Closing Bell - Closing Bell Overtime: The Big Tech Set-up 10/24/22

Episode Date: October 24, 2022

Mega-cap tech earnings on deck tomorrow … and a lot is at stake for investors. Will the biggest and most important stocks in the market deliver? EMJ’s Eric Jackson gives his forecast. Plus, PIMCO���s Erin Browne sees a big bounce ahead for stocks… but doesn’t think it’s going to last. She makes her case. Plus, Mike Santoli sets us up for the big earnings week ahead.

Welcome everybody to Overtime. I'm Scott Walker. You just heard the bells. We're just getting started from post-9 here at a very loud New York Stock Exchange. New York City Mayor is here and they got a good crowd here to ring in us into Overtime in just a little bit. I'll get the PIMCO playbook from Portfolio Manager Erin Brown, who says to prepare for a big bounce in stocks. She's going to tell us how much they might be ready to run and where to be best positioned for that. On that note, we begin with our talk of the tape. All that lies ahead beginning in just 24 hours with the start of mega cap earnings right here in overtime. It's only your money and this rally hanging in the balance.

That's all. So will the biggest and most important stocks in the market deliver? Let's ask tech investor Eric Jackson of EMJ. He happens to be right here on set with me. You picked a good day to come to the floor of the stock exchange. So people are saying this rally has some legs. How much is really riding on this week with the next three days of big earnings? It's huge. I mean, we saw the shot in the arm that Netflix gave the market a couple of weeks ago, Scott. And so I expect nothing less for this week.

Obviously, the tenor of the market has changed in the last week. And so we've gone from, like, max pessimism to today was just a body blow in the morning, followed by this steady grind higher, despite all the bad news coming out of China and China tech, all the bad news coming out of the U.K. So it seems a much more resilient market going into the second half of this month. Have you turned more optimistic yourself? I think you can't help but be optimistic. I'm optimistic by nature, Scott. But, you know, take a step back. I'll be realistic, too, though. You got to take a step back and you've got to say, where are we with this? You know, obviously,

the June to August rally was a head fake, but we are basically we've held the lows of may and and june for most tech stocks we are we going lower uh on a day like today in the face of the bad news i think there's a lot of resilience there and i think we can press higher from here so people know you um for being an investor in tech that's what we call you tech investor and yet you don't own any of these mega cap tech stocks. Why? For me, I'm more interested after this huge drawdown in tech, especially for the growth tech that's been over a year and a half now of a drawdown in what's been left over, the carcasses that are going to buy the side of the road that many have left for dead, but some of which have life in them and are going to bounce back. But they're not just going to bounce back 10 percent, 15 percent. Some of these names have

the chance to triple, to double over the next six months, especially if there's a sustained market rally. And I want to be exposed to those. As good as the big techs are, they're not doubling or tripling. Let's talk about the big techs, because you can give us a fully unbiased opinion of all of them since you don't own them. Who do you think you should be most confident about coming into the next three days? I think Apple. Apple's the class of tech. Apple and Tesla have done the best into, you know, for most of this year, Tesla's fallen off a cliff in the last week and a half or so since earnings. But Apple has stood strong. You know, obviously, we've got some reports, which we often do. You know, it's almost an annual event. Usually out of Asia,

we get these supply chain reports. Apple's cutting back on the supply chain. I find often that, you know, it's sort of like the blind man feeling parts of the elephant, trying to make a conclusion about how that earnings are going to go. And then Apple ends up surprising. You know, we got reports today that Apple was raising prices for a lot of its services, which could be baked into next about how that earnings are going to go. And then Apple ends up surprising. You know, we got reports today that Apple was raising prices for a lot of its services, which could be baked into next quarter's guidance. So I think they're the strongest. And after that, I'd say Google next.

Google is no Snap. And then as we get into Amazon and definitely Meta. Where's Microsoft? Where's Microsoft in that mix? I'm very surprised that you haven't said that name yet, because when I ask others, such as the entire investment committee that I've seen for the last couple of days

posing the same question to, from our halftime report, it's Microsoft. All across the board, most optimistic about. I'd put Microsoft after Google, after Apple, ahead of Amazon, ahead of a meta. They're the class of enterprise software. But enterprise software has been a bear over these last few weeks and months. A lot of SaaS names have really been trashed just in the last few weeks. And Microsoft's been affected by that.

They're a great company. But when cloud gets tossed aside, Microsoft goes with it. So I think they have a chance to have a good quarter. It's just, you know, I put them in the middle of all the big tests. So you're looking for the singles hitters, right? That's how you would, I guess, characterize these stocks here relative to the arc type names that you were suggesting earlier are the stocks capable of hitting triples and home runs again. The only way that happens if you get up to the plate and interest rates don't throw you a fastball up and in, right? Yeah. But I think part of the reason for the rally and the change in tenor is just that the market is saying, how much have we baked in

already? How much pain have we counted on? Obviously, we saw PMI today, services PMI crash below 50. That's a major indicator that we are going into a recession. And for the growth tech names, that is good because when we see that kind of pain, it says the Fed has to take a pause at some point. I know we've been expecting it. Some of us have been expecting the pause to come sooner than later. I'm with Professor Siegel on this one. I think it's crazy that they haven't, you know, signaled a pause as yet because there is real damage coming. But in a weird way, that is going to be good for these growth tech stocks. All right. Speaking of growth tech stocks,

Meta, for one, in the crosshairs big time today as an influential shareholder takes his gripes directly to Mark Zuckerberg and that company's board. Altimeter's Brad Gerstner writing an open letter asking for significant changes. Eric's still with us. We also have big technologies, Alex Kantrowitz and requisites, Bryn Talkington. Bryn, I'll come to you first. This letter that we got today from Gerstner was pretty explicit in which he suggests that Meta needs to get fit and focused. Those are two words he used. Quote, Meta has drifted into the land of excess. Too many people, too many ideas, too little urgency. This lack of focus and fitness is obscured

when growth is easy, but deadly when growth slows and technology changes. You've seen a turn yourself because you literally just sold this stock today. Tell us why. I've talked about this before, that I've owned it for about six months. I felt like it had made a bottom. It clearly hadn't. And, you know, Brad Gershner is such a thoughtful investor. And if only thoughtful investors that owned Facebook or Meta actually had voting

rights. And so I think this is one of the really big issues is the corporate governance is that between the voting shares that Mark has plus the other constituent of shares he has control over, I believe he has about 90% voting rights. And so when founders are executing, nobody cares. But when they're making mistakes, that is the other side of that. But there was no one there to be able to make change. And so as thoughtful and eloquent as I thought his letter was, my sense is it's going to fall on deaf ears. I thought what was incredible about it, and this is a good example of why one of the reasons I sold it, is that he writes in his note that Meta is investing more in CapEx this year of $30 billion than Apple, Tesla, Twitter, Snap, and Uber combined.

And then what do we have for it? Because I read the book Ready Player One. I think Ernest Cline is amazing. But I don't want to live in that metaverse. And so I don't think Mark has done a good job of balancing future investment with the current strategy. And so I think it's too much long-term strategy. And with so many stocks down 30, 40, 50 percent,

I don't want to be in a stock that I have to go on this five year journey. And so I'd rather put that money to work in another name that I think it can execute and go forward right now. You raise a good point as to whether Zuckerberg and company are going to be amenable to any of the things that Gerstner suggests, which include sort of three bullet points, cut headcount expense by at least 20 percent, reduce annual capex by at least 5 billion, and limit investment in the metaverse and reality labs to no more than 5 billion, to which I asked Mr. Gerstner obviously the same question. To those who suggest that Zuckerberg is an imperial-like CEO with an imperial vision for his own company, his baby, in a sense, what gives you any idea that he would be willing to entertain any of

the things that you suggest? And to Alex, I'll read you what Brad told me just a few moments ago. Quote, he may be king, but the best kings care about the well-being of their subjects. They are curious about ways to improve and talk to their stakeholders about ways to make the kingdom even better. So that's from Gerstner just a few moments ago, literally. How would you address the issue as to whether Zuckerberg's going to be willing to do anything that Brad suggests? And they are just that, suggestions, because as Bryn said, they can't be anything more. The way that the whole thing is structured with the voting power. The way that Brad describes Mark Zuckerberg, I would say, having met the guy, having spoken

with his employees for years, is exactly the type of person that Mark Zuckerberg is. Now, I know it might sound crazy to say that Mark Zuckerberg is amenable to listening to stakeholders, users, and employees, but that's exactly the way that the man has made meta what it is today. And I don't think it would be where it is today if Zuckerberg was not amenable to feedback. It's a value all throughout the company, and I expect that he's going to do the same thing here. Does it turn the story around? Because it is in need of a turnaround, right? They pivoted, in a sense, to a whole new line of business and along the way have tried to convince investors and the public that this is the best way amid the skepticism that exists out there. problem. I personally think there's a performance problem. In 2022, we've seen Meta lose users. We've seen its revenue decline. Of course, you know, that has a chance to bounce back up this

week. But if they want to get these questions off their back, here's my advice. Perform. What gets you interested, Eric, in this story? We talked about the fact that to refresh people's memories that you don't own any of these big cap tech stocks. Well, this is less of a big cap tech stock than it was because of the decline in shares. What gets you interested? Nothing. I mean, I respect Brad. I think of all the big, you know, activists, tech activist funds on the street, like an Elliott or, you know, or if a KOTU or a Tiger Global was to take a position in a company

and send an open letter like this. You know, I respect Brad's views the most. I think he knows the most about tech. I think he's dead on in his suggestions. But I'm not excited because an open letter is typically as effective as a spitting in the wind. Zuckerberg doesn't have to listen to him. And I think there's another thing going on here. The stock barely budged today. It was sort of like up a little with the market. But if it was an activist play, you would expect to see a bigger move in the stock. Of course. Well, because if it was a real activist play, you likely would.

But we've said the great amount of respect you said you have for Brad and others do as well. There's only so much you can do. Yeah, you can't do it. But here's the thing. I think the real reason why investors are selling the stock, it's Brad said, hey, you stop spending $10 billion a year on the metaverse. Get it to five or less, he said, which is still a lot. That's too much in my view. But I think the real reason why investors are worried about meta is that they're not worried about the money wasted on the metaverse. They're

worried about the core business. They're worried about what's going on in the core business that is causing Zuckerberg to spend $10 billion a year on the Metaverse. It must be really bad. And that's the only thing that's delivering free cash flow right now. Bryn, you know, I wonder, as I ask Eric Jackson the question, what gets you interested in the story? And he says, nothing. The fact that there is a buyer's strike, if you will, of shares of Meta and what brings people back. What makes somebody like you get more interested in the story now that you're out? Well, I think going back to the governance, I mean, I broke my rule when I bought it. I think the governance structure is flawed.

And so unless that were to change, which I don't think it's going to, I'm not coming back in the name. But what you're going to have to see, to Eric's point, is results from the core business. And so we'll see on Wednesday when that comes out, if investors come back. But I don't think they will. I think there's too many other names where you have a plan, a vision with execution that you can go into. Why not go into Amazon or Google or Microsoft that are also down, but have the ability to execute

with a vision that investors are aligned with and don't have all one person owning, really controlling 90% of the shares. Alex, best days are behind it. That's essentially what Bryn is saying, and nothing is really going to turn that story in anywhere close to the near term. How do you respond? I disagree with that. And again, I know this is probably an unpopular stance to say Meta has a lot going for it, but that's what Brad mentioned as well. And I think what the company needs to do is reset. Think, why did we need to make these moves to go to the metaverse? Two reasons. One, get away from Apple's operating system. And two,

realize that people are sharing differently than in news feeds. They're engaging in conversations and gaming apps. And maybe virtual reality is part of that. And so I think the company needs to take a step back and say, that's actually the strategic need for us. And maybe it's not in VR. Maybe we find ways to get around Apple's changes in iOS and find ways to create these conversations with people. They're trying to do that a little bit with Reels. And I'm not impressed with Reels. But I still think they have three, almost four billion users on there every day.

You can't count them out yet. What if Zuckerberg, you know, panicked, so to speak, around the perception and the firestorm that was around Facebook at the time. You know, rash, change the name, get everybody focused on something that's not the core, and then try and build a story around it rather than going from the ground up. It was this grand vision from the sky in, so to speak. You know what I mean? Absolutely. Well, look, Meta has gone through,

what used to be Facebook, has gone through so many changes throughout its history. We're talking two decades here, it's not a long time. Starting with the blue app, right, moving to messaging and WhatsApp and Instagram, and pivoting all the way through the entire way. So, I kinda do think that this move to Meta was a bit of a panic.

However, the thing that's helped them transform time and again is making these big pushes, looking at the data, seeing how users are reacting, and then reacting themselves. And we know that users have really not taken on to this metaverse idea, and inside Facebook there's no way where they just put their head down and say it doesn't matter what users did, we're doing what we want to do. They are absolutely looking at that data, and they're going to change and adapt and that is the story of Meta from the beginning until today. Bryn, if we broaden it out though to what's at stake this week, how would you ask the

question or how would you answer the question that I asked Eric Jackson at the top of the program, put into perspective what's really at stake over these next few days with some suggesting that you've got a sizable rally still ahead of us. Well, these five companies that are reporting this week make up 21 percent of the S&P. So I think this is the World Series of earnings right now. And if we get better than expected numbers, I mean, Apple's beat expectations the last two quarters. Microsoft and Amazon have both missed under expectations, as has Google. And so if we can get through this week that the

sentiment of the market, as these companies are OK, I think you could definitely have a technical and a sentiment rally that pushes the stock, pushes stocks higher, especially with our Fed whisper on Friday telling us that the Fed's almost done pulling for you know almost done pulling forward all of these rate rights rate hikes this year who are you most optimistic about a K coming into the next three days anyone that's not ad supported so despite the fact that I've said all these nice things about meta I think it's going to be a really tough run for them and a tough run for alphabet you know we know Apple is making their way and we know Amazon actually has a large exposure to advertising.

From my understanding, digital advertisers are all pulling back. It is not a time to double down on investments, at least as far as they're concerned. And they're just going to spend time turning off the other investments in TV and print because that takes a little longer. So when I think who's not exposed to advertising, Microsoft. I agree with your panel from earlier. It seems like they're the safest name given the areas they play in. Did Snap, Eric, give you pause?

Or is that their own massive issue that they're going to have to deal with? Or did you think, uh-oh, for the metas and the alphabets and anybody who's reliant on advertising? I think they're going to be a special case. I think we're going to find out about Google this week. Google is the class of digital advertising. I think people will be reluctant to toss it aside. But if we get through these next couple of weeks and we find out that really it was Pinterest does okay,

Google did okay, meta was not bad in the core business, and then Snap was the kind of like the long story that has their own issues that the market will just say, you know, let's focus on the big picture. Things are better than we feared. It's time for a rally. You had no interest in Snap? This thing's got to cool off.

Cool off? They've had five bad reviews. It's frozen. What do you mean cool off? I mean, I was interested in it a year ago because of the story. They had great earnings in July 21. They've had five lousy earnings since. I got off the train a while ago, and there hasn't been anything there

in any of these earnings reports to suggest that this thing has bottomed yet. So, you know, it rallied today. We'll see how it does over the next few days. But it was, they've got some wood to chop. Good to see you here on the set of the New York Stock Exchange. That's Eric Jackson. Alex Kantrowicz, our thanks to you as well. Good to see you too in person.

See you. We'll see you again soon. Bryn, see you shortly as well. Let's get to our Twitter question of the day. We want to know which of these mega cap tech stocks are you betting on ahead of earnings? Apple, Amazon, Microsoft, or Alphabet? Head to at CNBC Overtime on Twitter. Cast your vote. We'll share the results later on in the hour in which we are just getting started here in overtime. Up next, a big call for your money from PIMCO's Eric Brown. She sees a big breakout for stocks

coming. She'll tell you exactly how she is positioned to play that bounce and how you should be, too. We're live from the New York Stock Exchange today. Overtime's back after this. All right, welcome back to Overtime. Our next guest is calling for a nice move in stocks, but doesn't expect it to last. Erin Brown is PIMCO portfolio manager. She joins us now with the playbook. It's good to see you again. I mean, anytime you're calling for a 7 to 10 percent move in stocks, it's significant because of how cautious you, generally speaking, have been. Tell me more. Yeah, so firstly, I mean, after the move today, it's a little bit probably less than that. But but still, I do expect a high single digit return over the next couple of weeks.

Look, earnings bar is pretty low going into third quarter earnings season. I don't think that we're going to see the capitulation in earnings this quarter. The data still is decent. The backlog of orders that companies are seeing still is propelling decent earnings growth in the third quarter. And I think you'll probably see that kitchen sinking capitulation event coming out of the fourth quarter earnings season, which we won't get into January. So that in conjunction with the rally that we've seen in rates and in conjunction with the fact that we're going into a very strong seasonal period means I definitely think that there's some scope for further upside from here. I would caution, though, that I would be using this opportunity to leg back into shorts,

to reset your shorts at higher levels and use this as a trading opportunity, not an all clear signal that, you know, the recession risks have ended. So you'd be a seller of the rip. I mean, that's the bottom line. That's absolutely the bottom line. That's absolutely the bottom line. And I think you'll get the opportunity to, you know, take some profits and reset your shorts at higher levels. And that, you know, presents a good opportunity for investors who maybe missed some of the move to the downside to take advantage of this move higher. What happens if the Fed leads us to believe that December might be it? Does that change the calculus for your idea on where we could go?

It certainly would. Right now, that's not our base case, that December's it. Yes, the Fed is trying to front load its interest rate hikes, but I don't think that we'll see an abrupt hike to interest rate hikes just given the trajectory of inflation. You know, we just got a very hot CPI print. We're still at levels that are very uncomfortable with respect to inflation. And I don't think the Fed's work is done. Also, I think keep in mind that the lagged effects that of all the tightening that we've seen are just starting to hit the economic data. So we're still going to have a long tail of these interest rate hikes well after the Fed stops hiking. The biggest sector underweight you have in what is still an obviously bearish view is industrials. Is that because of expectations of

a coming recession? That's absolutely right. What we started to see even as early as the first quarter of this year was some of the consumer sectors starting to indicate that demand was weakening. We're now just starting to see that roll over into the industrials. So I would actually start to market weight some of the earlier to move consumer sectors and really start to place the underweight bets now into the industrial sectors as we start to see this progression unfold. We're starting to see companies start to really mention that they're cutting CapEx, they're curtailing or removing CapEx goals that they had in the past, withdrawing CapEx guidance entirely. That's where I think the real risk is. And for the

first time this earnings quarter, we're starting to see the truckers also highlight that not only is demand weakening, but they're starting to have to cut pricing as well. And I think as you start to see the contracts that come up at the end of the year reset, you'll start to see even lower pricing on the contract pricing. So this is something that's very early days and just starting to unfold right now. Yeah. Where are you on tech? Tech is really challenging right now. I still think that it's going to be difficult just given where we are in the CapEx cycle. I think you're going to continue to see tech investment come under pressure and some of the CapEx spending trends continue to head down, particularly on enterprise technology.

With respect to more of the consumer facing tech, I think just given the absolute destruction that we've seen in share prices year to date, there's some room to get a little bit more optimistic, more of the consumer oriented tech segment. But I really think it's going to be picking your spots and not a broad brushstroke on tech overall. Semis, I'm still quite underweight and quite pessimistic on. But I mean, like when you say consumer facing, are you including an apple in that basket? Yeah, exactly. Yes. Yeah. And then I guess the brightest spot you think still exists is for health care. Is that right? Health care. Absolutely. I think that the sectors come under sort of stress this year. I think as we move through sort of a market clearing event of the legislation that became clear this fall, but I think will also become clearer as we move past the midterm elections. I think that health care is a really sweet spot to continue to invest alongside consumer staples and utilities and some telecom sectors as well. But more of those

defensive areas of the market, I think, can continue to outperform and do well, particularly as the cyclicals become under increasing pressure just due to the recession that I think is still unfolding. All right. We'll leave it there. Aaron, appreciate the time as always. Aaron Brown from PIMCO joining us from the West Coast today. Up next, we're breaking down what's really at stake for your money as we kick off a huge week of earnings. It's going to get real tomorrow in overtime, 24 hours from now. Alphabet and Microsoft, along with some other big names as well.

We're back after this. All right, welcome back. It's time for a CNBC News Update. Let's go to Shepard Smith. Hey, Shep. Hey, Scott. From the news on CNBC, here's what's happening. Three people are dead, including the gunman, after a shooting this morning at a St. Louis Performing Arts high school.

That's according to police who say the shooter died after exchanging gunfire with officers. Police say at least six others are hospitalized with serious injuries ranging from shrapnel to gunshot wounds. Senator Lindsey Graham's testimony to an Atlanta grand jury temporarily blocked today by the Supreme Court Justice Clarence Thomas. The special grand jury investigating possible criminal interference by then President Trump and his allies in the 2020 presidential election there. The Fulton County D.A. hasn't told this Thursday to respond to the court. And Leslie Jordan has died. The Emmy-winning actor appeared in such hits as Will & Grace and American Horror Story. He also found new fame and notoriety more recently as a

sort of comfort and chuckle for millions of us with his bits about love and loneliness on social media during the pandemic lockdowns. According to a spokesman, it's suspected he suffered a medical emergency before crashing his car into a building. Leslie Jordan was 67 years old. Tonight, much more on today's school shooting in St. Louis. Plus, we'll hear from Wilfred Frost across the pond, the UK's newest prime minister, and NASA gets into the hunt for UFOs on the news right after Jim Cramer, 7 Eastern CNBC. Scott, back to you. All right, Shep, I appreciate that. That's Shepard Smith.

We'll see you in just a bit. Stocks rising to kick off a huge week of earnings. There you go. Better than 400 on the Dow. Dan Greenhouse of Solus is with us as we continue to watch big tech. By the way, I should also call your attention to a stock that's moving as we speak. And we're going to get more on it now. Can you throw up shares, guys, of Amazon in overtime? Because there is a report circulating now that that company has frozen hiring in part of its lucrative web services division as part of the overall cost cutting.

And you can see the stock taking a little bit of a turn here, which is why we wanted to bring that news to you in what is a huge week for all of mega cap tech. Amazon reporting later in the week on Thursday. But we're going to have more on that in just a moment. That stock's down, looks by about 1 percent. And remember, you did have that Bezos tweet, even though obviously Jeff Bezos no longer the CEO of Amazon. But he did tweet last week batting down the hatches when thinking about the economy. So we'll get more on that in just a moment. Mr. Greenhouse is here. This just sort of speaks to the uncertain environment that lies ahead for even the

biggest and the best. Yeah, that's right. And listen, Amazon, as everybody knows, isn't the first company, the first technology company to announce a minimum of freeze in hiring, if not outright layoffs. So I think that this is just par for the course, so to speak, on what you've seen in that space. What's interesting, though, is you haven't seen it as of yet broaden out throughout the rest of the economy, which is particularly interesting for a host of reasons. But Amazon and a whole host of those companies, not unimportant in both size and in terms of the market impact. So for these big cap tech stocks and another check here on Amazon, stocks down now one and a quarter percent in overtime on these reports of a hiring freeze.

And what is that lucrative Web services business? How good did these earnings this week really have to be? Not how good will they be? How good do they have to be? I don't think they have to be particularly good. Listen, I there's so much uncertainty. And corporations, while they certainly have better information than we have, are not immune to the level of uncertainty that's out there. And I think when you think about the broader investment landscape, when you think about the economic environment, I would argue, what is Amazon supposed to do? But, hey, we're seeing a slowdown in X, Y, and Z.

Let's just put a pin in things. And obviously, for the last couple of years, we've added an enormous amount of employees, and that's been true across the tech space in general. So I think it's totally understandable to take a pause in hiring. But again, next week, we get a whole host of catalysts over the next couple of weeks. We have, obviously, two strong weeks of earnings. You have the jobs report. You get the Fed meeting.

You have the CPI. That employment report is going to take on increased importance as the CPI starts working in the market's direction that is coming down. What exactly happens to jobs and wages with headlines like this continuously coming out? Are the things that you just mentioned, you know, economic reports, the Fed, too much of a hill to get over for the rally to continue or no? No, I don't think so. Listen, any number of people have come on TV and you've got seasonality, which I agree with and I've mentioned before. Obviously, the force of the decline had gotten the market not to terribly oversold levels, but technically there were reasons to argue for a

bounce. And so when you put that together and then you layer on top of it the Wall Street Journal story and Mary Daly's comments that perhaps the Fed was going to do exactly what the market knew they were going to do and was already priced for, you've laid the groundwork for what might be a more sustained rally on the order. I think Aaron was in the segment before me saying 10 to 15 percent. That would be a perfectly normal in the larger context. But again, when these when these employment headlines start working their way into that monthly employment number, that's where the rubber is going to meet the road. Let's go to Deirdre Bosa now, who has more on Amazon, which, again, is causing, you know, what, a less than two percent or so slide in the stock as we speak. Right, but it's still moving now Now, we have reached out from Amazon. We haven't heard back yet. We'll certainly update you when we do. But remember, let me just put this

in context that Amazon is the number one cloud player, some $62 billion in revenue in 2021. So this would be a fairly big deal when we talk about Amazon and the overhiring, the overbuild out of capacity that relates to its logistics and e-commerce business. There hasn't really been any concerns raised about its cloud business. Yes, it has been decelerating, its growth that is, but it has been pretty resilient and the street has basically acted as if it is recession resilient. Of course, the results coming up this week from it, Microsoft, and Google, those are the three hyperscalers. That's going to tell us more about the state of enterprise IT spending. But Amazon, again, is the biggest player here.

It is thought that maybe it could be potentially more vulnerable compared to Microsoft you know, have ramifications, not just across Amazon, but the state of enterprise spending. As you just said, too, just to put it in perspective, that this is the highest growth part of Amazon's business, correct? It's the highest growth. Actually, you know what? Advertising has taken that title, I believe. It has come up pretty quickly, but it certainly is one of the fastest growing businesses within Amazon. And Scott, it is the profit engine. The e-commerce business does not make much of any money. It all comes from Amazon Web Services. So this is what allows Amazon to experiment in a lot of other businesses, such as streaming, such as advertising, such as logistics. Yeah, one of the reasons, too, that investors are willing to pay such a premium multiple for a stock, in large part it's because of businesses like this rather than the marketplace. Dee, thank you very much.

That's Dee Bosa, who covers this company. If you have anything else, please pop back on, let us know, and we'll continue to follow it. Again, Amazon shares down, looks like one and a third percent on this report. Now, all that said about Amazon and Apple, Dan, and all these other big tech companies reporting no disrespect to the Visas and MasterCars and Exxons and Chevrons, Chipotles and McDonald's, there are some other biggies out there that matter. You watching those? Yeah. First of all, let me just say about Amazon. You know, if our good friend Brian Belsky was here, he might say, well, they're freezing hiring because they've reached the perfect amount of employment. And so productivity is going to be

fine and revenue generation won't be impaired and actually margins are going to expand. So we don't know exactly what this means. We don't know that there's inherently negative connotations. No, but you raised the issue earlier, though, of a lot of technology companies, particularly the biggest ones that did over hiring. Yeah, right. It's the kind of thing that Gerstner is talking about in his letter to Meta. That's right. And listen, we've seen quarter after quarter after quarter, these companies were rewarded for growing. And then obviously that equation changed, for lack of a better word, on a dime late last year and early this year. And so Amazon, in that sense, is right in line with everyone else saying, OK, let's focus on profitability instead of growth at this point, although Amazon has infinitely more growth than

many of those other companies. And I'm sort of half joking about Belsky. I hear you. I know, only half joking, of course. Dee Bosa now, I think, has a statement from Amazon. Dee, what do we have? That's right. Let me read it to you. An Amazon spokesperson, actually from AWS, that is their cloud unit, tells us, across Amazon, many different businesses are at various stages of evolution, and we expect to keep adjusting our hiring strategies in each of these businesses at various junctures. In some areas of AWS, that's cloud, we have met our hiring needs, and in others, we have thousands of job openings.

A little bit cryptic there, Scott. As I told you, a lot of the overhiring came at the warehouses that served e-commerce. It raises questions as to what Google and Microsoft are doing in their cloud businesses, if they have hit capacity in some areas. But like they said, thousands of job openings in some sectors of AWS. Maybe that is services versus infrastructure. Hopefully, we'll get more color this week. Can you add any perspective for us on just this idea that these mega cap tech companies, Dee, do need to get leaner in some respects in some pretty specific

areas? Look, you talked today on Tech Check about the Gershner letter as well, and where he explicitly says 20% of the workforce. I mean, meta is the obvious one. Some even say that more than 20% needs to happen. But you take Sundar Pichai, the CEO of Alphabet, his comments just a few months ago at Code where we were, and he said that as an organization, they have to become 20% more efficient. He didn't say specifically that that was going to lead to layoffs, a slowing down of hiring. But there is

this question as we head into next year, how much is going to slow? And if you start to see the cracks in cloud, then I think that certainly raises questions about hiring. Because even when we talked to CFO Ruth Porat at Alphabet, she says there's going to be no scaling back investment on cloud because it is so important and this is the fastest growing part of their business. Like it's one of the fastest growing parts of Amazon, like it's one of the fastest growing parts of Microsoft. So this does raise some questions if it is slowing in cloud at the number one cloud player which is Amazon, these big tech companies may have more room to cut. Yeah. Dee, great insights. So happy to have you in overtime. That's Joe Drabosa with the latest on what is a developing story around Amazon, a stock slide that we continue to follow

as well. But finish the thought before I let you run. These other big companies, how important are they in the context of everybody's talking only about big tech? I mean, everyone's talking about big tech because cumulatively these companies are a quarter or so of a 20, 25 percent of market profitability, market earnings, market weight and so on. But like Visa, MasterCard, Visa, full disclosure, I own Visa personally. But Visa and MasterCard are as informative for the broader landscape as any two companies you're going to come across. Exxon and Chevron, given what's going on in oil, every bit as important from a production standpoint. McDonald's and Chipotle on the front line of the inflation front. Chipotle is one of the most interesting conference calls you can read each quarter relative to the consumer and inflation.

So obviously these names are going to dominate earnings and rightfully so. But there's infinite number of other companies that are going to tell us something about the landscape that shouldn't be ignored. Well, it'll be interesting tomorrow when these companies start reporting and you do have now this overhang of this report on Amazon and how that gets into the narrative in the context of how we discuss all of this and what lies ahead for some of these businesses. Dan Greenhouse, thank you. Stan Greenhouse of Solus here at Post 9. Coming up, China tech gets wrecked. Should you play that pullback or is it the no-touch trade? We'll debate that in today's Halftime Overtime. In today's Halftime Overtime, soured sentiment.

China stocks selling off hard today with names like Alibaba, JD.com, and Pinduoduo falling more than 10% each. But Kevin O'Leary, though, looking through the declines and is planning to stick with his China exposure. Listen. There's a lot of reasons to hate these stocks. Growth rate's not one of them. Now, it's sitting in a portfolio. I'm not happy. But on the other hand, if I want to buy growth and I want to get exposure to one of the world's largest economies, choice do i have so i'm going to stick with these things all right mr wonderful sticking with it requisites bryn talkington is back with us what do you think about what he says about these names are they investable or not not investable i would say you don't have to make it back the same way you lost it

you know i remember and we were talking about this two years ago, you know, I owned Alibaba. I bought it, owned it in November of 2020. I sold it in February of 2021 at a loss. I think I bought it around 300. I sold it at 250, somewhere around there. They kidnapped Jack Ma. Like that was the end for me. I can't, I can't invest in a country where they kidnap the most innovative person in the whole country that's created so much wealth for so many people. And I don't think we in America, in a capitalistic democracy, can really understand what's happening over there from, you know, Xi Jinping's election that he's taken over with all of his people

in line with him. So I think it's incredibly, I think it's not a good use of anyone's capital to be playing in these names when there's so many great transparent companies in the U.S. that are down 30, 40, 50, 60 percent. So I don't know why you need to be there. But you are, you know, you're somewhat leveraged to the China story through other investments, though, aren't you? Wynn Resorts, for example, right? You have to be if you're betting on something that has a presence in Macau. Yeah, so as a trade, I bought Wynn as my expectation, which could be totally wrong, by the way.

My expectation was after this National Party Congress, they were going to relax over the next month or so some of these COVID restrictions because the Macau government came out and said, we're going to open, you know, trust us, we're going to reopen Macau. So it's a trade. So over the next month, if that doesn't happen, I'll close the trade out. And so, but Wynn obviously is a U.S. company operating over there. And so Wynn is not a Chinese company. And so you also have to understand, Scott, these companies, that Alibaba, all of those companies, the Chinese people on the mainland aren't even able to buy those companies. So really, they're just securities for foreigners to buy and lose money on. So I would look at Tesla, Starbucks, Wynn.

There's other ways to play China with U.S. companies that follow the rule of the SEC than actually buying those companies, which actually the local citizens aren't even allowed to purchase themselves. I think Starbucks was down today, too, as President Xi tightens his grip on power. You saw it show up there. Bryn, thank you. That's Bryn Talkington joining us here. Coming up, we're tracking some big stock moves in overtime beyond Amazon, of course. Christina Partsenevalos is standing by with that. Christina.

We're actually going to talk about shares of Discover Financial dropping right now and weaker than expected earnings. What that company predicts for loan growth this year. All that and obviously much, much more when Overtime returns. All right, we're back in Overtime. Another check on shares of Amazon moving lower in Overtime. The company freezing hiring in its Amazon Web Services division. That according to a report, Amazon not the only big mover, though, in Overtime. Christina Partsenevelos is here with that.

Christina. Well, we've got Discover Financial, one of those movers in the OT right now, and that's on weaker than expected earnings. Shares are down 3.6 percent. The company also warning full year operating expenses will fall in the high single digits range. So that was worse than previously expected. But the total loans, which are up 17 percent year over year, will continue to climb this year. Shares of software firm Cadence Design Systems moving higher.

The company posted a revenue and earnings beat for the third quarter. Q4 guidance also falling in range. The company says the strong results helped it increase its full year earnings per share guidance to a range of $4.20 to $4.24. You can see shares are up just over 1%. And much like Cadence, Qualtrics also posting a top bottom line beat and an increase

to its full year forecast. The firm makes web-based software that allows users to create surveys and generate reports. The 39% year-over-year revenue bump, possibly a positive sign that companies are still spending on IT and research. Scott. All right. Christina, thank you. That's Christina Partsinella. Still ahead, Santoli's last word when we come back. Let's get the results now of our Twitter question. We asked asked which mega cap tech stock are you betting on ahead of earnings?

Alphabet was the winner. Check that out. Ahead of Microsoft and Apple and Amazon on that news tonight. 18 percent of you. All right. Santoli's last words next. Let's get to Mike Santoli for his last word what do you know what do you want to talk i think the big tech stuff is uh is actually interesting in the sense of there's been this unease among the management teams among shareholders for a while about the productivity levels there and the market has decided and told you that these companies are less special than we thought they were a year and two years ago because back then they were the only companies with reliable, fast growth. Right now, the S&P 500 is growing top line at better than

10 percent rates. That's basically faster than Microsoft is expected to grow. Apple is expected to grow. Alphabet is roughly in that category. So they have to look at this situation where they have all this deferred maintenance in their cost structure that said, look, we were operating in a world of labor scarcity. We felt like we had to hire as many people as possible, keep them around, and it was automatically we were going to grow. And now it's on the other end of that. And the valuations are much more reasonable. And now that if management's focused on costs and on what actually makes sense to invest in, it makes for a new equation to a degree. Are the days of these being viewed as defensive stocks over? I don't know if it's over.

I definitely think it's dormant right now. Just because, again, maybe meta is the one that's cheap, cheap, cheap. Alphabet is the one that seems like it's got some defensive properties. But I think there's still unsettled feelings about the ad market and whether, in fact, their advantages are going to be durable. So I don't think it's over. I think they can reassert themselves in that direction. Microsoft is certainly defensive, but do you want to pay 24 times for it? That's always the thing.

Is one more important than the other this week? I don't know if one's more important for the indexes. I do think that the stakes are highest for Meta. Oh, really? I thought you were going to say Apple. I think the stakes are highest strategically for Meta. For the overall market, it might be Apple might be Apple, though. I always say Apple's not really a bellwether. Yeah, it does its own thing. We'll see you tomorrow when we get all this started. That's Mike Santoli with his last word that does it for.