Closing Bell - Closing Bell Overtime: The Real Story Behind Disney’s Succession Mess With Alex Sherman; C3.AI CEO On Earnings And New Tools 9/6/23

Episode Date: September 6, 2023

Stocks closed lower again today. Jefferies’ David Zervos and Richard Bernstein Advisors’ Michael Contopoulos break down the market action, including earnings from C3.AI, GameStop, Chargepoint and American Eagle. C3.AI CEO Tom Siebel talks the latest quarter, its new AI suite of tools and remaining performance obligation. Our Alex Sherman talks what really went down behind the scenes at Disney as Bob Iger chose, then unchose, Bob Chapek as his successor. AeroVironment CEO Wahid Nawabi on AVAV’s quarter and assisting the war in Ukraine. Zscaler CEO Jay Chaudhry on earnings. 

Stocks lower with back-to-back losses for the Dow and the S&P. That is the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Fort. It is another jam-packed afternoon of earnings. We're just moments away from results from C3.ai, GameStop, ChargePoint, and American Eagle. We're going to bring you all the numbers. And an exclusive interview with C3.ai CEO Tom Siebel before he talks to Wall Street analysts. Plus, we'll also speak with the heads of two other companies making big moves on earnings.

CEO of AeroVironment, which is up more than 20% on a blowout quarter. And the chief of cloud security company Zscaler, whose stock slipped today. But first, let's kick it off with our market panel. Joining us now is Jeffries' chief market strategist, David Zervos, and Richard Bernstein Advisors director of fixed income, Michael Kontopoulos. Good to have you both here. David, I'll start with you because we have been getting a flurry of Fed speak. We also got the Beige Book this afternoon.

But perhaps what's getting the most attention has been the hotter than expected ISM services number. What does it say about inflation? What does it say about the Fed? What does it say about stocks? You know, Morgan, in the big picture, it says the same thing that we've kind of been learning all year, which is that forecasts of a recession, which the beginning of this year were supposed to be now, are just way off mark. And people have had to be on their back foot kind of readjusting portfolios and readjusting forecasts all year. I think that's why we're up. That's why everybody's chasing the market. The recession has been priced out. And I think what the markets may be forgotten is that

as you price that out, you've got a Fed that's just going to be higher for longer and keeping real rates more restricted for longer. And I'm not sure that the markets price that in as much as the reduced risk of the recession. And that's why you've got some weakness coming back into the stock market and maybe have a little bit more to go. Yeah. Michael, your thoughts on this and how it's playing out in fixed income, whether it's the bond market or even the fact that we do have this surge of corporate issuance upon us right now? Yeah, we certainly have. I mean, I think much of yesterday's move in yields can be attributed to that surge in corporate issuance. Yeah, I think David's absolutely right. The market's probably underappreciated the economic strength

that we've seen, the pricing out of a recession. Who knows when that will be and if it will ultimately come. You know, the data has certainly been stronger, but I also wouldn't say it's been unequivocally strong. I mean, it's been more mixed is the way I would say it. And as a consequence of more mixed data, you know, I think what investors need to be thinking about is having a more balanced fixed income portfolio. You know, you hear a lot about, you know, cash rates being so high,

being able to earn 5% in T-bills or CDs. But there's a lot of opportunity in fixed income that's getting overlooked at the moment. And so I think as the Fed remains tight, real yields remain high, and opportunities start to present themselves in various pockets of the fixed income market, there's a lot to be done here to deliver real return to clients. So Michael, let's talk about specifically what that is, because too often we talk about yields just in terms of what they do to stocks. But it also often means that some interesting bond funds, bonds are trading at some really interesting entry points and not just CDs and T-bills. So what should investors do, especially if they're out of balance in their

portfolios, as so many are, and have been leaning too hard into equities? Yeah, absolutely. I'd say equities and cash, right? I mean, that's where you've seen the big lean. And cash in particular is meant to be dated, not married. Let's be frank. You know, when you came into the year, the options available to investors were pretty minimal from a fixed income point of view. You know, you could buy duration and hope that yields fell or buy floating rate paper and hope that the Fed hiked rates aggressively. But credit was tight, both high yield and IG. Bank loans had their issues. Mortgages didn't look particularly attractive. Really, since SBB, things have changed pretty dramatically. Now you have opportunities in things like preferreds and

high quality structured products like CLOs yielding six, six and a half percent. Mortgage backed securities have now become attractive as you've lost some of the key buyers in banks and the Fed and spreads have widened pretty substantially and certainly look attractive from a vol adjusted basis. And so there is a big opportunity here in a lot of different areas of fixed income, not just cash. And that's what I was saying earlier, that you need to have balance, right? I mean, you need to not just own one area of the market, but spread the net a little bit wider, cast the net a little bit wider and take advantage of both yields, which are attractive, as well as total return opportunities, i.e. price appreciation.

Okay. And David, what's left to buy now? I mean, energies, a lot of stuff is getting expensive. You know, we had a guest on yesterday saying buy gold, but I don't know. In this environment, what's underappreciated? Well, you know, I sort of agree with what was just being discussed. That's kind of what we've been pushing since the beginning of the year. I think the opportunities at the beginning of the year were actually pretty good as well. So they've been good all year. The total returns have been good. Some of these loan funds are running at near 10 percent yields when you look at the ones that Invesco and BlackRock do on the ETF side.

So I think individual investors can go into those ETFs and they're up. I think the appreciation has been 2 or 3s and they're up. I think the appreciation has been two or three percent on the year with a running yield at nine or 10. That's about as good as you can hope for. That's almost equity like returns. So I think there's a lot of opportunity to be in senior secured credit. That's been our story all year. So I sort of agree with the general theme of this. I'm not chasing this equity market. I think we're going to have a little bit of move back into the range that I thought we would stay in, which was toward the 4,000 to 4,200 level. I just think these real rates are too high. And the Fed has a lot more work to do,

as we can see with this data and the strength that it brings, to make it that easy to chase the equity market. It's just a really tough thing to do with with real yields this high. And a Fed that's going into an election year. Don't forget, that doesn't like to move so much in election years. And we're pricing in one hundred and twenty five base points of rate cuts next year. Do you really think that Jay Powell is going to be delivering one hundred and twenty five basis points starting in the summer going into a November election. And that's priced into the market. I think that's a little bit frothy and needs to come out a bit, at least maybe more. OK, well, I just want to note that GameStop earnings are out. We're going through the numbers. We're going to bring those to you here in just a moment. David, sticking with this theme,

perhaps the dollar, where does the dollar go from here, especially when you see? Actually, I'm going to put a pin in that GameStopop's results as i just mentioned steve kovac has those numbers steve hey morgan yeah so we got a eps or actually a loss per share of three cents adjusted basis and revenue coming in at 1.16 billion dollars now morgan we're not comparing any of those results there's very thin coverage on gamestop And I'd also note, no earnings call. This has been the routine for GameStop for a while. Keep in mind, they fired their CEO and they know their CFO stepped down, not replaced either of those executives.

Executive Chairman Ryan Cohen just runs this company himself, Morgan. All right. Thank you. We'll see you, I think, a little bit later as well. Those shares are popping after hours. David, I want to go back to what I was just asking you, which is where does the dollar go from here, especially when we've seen the yen and other key Asian currencies weakening so much against it? Yeah, this has been a real win for places like Japan. Obviously, Japan's up almost 30 percent this year on a lot of yen weakness. And I think it's very helpful to, generally speaking, the U.S., because we've been

able to use the dollar to help fight back this inflation a little bit. It's probably hurt Europe, because Europe's going to have a little bit more of an inflation problem. We're seeing that in their expectations. They've been rising up, and I think they have a little bit more of an issue with stagflation than we do. But I think the dollar is less of our problem and more of other people's problem outside of Japan, particularly EM and Europe. So we watch it, we see. I don't think it's a huge deal more than we've been much stronger in the dollar. The euro was below parity and some of these EMs have done well this year. So I'm not so worried about it, but I keep an eye on China and I keep an eye on Japan. Those are the two exchange rates that are probably the most interesting at this stage. If

China wanted to get a little bit more aggressive with its deval, that could get things destabilizing. But it's been pretty, pretty steady, as has Japan. And I think both of them have worked out and are working out well. David, Michael, thank you. And now let's bring in senior markets commentator Michael Santoli from the New York Stock Exchange. Mike. Yeah, John, see where this little early September shakeout has taken the S&P 500. It's gone just below its 50 day moving average. That rally in late August brought it back above that. And at the time, kept pointing out that you often do get a lot of chopping around that 50-day average, even after it goes above it, or at least testing of it. So it's not unusual

for us to continue sloshing around these areas. Nothing really magic about that level, except that it shows it gives you a read of the direction of the sort of short to intermediate term trend. Today's action, we did just barely stay above some late August levels that people were watching. So it's still very much caught in between. We have not yet sort of immediately taken up those early August losses. Definitely some case to be made that there's more business to be done on the downside as we kind of go through this period, not figuring out if higher bond yields are going to shake loose this economic resilience that we've been dealing with for a while. Now, a lot of talk about energy, of course, as a leadership sector, but also its strength, actually drawing from the strength of some of

the cyclical areas of this market, such as consumer discretionary and industrials, which have been the very reassuring sets of leadership groups so far this year. So this is on a year-to-date basis. And you see the gap has not narrowed. I mean, you have this comeback in equal-weighted energy, but it still has not overtaken what had already been done in the early part of the year by consumer cyclicals and industrials. However, if you look at it from here, you know, basically start of July, that's where you're seeing that convergence. So at least there's a little more concern that you have a consumer with fewer kind of resources to draw on in terms of pent up savings and all the rest of it. So for now, it seems like something to watch. We got to, you know, just exactly see how the economy and earnings are tracking relative to the cost of money on the other side.

As you guys were mentioning, corporate bond issuance has been very strong. Corporate bond spreads have remained very steady. So there's not really been kind of a market choking on all that supply just yet. That's a net positive, John. Interesting. So the last time we had a cross of the 50 day moving average and that sloshing around, you talked about then it went above the market, you know, for about five months, right? Is there any rhyme or reason to that? What tends to happen or no? Not really. I mean, it's really just much more kind of benchmarking whether, in fact, you have this reserve bid for the market that's in that general vicinity. I mean, there's always, you know, ways to basically talk about the 200-day average as being a little more definitive in terms of whether this is an uptrending or a downtrending market.

That's way down a few hundred points below the current levels. So we could even go down 10 percent from here and still say, OK, well, we're still going to be in an uptrend, even if it's one that's a little bit more fragile from there on. All right. Mike Santoli, see you again real soon in the show. For now, after the break, C3AI CEO Tom Siebel is going to join us exclusively ahead of his call with analysts to break down quarterly results, which are expected at any moment. That stock is up nearly 200%, 3X on the year heading into today's print.

It's an interview you do not want to miss. And later, we'll talk with the CEO of one of today's biggest winners, AeroVironment. The defense contractor rocketing higher after a massive earnings beat, finishing the day up almost 21%, a fresh multi-year high. Overtime, back in two. Welcome back to Overtime. ChargePoint earnings are out. Phil LeBeau has the numbers. Hi, Phil. Morgan, we have a loss of 35 cents a share for Chargepoint in the second quarter. There is not an accurate comparison to the estimate that is out on the street. So we're not going to say whether it's dramatically lower than estimates, but the revenue does come in shy

of estimates. Revenue of 150 million. The street was expecting $153 million. But one other factor behind why shares of ChargePoint are down about 7% after hours, the guidance for the quarterly revenue coming up next quarter, the street was expecting $181 million. They are saying guidance of $150 to $165 million. That's their expectation below the street expectations for next quarter. Morgan, back to you. All right. I will take it, Phil. Thank you. Meanwhile, C3 AI just out with first quarter numbers moments ago. Revenues beat. So on the top line, turning in 71.6 million expected. The estimate for a loss per share was 17 cents. And that comes in, actually, let's see. I don't see. The loss per share came in non-GAAP at 9 cents. So a beat there as well. On the guide, the range is $72 to $76.5 million. Expectations were $73.8 million,

so just about bang on, maybe a little bit higher. And the full-year revenue guide, $295 to $320, which is about where the street was expecting. C3.ai also announcing some new product here. Launch of a generative AI suite with 28 new domain-specific generative AI offerings addressing specific industries. The stock is down about 10% after hours. Joining us now is Tom Siebel, C3AI chairman, CEO, and co-founder. Tom, a lot to go through, but let's start on the results. It looks like non-GAAP gross margins came in a little light of expectations.

The street was looking for something in the 70s, came in at 69, but about in line with the results and the guide so far. Can you give us some color on the quarter? A solid quarter, but we exceeded revenue, exceeded cash, exceeded earnings. As it relates to gross margins, gross margins came down a little bit associated with all the trials that we're doing that are aligned with the consumption-based pricing model that we put into effect. And I think the uptake that we're having with the generative AI applications, which is just huge. And basically, the C3 generative AI, the value proposition is we take the customer live,

whether it's missile defense agency, an intelligence agency, Koch Industries, whoever it might be, we're bringing them live on generative AI in 12 weeks for a quarter million dollars. And after that, they pay by a consumption model. Well, in the initial applications, the margin on those trials is not high. I mean, we're going to invest whatever it takes to make sure that all those customers are successful. And what about remaining performance obligations? You know, it looks like it came in at $334.5 million, right around there. The shoot was looking for $380. How's the pipeline looking? What sorts of industries are knocking on your

door and wanting conversations? Pipeline is growing substantially. RPO going down is an absolute direct effect of change to consumption-based pricing. So rather than doing enterprise deals of $10, $20, $30, $40, $50 million, we're doing these pilots for a quarter million dollars or half a million dollars. And then it's just consumption-based pricing from there. So RPO goes down, revenue goes up. That's the way that model worked. As it relates to industries, we're seeing a massive uptake in defense.

That is our most rapidly growing industry, defense and intelligence, with the CDAO, the Department of Defense, United States Air Force, Army, everything involved, contested logistics, predictive maintenance, what have you. So defense is a huge business, manufacturing, supply chain, demand chain, financial services, businesses. In general, the industrial commercial interest in enterprise AI has never been higher than it is today. And so the world is kind of coming our way. So what's the impact you expect from these domain-specific offerings, these 20 domain-specific offerings that you're announcing today and how soon? It's immediate. Okay. So I would say if we look at our pipeline of opportunities that go out the next 12 months,

the pipeline for the product that is the longest is substantially generative AI. And people, when we get to industrial applications, they're not deploying generative AI for these kind of cute chat BT, let's chat stuff. And we want to run factories. We want to run supply chains. We want to do predictive maintenance. We want production optimization. We want more productive human capital. So that takes domain-specific applications of these large language models for SAP, for Oracle, for Salesforce,

for supply chain, for demand chain, for sales, for marketing, for customer service, for utilities, defense supply chain, for demand chain, for sales, for marketing, for customer service, for utilities, defense intelligence. And so we have 28 applications that are available today. They can be ordered today on the Azure marketplace, the Google marketplace, and the AWS marketplace. And this is a huge land grab in generative AI. And John, we are going to market. Yeah. Very exciting, Tom. I am curious about the Baker Hughes relationship. By far the largest contributor to revenue, at least up until this point. How is that progressing?

It's great. In other words, the Baker Hughes relationship is great. We're jointly selling with them all over the world. They are certainly our most important partner. And we are in speed dial with them. And I don't know how it could be going better. And they're also a large consumer of our technology for internal use. So we're killing it. I don't know how many.

We've closed over $650 million in business in oil and gas together. So I don't know how that could be going better. All right. Tom Siebel, thanks for joining us out of the call. We'll let you get ready for it. The CEO of C3 AI. Not the only thing happening in AI and software today. Intuit, the $150 billion market cap business software maker, out today with major product news. It's a big part of that AI wave we've been talking about here on Overtime that you should expect this month. It's called Intuit Assist, and it's generative AI that stretches across consumer products like TurboTax and Credit Karma and small business products like QuickBooks and

MailChimp. I spoke with Intuit CEO Sasan Ghadarzi, who described it as an assistant that might see you have an expensive car repair that'll jam up your cash flow. Intuit Assist will present you with options to deal with it, including a pre-approved personal loan, perhaps. On the small business side, it will tackle tasks like building and executing digital marketing campaigns. I asked Ghadarzi how this will translate into revenue and profit. There are really three levers. You know, we have a $300 billion TAM and our penetration is 5%

because most of the folks that we serve use a bookkeeper, accountant, tax expert, and shoeboxes to manage their life or their business. So one is just adoption of our platform and services, which now becomes so much easier because this is intuitive, it's personalized, it's humanized, and easier to manage than a shoebox. So that's one element. The other element of our monetization is a gateway to live human expertise, and you have to pay more for that. But this becomes a very simple gateway when ultimately you need to engage with someone to finish the last mile of advice that you are looking for. The third level of monetization

is both the ability to price even more so for value and experiments that we'll be running will have higher valued skills, new offerings that are advanced AI only that customers could choose from. Bit of a template, Morgan, for how we can chart whether these companies are really making money off of AI. Yeah, I mean, it's so key. And when I think of Intuit, I think of a template, Morgan, for how we can chart whether these companies are really making money off of AI. Yeah, I mean, it's so key. And when I think of Intuit, I think of a read through to small and medium business businesses as well across the U.S. economy. Any sort of sense on what he's seeing? Well, he's talked about it on the earnings call. A lot of what they're doing is seeing small businesses really looking at software as essential, especially

coming out of the pandemic to keeping the business running. And they're looking at things like AI to make it stickier and get them to go across multiple product suites. Of course, he talked about that in the monetization comments there. We'll see how well that works. But overall, pressure on them, especially access to credit, but they're holding up. All right. Great stuff, as always. Well, American Eagle earnings are out. Courtney Reagan has the numbers. Hey, Court. Hi, Morgan. American Eagle reporting for the second quarter stronger than expected profit of 25 cents. The street was looking for 16 cents adjusted revenue coming in line at one point two billion dollars. The company is increasing its revenue guidance slightly.

Its gross margin coming in much stronger than street expectations at 37.7%. They're talking about in the release demand picking up in June and July and then positive momentum continuing into August. Store revenues were at 4%. Digital revenues were down 7%. It's Aerie brand stronger than the American Eagle brand. Comps were flat at Aerie. American Eagle comps were down 2%. And inventory down 7%. Shares are down here after hours. But important to note that this stock has run up 41% since it last reported. Back over to you. All right. Maybe a little bit of a buy the rumor, sell the news

event, as we like to say here. Courtney Reagan, thank you. Thanks. When we come back, an inside look at one of the most dramatic succession sagas in recent memory. We'll discuss new details surrounding Bob Iger's departure and return to the helmet Disney as that stock sits near its lowest level in a decade. And take a look at how Apple finished the day, closing lower by three and a half percent, along with a number of other big tech names. Sentiment perhaps hit on news that China reportedly restricted the use of iPhones by government officials. They got a big announcement next week. We'll be right back. Welcome back to Overtime. Disney shares down some 12 percent since Bob Iger retook the reins as CEO last fall from Bob Chapek.

He's facing a slate of challenges, including the ongoing Hollywood strike and new standoff with Charter. One issue looming down the road, though, his next attempt at naming a successor. Iger has already had his contract extended once since his return. It now goes through 2026. The board is likely to make its choice in early 2025. And that's just one of the big takeaways from a mammoth new report out today titled Disney's Wildest Ride, Iger Chapek and the Making of an Epic Succession Mess. Joining us now, the author of the nearly 12,000 word piece.

It's huge. It's a tome. It's amazing. Alex Sherman, CNBC.com media reporter. Alex, walk us through what happens next. Yeah, look, it is not a secret that the Disney board and Bob Iger have struggled with the issue of succession. It's sort of the one major flaw on Bob Iger's resume. And as I reported in today's piece, it's actually a driving force behind why he came back. Because even he realized that he kind of messed this up, choosing Bob Chapek. Of course, the piece goes into the various reasons why. But now he's back and he wants to get this right. So from what I'm told, from almost the day he returned in November of 2022 last year, he has started the process of vetting candidates,

and he is determined to do things a little differently than the way he picked Bob Chapek. One of the things he has said to people is that he never actually spoke with employees who worked for Bob J. Peck. In other words, he knew Bob J. Peck through his eyes, but he never took the time to really get to know Bob J. Peck through the eyes of other people that worked for him. He has said to close colleagues he will not let this happen again, and so he's already started the process. And, you know, whether or not that is

an internal candidate or an external candidate is still to be determined. Alex, why is the board even letting Bob Iger lead this process? I mean, if there's one thing that one could argue that Bob Iger is bad at as a media CEO, it seems to be grooming and retaining talent that could be CEO. He's run off so many people by keeping one foot out the door and saying he's going to go and then coming back. And now we think after saying he's coming back just for two years and then extending it, he's really going to go this time and he's going to pick the perfect person? Look, that's the question about why he came back in the first place, I think, John. It's a reasonable question. Obviously, it's not just him. There is a committee on the board that is in charge

of this, and Mark Parker, who's the new lead director on the board, will be a driving force as well. But the Disney board has decided that Bob Iger is the best person to run this company. And that continues to be the case. And therefore, logic would follow that under those circumstances, it would be silly for Bob Iger not to be involved in choosing the next leader of Disney. The question will be, what are the lessons learned from the Bob Chapek disaster, if I can use that word, so that Iger picks someone who he can work with? Because part

of what I'm reporting today is that Iger doesn't plan on just riding off into the sunset after choosing a CEO. He wants to put the same type of structure in place with JPEG where he sticks around a little while. And this time, Disney hopes, successfully transitions a new person into the job, maybe with Iger staying as CEO and a new heir apparent being named COO, with the public acknowledgement that this person is going to be Iger's successor. Instead of Iger being bumped up to executive chairman and sticking around that way, whereas he just turned the reins over to Bob Chapek immediately the first time around,

although I'm told that possibility is also still on the board. So the main takeaway here is Iger needs to pick someone that he will get along with and that is willing to follow his lead and work with him hand in hand in a way that Chapek was not. All right. We'll see who's both good enough to be the next CEO of Disney and who's willing to believe that Iger's actually going to let them be the CEO of Disney. Alex Sherman, thank you. Great piece. Time now for a CNBC News update with Pippa Stevens. Pippa. Hey, John. An appeals court rejected Sam Bankman Freed's request to get out of jail ahead of his trial over the collapse of his FTC cryptocurrency exchange. But the judge said he would ask the next available three-judge panel to consider it.

Bankman-Fried argued that he is not able to properly prepare for his October 3rd trial start date from behind bars. A spokesperson for Bankman-Fried declined to comment. An ethics watchdog group filed a lawsuit to block Donald Trump from appearing on the ballot in Colorado if he wins the Republican presidential nomination. The lawsuit argues that Trump should be removed from the ballot due to his actions during the January 6th Capitol riot. Legal experts say the strategy faces long odds. And Senate Republican Leader Mitch McConnell said he will serve out his term in office, dismissing questions about whether he'll retire.

At the senator's first press conference since his most recent freezing episode, the senator said he will finish his term as a Republican leader and as a senator. Morgan, back to you. All right, Pippimerman, joins us here at headquarters to break down the defense company's results that sent the stock to multi-year highs. We'll be right back. Welcome back. Check out shares of defense contractor Lockheed Martin, finishing the day down almost 5%. The company now expects to deliver 97 F-35 fighter jets in 2023. That's down from guidance of 100 to 120 planes delivered.

But Lockheed says it doesn't expect the news to impact its 2023 financial outlook. The company also delaying deliveries of its technology refresh three jets between April and June of next year. It previously forecasted deliveries of the fighter jets to happen of that technology refresh with a fighter jet to happen in 2023. But turning now to a name on the opposite end of the spectrum today in terms of stock performance, a name in defense that's flying high, AeroVironment, ticker AVAV, A-V-A-V, sending shares ending the day up more than 20 percent. The company posting blowout earnings, record results, raising guidance, Baird upgrading the stock to outperform today,

saying visibility has improved and demand is surging. So joining us now, Air Environment CEO, Chairman and President Waheed Nawabi. On set. Welcome. Thank you. Thanks for having me. All right. Walk me through the quarter because you had 40 percent revenue growth. You have a record backlog and you're seeing strong demands not only here in the U.S., but internationally as well. Yes, we've had a tremendous year last year. We had a record quarter on the fourth quarter of last year. Fiscal year was a great year for us. And then we also had a record backlog in the last quarter. However, in the first quarter of this fiscal year, we just actually set a new record for our backlog, almost $100 million higher. And of course, our revenue compared to first quarter of last fiscal year was up well over almost 40 percent it just speaks volumes to this type of capability solutions

and innovative technologies that we've invested over the years and the future of defense and warfare really is all about unmanned systems and we're at the forefront of that we're a leading company that in space we're pure play and we've really, the credit goes to our team, an outstanding team that's done a phenomenal job. Yeah, autonomous systems. This is really where you focus. Drones, things like the so-called kamikaze drone switchblade that's been getting delivered to Ukraine and is showing strong results in real time in that conflict right now as well. I mean, does this signal that the future of warfare is increasingly autonomous?

Absolutely. We've been a big believer of that for several, several years, if not over a decade, and we've invested in it. Ukraine essentially put an exclamation mark to the fact that the future conflicts around the world, peer-to-peer, near-peer, asymmetric, doesn't matter. It's going to involve a lot more unmanned systems, and it's going to be also more and more autonomous with AI, autonomy, and artificial intelligence and computer vision, things that we've invested and we're the leader in in our space. Yeah, and I want to get into those investments a little bit more,

but first just, again, looking at Eastern Europe and what we're seeing play out in terms of conflict on the battlefield in Ukraine. I mean, is drone technology, though, is it becoming commoditized? How do you counter that with some of the, I guess, more sophisticated systems that you manufacture? Yeah, so there's a big, big difference between a consumer drone that you can strap a small little hand grenade or something like that on it versus a switchblade, which is a truly, truly state-of-the-art loitering munition, which has a completely different anatomy, makeup, operating, you know, mission capability, et cetera. Our systems is more on that end, is of more of a military-grade capabilities.

And the other thing that really sets us apart is we offer a complete family of systems and solution. Eight of our different unmanned systems are being deployed in Ukraine, eight different ones, several of our unmanned air drones, ground robots, loitering munitions, and the latest one is our Jump 20 system that is going into Ukraine. It's going to be the largest aircraft the U.S. has ever provided to Ukraine, and we're going to be, we have secured the contract, and we're going to be delivering that very soon. How should investors think about the Tomahawk robotics acquisition and how that software And we're going to be, we have secured the contract and we're going to be delivering that very soon. How should investors think about the Tomahawk Robotics acquisition and how that software perhaps influences the effectiveness and margins of the rest of the products across your line?

Sure. So Tomahawk Robotics, we've known them for many years. They're the leader. Think of it this way, from a user perspective, as more and more drones and ground robots gets deployed in the battlefield, it becomes very difficult for an operator to carry multiple controllers, multiple user interfaces, all types of devices. So the militaries around the world, including the United States, Army, Navy, Marine Corps, et cetera, they all want to consolidate these and have one user interface, a single way to consolidate and simplify the life of the operator. And so what Tomahawk does, it integrates the best ground control user interface with our Chrysalis operating system that is the best in breed capability for the warfighter and our customers. It gives us, there's lots of good reasons for it. We can develop our products together. We can integrate more deeper in terms of our technology roadmap.

It gives us access in a market where we don't have presence in the Florida market in terms of our growth, because we're going to need to hire more engineers to basically fuel our growth. And of course, there's lots of synergies in terms of adjacent markets where we can actually access those markets with Tomahawk's product line. So just to dig a little bit deeper into the AI prospects of this, I mean, we just had C3 AI CEO Tom Sivalon, and he was talking about the fact that defense and the U.S. government is a strong growing business proposition in terms of their future growth in the pipeline as well. How do you see the impact of generative AI continuing to play out on the battlefield? And what does that mean? Going back to Tomahawk, what does that mean to how your business evolves? So not only the future of warfare involves a lot more drones and unmanned systems,

they're also going to be a lot more autonomous and there's going to be a lot more computer vision and automatic target recognition and tracking capability that's going to be on board at the edge of the battlefield. The challenge is not how can you do that in a centralized fashion, it's how do you push that capability to small, small drones and ground vehicles all the way to the edge of the battlefield. That's what we come into play. Our systems and Tomahawk Systems really is focused around the edge of the battlefield

at very low cost. Our systems are a fraction of the cost of the other larger platforms, and they're distributed, so it's really difficult for our military and adversary to be able to, you know, defend against it. And that's what we focus on, and we're going to continue to see more autonomous systems deployed both in the defense applications as well as in commercial applications, and we're at the forefront of that. And we've been investing in that for several years already. We are at the forefront. Of course, it also means space robotics possibilities and high-altitude plane possibilities and connectivity. Waheed Nawabi of AeroVironment, thanks so much for joining us here on set. Thank you for having me. Great to be with you.

And of course, catch my latest episode of my podcast, Manifest Space. It's going to feature AeroVironment and an extended interview with Wahid on the company's space ambitions that I just touched on. That's going to be out tomorrow wherever you get your podcasts. Fun fact, the Mars Ingenuity helicopter was actually developed by AeroVironment. Ah, very nice. Look forward to learning more about that. For now, up next, Mike Santoli is going to break down whether stocks still look expensive despite this ongoing summer slump. And don't forget the 13th Annual Delivering Alpha Investor Summit. That kicks off in three weeks. I'll be speaking with two of the biggest names in real estate about how the economy and interest rates are impacting the industry. To register, scan the

QR code that is right there on your screen right now. Welcome back to Overtime. Let's bring back Mike Santoli with a look at equity valuations. Mike. Yeah, Morgan, pretty standard observation right now is that valuations are pretty rich. If you look at the S&P 500 on a top-down basis, It's around 19 times forecast, 12-month ahead earnings. Clearly, that's above all areas except for the pandemic period. And then before that, around the year 2000, around the tech bubble. So yes, very high end of the historical range. However, you can pull it

apart. Look at this chart of the NASDAQ 100, which is dominated by, let's say, the seven or eight largest S&P 500 stocks, relative to just a few other large blue chip stocks that have a very long operating history as public companies. And you see that the NASDAQ 100 is very stretched relative to its own history, even around 24 times forward. And the rest of them, unremarkable, pretty much around 10, 15 year averages, if not below average. That would be Johnson & Johnson, American Express, Target. They are not unique. I could do Caterpillar. I could do J.P. Morgan. I could do Best Buy. The point is, really bifurcated market, super expensive if you buy the NASDAQ 100, perhaps, even though it has been more expensive.

But there is more value below the surface. Doesn't mean the whole market goes up, but it shows you. You've got to know what you're measuring when you talk about the index PE. Yeah, if you can scratch beneath NVIDIA and Tesla, I guess. There you go. I totally thank you. Up next, the CEO of cloud security firm Zscaler on his company's better than expected earnings and outlook and how AI is contributing to the bottom line when overtime returns.

Welcome back. Shares of Zscaler, end of the day, down more than 2%. Despite beating Wall Street estimates in yesterday's earnings report, Zscaler also issued an upbeat outlook for the next year. Joining us now is Zscaler CEO, Jay Chaudhry. Jay, good to see you. So I want to start on margins. Higher than last quarter, billings were strong, including remaining performance obligations. Earlier in the year, there were some people perhaps trying to ding you guys about maintaining pricing, but it seems to be literally paying off.

Yes, John. Good to be back on your show again. We delivered a very strong quarter and did exceptionally well in all areas on year over year revenue growth 48% quarterly growth 43% billings growth 38% in today's market where others are really being flattish we did exceptionally well we're very proud of it probably the biggest thing I'm proud of is the fact that we went from $1 billion ARR to $2 billion ARR in seven quarters. That's remarkable. I'm very proud of my team. One of the chin-scratching numbers, perhaps, though, was net revenue retention. It was at 121 percent, down from 125.

That seemed to have something to do with upfront purchases from customers but I'm not even sure how to value net revenue retention as a metric in this environment how do you see it? NNR is not a very good matrix we share it because our investors ask for it but the more platform our customers buy up front, and the sooner they do the next purchase, the lower the NRR. So when we talk internally, I say, should I sell smaller part of my platform to get higher NRR?

Not really. So we're focused on doing the right thing, selling the right solution, the right level of platform to our customers to solve their problems. And let the numbers fall where they fall. But at the end of the day, our revenue, our ARR growth, our billings are all very strong. Our bottom line is strong. We're very proud of the business and where we stand.

And we are, we had a good, strong guidance as well. We have a strong pipeline and we are, we have a great go-to-market team as well. Yeah, I mean, strong results to your point, Jay. It's Morgan, but also on the call noting on certain conditions, saying that closing deals within 90 days, quote, remains challenging. That does seem to be part of what pressured the stock in trading today. So just want to get a little more color from you in terms of any possible lingering softness more broadly on cybersecurity right now, given the fact that investors have been concerned in light of some of the other

results we've seen in recent weeks. Yes, Morgan, the market is still tight out there. But I did say that there is slight reduction in scrutiny on deals today than it used to be a couple of quarters ago. So we're seeing a small change in the positive direction. But more importantly, for Z-scaler services, customers want cybersecurity as a high priority. So those deals are happening. But if you can show the customer that you can do cyber, but you can also reduce cost, then it becomes wonderful. Zscaler is one of the few companies that does both.

That's really why we deliver good results. So is that tightness there? Yes, but I think we are well positioned based on the solutions we deliver. And we have a lot of confidence in our business going forward. All right. Jay Chaudhry, CEO of Zscaler. Thank you for joining us. John, thank you for your time and opportunity. Up next, all of the after hours, earnings movers that need to be on your radar, plus details of a must watch interview tomorrow on Overtime.

And speaking of much-watched interviews, tonight on Last Call, do not miss United Auto Workers President Sean Fain with just about a week to go until a possible strike at Detroit's big three automakers. That's 7 p.m. Eastern. Overtime will be right back. Welcome back to Overtime. Here's a look at the biggest after-hours movers. C3 AI initially falling hard despite a beat on the top and bottom lines, though coming back from those lows, still down about 3.5%, 4%. ChargePoint missing on revenues, announcing it's cutting 10% of its workforce. Those shares are down 11%.

GameStop, though, that's higher after reporting a loss of 3 cents per share on $1.16 billion dollars of revenue up seven percent. And coffee chain Dutch Bros is trading lower on news of a three hundred million dollar secondary offering. Also down double digits. Also check out Verint Systems following after missing on both lines and giving weak full year revenue guidance. And we have got a major interview coming up tomorrow on Overtime. Goldman Sachs CEO David Solomon will sit down exclusively with our David Faber from the Communicopia Plus Tech Conference in San Francisco. That's at 4.15 p.m. Eastern. And Morgan, before we go, I've got to say it's interesting. Zscaler, it doesn't operate on a consumption model, but it's still outperformed, which makes it different from this enterprise software cycle.

Makes you wonder if cybersecurity is carving out an exception here. Yeah, certainly interesting, especially given the fact that he did add a little more color on those comments about what we've seen with the macro and the fact that stock was dinged by that. Yeah. Lots more to come this week. A lot more AI announcements as we have teased here on overtime. That's right. That's going to do it for us here on overtime with all the stocks lower today.