Closing Bell - Closing Bell: The Remarkable Rally 9/25/24

Episode Date: September 25, 2024

How much more can stocks rise? Fundstrat’s Tom Lee gives his expert market forecast. Plus, Meta held its annual “Connect” event today and announced a number of new hardware products and AI tools. Shareholder Gene Munster of Deepwater Asset Management tells us what he thinks this could mean for the stock. And, some big changes at OpenAI – Kate Rooney runs us through the details. 

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 stocks over the final stretch. Not just today, but this year after this remarkable bull run. We'll ask Fundstrat's Tom Lee that very question. What's going to happen from here when he joins us in just a moment? Take a look at the scorecard now with 60 minutes to go with regulation. Do have some work to do here as the major average is mostly negative today. NASDAQ barely hanging on to the green. The Dow is the biggest loser. It is down two-thirds of a percent.

Amgen's a big drag today. Russell 2000's also weak. Notable movers today include NVIDIA. It's back above $3 trillion in market cap again. That's certainly notable. We're watching auto stocks, too. Morgan Stanley's Adam Jonas downgraded the space today, including moving General Motors to underperform.

That stock is underperforming today. It's down by more than 5%. It does take us to our talk of the tape. How much more can stocks rise? Let's ask Tom Lee. He's Fundstrat's head of research and CNBC contributor, live with us once again at Post 9. Nice to see you. Great to see you, Scott.

Since the Fed did their jumbo cut, the market really hasn't done all that much except for one day last Thursday. Why? Well, you know, I think the Fed unleashed us on an easing cycle, and that's going to be positive. We know it's actually historically positive three months, six months out. But what stocks do in the next month is a bit of a coin flip. And I think that's what we're seeing because there's some repositioning that took place. And also we're now thinking about the 40 days into the election. So does the fact that the election is but 40 days away sort of ruin the perfect scenario for stocks

to get that post Fed bump? I think it delays it just because, you know, in the conferences that I've been speaking at and seeing wealth managers and family offices, a lot don't want to commit capital until after Election Day. And I don't think it matters who wins. It's just they want to get that event behind them. So you think we're going to have sort of a dash to the finish after Election Day is out of the way? Yeah, and that's pretty typical. In fact, in election years, the November-December rallies are pretty tremendous.

And in fact, when markets are up more than 10% in the first half, you also get big rallies November-December, sort of choppy through September. Do you think investors are sold on the idea that this economy is going to make it? It's going to make it through, the Fed's going to pull this off. Is any of what we've witnessed since Fed Day doubts about the bigger picture? So far, so good. This Friday, we get core PCE, and hopefully that confirms inflation is no longer on the front burner. But I'd say one thing I've noticed is that the number of investors and professional money managers that think we're already in a recession is very high. And so I think the evidence just has to be better than expected. And I think those

views shift back to soft landing. When we've seen, you know, recently targets for the S&P, Brian Belsky, I keep bringing him up because he's the most recent to raise his target up to the highest now on the street. I've asked you about, you know, the market lately. You haven't sounded like you'd be raising your own target to a degree like that, would you? You know, I think there is a lot of upside in the foreseeable future. Let's say three, six months out. But for someone to tactically say, we need to pin a 6,000 target and then put money to work today, I think it's harder to make that case because valuations aren't on the cheaper end and we've already had a fairly sizable move. So I'm not saying I'm like bearish right now

but to me I'm I'd have a lot more confidence in three six months out things are attractive especially things went like Margin debt right? It's actually decreased in august meaning investors have been deleveraging it hasn't gone anywhere for the last four months at a time when markets are rising i guess i guess my point would be it would have been better articulated to just say you don't sound as bullish as you usually are is that fair uh you know yes i'm i'm bullish into your end but i'm i'm a little less confident about how markets behave into Election Day. And not that I think we're going to have a huge drawdown.

If we do have a big drawdown, I'd be buying that dip. But I also don't think we can make new highs and then see the market blast off after Election Day. So I'd rather sort of say things look a lot better after Election Day. So I'd rather sort of say things look a lot better after Election Day. Can we make new highs if tech doesn't resume its leadership role anywhere close to the degree that it had? As long as tech is a market performer. If tech actually declines, that's going to be hard for the rest of the S&P 500 to compensate. But what we've seen so far, including days like NVIDIA and Tesla recently, is that tech is actually holding its own, but other stocks are starting to show catalysts and signs of life. Yeah. What about the broadening trade? I mean, look, you look at the Russell, your big call, of course, week to

date, it's down more than 1%. Really hasn't done much at all. I kept hearing, hey, you got to wait till the Fed cuts. Then you go into the Russell. I don't know. What do you think? Well, Russell had a big week last week. It's some profit taking now. But I think that there's, you know, this is what bottoms look like. I don't think bottoms are straight up. I know in 2021, energy was bottoming and it was also very choppy, but eventually made not only new highs, but then basically had a blistering gain in 2020 in the year following. So I think that's a multi-year And it was also very choppy, but eventually made not only new highs, but then basically had a blistering gain in 2020 in the year following. So I think that's a multi-year start for the Russell.

It feels choppy, but we're still near all-time highs. And there's a big fundamental case to own small caps. Some have made the case that there are a lot of areas of the market that are overcrowded at this point. So many different sectors have gone up a bunch. You look at industrials and utilities and other things that have traded near or at highs. Therefore, they find better value in bonds. What do you think? You know, I think a bond investor is buying a bond for a different reason than buying an equity. Because an equity gives you not only inflation protection and benefit from falling yields,

but also capital appreciation and positive surprise. Bonds rarely give you positive surprise. I think a bond investor should, I mean, someone should have some income with some capital upside there. But there are so many good opportunities. And, you know, the fact that China has started to actually perform better and potentially broken out, that's, again, a Brent signal because that's been a big drag for the last few years. How about that? Do you feel like the move that happened in China this week is a game changer on how we should view what, you know, the potential turn in their economy means for the overall markets.

I mean, we've seen certain stocks get a nice boost, some of the luxury goods companies, right? LVMH, Estee Lauder, et cetera. And the gaming stocks. What about in the bigger picture? You know, it's hard to tell what's a trading rally versus a bottom for China. I spent some time talking to Mark Newton, our technical strategist. He thinks this is a bona fide breakout. And it is coming on the heels of not only stimulus, but in the face of unrelenting bad news for China.

So to me, a rally on bad news is a sign that maybe the worst is already priced into China. And that means it could rally for a while. All right. Let's bring in Kevin Gordon now. Charles Schwab and Max Kettner of HSBC Global Research. Good to have you both with us. Kevin, you've heard Tom state his case for stocks in the near term. Let's stay near term. What do you think? Yeah, no, I largely agree with that. I think that if you're approaching it from a PE versus earnings standpoint, how much

is left to be squeezed out of the valuation upside? Probably not as much, given we look pretty stretched, whether you're looking sector by sector or whether you're looking at the aggregate market. I think that in terms of the Fed reaction, I think it's a little bit, I know there's a lot of obsession around the cut itself and what it means, but I think you have to sort of take a step back and think about what the Fed's looking at being economic data, and ultimately that's what the market looks like. So as we sort of continue to go through this process of churn, where you're still waiting for more rate-sensitive parts of the economy to maybe respond to what the Fed is now doing in terms of cutting and

hopefully find some sort of revival in the next six months versus what's now going on in services and labor if we continue to see softening trends. The latter, if that happens, probably won't be the most bullish case for the market. Max, what's your view? Yeah, look, I think I'm still pretty bullish, even in the near term, on stocks in particular and on US stocks in particular. We've been buying the dip in the last couple of months. And when we continue to do so, I think actually there is probably a little bit too much obsession around the US elections. I do think one thing that is a

bit underappreciated is the earnings trajectory in the very near term. We look at the Q3 reporting season, for example, at the S&P. In fact, we see earnings expectations from consensus almost flat quarter over quarter on an aggregate basis. It's tech up, it's utilities up, which is the sort of normal Q3 seasonality. But other than that, every other sector is either flat to slightly down. So I do see the risk, the upside risk, that clearly people are perhaps focusing a little bit too much on the noise and not really taking into account still really solid fundamentals. I would agree with what you guys have been talking about before. There is an awful lot of

talk still about recession and around a severe slowdown. In fact, when we look, for example, at our colleagues, they run a quarterly emerging market sentiment survey, which just came out today, where basically expectations around a recession or a major drawdown in DM and developed market activity is by far the biggest risk that investors see. That more than tripled over the last quarter, those kind of recession fears. And funnily enough, when we look at our sentiment and positioning indicators, even though we're on an all-time high, even though high yield spreads are sub-300, even though investment grade is sub-90, you're still seeing

our sentiment and positioning indicators closer to a buy signal rather than a sell signal. That, to me, I don't really want to be cautious at that point. What about, Tom, this idea, as Max said, there's too much obsession about the election? I think people would say, I don't think so. What do you think? I think elections are very emotional issues, and I think it does cloud people's willingness to take risk or how they react to information. So I kind of agree with the idea that the stock market's going to be fine regardless of who wins.

But between now and then it's very difficult for an institutional manager to make a big bet one way or another because the election. And it could even be a disputed election. I mean, you have diametrically different tax policy being discussed by the candidates. So how is it a win either way? Well, I think one thing that investors have to be mindful of is unless there's a Republican sweep or a Democratic sweep, then these are just policy platforms that will have some challenge to actually get put into law. But I think more importantly, things like AI are really shifting the axis of where all the future growth is coming from, which is the U.S., and they're not really going to

be hurt by whoever is president. Deb, do you think the market's reasonably valued here? We've had this conversation about the multiple that the market currently trades and where earnings expectations are for next year. Expected to grow like 15%. Do you think that's too optimistic? I mean, well, for valuation, in my opinion, it's always in the eye of the beholder. And it depends on which metric you're looking at.

We use valuation more as a sentiment metric or an indicator of sentiment. So when you're in a stretched environment, that just tells me that people are willing to pay high prices for stocks. Are we stretched? Are we in a stretched environment? No, yeah, I think we're stretched, especially now, you know, given the fixed income environment, how much it's shifted over the past few years. You still have income and fixed income, even with the rolling over in yields. And so there is still an attractive nature to bonds relative to stocks.

To Tom's point earlier, I don't think you can make this outright direct comparison. I think there's an and, not an or, when it comes to stocks and bonds. But for earnings itself, the somewhat maybe counterintuitive aspect about earnings growth is that as you get further into the earnings cycle and growth accelerates well into double-digit percentage territory, that's historically consistent with more tepid gains for the market. Not an outright decline, not negative gains annualized, but the best zone is when you're emerging from an earnings recession and the market is sort of sniffing that out and catching on to that force. Now you've kind of priced it in already, which is what happened at the end of 2023 into the beginning of this year. And now you're getting to the point where, you know, it looks like the market has already looked ahead to

what has been and what will probably continue to be a relatively healthy earnings cycle. Right, Max. I mean, to that point, which is a good one and made by others too, isn't a lot already priced in? Yeah, but in fairness, we could have argued this six months ago, 12 months ago, 18 months ago. I think to the point in terms of the earnings recovery, one thing is very clear. When we look at the second quarter, we've actually just regained the levels where we were in 2022 in terms of net income of the S&P 500 outside of the magnificent seven. So those quarter of 93 stocks, the broader market that's literally just reclaimed the level where we were at the beginning of 2022 in terms of net income. What that tells you is that that is still very much lagging versus overall growth. And as growth still, you know, probably still chugs along pretty nicely.

I mean, with an outcast saying 3%, a lot of the high-frequency data, like the Dallas Fed's weekly activity index, still suggesting around 3% GDP growth for Q3. All of that should actually say that we are right now getting out of the worst and perhaps the bottom of the earnings recession for the broader market, for the 93. And there is still quite a bit of a catch up to play for the broader market, really. And that also should be helping a bit of also the broadening story overall. Earnings expectations, though, for year-on-year growth have been coming down, albeit slightly. Max, so what about the idea that they could continue to come down further, thus pressuring the multiple?

Yeah, I'm not particularly bothered by that, to be honest, because when we look at earnings expectations, let's be honest, four-year earnings expectations, you go into January, they're always high, right? You always start every year with every year ahead, I'd look and you say, oh, that looks a bit too high, that needs to come down. And then they come down in January and February, and they typically come down. Now, it's not something where, you know, that only happens in like half of the cases. It's most of the cases where January and February, those earnings estimates are cut, because people realize they've been a bit too bullish, or they've just put on the 30-year average for earnings or something like that. But the important thing is it doesn't really correlate with returns because if it was correlating

with returns, then January and February should be the worst seasonality months. And they are not. We know that January and February are far from really being the worst seasonality. So therefore, I don't really pay an awful lot of attention to that. You could also argue, for example, Q4 double digit is also 15 percent plus on the S&P. But, you know, 5 percent alone from that is probably base effects. A lot of that is catch up from the sort of 493 stocks outside of the magnificent seven, you know, catch up with nominal GDP from the last couple of quarters.

So not particularly worried. So, I mean, you're not worried about earnings. You're not worried about the election. It doesn't sound like you're much worried about anything at all. No, not at all. No, because the thing about this, Scott, if you got, for example, in a week and a half, you got the payrolls, you could genuinely paint a picture where you're saying, well, the number, I think the consensus right now is give or take 130K. If you get 180K, great. It'll get one or two days of a risk-off reaction. But then people will, I think, very quickly realize, and that means the probability of the 50 basis

point cut. So further 50 basis point cut in November actually is increasing, and that should be good for valuations, both for spreads and for multiples. So even then, I'd be very quickly jumping in and buying that dip. Kevin, what do you think of the sectors that have led quarter to date? Which one do you think has the highest probability or that is not going to perform nearly as well going forward? Utilities are up 17.5%. Real estate's up 17. Industrials are up 10.5, and financials are up 9. Well, if I'm going with the bias of our sector model,

financials are the highest rated in terms of outperforms. But leaving that aside, I think you have to separate what's been going on in sectors like financials or industrials versus what's been going on in some of the more traditional defensives, whether it's utilities or staples. I would argue there's more strength in utilities than there is staples if you look at breadth metrics. But for the defensive trade, I view that more as a catch-up because of what happened last year and where both of those sectors actually broke through bear market lows and were down in the first year of the bull market for the S&P. It's not typically what you see in

any bull market, regardless if it follows a recession or if it doesn't. So to me, a lot of what has happened in the price action this year has been just a catch up and sort of investors realizing they probably got a little bit too aggressive with selling down those names. If you look at the strength in some of the more cyclical parts of the market, I think it's pretty much consistent with, you know, sort of us living through a soft landing and kind of going through it this year. I don't think of it as much of a destination. I think of it as a process. So it makes sense to me that financials and to some extent industrials, even materials, if the China trade starts to come back online, at least hang in there. I'm not sure that they would completely

take over as leaders for the next year or two, because I think there's always a risk of tech taking back that baton, you know, pretty aggressively. But I think it makes sense that if the Fed is going to stay a little bit more methodical about the cutting cycle, and if you don't go into an outright recession and the bottom doesn't fall out, it makes sense to me why those sectors would continue to do well. How would you answer that question, Tom? I mean, I wouldn't really add that much, except I think we have to keep in mind the Fed is in an easing cycle. The cost of money is falling for business loans, auto loans, credit cards, mortgage rates. That is true stimulus. And I think that that adds to earnings power in the coming months

and coming year. And in fact, I think that's why Russell earnings will surprise and cyclical earnings will surprise. And I think leadership could change. I asked you the other night or last week at a CEO council event that we had that you were at about the small cap call that you had made. And you're still not necessarily sticking with the 50 percent up for small caps, but you still think they could have a huge move because they tend to move quickly. That's right. I think what investors have to remember is small caps have been out of favor a long time and they are known for having explosive rallies that are not abnormal. So last year was a 27 percent rally over really 20 trading days. I think we could see

something very big between now and year end. I think I was hoping it would be after the Fed started the re-easing cycle but maybe it really has to happen after election day. But are the fundamentals getting stronger for small caps? Absolutely, because interest rates are falling, merger activity likely picks up, and the median P.E. of a Russell 2000 stock is 10 times, 10.7 times. I mean, that's not demanding, especially if we're trying to be sensitive to valuation. All right, we'll leave it there. Everybody, thank you so much. Kevin Gordon, it's good to see you here at Post 9. Tom, we'll see you again soon. Max, we'll talk to you soon as well. Let's send it to Pippa Stevens now for a look at the biggest names moving into the close.

Hi, Pippa. Hey, Scott. Well, shares of Hewlett Packard Enterprise are jumping after Barclays upgraded the stock to an overweight rating, the firm noting that rising demand for artificial intelligence servers will give HPE a boost, adding it has the lowest valuation among its peers, despite solid margins and an improving free cash flow profile. And shares of Flutter Entertainment are climbing after the online betting company announced a share buyback program of up to $5 billion. The fan duo parent also said it expects to double its core profit by 2027, boosted by a booming betting market in the U.S. Those shares up 5 percent. Scott. All right, Pippa, thank you. We'll see in a little bit. We're just getting started here up next. Meta shares are moving higher today as it kicks off its annual developers conference.

Deepwater's Gene Munster, he owns the stock. He is standing by for us with his first take. We're live at the New York Stock Exchange. You're watching Closing Bell on CNBC. All right, welcome back. Meta holding its annual Connect event today, announcing a number of new hardware products and AI tools. Julia Boorstin has been live throughout the day at the company's headquarters in Menlo Park, California, and joins us now with the details. Julia. Hey, Scott. Mark Zuckerberg announcing new augmented augmented reality and virtual reality innovations and hardware with AI at the center of everything. Meta AI is on track to being the most used AI assistant in the world by the end of this year. In fact, it's probably already there.

We're almost at 500 million monthly actives and we haven't even launched in some of the bigger countries yet. Zuckerberg announcing a slew of new features for Meta AI across WhatsApp, Messenger, Facebook and Instagram. Now users can talk to Meta AI and have it talk back to you with answers to your questions and users can pick among celebrity voices including Judi Dench and Awkwafina. Meta's AI Ray-Ban glasses are also getting more capabilities, including live translation and the ability to analyze video and set reminders all just by wearing the glasses and talking into them. The company also unveiled a new augmented reality prototype, which is calling Orion. Zuckerberg called Orion the most advanced glasses the world has ever seen. They weigh about three and a half ounces. You can see through them and you can also see holographic displays projected into them.

Meta also announcing a cheaper Quest 3S headset. It's going to cost $299 and it ships October 15th with features from the higher end Quest headset that's out now that costs $499. Scott, so quite a price cut there. Yeah, Julia, thanks so much for that. That's Julia Boorstin in Menlo Park for us. Joining us now is Gene Munster of Deepwater Asset Management's firm owns Meta, among other of the mega caps. Good to see you. So what's your reaction to what Julia just told us they did? Scott, as a Meta investor, I'm surprised that the stock has kind of held its gains today. I continue to believe in what this company is doing in terms of infusing AI to really drive engagement across their properties of three plus billion daily active users. So that is the

substance. And then also some of the framework that they're laying around wearables is really important. But the details, the substance of today, I think was a little thin. Really, probably the most tangible announcement was this 500 million users of meta AI. They're basically infusing that into Instagram and WhatsApp and to certain countries and Facebook. So it's a little bit different than like a comparable 200 million daily active number from OpenAI. And then they had the price cut like Julia talked about. And so this was more about incremental updates to what their vision is. And I just want to underscore the real takeaway here is beyond just being

incremental, there is something that is material, which is Meta is making it clear they believe in a future where smart glasses, or they refer to them as AI glasses, are going to be hundreds of millions of units. Today, if you look at Quest, it's probably 5 million units, probably 1% of sales, but they're really putting the stake in the ground. And if you look at Quest, it's probably 5 million units, probably 1% of sales. But they're really putting the stake in the ground. And if you look at the stock, it jumped 1% on this news of Orion. Orion is probably three to five years away from seeing the light of day. And so I think that that really underscores that jump on the stock is that investors are really want to hear and are glad to hear that Meta is putting their

foot down, that they see a future in AI glasses and wearables. Do you think the jump in the stock, you know, we can see from year to date, it's up 60 plus percent. Do you think all of that is justified? I do. I think that if you look at what's happened with their earnings, I mean, the stock is up 60 plus percent earnings during the multiple has gone up from 19 times the out year to it's about 29 times. But earnings during that period are up about 40 percent. And we still haven't really begun to see the benefit of AI. And I want to put some substance. When we talk in AI, a lot of times it's like theory, like what is the real tangible piece here? for AI to drive engagement, to make it easier for creatives to build content, to make the content

better targeted at users, that also improve engagement. All that, I think, is still largely on the come. And so, Scott, when I think about where this stock can go and think about the earnings power, I think that we should see upside to numbers in 25 as these features become more mainstream with creatives and their base alike. How do you feel about Alphabet, which the firm owns as well? It's been an underperformer over the last month. It's obviously had a good year, like many of these mega cap techs have had. But you do have regulatory issues swirling around there and some others, too. So how do you view it here? So we still like Google. I think that when it comes to the regulatory piece, we continue to believe that they're going to successfully navigate this. I think ultimately

is that their search business, I mean, continue to do exceptionally well in the June quarter. I mean, that was a long time ago, when they reported the June quarter, but it's up 14% as similar growth rate as the March quarter. And so from our perspective is what they're doing in terms of adding generative search to their results and kind of layering in Gemini seems to be having the right effect. And ultimately, the question comes down to this is, will AI and regulation really sidetrack the business? And for AI to sidetrack the business, for example, OpenAI to come out with a product that is going to steal a share away from Google Search, it really needs to be 10 times better. And at this point, the way Gemini has been integrated

inside of Google Search, it's opening eye and what they're going to do in search is not going to be 10x better. And so we continue to feel good about this. I mentioned wearables earlier. Google, of course, has talked a lot about wearables with their Astra project. And so I think that Google is still in a great place. It's the oxygen in the internet and that hasn't changed. I think you're reasonably identified with Apple over the years. I know your firm doesn't own it, but you do personally. You used to cover it, obviously, in your former existence on the street. There are a lot of notes out today that are calling into question demand

about the 16. They're counting on a huge upgrade cycle, right? The stock had a massive move from the developers conference on, right? And now we're hearing doubts about lead times and what real demand is going to be. Do you have a sense of what the real story here is? I do. We've done a lot over the past couple months just in terms of what this cycle is going to look like. And ultimately, I think that iPhone is going to probably grow closer to 10% to 15% in fiscal 25. The street right now is about 7%. And part of the reason is that I don't think the street really understands how big of an

upgrade wave is coming. Numbers get thrown out there, but I want to make it very easy for investors. In 2021, the iPhone business was up 39%. Had a huge surge, obviously, because of the pandemic. The average upgrade life is about five years for an iPhone. And so we're going to start to see this massive wave, their biggest year, that massive wave, coming into an upgrade window.

So that alone, along with easy comps, should provide upside to the iPhone numbers. But then you layer on top of that what I think are going to be AI features that are must-have. And that's the part that is a guess on my part. What I've seen in the features, I haven't tried them. Apple intelligence, no one really has. But what I've seen and understand about what they can do, I think it's going to create a wave of a couple of year of upgrades. And so ultimately, I still believe in this company. You guys own Micron quickly for me, if you could, Gene. Earnings are obviously in overtime.

What are your expectations here? All about their commentary on pricing for next quarter, at least the stock in the near term. But that is it really is noise. Focus on the long-term about the high bandwidth memory. They're sold out through the end of 2025. Positive commentary on that should be positive for the stock. All right, good stuff. It's good to catch up with you again, Gene. Thanks for your time today.

It's Gene Leisner, Deepwater. Quick programming note. Don't miss MetaChief product officer Chris Cox on Overtime. That is today, 4 o'clock Eastern Time. And also make sure to catch the CEO of Micron. That is tomorrow. Squawk on the street, and that's at 9.30 a.m. Eastern Time. Up next, the Dean of Valuation is back.

I'll swap the motor in. He'll tell us how he's navigating the mega caps right now, what's overvalued, what's not. Next. The tech trade losing a little bit of steam, and big tech's performance starting to split as well. NVIDIA adding to yesterday's gains. It's back above $3 trillion in market cap as we speak. There's the 2% move today. Meta's also higher, as we just told you, on the heels of its Connect conference.

Apple, Amazon, Alphabet all down today. Joining me now to help navigate the tech story with earnings just weeks away now, the Dean of Valuations, Aswath Damodaran, NYU's Stern School of Business. Good to see you again. Welcome back. Hi, Scott. Glad to be back. When you look at the multiples of the MAG-7, what do you see today? I see the fact that these are the companies everybody wants to flock to. But in the last few months, we've had reminders with each of these companies about their weakest links. With NVIDIA, it around the earnings announcement which is you saw how high expectations have been set and what looked like a good earnings report turned out to be a disappointment. With Apple we've lived from upgrade to upgrade now. 16 upgrades and I don't know why we're surprised.

One upgrade measures up to expectation, the next one doesn't. With Google, we're still waiting for the next big business. They still make so much of their money from the search box. So much as these companies have been winners, they also have weak spots. And I think in the last few months, you see those weak spots sometimes highlighted, which explains why on any given day, two of them are up and two of them are down. It's the nature of the beast. But are you suggesting that, let's talk specifically NVIDIA, Apple, Alphabet, are you saying they're overvalued currently? I think that, I mean, rather than overvalued or undervalued, let's talk about investing odds. If investing is a game of odds with NVIDIA, the odds are against you because of how high a price

you're paying. With Apple, the odds might be even odds. With Alphabet and Meta, I think the odds are still with you because to the extent that these companies can pull off something outside their core businesses, you're going to get the bonus from that. So rather than think undervalued, overvalued, I think in terms of investing odds. And in terms of investing odds, I think the worst odds are with Nvidia. The best odds might be with the companies that are, at that moment at least, are the companies that are, at that moment at least, are the companies that are not in the favored group. That's really interesting that you suggest the worst odds are with Nvidia,

just given what we've heard even... As an investor. As a trader, I reverse the whole thing because it's all about momentum. It's got nothing to do with fundamentals. It's got nothing to do with what the business looks got nothing to do with, you know, what the business looks like. NVIDIA is the perfect momentum play in either direction. If you're a trader, I can see why NVIDIA is going to be where you're going. But as an investor, I think the worst odds are with NVIDIA. Well, I mean, but I want to address it as an investment to make because, you know,

34 times it's cheaper than it has been for certain. Secondly, we've heard from Jensen Wong recently, you know, as I don't know, within even the last couple of weeks about the great demand that the company continues to see. They have by all accounts what, you know, many would suggest to be not just a first mover advantage, but in fact a moat because of their installed base. Much like we talk about Apple having. a first mover advantage, but in fact a moat because of their installed base, much like we talk about Apple having. So how does that all factor in, though? Let me concede all of those. It's an amazing company going after a big market that's going to dominate because it

has immense moats. But that would mean that you would need a trillion dollars in revenues and 70 percent margins to be delivered 10 years from now, reverse engineering from the $3 trillion market cap. So even if you took every word that Jensen Wong takes as the truth and you build it in, I still have a tough time getting to $3 trillion. I mean, this is a company that if you look at the current numbers has to have immense growth and maintain 70% operating margins to deliver what you paid already up front as a price. That's what I mean about investing odds being against you. You price this company to be the

most amazing company of all time. Where's the upside left? If it's just amazing rather than the most amazing company, that's a disappointment. So I think this is something you're going to see the back and forth on in terms of expectations. But the expectations at some point have to get reset so the company can actually deliver on those numbers. Did you sell any of your own shares? I sold half to the extent that I did it a year ago. It might be due for another half to be sold at some point in time. But the last time I valued was right after the earnings report. So least overvalued it looked since the AI boom started.

So in a sense, if I were going to sell it three months ago, four months ago, when it hit 136, it would have been the time to do it. So I'm watching the price. And if it triggers enough of an overvaluation then perhaps it's time to get rid of another half of whatever half I've left so it's that's something I'm open to doing okay interesting we'll have a conversation again about that but I want to turn ours now to Nike because I know it's been on your mind you know they obviously had the leadership change how you you don't own the stock is that right no okay No. Okay. So how are you

thinking about it? Because it's far from what some would suggest. I've heard it from many investors on my programs. They certainly don't say it's cheap. No, it's not cheap. I think in a sense, the reason I'm focused on Nike is part of a broader question, which is you see some really well-known brand names, companies that you've taken for granted as companies that are going to sustain their brand name forever. I mean, and this is in the, especially in the apparel footwear business, Lululemon is going through the same troubles. Nike is going through troubles. And at some point, the question you got to ask is, has the business changed in a fundamental way to put these brand

names, which have historically held onto their value at risk. And I do think it has. I think with fast fashion on one hand and fad brand names, brand names that have come in, especially among the younger people, taking away the advantage. I think big brand name companies have aging consumers. And as those consumers age out, you're going to see more examples like Nike play out. They're going to look cheap and you're going to buy them saying they're going to return to their glory. And as those consumers age out, you're going to see more examples like Nike play out. They're going to look cheap and you're going to buy them saying they're going to return to their glory. And then you're going to say, what happened? So I know my interest in Nike is more part of a broader question is what's happening to the value brand names across the board and why are they under assault, not just in consumer products, but in beverages and other businesses

where historically they've held on to their value. That's why I was thinking of Starbucks as you were talking about that. I think you were insinuating or at least that was one on your mind. They've lost their storyline entirely, right? The old coffee shop, people gathered together in nice stores. I mean, the online ordering, in a sense, broke their own story. It was successful, but it broke their storyline. And until they find a storyline that works, they're going to have trouble with this market. Interesting. We'll talk again soon. Professor,

thanks. I appreciate it, as always. Aswath Damodaran of NYU. Up next, tracking the biggest movers as we head into the close. Pippa Stevens doing that for us once again. Hi, Pippa. Well, one AI beneficiary is up for a 13th straight day. We've got the name to watch coming up next. We have less than 15 to go before the closing bell. Back to Pippa Stevens now for the key stocks that she's watching. Tell us, Pippa. Hey, Scott, General Motors and Ford are slipping as Morgan Stanley's Adam Jonas downgrades the stocks, GM to underweight and Ford to equal weight, pointing to worsening U.S. consumer credit, as well as China's growing to equal weight, pointing to worsening U.S. consumer credit as well as China's growing car production capacity, which is eating into the company's

market share. And Vistra's share is up for a record 13th straight session, and the stock has now more than tripled this year amid increasing power demand to fuel the AI boom. Vistra is the largest owner of unregulated generation capacity in the U.S. and a beneficiary of those higher prices. The stock up 209% on the year. Scott? All right, Pippa, thank you for that. Pippa Stevens still ahead. Southwest shares slumping as it changes up its service plans to one of the world's busiest airports.

We have the details straight ahead. All right, we're in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of this trading day. Plus, Southwest selling off a day before its investor day. Phil LeBeau is going to give us those details. First, though, we do have some breaking news regarding OpenAI. And Kate Rooney has that for us. Kate, this is quite a development. Yeah, Scott. So a major executive at OpenAI leaving the company. This is Meera Muradi. She is the chief technical officer, the CTO. She's been with this company for six and a half years, was briefly the interim CEO, if you remember, about a year ago when Sam Altman was removed from the company.

Briefly, that was back in November 2023. It comes amid some other recent departures from this company. You had names like John Shulman, who left for rival Anthropic, Ilya Sutskevar, who was a co-founder and also announced his departure. But I do want to read you a tweet here from Marati. She says, I have something to share after much reflection. She says, I have made the difficult decision to leave OpenAI. She says, it's never an ideal time to step away from a place one cherishes, yet the moment feels right. She says she's stepping away because she wants to create time and space to do her own exploration.

I will say a lot of the OpenAI founders, early executives have gone on to build other companies. She has not said what she's working on, but they've had no problem raising venture capital money. I also want to read you a tweet here from Sam Altman, current CEO of OpenAI. He says he feels tremendous gratitude towards her for what she's helped build and accomplish, personal gratitude and sending support for her and her support during hard times. But again, a major development from OpenAI here and the latest kind of shakeup on the executive level, Scott. OK, Kate, you let us know what else you learn in the hours ahead. That's Kate Rooney on that beat for us. Phil LeBeau on Southwest Airlines. You're going to

speak with the CEO tomorrow, Phil, but what are you thinking about today regarding this stock and the activist battle that it's in? Plenty of turmoil, Scott. And look, today we found out that one of the components that Southwest is going to be talking about, cost cutting. They're going to be cutting back their service in Atlanta, not eliminating it, but cutting it back. Tomorrow on Investor Day, we'll hear about cost cutting as well as revenue growth initiatives. The Elliott Group proxy fight, that is just heating up. In fact, if you take a look at shares of Southwest, Elliott said yesterday it may call for a shareholder meeting. As soon as next week, they may call for it. It won't happen next week, but relatively soon. Southwest is in the process of replacing six

directors by the middle of November. And as you mentioned, Scott, we'll be talking with Bob Jordan, CEO of Southwest, tomorrow afternoon. You don't want to miss what he has to say after he outlines the cost-cutting as well as revenue growth initiatives the company will be undertaking. Scott, back to you. All right, good stuff, Phil. We'll look forward to your interview certainly coming up tomorrow in overtime. We do have about 90 seconds left. We turn to Mike Santoli. Thanks for bearing with us here as we had that breaking OpenAI news

and interesting news at that. But what are your thoughts on this market action today? On a day when twice as many stocks are down as up and, you know, it feels a little bit heavy. I mean, it's a win. You're down a quarter of a percent in the S&P. Just giving back yesterday's gain. I still think the market in the last week has essentially said we have a late cycle lifeline in the form of the Fed. Consumer cyclicals, industrials working.

Yields leaking higher. You've been talking about that. I don't think it's a bad thing. I think it fits with history in terms of what happens after a rate hike. It happens when the Fed has decided to somewhat back off the fight against inflation and arguably when the economy looks like it has a shot to reaccelerate a little bit. You don't want to see it shoot higher too much more from here, but it's worth remembering 10 years at 4 percent the day of the August 2nd July jobs report.

That's when we got the growth to care. That's when people stampeded into Treasury. So we're still operating well within that range between those two undesirable outcomes. Yeah, got a PCE weight. That's really what it feels like, you know, even though we've sort of moved beyond the inflation story. Also, you get personal income and spending in that same report for PCE, and that's going to matter if nothing else. Yeah, good points as always. Mike, thanks. This is Mike Santoli, Senior Markets Commentator.

So we'll go red. Dow's going to be about a 300-point loser. That'll do it for us.