Closing Bell - Closing Bell: Tech Takeover Far From Over? 5/26/23

Episode Date: May 26, 2023

Fundstrat’s Tom Lee and NewEdge’s Cameron Dawson weighs in on the big run in tech stocks – and what’s next for the sector. Plus, Eric Jackson from EMJ weighs in on the big AI boom. And, market expert Mike Santoli breaks down what to watch as we head into a shortened, holiday trading week.

Welcome to Closing Bell. I'm Scott Wapner live from Post 9 here at the New York Stock Exchange. This make or break hour begins with this big day in the market and the remarkable run for tech. And whether it's breakaway bounce from the rest of the market means it can't possibly last for much longer. We ask as the Nasdaq makes yet another strong move today. Now on pace for its fifth straight week of gains. Here is your scorecard of where things stand with 60 minutes to go in regulation. Of course, the move in big tech has helped the S&P 500 approach the 4,200 level. There it is. It's above it right now. We will see if we can get a close above that number as investors keep

a close eye on any developments out of Washington regarding the debt ceiling duel. It's been a pretty broad-based move today as well, with discretionary names performing quite well. Financials, materials, industrials, they're also in the green. There's a lot of green, as you can see on the board today. Takes us to our talk of the tape, this tech takeoff and why some make the argument that it is not done just yet. That is the view of Tom Lee, Fundstrat's co-founder and head of research. He is, as you can see, with us live. Welcome back. It's good to see you again. Great to see you, Scott. Doesn't want to doesn't want to let up. It certainly doesn't seem like it wants to. Why do you think it can continue, Tom? Well, we know bull markets climb a wall of worry and we know that there's a lot of things that we

visibly worry about, including debt ceiling, inflation, the Fed, regional banks. But I think the message that's come out in the last couple of months is companies have been incredibly resilient. They manage costs really carefully. They've been selective in how they manage prices. They've been really good at targeting customers. And I think that's what's paying off. They had a great first quarter earnings season. And as you know, at some of these conferences, they haven't been cutting guidance. In fact, I think they've destocked. So I think there's still upside to earnings. That's one positive story. And the second, of course, is positioning because people really did rage sell last year. But we know that the bond market is sort of signaling a softer landing than many were expecting. I think that's

positive for equities. So you think there's still going to be a chase to come, at least as it relates to tech? Because you've gotten a year's worth of gains in these stocks. And in some cases, you've gotten like five years worth of gains. It's been quite remarkable. And you know exactly what I'm alluding to, the fact that NVIDIA and stocks like that up 100% year-to-date plus and don't seem to want to let up. Yeah, I mean, I think what's interesting about Nvidia is that this was not a widely shorted stock into the results. So that 30% rally was really the market recognizing they have to reprice the future cash flows. I think that's pretty true for most of the FANG trade. One of the reasons we thought it would be our top sector pick this year was that all this wage inflation

and need to boost productivity was going to be solved by these FANG companies. And that ultimately translates into better than expected growth. I think that's really the thesis. And it sort of explains why FANG has really led this year. But I don't find them actually expensive stocks. Wow. The divergence, though, between, you know, FANG and some of the others in the rest of the market doesn't concern you. I've cited some of the numbers that are out. You've seen them yourself, I'm sure, bespoke. The three-month performance spread between the S&P and the equal weight S&P, the widest it's been since December of 99. We all know what happened in 2000 and the point that is, you know, the intent of this data, Tom, it doesn't make you a little nervous. It does, Scott, because, you know, market breadth is important to confirm a trend.

But but I also think it's explainable. I think there are some binary events that naturally would make people cautious, like this debt ceiling. It's hard to say how do you find equilibrium price today. One thing that we pointed out to our clients this morning was that when you look at industrials and consumer discretionary, there's actually quite a lot of good market breadth, well above the S&P overall, and tech ex-fang, and even health care. So I think groups actually have more performance underneath than is visible. I think a lot of people started to clip saying it's just fang and nothing else. There's roughly 200 stocks outside of fang that are outperforming this year. That's actually not bad.

I know, but how long can it truly last if it remains as top-heavy as it is, despite the fact that, sure, there may be some other stocks performing, but if you strip out, you know, let's say the 10 biggest names, the rest of the market's up like 4% collectively. That's right. Our team's been looking pretty carefully at what we call GIX level two. You know, it's sort of the groups beneath the 10 sectors.

And there's a bunch of groups that look like they're about to break out, including the banks. So I think one of the groups to watch is the industrials and the banks, because if they start to react positively to some resolution on the debt ceiling, and we know there's a temporary Fed put helping the regional banks, that's another 40 percent participation in the equity market. So I think there's a lot of things that could go right, although I'd agree that the breadth hasn't been great. Yeah, but I mean, this tactical overweight that you have on the KRE, you know, the regional banks.

Why? Why? Why urge people to take what I think fairly some would suggest would be outsized risk, just given what's happened in the space and the idea that commercial real estate may still have a shoe or two to drop. And it would be felt perhaps most acutely there. That's right, Scott. It's a it's a tactical bet we're making. We there's a lot of conditions that would negate that call. But our take at the time is governments and communities really do value the regional banks. And so the slippage that you lose from deposits not paying market rates is going to diminish. I think loan-to-value isn't as

egregious on commercial real estate as the last overweight cycle. In other words, I think that there can be quite a big impairment on commercial real estate prices and you don't have realized losses. And if that's the case, then these regional banks are going to sort of come back from the low basement valuation. So I think that if that means they can rise 20 or 30 percent from here, it's still worth a tactical bet because we don't think they're going to zero. Well, what about the Fed, Tom? I mean, every Fed member seemingly who's come on this network within the last seven to 10 days suggests it's foolhardy to think that, you know, we may be fully done. Sure, we may pause in June, but don't write future hikes off the table. It's sort of the message that Loretta Mester gave today on this network.

And there's been a drumbeat, really, of that. You're right, Scott. I don't want to fight the Fed in the sense that the Fed is concerned about inflation and they have to talk tough. But at the same time, there are emerging signs coming from the bond market that say that forward-looking data is supporting a Fed that could afford to become a little more dovish. I think today's PCE supports that. We sent out an alert to our clients. I think three things within that really told us that future inflation is coming down. One of them being that the three biggest contributors

to core PCE, more than two thirds of that rise was housing, financial services, which is because of higher interest rates and used car prices. I don't think those are really inflationary drivers from the Fed's lens. And we also saw the year ahead inflation come down. Actually, it sort of reversed a lot of that surge last month. So I agree, Scott, I don't want to fight the Fed, but I think the bond market is saying the Fed might be able to stop looking at backwards data and start to look at market based data. I know, but the but the bond market, it seems, has come more in alignment with the Fed in recent days. And it feels like you still are fighting the Fed, at least in some respects, even though you suggest you don't want to,

because at minimum it feels like they may not hike anymore, but they're going to remain high for a reasonably, you know, what they suggest would be a long period of time. The effects of that may not fully be known or felt to this point. So aren't you, in effect, fighting the Fed with a target year end of 4750? That's a long way to go from the 4210 that I see right now, by the way, stocks at the highs of the day. Yes, Scott, a couple of things. I think NVIDIA tells us what stocks can do that aren't heavily shorted. NVIDIA didn't have a short position, but still did what looks like a sky needle move. I think a Fed staying at 5% for two

years is tight, but it's not an equity killer because I think that 10 years is still going to see it at 3.5% or 4%. That's really, since 1930, that's when the highest realized PEs take place is between a 3.5% and a 5.5% 10-year yield. So I know it sounds like I'm fighting, especially 2022 market narratives, but if you look at a 90-year market narrative 10-year pinned at three and a half to five hundred percent is actually a 20 p.e. and i think it it gives us sort of the option value of inflation coming in softer i i think the thing we don't know is there's no tiebreaker yet that inflation is cooling but i think today's

data kind of tells us it could it could over the summer. I mean, it just feels like it's pretty sticky, if nothing else. And the calls that you've had of late, and let's just say the last few months, that inflation was going to fall much further, it was falling, and it was going to continue to fall much further, may be somewhat suspect by the fact that it looks a little stickier, I think is fair to say say than maybe some had suggested. But let's do this. Let's welcome in Cameron Dawson, CIO at New Edge Wealth, and continue our conversation.

It's nice to see you. What do you make of what Tom has suggested? Well, I think that if we were to get to $47.50, we would be trading at 19.5 times 2024 earnings at $243 a share. That is very expensive by historical standards. And the only times that we've traded up to those levels, if you're looking on a forward basis, not a current year basis, but forward basis, is during bubbles, meaning the tech bubble, and during the COVID bubble. And the COVID bubble was supported by incredible stimulus to this

market, meaning money supply growing 30%,, real interest rates negative 1 percent. And so if we look at where there could be risk if we trade up to those levels, but you don't have Fed support, you're really in a whole new world of territory where we simply would be trading at unprecedented valuations. Tom, how do you respond? Well, as you know, they say a bubble is when your neighbor owns a stock that's making money. And what I mean by that is I don't think the S&P is that expensive when you exclude FANG. It's trading at roughly 15 times forward earnings. And in fact, the two most expensive sectors outside of bank are health care and utilities and staples. So the question is that if you're worried about valuation, I'd argue there's a valuation bubble in defensive stocks in the same way that there's a bubble in money market cash balances.

Households are sitting on more cash than any time since even the pandemic. In fact, if you look at margin debt as a percentage of the S&P, it's down to 1.4%. That's the internet.com bubble low. There's been a huge deleveraging out of equity. So I think if we let price discover, the stock market is saying that most stocks are at 14, 15 PE. That's not expensive. To get to 47, 50 for the rest of the market, that's getting That's not expensive. To get to 47.50 for the rest of the market, that's getting towards a 16 multiple. I don't think that's bubble territory. I mean, the other part of what Tom has suggested is, you know, even though you've had pretty hawkish Fed speak is don't so much listen to that, listen to what the bond market is saying. And even though, as I suggested to Tom, the bond markets come a little closer of late to the Fed,

that's the place that you should look. Inflation is going to come down faster than people think. The Fed's not going to have to do what it says, and the bond market's forecasting that. Pricing in the pivot and expecting that to come where the bond market essentially bends the Fed to its will and gets it to price an easier policy has been the widowmaker trade since the beginning of this tightening cycle. And we're seeing it today where now there's over a 60 percent chance of a hike in June. Just a few weeks ago, that was zero. And so I don't think that the Fed is done, which means that there's still potential for upward pressure on

interest rates. And right now we're in this suspension of disbelief where interest rates apparently do not matter for the equity market. We've had periods like this. They haven't necessarily lasted for long. So either the equity market is expensive given the current interest rate backdrop or interest rates will fall

because the bond market is now pricing in a too tight policy path. We think it's likely more the former where interest rates are reflective of the real reality of this economy. Because it is pretty remarkable, Tom, isn't it, that the stock market at least has sort of looked the other way. As I'm asking you this question, I said we're at the highs of the day. We're, you know, 42.10 on the S&P, greater than 3.40 on the Dow. Interest rates have crept up seemingly almost every day,

and the stock market is kind of turning a blind eye to it. Scott, I actually understand that narrative, and I think it even dovetails with someone saying the bond market isn't necessarily saying there's a soft landing, maybe even a hard landing, because if the Fed's serious and we have an inverted curve, that's a hard landing. But when I look at the market and we know that much of this advance has been driven by FANG, which is solving inflation, I don't want to be sort of throwing out speculation. But one thing we have to keep in mind is that we're already seeing companies slow hiring plans because of the potential benefits from AI and machine learning. That's exactly the dynamic that Volcker was trying to achieve when he was trying to push wage pressures down. So I think there's mechanisms underway that explain why Fang is leading. And the rest of the stock market, therefore, can kind of come into line one direction or the

other if it's a soft landing there's going to be a huge expansion of market breadth that's why i think industrials and financials are trying to even the autos are starting to sort of push above their 200 day and 20 day moving averages you know basically enter a bull trend but yes we haven't had a tiebreaker moment but i think that there's too many people in the camp that this is a hard landing and they're trying to argue that the stock market is irrational. But at the end of the day, you know, the Fang Mu was actually it's really a thematic trade that's been built around AI and automation. And you're seeing the numbers from the companies delivered. I mean, NVIDIA shows that it's not a bubble. It's actually real growth. I mean, you are kind of one of these people, right, that Tom's referring to. Hard landing, recession, probably inevitable. And the stock market valuation now relative to your view is irrational, to use Tom's word.

Well, our call has been that a recession would come later than people expected and that growth likely will hold up better than expected. And that's what we have seen to begin this year. And I think where we have been wrong or where we've seen the market move against us is that we did expect better data, which means tighter Fed, which in the past has meant lower valuations, mostly for growth in tech stocks. And that simply hasn't happened this year. It could just be because of AI and because of the prospect of that E exploding to the upside, pricing in that future potential. It could also be because of liquidity.

We know liquidity has been a tailwind because of the spending down of the treasury cash balance. There has been liquidity added to this market, and that typically is very supportive of growth and tech valuations. And so it's a question on the other side of the debt ceiling as that liquidity fades, does that become an issue for these valuations? Tom, have you have any sympathy at all for those who suggest that we were saying the same types of things and using the same justifications in 1999 and saying, well, you know, then it was eyeballs and it was total addressable market.

And here we are talking about the potential total addressable market for AI to justify a move that NVIDIA has had this week or Marvell, which has had an even greater week than NVIDIA and sort of got lost in the AI shuffle, if you will. But how do you respond to those who say, you know, this is the same kind of stuff I heard in 1999. And we all know how that story ended. Scott, I think it's a good question to ask. I was a technology analyst in 99 working at J.P. Morgan, covering a sector that had a very high valuations wireless that market meant that when i told an analyst uh our sales force i had a buy rating on a stock and

the upside was only 20 over the next 12 months they said tom that's a neutral why are you wasting our time there was a change in market expectations at the time that you could make 20% in stocks in a week. Today, the opposite environment exists. Six strategists on the sell side changed their price target for the S&P this year. Four of them were price target raises. Interestingly, four of the six are still 10% below where the S&P is today. The strategists have become a little more bullish, but they still think we're going to fall off a cliff. I don't think any investor I meet is actually constructive. I was fortunate to meet many investors and companies over the past few

weeks, including at the summit, CNBC summit. And I found a huge divergence between how investors think we're already in a recession and companies that are managing through this really well saying they prepared for a recession last year. They either cut CapEx, cut inventory or slowed hiring. And that recession is not happening. They have to start going into early cycle mode and expanding because they've really been on a huge strict diet for the last 18 months. I know you fancy yourself a market historian, too, and I know you're well versed on the history of the market. Now, how do you think about that question to Tom, his answer relative to 99 and now? I think that we're probably earlier innings in this whole part of an up cycle, a potential bubble in AI than 1999.

Maybe we're a few years before that, meaning that we are seeing the earnings deliver and you're not at the point where all the tide is lifting any boat that has anything to do with AI or not even close to AI. So the thing with bubbles to remember is that they can last a lot longer and they can get a lot sillier before they end.

But it's always important to remember that on the other side of a bubble, there's typically a crash. So the biggest discipline is to always gut check and say, am I pricing in the entirety of the future growth into today's valuation? And with NVIDIA, it's actually trading at a lower valuation today than it was two days ago. That's exactly right. That's exactly right. The earnings are delivering. Because of the earnings. Because of the E. Yep. It just reminds me, you know, it was Jim Breyer out at the conference that Tom was at that

we just had our CEO summit, our inaugural one out in California, where he suggested this was 95, that this was the very early days of the Internet. And again, we know how it ended. It doesn't mean this is going to be synchronous with that, but we'll see. Tom, thanks so much. That's Tom Lee joining us today. Cameron. Yep. Yeah. Enjoy the long weekend and you as well. We'll see you soon. That's Cameron Dawson. All right. Let's get to our Twitter question of the day. Do you agree with Tom Lee that the S&P 500 can hit forty seven fifty by year end?

You can head to at CNBC closing bell on Twitter to vote. We got the results coming up a little later on in the hour. In the meantime, let's get a check on some top stocks to watch with Pippa Stevens as we head into the close. Pippa. Hey, Scott. Well, the big week for the chips continues with shares of Marvell Technologies surging 30 percent after the company beat top and bottom line estimates during the latest quarter. Shares rising to their highest level in more than a year, with CEO Matthew Murphy saying AI represents a, quote, tremendous opportunity, adding that while Marvell once

thought of it as one of many applications within the cloud, its importance and therefore the opportunity has, quote, increased dramatically. Elsewhere in the semi-space, Broadcom hitting a new all-time high today. Oppenheimer reiterating its outperformed rating on the stock. And of course, earlier this week, the company striking a multi-billion dollar component supply agreement with Apple. Shares up about 19% since Monday. Pacing for the best week in three years ahead of next Thursday's earnings report. Scott. All right, Pippa, thank you.

We'll see you in just a bit. We're just getting started, though, here. Up next, tech's big AI boost. You know about it by now. We'll talk about it as well with EMJ's Eric Jackson. He's back breaking down if the surge in the space can be sustained and if it's actually a good thing for the sector. We'll get that take coming up after the break. You're watching Closing Bell on CNBC. Dow's up nearly 350. S&P over 4,200. We're right back. We're back. Tech has retaken the top spot as this year's best S&P sector on the back of Nvidia's surge this week. But the majority of sectors outside the immediate AI hype are still

negative in 2023. So is this growing divergence a bullish tailwind for the tech trade or a warning sign for that space? Let's ask EMJ's Eric Jackson. He's back with us. Nice to see you. Welcome back. Thanks for having me. I mean, that is a pressing question. But what I also noticed from looking at what I have of your holdings, you don't have a lot of AI exposure, do you? Well, the AI has been dominated by the big tech players and NVIDIA, obviously. Yesterday was like a very interesting tape, I think, Scott, because you had the NASDAQ up 2 percent. NVIDIA was obviously up, whatever, 25 percent. But ARK was negative on the day yesterday. Russell was negative on the day. And that speaks to kind of the story of the first half of 2023 so far. It's been big tech dominated. A lot of the

smaller midsize tech names are back to kind of their December lows after a big jump to the start of the year. So I, you know, and I think it's reflective of the fact that you need a lot of money to invest in AI. And so that's it does make sense that these big, big tech names have been the big winners about this interest in this computing platform shift to AI. No, but I mean, ARK, for example, is not, I don't know that that's the greatest example. You know, Cathie Wood got out of NVIDIA in January and missed the entire ramp. I mean, had she stayed in NVIDIA,vidia arc would be right up there because of the weighting of the stock that she once held along with what is a still reasonably sized tech stop

tech stock called tesla yeah true but um taking taking nvidia out of the arc holdings i mean arc has kind of become symbolic of a certain type of tech stock. It's not the big Microsoft, Apple, Google names. It's the next generation names. And so my argument, Scott, and I think you quoted this stat with Tom on the last segment, is like if you took out the big, you know, the big FANG names, I think you said something like, you know, the tech area would be up like four percent on the year. So my point is, we haven't seen the broadening out yet. And so, you know, you could say one natural question is, man, you know, this is a bubble and all these big tech names have got to come back to down to earth where the rest of these other tech names are. Or are we going to see, and this is what I believe, you know, a bit of a

catch up and a bit of a broadening out of this rally from just the confines of the big tech names to the wider group of tech names out there? That's what I expect. The question I was going to ask is, as you said, you know, what would the question be? It would be, why wouldn't we? Why? I mean, sorry, why would we see a broadening out? Like if you're if you're not in, let's just say, I mean, it feels like everybody on planet Earth at this point is in the big five. But then when you start looking below, it's like, OK, well, maybe I'm in NVIDIA. But am I in? Am I in Marvell? Am I in AMD? Am I in some of these other chip names that are going to be at the forefront of this technological revolution? So that's where maybe the money goes, not all the way to the bottom of the tech stream.

I, you know, you were having this conversation about is this a bubble? Is this not a bubble? Are we in 1999 and so forth on, you know, previous to this. And so I would say, what's my argument for why this thing is going to broaden out to more, you know, to more names in the world of tech is that we haven't gotten to the silly stage yet. We don't see SPACs IPOing. In fact, when was the last time we talked about any IPO in tech happening this year? The IPO window is firmly shut. This has been a rally that's only been with these big tech names. So we don't have stupid behavior. We don't have stupid speculation happening. A lot of people have missed out on the move in NVIDIA, me included. And so I don't agree with Cameron, although I respect your work from the last segment.

I don't think that we are, you know, in this highly speculative phase yet. We don't see game stocks and other, you know, meme stocks exploding. So I think that we could be just at the beginning stages here of a bigger move. How big is this move to AI really going to be? You know, obviously, when the world shifted to mobile in 2007, 2008, that was a significant computer platform shift. But the metaverse wasn't a few years ago. That was a nothing burger. I think AI is the real deal. I mean, when a company raises its guidance for next quarter by $4 billion above consensus, that's real dough, Scott.

That's not a bubble. You know, I hear you. But I almost feel like I almost feel like to get the broadening out that you're talking about, you know, lower down the tech food chain, so to speak. You would have to get to the silly stage and the silly stage would actually be every company under the sun starting to talk about AI as if they're players in it, even if they're not. And that is what takes you over the line of what we witnessed back in the, you know, the bubble days of the late 90s. Yeah, I mean, and that always happens. I mean, we saw that a few years ago with people putting blockchain in their names of their companies. We saw it in the 90s when people started, you know, attaching Linux to their names and hoping of getting a big IPO pop

when they came public. So it's natural that people are going to put AI into their names. It's a real move to AI. And I think NVIDIA is the key player here. They are the compute that's driving this revolution. But you have to be careful with some of these smaller names like a like a C3 AI, for example. You know, I think there's there's more fizzle, you know, there than than than substance. Are you short that name? I'm not. But, you know, there are there are others like that. And once you get to the smaller market cap stage, I think you've got to do your due diligence on these names. I think there's there's a reason why the biggest players have been benefiting the most this year. They have a lot of money to spend at this problem. Smaller names, people will find their niches.

People will be successful. But don't just think because it has AI attached to the story that it's automatically going to be successful. No, I hear you. And certainly one of the things I think about is for somebody like you who doesn't have that much exposure in that area is whether you're thinking about doing some of that. But when I look at your recent moves, for example, it's Trade Desk, it's Twilio. It's not in the epicenter of this mania. No, I mean, I'm looking at NVIDIA right now, even after this huge move, because I think it has the chance to kind of be the VMware, kind of the dominant platform of this particular generation for this move to AI. The other name, and people have been so wrong, but everyone's complained about the PE of NVIDIA. PE was expensive 15 years ago for NVIDIA.

They've always been on the cutting edge. And people have always underestimated what their revenues and earnings are going to be. And so you have to, you know, discount what consensus is. But I do think that there will be this broadening out. And so there are some names like the couple that you mentioned mentioned, Trade Desk and more so even Twilio. Twilio was at least a couple of weeks ago after their last earnings flat on its back in terms of its valuation and historical multiples and stuff. So I like those names to come back. All right. Good stuff. Be well. We'll see you soon, Eric. Thank you. That's Eric Jackson. Up next, the debt ceiling duel.

We take you live to D.C. for the very latest in those negotiations. Plus, Amazon shares, Amazon shares accelerating today. What's behind that move higher? We'll tell you next. Closing bell right back. All right, welcome back. We're following the latest developments in the debt ceiling battle. Kayla Tausche live at the White House with an update for us. Kayla. Scott, negotiators are getting close to a deal, but now they're down to the final issues, and they're proving to be very thorny issues. One Republican negotiator telling reporters that the leaks are not helping and that they're not just trying to hit one type of number, one spending number.

They're trying to change the overall trajectory of spending in this country. Here's House Speaker Kevin McCarthy in his own words. We know it's not easy, but we're going to make sure we're not just trying to get an agreement. We're trying to get something that's worthy of American people that changes the trajectory. So we're going to work just as hard. We worked through the night last night. I thought we made progress yesterday. I want to make progress again today, and I want to be able to solve this problem. The time frame for the debt ceiling deal and the overall spending level are two of the most critical sticking points, even still, according to sources who note that nothing is agreed to until everything is agreed to. But there are still some contours of a deal that are starting to take shape. For instance, we've heard from Democratic sources that the deal is expected to see two-year budget caps on non-defense discretionary spending,

but higher defense spending. COVID aid would be clawed back, as would some funding for the IRS. And discussions on work requirements for aid programs and new permitting reforms are still ongoing. Both ends of Pennsylvania Avenue huddled with their teams to figure out next steps. Patrick McHenry, the GOP congressman who's among the lead negotiators, said it could be one, two, three days before they get a deal, even as negotiators try to finish something by sundown tonight when the president is expected to leave for Camp David. Scott. All right, Kayla, thank you. Kayla Tausche at the White House. Shares of Amazon meantime moving higher as well today, better than 4%. Deirdre Bosa here with what's driving that move. Dee? So the Amazon AI case is becoming more clear. Investors are excited about the opportunity in advertising and its cloud unit, which will be the infrastructure giving other companies additional computing power as they incorporate AI. And you're seeing that play out in today's 4% pop after Evercore wrote about it.

But, Scott, this is not a home run like NVIDIA chips or Microsoft's ChatGPT. So that's why when you zoom out over a longer time frame, this is a major underperformer relative other mega caps. Now, the other dynamic at play here is what you're looking at right now. Yes, generative AI may lead to new products, new tools to boost growth, but it also brings new costs. So it's a bit of a balancing act. Amazon Cloud, along with Microsoft and Google, by the way,

they now need to upgrade servers and infrastructure on the backend so that they can give customers that computing power needed, that in turn increases their capital expenditures or CapEx at a moment when they're also trying to be more profitable and disciplined. And Scott, this is what it comes down to at this point in the AI hype cycle. You were just talking about this with your previous guest, Eric. You need to be talking numbers like Marvell and NVIDIA. Amazon's not doing that yet.

Not yet, but we'll see. Dee, thank you. That's Deirdre Bosa out in San Francisco, as you can see for us. Up next, we're tracking the biggest movers as we head into the close. About 20 minutes left. Pippa Stevens standing by with that. Pippa? Hey, Scott. One stock is popping as it makes its debut. We've got the details coming up.

Just about 15 minutes to go now before the closing bell. Let's get back to Pippa Stevens now for a look at the key stocks she is watching. Pippa. Hey, Scott. Well, Arista Networks is firmly in positive territory today as investors continue pouring into names that could benefit from the AI boom. Analysts are largely optimistic that Arista could deliver the high performance, high capacity networking infrastructure that AI requires. That stock was less than 1% from its all-time high at today's session high, and it's only a few minutes away from its best week since 2021, up more than 17%. And Atmos Filtration Technology shares are up double digits on their first day of trading, as the Cummins spinoff raises at least $275 million in its debut. That makes it one of the largest U.S. IPOs in a relatively slow year so far.

Shares opened midday at $21.67 after pricing at $19.50. Scott, back to you. All right, Pippa. Thank you, Pippa Stevens. Last chance to weigh in on our Twitter question. We asked, do you agree with Tom Lee from the very top of our show today that the S&P can hit 4750 by year end? Head to at CNBC closing bell on Twitter. Do it quick because the results are coming after this break.

The results of our Twitter question, we asked, do you agree with Tom Lee that the S&P can hit 4750 by the end of the year? And the majority of you said yes. All right. Talk about that after the break with Mike Santoli, of course. And we also have some startling market stats that might surprise you. Why our next guest is forecasting some upside for the rest of this year as well. That, of course, when we take you inside the Market Zone. I mentioned yesterday the wonderful tradition here in New York City around Memorial Day.

It is Fleet Week. And as you can see, the men and women of our military making their way into the New York Stock Exchange, onto the floor where they are going to ring the closing bell today. And they're going to be led by Admiral Darrell Caudill. He is commander of the U.S. Fleet Forces Command. He is highly decorated. You can see he is behind the podium here. He'll get ready to go upstairs with a select group of folks

to actually ring the closing bell. His personal decorations, by the way, include the Navy Distinguished Service Medal, Defense Superior Service Medal, four awards there, the Legion of Merit, another four awards, the Meritorious Service Medal, four awards there. The Legion of Merit, another four awards. The Meritorious Service Medal, three awards. Navy and Marine Corps Commendation Medal, five awards. And the Navy and Marine Corps Achievement Medal, another four. Just a wonderful tradition as we salute the men and

women of our military ahead of Memorial Day. And of course, we remember the fallen as well. I think we'll take you in the market zone now as we wind down this day, about eight, seven, eight minutes to go or so. Our CNBC senior markets commentator, Mike Santoli, here to break down the crucial moments of the trading day. Ryan Dietrich's with us of Carson Group on what history can tell us about the S&P's next move. Leslie Picker looking ahead to keep bank balance sheet numbers after the bell. All right, Mike. So we're going for a close above 42. The Dow's up good for 330.

What thoughts do you want to leave us here ahead of this holiday weekend? Well, actually, understandable to a degree that the Twitter poll had people thinking that there could be a decent amount more upside because of the way that the index itself has acquitted itself. And everyone's scrutinizing it and for good reason talking about how uneven it is, how lopsided the leadership is. But the last time we were basically at 4,200, just shy of that, on February 2nd is when we first reached it this year. The market actually looks

less expensive than then because earnings estimates on a 12 month forward basis are a bit higher. At the same time, the average stock is actually a fair bit lower and therefore that much less overvalued if you think it's overvalued at all. So yields are about where they were then on the 10 year and the two year, maybe a little higher right now. So it seems as if nothing is particularly out of whack except this unease around the fact that the market internally has just been out of gear. And you've just had really just so much dominance by those handful of huge stocks that are able to seize upon this new kind of AI enthusiasm and that one big fundamental affirmative story that people are willing to play right now. You have some big spikes this week, Mike, to live up to in the weeks ahead.

And it's not just NVIDIA. It's, as I said, and we've been looking at all day, Marvell's actually had a bigger week than NVIDIA. And it's not alone in the numbers and the names that we've seen. It's just been astounding. It absolutely has. I think it's really the speed and magnitude of the revenue estimates going up as you basically have a buying panic, it seems,

in some of these products to build the capabilities. And the stocks are trying to catch up for that. Maybe they're over-interpreting it and extrapolating too far in the future in terms of this level of demand. But right now, it seems like an incredibly localized kind of excitement in this one area. Not a lot of broadening out in terms of people saying, let me buy some super speculative long shot play on this. It seems so far to be the ones that still have something substantive underneath it. All right. Ryan Dietrich, what does this tell you? This action as we finish this session, we finish this week.

And remarkable, it's been in many ways, as we've just discussed what's happened around AI and tech and whether it tells you anything about whether you think it can continue or not. Yeah, Scott, thanks for having me again. Happy Memorial Day and thanks to everyone who keeps us safe. You know, you think about yesterday was 100th day of the year. This is a really good start to the year. We looked at history, Scott, when you gain at least 7% for the year as of day 100, like we did this year, the rest of the year gains like nine and a half percent on average and has been up about like 89% of the time. Now, yes, there's lots of different factors, but I think it's really important. The Carson Investor Research Team, we've been over with equities for a while. We're going to say,

we're probably going higher. Just look at today's data. Consumption, real consumption is like running at 6%. The durable goods number was good. Earnings, we know in the video, we've talked about it nonstop. We don't think we're in a recession. We don't think we're headed to a recession. That's the realization that's going to get this market going higher, likely pop above forty two hundred and probably have a surprise summer rally, we think here. I know. But at some point you need some others to come play, don't you? Yeah, no, you do. You talk about you talk about market breadth. I totally agree. I mean, Mike pointed out we've all been pointed out it's those large names. We are overweight small caps.

We added some financial exposure not too long ago. We think it is going to broaden out with the realization that the economy is not going into recession. You know, we're going to need to see that. But again, from a well-diversified basket of stocks, if someone's just blindly buying one thing, sure. But if you buy a basket of stocks, we think there's some real good opportunities still going on. One more for you. S&P had made a new high. Oh, I'm sorry.

Wrong thing. They had made a new low, or I'm sorry, wrong thing. They had made a new low for almost seven months. You look back at history, it's extremely rare for the S&P to break the previous lows. We've been on a record since late last year saying we're not breaking those October lows. It's just more signs that, hey, we can maybe go sideways at 4,200 a little more. But we think those lows were it. And again, the economy looks good. And we're still going higher in our opinion here. All right, Ryan, we'll talk to you soon. Ryan Dietrich, Carson Group joining us. Leslie Picker, we have bank balance sheet data coming out. What are we looking for? We do, Scott. This is the so-called H-8 data that the Fed puts out after the bell on Fridays. If

you recall, last week's data showed deposit levels as of May 10th, indicating yet another decline. All commercial banks at the time combined saw deposits fall by 26.4 billion, the lowest level in almost two years. Over the last month, small banks experiencing the bulk of the withdrawals with deposits down more than 3% at small banks compared with 0.9% at large domestic banks. And total outflows, regardless of size, month over month, have been negative 1.6%. The data is a bit dated, though. And ever since May 10th, just if we want to look at stocks for comparative purposes, the regional bank ETF KBWR up more than 5%,

more than double the gains of the S&P and Dow over the same time frame. So obviously, stock price is not quite the same as deposit levels, but they do tend to have, especially in this current environment, somewhat of a cyclical effect as customers see stock prices fall, they make it a little jittery, take their money out. If stock prices are rising, we'll see if we get kind of the opposite effect, Scott. All right. We will. Leslie, thank you. That's Leslie Picker. All right, Mike Santoli. So the Dow's been down five days in a row. We're going to end that. NASDAQ's been up five weeks in a row. We're extending that. And then next week, we've got CRM, that's Salesforce and Broadcom reporting their earnings. And those are going to be key again

in this AI road ahead. They will. We are, I think, you know, at the tag end of earning season. And it's enough for people to say that it's flattened out as opposed to having taken a step down. That takes some of the valuation pressure off, obviously. And, you know, the economy, as Ryan was saying, it hasn't stumbled as readily as people were perhaps positioned for. So I think this is a battle-tested market in the sense that we took the hit from rates spiking because we got hot January data. We took the hit from the mini regional banking crisis, which is now kind of a slow bleed as opposed to a panic out.

And I'm not saying that that means that we're justified for every penny that we built up in market cap in the S&P 500, but it seems as if we've been kind of burning off a lot of that pessimism that has built up. And we still see investors maybe reluctant to play here. I'm not sure that's enough for further upside in a straight line. But it certainly helps to explain why we got here. All right. Well, we're going for 4,200 and above on the S&P. We'll see if we can get that close.

We'll see Mike tonight on Taking Stock, our special at 6 p.m. I'm letting Fleet Week take us out. Have a good holiday weekend, everybody.