of how something doesn't have to be in the Pentagon to be extremely important for our economy and for our country. And it's why we're going to continue working with the funds we have and seeking to get the right kind of funding to hire air traffic controllers, modernize our systems, and do all the other things that the flying public counts on. The next big test for the airlines, that'll come next week, guys. It will be the first time we see more than 3 million passengers in a single day since before the pandemic. Guys, we'll send it back to you.

Wow. Maybe a return to normal. Philip O., thank you. Have a great holiday weekend, a great Memorial Day. That's going to do it for us here at Overtime. Fast Money starts now.