Closing Bell - Closing Bell: Stocks fall to start the week, C3.AI CEO on the AI boom, Ballooning tensions with China 2/6/23

Episode Date: February 6, 2023

Stocks fell to start the week, but closed well off the worst levels of the session, as investors await a number of big earnings and a key speech from Fed chair Powell on Tuesday. The Nasdaq saw the sharpest declines, finishing lower by around 1%. Toni Sacconaghi from Bernstein and David Rolfe from Wedgewood Partners discuss the prospect of a lost decade for tech investors. The CEO of C3.AI talks about his stock’s huge run amid the buzz surrounding AI and ChatGPT. Anna Ashton from Eurasia Group breaks down the implications of the US’s decision to shoot down a suspected Chinese spy balloon. Plus the latest on big pullbacks for RH and Tyson Foods, and the buzz surrounding a drug side-effect dubbed “Ozempic face.”

Stocks starting the day lower but firming up a bit throughout the session. The Dow erasing most of a triple digit loss as investors await more earnings and a speech tomorrow from Fed Chair Powell. This is the make or break hour for your money. Welcome to Closing Bell. I'm Mike Santoli in for Sarah Eisen. Here's where things stand in the market. The S&P 500 has been sitting around this half percent decline most of the day. You see the Russell 2000 has actually got worse of it, down 1.4 percent.

That has been one of the big outperformers going into today. The S&P about 2 percent below the highs of last week. Ten-year note yield on the rise. All the yields are 3.63 percent after that strong Friday jobs report. And here's a look at the biggest decliners today in the NASDAQ 100. Activision Blizzard on the downside. Been some concerns about the gaming industry earnings. Micron Intel chips giving back some of the recent gains, as well as SiriusXM and PayPal holdings on the bottom of the NASDAQ 100.

Coming up on today's show, we'll talk to the CEO of C3AI, which is up triple digits on the year amid the global buzz around artificial intelligence and chat GPT. Take a look here, though, at the broader market. S&P 500, as I mentioned, about 2 percent below the highs for this rally, which was just below the 4,200 mark last week. Did get some hesitation after that hot jobs number yields on the rise. And people liking the general formation here of some kind of a base, that the fact that we got really good breadth readings, the fact that we did break that long downtrend from the January 2022 highs, has some people thinking that this could be a little more consequential, not that we go up and away from here because the market did get stretched in the very short term. Now it's all about the magnitude of a potential pullback,

where we settle out after that. Also, take a look at pure growth versus pure value. This is the stocks within the S&P 500 that most qualify as deep value or the fastest growth. And this is a three-year chart, shows you value finally nosing ahead of growth here over this long span from right before the pandemic. Interestingly, growth now has a ton of energy in it. So it's not purely the old equation of tech versus non-tech. But right now, a lot of the cyclical stocks in the value index are performing really well. Brings up bigger questions about what the leadership profile of this market might become over the next cycle, wherever that is. The Nasdaq, as we mentioned, lagging today. It's on pace to close in the red for a second day in a row, but it is coming off

a five-week winning streak. That's its longest since November of 2021, and that streak has the index up about 13% year to date. One of our next guests, though, says tech could be facing a lost decade. Joining us now, Bernstein Senior Analyst Tony Sacanagi and Wedgwood Partners Chief Investment Officer David Rolf. And I'll start with you, Tony, just on the big picture front here. Now, obviously, tech was really dominated the leadership of this market on the upside, clearly got hurt worse than the S&P 500 last year. What are you projecting in terms of where that leaves the tech industry in the way of valuations? I mean, I know we know the example of what happened after the year 2000. It was a

long period before tech resumed a leadership position. Well, good afternoon, Mike, and thanks for having me on. So when we look at tech valuations today, tech is trading at a 40% premium to the market. Its historical average is a 25% premium. So tech valuations relative to history are elevated. And when we look at growth expectations for tech, they're actually the premium growth for tech is actually below its historical averages. So you have tech being a bit more expensive, yet forecasting lower growth. And we do worry about that. You're right. Tech imploded following the bubble from 2000 to 2003. It underperformed significantly. But if we start looking in 2004, valuations for tech were the same level as they

are today relative to the market. And tech still underperformed in seven out of the next 10 years and underperformed throughout the period. And so that clearly is the worry. And it was because the leadership stocks at that time ultimately weren't able to keep growing at the same rate. And I think that is the fundamental question for tech over the next five, seven years. Yeah, I mean, certainly you could just look at Microsoft in 2000 at 60 times earnings, eventually went down to 10. Earnings kept growing, but not as fast. Certainly came back, but maybe not all the way. So it's something to keep in mind. And David, you know, I wonder how you go about looking stock by stock, you know, with this in mind. In other words, maybe we can't count on the predominant trade in the market being money flowing into technology platforms.

What's what's key to you right now after this decline we saw last year? Well, I we fish in different ponds than what Tony does. We only own 20 stocks. And Mike, we tend to keep them for a long time. Your point on Microsoft and some of the starting valuations that on the eve of the tech bubble really speak to a significant part of the underperformance. But on a stock by stock basis, we we're finding what we believe are terrific businesses at reasonable valuations. And and we like to own what we consider to be the most dominant in their various subsectors within tech or really any other industry. And and we tend to again, we tend to invest in them and hold them for a long, long time.

And we're not we're not having a hard time putting money to work in this environment. I was going to just ask that in terms of what has surfaced based on, you know, the way valuations have gotten compressed and the way people have gotten concerned about some of these businesses in recent times. I know Meadow was was one of your picks even after this rebound. Does it still look attractive? Yeah, it does. The stitches and scars from late last year are starting to heal, so I'll feel a little bit better about that. But all kidding aside, Mike, thinking about real quick on Meta,

if you were Rip Van Winkle and you went to sleep last August or September and you woke up today, you would realize that the stock is up a little bit more than what it was then. But what's interesting is that after that dreadful third quarter report in October where estimates were just decimated, what's interesting is that after this last report, estimates are almost back to where they were in that August and September period. And more importantly, the estimates for third quarter 2023 and fourth quarter 2023 are almost exactly where they were. And so, you know,

the stock, again, outside of all of that conference call and Mark Zuckerberg, we're going to spend like drunken sailors in the stock collapse below 100. It probably should have never gone down there. And we've had this remarkable run back from valuations that were probably, I mean, it was like a coal mine that was going to go out of business in five or six years. But the fundamentals there, again, we like the improvement that we're seeing on Meta. And you know what? It'll be interesting to see. Here's the uber bullish point on Meta. And this whole, with AT&T, their app tracking transparency, they recently released their latest version of that.

It's some fancy name like SKD Ad Network 4.0. But within that, Mike, it's allowing more signals to come out. It's allowing more data to follow. And maybe we'll look back in a year or two and realize maybe that was the best thing for meta because of the emphasis on machine learning, AI, etc. And so, yeah, estimates are going to the next quarter is not going to be a positive one. It's going to be negative. The second quarter is probably slightly negative, maybe slightly positive. And then from then through the rest of 2024, Mike, it's nothing but acceleration. So, yeah, the stock probably is flat here for a while. It's had a great

run. I wouldn't, we're not going to gain it. Yeah. Tony, and by the way, David, I know you're a longtime Apple holder, but I want to get to your bigger picture point, Tony, as it applies to something like Apple. And I can imagine you might get some response to your your lost decade idea by saying these businesses are either more stable, more predictable, even if they're not growing as fast. Something like Apple just has this massive kind of entrenched position. And the market seems to want to, for now, pay up for something like that. Yeah, look, I think that's the operative question. If we look at the last eight years where tech heads prior to 2022 had this phenomenal rally, 73% of the outperformance were driven by the five bank stocks, and 29% was driven by Apple

alone. So that's a really stunning number. So clearly, in assembling a portfolio going forward, having opinions on these bank stocks is really critical. And I hear David on his bull case for Meta. I think the question is, collectively, can these five stocks power the market in the same way that they have over the last seven, eight years? And history would say that's more challenging, generally, because if you look at growth for the next couple of years, particularly top line growth, it's much, much slower. Between 18 and 21, it was 15 percent for the things. For 22 to 24, it's only 5 percent. And clearly they have very strong underlying franchises. But ultimately, the market values tech on growth rates. And so the really big question in our minds for the next

five or 10 years is, are you going to have similar kind of growth from today's tech leaders? Are we going to have a lull in those and need some new tech leaders to kind of power the next leg of a tech rally? And that's the operative question. Right. Yes. If something something new comes along or something starts to accelerate, we'll have to see if that can change the story at all. Tony, David, really appreciate it. Got to leave it there. We do have some breaking news to get to. Thanks very much. We have a news alert on President Biden's economic agenda. Eamon Javers has the details. Eamon. Hey, Mike, we're getting a look now at what the president's going to say tomorrow night in the

State of the Union regarding the economy. A couple of proposals here that the White House just released in a news release just went out a couple of minutes ago, including one for a surcharge on corporate stock buybacks. The White House saying that in the State of the Union, the president's going to call for quadrupling the tax on corporate stock buybacks. The White House making the argument for this new tax by saying that stock buybacks enable corporations to funnel tax advantage payouts to wealthy and foreign investors instead of paying dividends that shareholders are required to pay taxes on. In addition, they're arguing here CEOs who are compensated mostly in stock use buybacks to enrich themselves.

So that's one proposal from the president you can expect here tomorrow night. Another one is the idea of a billionaire minimum tax. The White House saying that the president is a capitalist and believes that anyone should be able to become a billionaire or millionaire, but he also believes that it's wrong for America to have a tax code that results in America's wealthiest households paying a lower tax rate than working families. So he's going to call for this billionaire minimum tax as well tomorrow night. So just a peek here from the White House about some of the things we're going to hear from the president here in Washington on Tuesday. All right, Eamon,

forcing his opponents to defend profitable companies and billionaires. I guess that's part of the tactic there. We'll see how the rest of it comes out. Eamon, appreciate it. After the break, the buzz surrounding ChatGPT has investors chasing names in the artificial intelligence space, and the company with the ticker symbol AI is no exception. Up next, we'll talk to the CEO of C3 AI about this year's huge rally and how his company fits into the growing landscape. You're watching Closing Bell on CNBC. The big tech AI wars are heating up. Alphabet just announcing its chat GPT rival, BARD, will begin testing ahead of its public debut in the coming weeks.

And Microsoft will be holding an event tomorrow where it's rumored, where it is rumored it will focus on its chat GPT integration into Bing. Meantime, C3 AI is higher again today amid excitement over artificial intelligence and chat GPT. The stock with the ticker symbol AI surging more than 130 percent year to date. The enterprise software company recently announcing plans to release a new tool for businesses that incorporates open AIs chat GPT type functions. Joining me now in a first on CNBC interview, Tom Siebel, C3 AI CEO. Tom, good to see you. Hi, Mike.

So we should draw some lines here between what C3 AI is and does and maybe isn't. Naturally, the greater buzz and attention around AI has people excited about all things AI. Now, you have enterprise customers. You make their network smarter, make them run more efficiently and apply artificial intelligence to some of their functions. How is that kind of seizing upon some of these other innovations that are about search and chat and language generation and things like that? Great question. And thank you for asking. So we spent the better part of the last 13 years and about a billion and a half dollars building this software stat called the C3 AI platform that we apply in some of the world's largest organizations, United States Air Force, Department of Defense,

Shell, Koch Industries, others, to build a very large-scale predictive analytics enterprise AI applications. And this is based upon a model-driven architecture. And so we've been tracking what's going on in OpenAI kind of very closely in recent years. And we're uniquely positioned to take advantage of that. Not so much for chat GPT, but what we are doing with the C3 AI generative AI, which is what all the buzz is about, is combining the C3 AI platform, basically the Google search user experience model model as it relates to these enterprise applications, be they CRM, ERP, manufacturing, demand forecasting, supply chain management, fraud, what have you. So we're kind of uniquely positioned to take advantage of this great explosion that we're seeing in generative AI for a very, very practical real-world enterprise application experience. Got it. So it certainly seems, though, that it's more

an enhancement or a feature of, you know, an input to what you're still selling as these very large corporate subscription-based systems, right? Yes, it allows whether we're dealing with the chairman of the Joint Chiefs of Staff or a corporal on the flight line, whether we're dealing with the CEO of Bank of America or a teller or a Bank of America customer, they're all using the same human-computer interaction model. And it's a natural language interface using something that looks like the Google search engine. Again, it searches the entire, these generative pre-trained transformers have basically crawled

the entire web of the enterprise, be it DOD, United States Air Force, or Bank of America, and making these answers instantly available to you know, to whether it be the account holder, whether it be the branch manager, whether it be the CEO of Bank of America. And so it is a fundamentally new, it is a breakthrough in the user human computer interaction model for enterprise applications, both for consumers and for enterprise users. Is there any risk, Tom, that because every company, the huge ones included, are now making such a priority of developing AI capabilities or applying it in different ways that, in fact, you have lots of new competitors and people going to be jockeying for

exactly the area that you've been working on for over a decade? Well, we were kind of first to file in patenting this idea. So this is our intellectual property. I think that as it relates to what we see, the innovation that we're going to see in the next five years in generative AI, face it, it's the first half, the first inning, and the first person's at bat. And we're going to see billions invested by Microsoft, Google, IBM, and others to advance these technologies. And as these technologies advance, we're going to be able to immediately take advantage of the work that they're doing. So this is entirely compatible with our model-driven architecture. And this works very well for the C3 AI strategy. If the long-term opportunity is still there, the demand presumably is going to be there

for better ways of doing all these things. I do still wonder what the environment looks like right now in terms of trying to close big corporate deals right now. Obviously, there's been some choppiness in terms of revenue growth recently, because it is such a big ticket. It's a commitment by these companies. So how do things look from here in terms of the overall environment? Well, I think there has been choppiness in technology markets, and there certainly has been a lot of choppiness in equity markets. We fundamentally changed our pricing model some months ago to a consumption-based pricing model. So basically, people adopt our enterprise applications. The price is $0.55 per virtual CPU hour, So it isn't a big ticket acquisition. It makes it very easy

for small organizations and medium organizations and the largest companies in the world to adopt our technology. And so this is working very well for us. And does it make sense to you? I mean, obviously, you want to see your stock do well. You want to actually have people recognize what you're working on and whether it's in fact an attractive area. But you guys were obviously caught up after your IPO and some of the real excitement about these long term trends. The stock was at 170 at the highs, went down to 10. Now we're back to where you were a year ago. Does it make sense for you to have all this excitement in these two weeks because people are really hopped up on AI concepts? You know, Mike, I have to say, you know, the complexities and vagaries of the equity markets are a little bit beyond me. And, you know, it certainly has its mood swings that are that are that are a little bit again, this this is beyond my ability to really deal with our business. We're building a rapidly growing enterprise application software company,

and our objective is to establish and maintain a market leadership position in enterprise AI. Now, this looks like a $600 billion addressable market opportunity. I think there's some probability that we will be the leader, if not us, who? And if not us, we will certainly be a large, successful company in the space. So I believe our future looks very bright. Tom, appreciate you taking the time today. Good to speak with you. Thanks, Mike. Tom Siebel of C3AI. Now, C3AI was once a CNBC Disruptor 50 company. We are now accepting nominations for the 11th annual list of innov3.ai. Now, C3.ai was once a CNBC Disruptor 50 company. We are now accepting nominations for the 11th annual list of innovators. If you're with a private venture-backed company or know one,

scan the QR code on your screen or go to cnbc.com slash disruptors to learn more. Now, coming up, two drugs made by Novo Nordisk are among the fastest growing in history due to their potential to induce weight loss. We'll hear from the CEO about those treatments and the buzz around a side effect of Ozempic Face. As we hit your break, check out some of today's top search tickers on CNBC.com. We have the 10-year Treasury yield in the top spot, followed by Tesla, Amazon, Apple and the S&P 500. We'll be right back. Welcome back.

Shares of Novo Nordisk have been on a tear the last few months as two of the company's newer drugs show rapid growth. Meg Terrell spoke with the drugmaker's CEO about those treatments and the side effect that some are calling a Zempic phase. Meg, bring us up to speed. Hey, Mike. Well, these are two drugs that are in the same class. Ozempic is approved for type 2 diabetes. Wagovi is approved for obesity for people above a certain BMI.

And the use of these drugs has just been increasing incredibly quickly. You can see here the prescription growth in terms of the sales growth up 77 percent last year compared with the year before for Ozempic, more than 300 percent for Wigovi. And celebrities are starting to talk about these drugs a lot, perhaps ones that are not actually indicated for these medically. Andy Cohen from Bravo saying everybody's showing up taking Ozempic. Elon Musk saying in October he takes Wigovi for weight loss. And a lot of discussion about celebrities Wagovi for weight loss and a lot of discussion about celebrities using these drugs for weight loss.

The side effects from them include something people are calling ozempic face, which essentially is rapid weight loss in the face that makes you look gaunt because the fat has left the face. We did ask Novo's CEO about this. He said that is not, he didn't actually talk about ozempic face itself, but I asked him broadly about the safety of these medicines as they're used so broadly. Here's what he said about that. We're always concerned about, you know, safety of our medicines. And that's why we really focus on promoting it the right way, getting to physicians and

describing how our products should be used. And that's you know, that's what we focused on. And I feel comfortable about what we what we're seeing there. You know, really emphasizing that they are promoting these drugs for their medical uses. Eli Lilly, of course, also in this race that has a type two diabetes drug. It's awaiting approval in obesity itself. Analysts are projecting this market could be as big as $80 billion at its peak for the on-label uses, mostly for these medicines. Mike. Amazing. Yeah, I guess that's those who need it and those who want it. Very eager to try it, Meg. Thank you very much. Up next, we will discuss how the fallout from the Chinese spy balloon controversy

could impact U.S.-China relations and your investments. The Chinese spy balloon's flight in the U.S. came to an end over the weekend, but the fallout may just be beginning. The balloon's presence prompted Secretary of State Antony Blinken to indefinitely postpone a Beijing visit, and transparency demands are coming from lawmakers on Capitol Hill. Joining us now is Eurasia Group's Anna Ashton to discuss some of the potential implications. Anna, obviously the postponement of the Secretary of State's visit seems to set back a, you know, a warming of relations that people were hoping for, or at least setting the scene for an improvement. Where do you think that's going to ultimately leave us with regard to China? Well, it certainly does, Mike, show that the relationship is in a really challenging place

when something like this can derail long planned talks that have been in the works since basically November. And those talks, you know, there were no deliverables expected. But that's all the more reason why they should also strain the relationship and make things more volatile. And having that kind of direct communication between senior leaders is necessary to ensure that that doesn't happen. I mean, I suppose on one level, and it's been remarked a lot here, that everyone knows that mutual spying goes on. There are various ways this is done. Is it just the fact that it became such a public fixation in this country and maybe some embarrassment on the part of the Chinese authorities that it means that governments

have to respond in a way that might be a little bit more hostile than otherwise? Well, I think that, you know, the China relationship is politically so heated in the United States right now on Capitol Hill. And it's been that way for about the last six years that in particular, like if this had happened with another nation, I'm not sure that we necessarily would have seen this kind of response.

But this happened with China. And furthermore, you know, while we have heard that there are indications of other balloons having entered U.S. or been over the U.S. in the last few years, we may not have known that at the time. And this balloon was roughly around 60,000 feet in altitude, which is the upper limit of what the FAA considers U.S. airspace. So this balloon was technically different because it was actually in U.S. airspace. Right. I do suppose that there's just not that much appetite for looking past these sorts of things based on how the relationship has been going. On a practical level, are we looking at things like further

sanctions or just maybe just an inability to come to some kind of common understanding around some issues like Russia, for example, with Chinese aid to Russia becoming another big issue? Well, it's good that you mentioned Russia, because, you know, I don't think that this particular incident, the balloon incident, is something that the United States necessarily wants to continue to escalate. Well, there are people on Capitol Hill that probably do, but the Biden administration probably would prefer that this blow over. However, there are plenty of other issues in the relationship that could be caused for more significant measures by the United States. And, you know, we've seen that play out already in recent weeks. We saw sanctions on a Chinese company that was supposedly,

at least indirectly, doing business with the Wagner Group and thereby violating U.S. sanctions. There are lots of reports in The Wall Street Journal and elsewhere over the weekend that there may be more comprehensive violations of U.S. sanctions in support of Russia's war efforts. The data doesn't clearly indicate that to me from what I've seen so far, but that certainly would, I think, require a strong reaction from the Biden administration. All right. We will be alert for any of that. Anna, thanks so much. Appreciate you joining us. Anna Ashton. Thank you. Tyson Foods is one of the biggest losers in the S&P 500 after a big earnings miss.

Coming up, a top analyst on whether this stock will keep getting grilled. And during February, we're celebrating Black Heritage through the stories of some of our CNBC teammates, contributors and leaders in business. Here are the founders of Earn Your Leisure. Our culture has been the catalyst for everything Earn Your Leisure has done. That's why we've been so super intentional. From the way we dress, to the way we talk, to the way our message is delivered. Our success has been extremely humbling. We have gained worldwide support, but we never forget that we stand on the shoulders of our forefathers and our goal is to leave a legacy for generations to come let's check out today's stealth mover celsius holdings and it is really heating up wed bush

generating a lot of buzz about this stock, upgrading the energy drink maker to outperform from neutral and hiking its price target to 115 from 95. That is roughly a 15% upside from where it's trading right now. The analyst there citing accelerating market share gains and valuation. The stock has cooled off by 9% since mid-January coming into today, actually at this level. Up next, we'll be joined by an analyst who says today's big sell off in shares of RH is a buying opportunity for the retail stock. That story plus Tyson Foods tanking

and what to expect from Pinterest earnings when we take you inside the market zone. We are now in the closing bell market zone. Citi's Scott Cronert is here to break down these crucial moments of the trading day, plus Loop Capital's Anthony Chukumba on retail and Julia Boorstin on Pinterest. Let's start on the broad markets. The S&P 500 down about seven-tenths of one percent right now, though still nicely up for the year to date over five weeks. Scott, how are you treating this rebound? I mean, obviously, there's been kind of some forced repositioning, people a little too defensive

coming in. But the market's ability to perform when earnings have been a little bit messy and we might even be, you know, not as close to the end of the Fed tightening cycle as we thought we were about four days ago. Right. So I guess our perspective on this is that if you look at the move year to date, in our view, it's mostly a multiple expansion move, essentially reversing some of the compression that we felt last year around the Fed narrative. So to put some numbers around this, as of a couple of days ago, we had mentioned that the valuation on the S&P 500 had increased by roughly 10% from the start of the year, even though bottom-up earnings expectations have fallen by 3%. So again,

reflex reaction to a narrative around a less hawkish Fed that's translating into a multiple expansion around those areas of the market that were most negatively impacted last year, tech, consumer discretionary, communication services. Certainly all that is going on in a big way. You also have a bit of a reflation of some of the more speculative parts of the market. But I wonder what you make of the fact that, look, that the move in the equity markets is pretty global. There's been some cyclical leadership. You have some things like materials and some industrials doing well. And is there a macro message in that or is it more noise? Can we take any comfort from that and the fact that credit markets remain pretty firm as well? I would say not yet, quite honestly.

The way we're looking at it here is that if you look at, again, the year-to-date move, heck, there are 10 stocks that account for roughly 22% of the S&P 500 that can be attributed for half of the index move. Okay, so yes, we're seeing some expansion down cap into small cap as an example so far this year. But in our view, again, the bulk of what's being construed to the S&P move is really a dynamic around a mega cap cohort that's snapping back off of last year. Now, to be fair, I do think that with some increasing confidence that we're looking at peak inflation, that certainly begins to provide a little bit more comfort that there's a backstop in place. But we're still looking at an earnings picture that is far from clear and far from setting up for a more significant fall through

to the upside. What does that imply tactically, I suppose, in terms of what parts of the market look better or worse? I mean, would that mean to stay relatively defensive and go to those areas where you have some confidence that earnings are going to come through? Yeah, we're barbelling it, right? So we went into this year overweight industrials and energy, which were controversial at the time. And I still feel like that economic sensitive exposure makes a lot of sense versus what we're seeing on the earnings front. Real estate is a quasi defensive sector that we also upgraded to overweight. Again, here on the perspective that the rising rate dynamic of last year is largely priced in. Healthcare is an ongoing defensive call for us that we had in place all of last year. We think it still makes a ton of sense,

but it is going to lose out in a more traditional economic sensitive led risk on rally. But for now, we're pretty comfortable with this barbell approach between defensives and economic sensitives. All right, Scott, great to catch up with you. Thank you very much. Scott Cronin from Citi. Well, our eight shares tumbling today after the company filed a financial restatement with the SEC late Friday, saying the finances in its first, second and third quarter reports from last year can no longer be relied upon. The furniture retailer also saying it expects 2022 revenue to fall by as much as four and a half percent, the lower end of 2023, I assume, of its previous range. But our next guest sees today's losses as a buying opportunity. Let's bring in Anthony Chukumba of Loop Capital.

He has a buy rating and a $370 price target on the stock. Anthony, so there was this restatement. The filing had what looked like some pretty material adjustments to what had been stated earnings based on the treatment, I guess, of various accounting measures, right? It was about debt repayment and things like that does that not give you a little bit of pause about the quality of the earnings from here on out it really doesn't I mean let's be clear I mean management clear has some egg on their face here but at the end of the day these restatements do not affect revenues they don't affect EBITDA they don't affect assets they don't affect liabilities they don't affect debt you know they basically you know made a couple of accounting mistakes, but does not in any way, shape or form affect the underlying fundamentals of this business, which continue to be quite strong.

The underlying fundamentals being strong. I mean, it seems as if they've they've, you know, had a little bit of difficulty with the maybe pull forward of demand over the pandemic and then a little bit of a hangover effect after that. Is it does a trade with housing related? What are the drivers of this business that you think are poised to be strong, given the fact they did have some muted guidance? Well, you have to put that number of perspective, though. So in 2019, that was the last full year before the pandemic. Our is to two point six billion dollars in sales at a fourteen percent operating margin. They are tracking to have done three point six billion so a

billion dollars more in revenues at a twenty two percent operating margin. So let's you know let's not get it twisted they're having a very very strong year. Now clearly you know the the the you know sort of weakness in the high end

housing market will hurt them but I'm really looking at this as a more of a long term play. And is it the area within retail? I know you also cover some of the discounters and dollar stores and things like that. Would this be a place to focus within within retail at this point? Or do you think that because of macro issues, there are other areas that might be better positioned? Well you're talking about near term I mean yeah clearly I would. Go with more sort of defensive names. I like so for

example we really like dollar general- and dollar tree- those are names that will definitely outperform fundamentally I think the stocks will outperform- in a you know sort of more rocky macroeconomic environment are just more of a name that we

like. Long term and look don't take my word for it if it's good enough for, it's good enough for me. Berkshire Hathaway is the second largest shareholder. They own 10 percent of the stock. And by the way, the largest shareholder is the CEO, Gary Friedman, who owns 14 percent of the stock. That is true. I'm not sure if we know if it's Warren within Berkshire. I remember years and years ago not to paint it with the same brush, but they also own some Pier 1 in the home furnishings area. But, no, your point is well taken that there is some sponsorship of the RH story here. Anthony, it's good to talk to you.

Thank you very much. Thanks for having me. All right. Tyson Foods sliding today after missing earnings estimates largely tied to a drop in beef prices and falling pork sales volumes. Tyson's CEO blamed market dynamics and some operational inefficiencies for the hit to profit. Tyson also reduced its full year operating margins. Michael Lavery of Piper Sandler joins me now. He has a hold rating and a $65 price target on Tyson.

Michael, it seems like they were caught in a tough spot, at least in the most recent period, where there was some trade down in customers not really paying up in terms of pricing. And then they're still saddled with some elevated costs. Is that going to persist? What's the outlook from here now that the market seems to be kind of turning on this story? From the two key components of it, the consumer demand side and the cost and the commodity piece. Commodities have been tough because they still have elevated feed costs, but the pricing on chicken and beef is depressed. The U.S. domestic demand was cited as soft on beef, and this has been, when we downgraded about nine months ago,

this was one of our key concerns, specifically in a way that isn't even fully played out. We were looking in part at the SNAP consumer, the food stamp recipients. They have elevated benefit levels that end this month that they've said when we've surveyed them, they've been using to buy more food, especially more beef. Well, they specifically said all meat. And within that, they've been trading up. So we see risk both to the meat category as this 14 or 15 percent of households loses 30 to 35 billion of extra stimulus funds over the course of this year and just trading down as they switch to cheaper alternatives. So presumably you don't think that that's in current Tyson earnings forecast, because if the earnings are going to be met at this point, it starts to look as if there's some value there. I mean, trading, you know,

10 times or so forward earnings. It historically trades around 11. So it's not very far off. And it depends on what that EPS number ends up being in the out year. And that's where we still have some questions. We think that there's definitely risk just from a general broad-based consumer under inflation pressure with savings drawdowns that we're seeing across the board, but especially this low-end consumer that we think has been driving a bit of a boost and is going to have some headwinds. So we think it's a little too early to get constructive on this valuation for sure. If it's a category issue, this pressure, what other stocks are in the crosshairs? I mean, is it like a Conagra, Hormel? It's a bit of an apples and oranges comparisons in some respects because some of those have more

value-added products and many other categories that they participate in. And so you see a Kraft Heinz, a Hormel, and some of these who have a lunch meat or different kinds of meat businesses, but typically also less of the commodity exposure and some of the things that are more impacting Tyson directly. You also have Hormel with something like Spam, for example, which if you're going to trade down is going to be a beneficiary of that. Sure. Good perspective, Michael. Appreciate the time today. Thank you.

All right. Pinterest shares are popping ahead of earnings after the bell. Investors will be paying very close attention to whether Pinterest will report revenue growth while rival social media companies Meta and Snap are experiencing either flat or shrinking sales. Julia Boorstin joins us to set up those numbers.

Julia. Well, what's so interesting here is that we just came off an earnings where Meta's revenue declined less than anticipated. It declined by just 4% from the year-ago quarter. Analysts had been expecting it to decline about 6.5%. Here we are going into Pinterest earnings, and analysts are expecting it to grow revenue by 5%, not less of a decline, it to grow revenue by 5%, not less of a decline,

but actually increase revenue by 5%, whereas they are also expecting the company to say that it's going to guide to about 7% revenue growth in the first quarter. So optimism here, Mike, going into this earnings report, a lot of it comes down to the efforts of the relatively new CEO to really close the loop when it comes to getting consumers to make purchases based on ads they've seen on the platform. I was going to ask that. So it seems like it's a little more closer to transaction based advertising that that Pinterest depends upon. Presumably, they're also somewhat more free of some of the other pressure points, whether it's the, you know, the Apple, you know, privacy changes maybe, or even the TikTok threat. Well, look, there have been so many different challenges that Pinterest has faced.

There was a huge amount of user growth during the early days of the pandemic, the first year of the pandemic. But then there was a dramatic decline in users. And this is very unusual for a social platform to actually see a meaningful decline in users. But user growth has been on the upswing the last couple of quarters. And there is an expectation that the company will add about 7 million monthly active users after adding 12 million in the prior quarter. But I think you're right that this is a platform that doesn't compete that much with TikTok in terms of the usage. And there is this advantage of making more of their ads what they call direct response ads. You see a product, you can click through and buy it.

Pinterest doesn't want to be a platform which is actually responsible for the transactions. It does not want to be Shopify, but it does want to make sure that advertisers can see the immediate impact of their ads and driving actual purchases on their own platforms. All right. Yeah, that stock's been kind of quietly improving since the middle of last year. We'll see you once those numbers hit, Julia. Thank you. As we get toward the close, the S&P 500 down just about two thirds of one percent, but in this area, about forty one hundred for much of the day. The Russell 2000 down one point four percent. So the smaller cap market definitely taking a little more of a hit. It also had outperformed a lot on the upside, The declining versus advancing volume pretty skewed to the downside. So some payback there from some very strong breath numbers over the last couple of

days. Semiconductors, another outperformer for the year to date, down one and a half percent today. So some of the froth being skimmed away on some of these stocks, although Fed bet to be on GameStop. These meme stocks still kind of halted because they got to upward limits. The volatility index did perk up. It's up a point nineteen point four. Remember, we do have that speech by Fed Chair Jay Powell midday tomorrow. A lot of folks on alert as to what that might mean. Treasury yields were up today, as was the U.S. dollar index. All of that, the market may be rethinking exactly how much rate hiking remains on the books to be done this year. That's going to do it for Closing Bell.

Now over to Overtime with Scott Wapner.