Closing Bell 02/04/25

[0] Welcome to Closing Bell.

[1] I'm Sarah Eisen in for Scott Wapner.

[2] We are live from Post 9 of the New York Stock Exchange.

[3] This make or break hour begins with Alphabet.

[4] Shares hitting a record intraday high as it gets set to report fourth quarter results after the bell.

[5] We're going to break down what's at stake for the tech giant and the sector overall with our panel of experts in just a moment.

[6] But first, here's a look at the scorecard with 60 minutes to go in regulation.

[7] The majors are in the green with Wall Street looking to find its footing following the latest developments on the global trade front.

[8] The Nasdaq and the S &P 500 seeing gains.

[9] Dow's actually joined them as well, up a third of 1%.

[10] Things apart to strong results here from Palantir.

[11] That is fueling the S &P and Nasdaq.

[12] That stock trading at all -time highs.

[13] Takes us to our talk of the tape.

[14] And another moment of truth for the mega caps as Alphabet gets ready to report.

[15] Let's bring in our panel.

[16] Big technology founder and CNBC contributor Alex Kantrowitz, Wealth Enhancement Group's Ayako, Yoshioka, and our own Deirdre Bosa.

[17] It's good to have all of you here.

[18] Deirdre, just set it up for us on Alphabet.

[19] What are we looking for and why is the streak getting optimistic?

[20] So Alphabet is such a noisy print, right?

[21] Because you've got the bread and butter, which is, of course, the core search advertising business.

[22] But they're trying to turn this massive ship and really gain credibility in AI.

[23] And I mean, all the tools are there.

[24] It has the technical talent.

[25] It has the technology breakthroughs.

[26] It has the distribution.

[27] But people just haven't adopted it in the same way as a chat GPT and now even a deep seek.

[28] So Sundar Pichai, the CEO, has said that this year.

[29] He wants to get 500 million people using Gemini, the Gemini app, which is its chat bot.

[30] So really, this is kind of like a prove it year for Google.

[31] If you think that AI is the most important race, they have to continue to stay ahead in terms of the technology, but they also have to get users to adopt it.

[32] CapEx is also going to be very interesting, right?

[33] In a post -Deep Seek world, you saw Meta and Microsoft.

[34] They're not scaling back at all.

[35] I don't expect Alphabet to either because essentially the stakes have just been...

[36] and they have to keep making these technological breakthroughs, but also get credit for it, not only from developers, but from users also.

[37] So Alex, where are they in the technological breakthroughs and the AI race?

[38] You were telling me that they're ahead of what I think many people believe.

[39] Yeah, I just think that they're very well positioned.

[40] So first of all, you look at where the risks have been.

[41] That's in search and search advertising.

[42] They're doing well.

[43] They're going to be up double digits in the quarter.

[44] So the big worry about them losing the lead, that seems to have moved away.

[45] Then when it comes to the technology, the AI technology that everybody's talking about, we already know that cloud is expected to go up 30 percent over the quarter.

[46] So that's huge for them.

[47] But if you break it down one level deeper.

[48] you have to think about the fact that they are playing in the model space with Gemini.

[49] They're playing in the application space with their chatbot.

[50] They have data center with Google Cloud, and they also have infrastructure with their own chips.

[51] So in the four buckets where you can really make money in AI, Google is playing.

[52] And I think they were written off last year because they had a couple of really bad releases.

[53] But I think they've showed now that with a little bit of culture change and a little bit of direction, that they can be the best position player in the entire AI game.

[54] And I think it's really heading that way for them right now.

[55] Bank of America seeds upside on the ad business after Meta's fourth quarter beat and e -commerce vertical commentary is positive read through for the Google results.

[56] Aya, I know you own a lot of the mag seven names.

[57] Where are you on Alphabet?

[58] Sure.

[59] So we still own Alphabet and we continue to like it.

[60] It has a really good valuation.

[61] And we do like a lot of the long term prospects for Alphabet, including things like Waymo and, you know.

[62] driverless cars.

[63] And so we continue to like the name.

[64] And search revenue, I think, continues to be strong.

[65] And I think it's really just about the infrastructure of Alphabet and making sure that it's right set for the future and for AI.

[66] So I think they've been making a lot of changes there.

[67] And we'll look to see any additional commentary related to that on the call.

[68] Some of these firms, Guggenheim, I see, raising 2025 CapEx and expense growth forecasts.

[69] And I wonder if investors are going to be as forgiving with the big spending in the wake of the deep seek moment.

[70] Sure.

[71] We saw that with both Microsoft and Meta.

[72] So Microsoft was not necessarily forgiven for their CapEx spend, but they had telegraphed that $80 billion spend for some time.

[73] And then with Meta, they...

[74] continue to believe they are going to continue to spend 60 to 65 billion in 2025.

[75] And they saw the optimization of AI within their own platform really bring to fruition some of that monetization.

[76] And that's what we need to see out of Alphabet as well.

[77] Alex, talk about some of what they've got going on, because as Deirdre said, adoption is the key.

[78] So you and I were talking about some of the examples in biotech and the health space that they're working on that people aren't necessarily aware of.

[79] What can you tell us?

[80] Right.

[81] So there's two big things that's happened here.

[82] First of all, you look at Google products and all these little AI implementations are starting to show up in Google products all over the place.

[83] Now, they have their own standalone things like Notebook LM, where you could drop a bunch of articles in and then it will turn it into a podcast narrated by two AI hosts, which are a little bit too freaky for me because they're so real sounding and it's not going to put me out of business.

[84] They also have their own deep research thing that will.

[85] generate research reports for you.

[86] And this year they're going to move into agents.

[87] And we know that agents are really valuable in email, for instance, or in calendar.

[88] But we all use Gmail.

[89] We use Google Calendar for the most part.

[90] And that's the place where you're going to see agentic stuff.

[91] really take hold.

[92] Now, the last thing that you mentioned is in bioscience.

[93] This company is far ahead of everybody else in AI being applied to bioscience.

[94] We know that they just won the Nobel Prize in chemistry for AlphaFold last year, and that's not where they want to end.

[95] So they've decoded proteins.

[96] Now they're going to work on trying to build a virtual cell.

[97] It's a few years out, but if they can build a virtual cell through AI, you might see drug companies paying to use the technology to test medication before they make it into the wet lab.

[98] At least that's what Google DeepMind CEO Demis Hassabis told me when I was in London speaking with him earlier this year.

[99] And so there's so much potential, both in the product today, but also in these big bets that they have going on in the future.

[100] And that's why I think Google is just so well positioned.

[101] An AI cell, like a human cell you're talking about, to test out meds.

[102] So right now, if you're going to try to test drugs, you take a lot of different opportunities to try to put it into cells in the wet lab, right?

[103] So you're trying to put it into cells that are living.

[104] Can you imagine?

[105] And this is, of course, their moonshot, and maybe it's just the talk track.

[106] but hey, they just decoded protein.

[107] Could you imagine being able to test that in AI?

[108] If you're able to do that, and again, a couple years down the road, that is a game changer for the drug development industry, and we know that's a big industry.

[109] So if they get that right, and maybe there's just a 10 % chance that they can get that right, or 20%, then that's a very, very big business for Google moving forward.

[110] No, I just liked that anecdote and reporting, Deirdre.

[111] We veered away from earnings, but one overhang on this stock has been the regulatory risk.

[112] So where are we there, and do we expect any kind of update today?

[113] I mean, there was another sort of regulatory risk that sprouted last night out of China, which I don't know if investors are really going to take seriously because Google doesn't even operate in China.

[114] Yes, Android is important, but Huawei is already creating sort of an alternate operating system.

[115] The regulatory overhang, though, is real.

[116] We've talked about valuations a number of times and just the sheer number of these lawsuits and the volatility of them as well.

[117] We don't know what the new administration and the new administrations, you know.

[118] FTC and DOJ are going to do with big tech.

[119] So that continues to be an overhang.

[120] But Sarah, I just wanted to mention, as you're talking about some of these moonshotty projects, I can't believe we haven't mentioned Waymo.

[121] Talk about adoption.

[122] This will be really interesting.

[123] It's just been growing at a remarkable pace.

[124] My personal hope is that they give us some more details around the finances, because that could be really interesting and could move the needle, even though it's been relatively small.

[125] Good point.

[126] All right.

[127] Well, look for all of that, guys.

[128] Thank you for the pregame on Alphabet, Deirdre and Alex.

[129] Aya, stay with us, if you would, to talk about the markets, though we are getting some breaking news out of Washington.

[130] First, let's get over to Megan Casella for that.

[131] Megan.

[132] Sarah, President Trump is once again speaking with reporters in the Oval Office right now.

[133] We are once again waiting on tape, but we are starting to see some headlines flash from the wires that I wanted to bring you.

[134] The first is that Trump has told reporters that he will speak with Chinese President Xi Jinping at the appropriate time, but is in no rush to do so.

[135] That comes after he told reporters yesterday he thought he would speak with Xi probably within the next 24 hours.

[136] Earlier, we heard from the press secretary saying again that that call was happening within 24 hours, we had thought, tonight or tomorrow morning.

[137] Now it seems like that call might not yet be scheduled.

[138] Trump saying that he's not in a rush to talk with him, raising questions about the status of those tariffs and the retaliation that we saw this morning.

[139] Trump also was asked about that retaliation and said that's fine.

[140] So more to watch there.

[141] He's also mostly talking about Iran right now and Iran's oil supply.

[142] And he said that he believes the U .S. has the right to block the sale of Iranian oil to other nations.

[143] This, of course, comes as the White House is working on a maximum pressure campaign against Iran.

[144] trying to drive oil exports down to zero in order to block Iran from getting a nuclear weapon.

[145] Trump saying that he would talk to his Iranian counterpart, but that Iran cannot have a nuclear weapon.

[146] So headlines still coming in, Sarah.

[147] We'll continue to monitor them and continue to bring more as we have it.

[148] I'll toss it back over to you for now.

[149] OK, thank you very much, Megan Casella.

[150] Also, he's been speaking with Israeli Prime Minister Benjamin Netanyahu.

[151] Iran obviously top of mind there as well.

[152] Let's bring in Liz Young.

[153] Liz Young Thomas, I should say, head of investment strategy at SoFi.

[154] Also with us is Wealth Enhancement Group's Ayaya Shiaka.

[155] It's great to have you both here, ladies.

[156] Liz, if you see a headline like that, like Trump and Xi are expected to speak soon, but not necessarily today.

[157] We got the retaliatory tariffs overnight.

[158] What do you think as an investor?

[159] This is not over.

[160] I think, first of all, you know, obviously we're seeing today a reaction in the market, a sector reaction in the market that's almost in direct response to everything that's happened over the last 36 hours.

[161] But I don't think this is over.

[162] And frankly, with China, I think it's far from over.

[163] So there's a lot more news that's likely yet to come.

[164] Does that make you more cautious on the market overall?

[165] It makes me cautious in the sense of you don't want to reprice everything right now and assume that we've figured it out and assume that we've heard all that we're going to hear.

[166] I think China will.

[167] much more strongly than some other nations.

[168] And I think this game will continue for a while.

[169] And remember, this story with China is years old now.

[170] This is not something that we've established as, you know, we've sort of solved the problem.

[171] So I think there's still a lot more to come.

[172] The sectors that are the most sensitive to Chinese tariffs and this part of the trade war, so to speak, are going to be consumer discretionary and technology.

[173] And we're going to continue to have this whiplash of risk on, risk off in the market.

[174] So investors have to stay weary of that.

[175] Aya, have you changed any of your exposures or allocations given what we've seen with tariffs?

[176] No, Sarah, we have not changed anything, at least.

[177] You know, I think we're still in the phase where we're digesting exactly how this is all going to play out.

[178] Is it a negotiating tactic?

[179] Are they going to actually put these tariffs into place?

[180] How bad would a trade war become with all of the retaliatory policies that might get put in place?

[181] And so we're taking a longer term view on many of these things and trying to understand what the true implications will be, not just today, but in the next 12 months.

[182] I mean, one thing you both are saying is that the risk is not going away.

[183] It's going to be with us.

[184] Does it shake your conviction, for instance, if we have more days like yesterday, where he actually did pull the trigger until we got the phone call?

[185] It doesn't shake my conviction in the longer -term stories.

[186] I think that this rotation that's been happening under the surface in equities will continue as long as the economic data in the U .S. stays strong.

[187] And that's still been the story here.

[188] So as long as the labor market stays intact, I know we've got some shaky jolts data today, but as long as the labor market stays intact...

[189] Still elevated openings.

[190] Still elevated, but below expectations, let's call it.

[191] And as long as inflation doesn't re -spike, then I think we're still okay.

[192] And if growth continues...

[193] to stay solid, then you've still got this story behind the market that everything is OK.

[194] You might see investors rotate out of things that are highly valued and into other things.

[195] So I still believe health care is a good place to be.

[196] I still believe CapEx dollars will flow to software rather than semis this year, at least comparatively speaking.

[197] I think materials can catch a bid here.

[198] I think financials stay solid.

[199] So I think that this rotation story under the surface stays intact.

[200] You didn't mention energy.

[201] Is there a reason?

[202] Energy is really sensitive to these geopolitical risks.

[203] Today, we're seeing energy as the top -performing sector, but I think that's directly in response to the Canada and Mexico tariffs, particularly Canada tariffs, being paused for a month.

[204] So you don't want to react on a one -day move and buy something like energy.

[205] I like to think of it as don't make permanent decisions based on temporary emotions.

[206] We're going to get these daily headlines.

[207] You don't want to change your investment allocation just based on that.

[208] And energy is something that I am positive on for the year, but mostly for an M &A activity standpoint.

[209] not because we think that tariffs are going to affect the energy story.

[210] Aya, what about you?

[211] Energy stocks, the sector's up 2 % right now.

[212] President Trump just speaking, as you heard Megan saying about potentially blocking oil exports from Iran.

[213] They're clearly going to ratchet up the pressure here, maximum pressure campaign.

[214] Do you like energy as a catch -up play?

[215] You know, I think energy as part of everybody's portfolio, there is a place for that.

[216] And especially, you know...

[217] Over the past several years, a lot of the energy companies have just become a lot more disciplined and so a little less sensitive to the commodity price movements, but they are still sensitive to the underlying commodity.

[218] And so we do think there's place for energy within a lot of people's portfolios.

[219] It just depends on what type of energy company you're looking at, whether it's more a driller, a diversifier, or perhaps an equipment provider.

[220] So you're still, I mean, you still think that tech leads the way.

[221] I know you like Alphabet, you were talking about, and some of those other big names.

[222] Palantir is the leader today.

[223] I guess the risk is we have something like last week, the deepfake, or this week, the tariffs, where you see the high valuation stocks get punished the hardest.

[224] Sure.

[225] I mean, I think in the markets, right, we have high valuations and everything's priced for a little bit of perfection.

[226] And so all of these headlines that we're seeing are creating this choppiness that we're seeing.

[227] And we sort of expected this, you know, going into 2025.

[228] And we're seeing that with earnings.

[229] We're seeing that with headlines.

[230] But I think if you take a longer term view, these will get smoothed out.

[231] And there are still high quality companies.

[232] to continue to own within this environment.

[233] All right.

[234] You guys are both tuning out the noise.

[235] It's like, no, no headline.

[236] That's our job.

[237] That's our job.

[238] Thank you, Liz Young, Thomas, Aya, Yoshioko.

[239] Thank you very much.

[240] We'll send it over now to Christina Partzinevelis for a look at the biggest names moving here into the close.

[241] Christina.

[242] Thanks, Sarah.

[243] Well, budget and health -conscious consumers are contributing to a drop in U .S. demand for PepsiCo snacks and drinks, and this is for the fifth straight quarter.

[244] It's also contributing to a revenue miss in the fourth quarter we just saw in their earnings.

[245] But management promises North American sales are going to pick up this year, helped in part by a push into protein drinks, because protein is the latest diet fad.

[246] You can see that PepsiCo shares are down about 4%.

[247] Spotify reporting its first full year of profitability, a bigger than expected earnings beat as well, helping drive shares almost 12 % higher today.

[248] Even with membership prices across the board increasing, customers are still flocking to the audio giant, contributing to another strong quarter of subscriber gains.

[249] You can see shares again up 12%, Sarah.

[250] OK, thank you, Christina.

[251] We are just getting started here.

[252] Up next, star chip analyst Stacey Raskon standing by with what President Trump's tariffs could mean for the semispace.

[253] That's after a break.

[254] We are live from the New York Stock Exchange.

[255] You're watching Closing Bell on CNBC with the Dow up 136 points.

[256] Welcome back.

[257] Semi is getting a boost today.

[258] NVIDIA is up 2 % as investors shake off those concerns over a potential trade war with China.

[259] Shares of AMD up nearly 4 % as that company is getting ready to report fourth quarter results coming after the bell today.

[260] Joining me now is Bernstein Research's Stacey Raskon.

[261] Stacey, tariff risk in semiconductors.

[262] How do you look at it after these new China, the China back and forth?

[263] Yeah, you bet.

[264] So semiconductors actually have very little direct risk.

[265] from tariffs at least on these countries which are china and then i guess we'll find out at some point mexico and canada the u .s imports a fair amount i think in 23 the u .s imported about 73 billion dollars of total semiconductors less than 10 billion came from those three countries combined now uh out of a you know a 600 billion dollar plus total industry, it's relatively small.

[266] So the direct impacts are pretty minimal.

[267] There are potential indirect impacts, though, because most semiconductors travel into the U .S. inside other things.

[268] And so there can be secondary effects, like if there's demand destruction because the prices of the end products that contain the semiconductors go up, and does that impact demand?

[269] And just for an example, you know what?

[270] China is a pretty sizable importer to the U .S. of things like handsets and compute PCs and servers.

[271] Mexico is as well, as well as vehicles and cars.

[272] A lot come from Mexico and Canada.

[273] We import a lot of vehicles from Canada as well.

[274] Is it enough to change your view on any of these?

[275] Not directly.

[276] Does it change your view on any of these?

[277] Change numbers?

[278] Change demand?

[279] No. No, to be fair, we've been looking at tariffs on and off for years.

[280] I think I did my first tariff note in 2019.

[281] I think I've done six or seven of them since then.

[282] There are very little direct impacts, unless there are universal tariffs, which clearly could have an impact.

[283] But universal tariffs will have an impact on everything, not just semiconductors.

[284] So no, I'm not too worried about tariffs, at least not from a direct point of view.

[285] OK, what about AMD?

[286] Stock is up 4 % into this report.

[287] You know, there was kind of a rethink on these semis, especially tied to the AI stories from DeepSeek.

[288] Where are we on that and what do you expect today?

[289] Yeah, so AMD does report in just a little bit.

[290] I think the stock's probably up because I think expectations have come down.

[291] You can go look at the share price.

[292] It's been under a lot of pressure for a while.

[293] And I think investors, everybody's worried about, you know, what is the AI number going to be next year?

[294] Are the AI revenues going to decline in Q1 potentially?

[295] They were talking about lumpiness last quarter.

[296] And I think there's a belief maybe that expectations are now finally low enough where people can maybe take a flyer on it.

[297] So I suspect that's why it's up.

[298] I think it's just positioning into the print.

[299] Why is it underperformed so much?

[300] I'm sorry, what was that?

[301] Why is it underperformed so much?

[302] Well, you have to remember, you go back six or nine months ago and people thought, you know, they were guiding at that point for like $2 billion in AI revenues.

[303] And they'll wind up doing five or so.

[304] But I mean, at that point, people thought they were going to do 10 plus.

[305] And so expectation just got way out over their skis.

[306] And they moderated and came back down to reality, you know, as we went through the year.

[307] And that's kind of where we are right now.

[308] Personally, I still worry that numbers overall next year could be a little too high.

[309] We are below.

[310] I'd like to see.

[311] Again, the sell side AI numbers come down.

[312] Again, I think the buy side, the investors who are investing in the stock, their expectations have now come down for next year.

[313] And again, people are looking at what this might be into Q1.

[314] I suspect numbers need to come down.

[315] I mean, that's what the stock price is.

[316] Reflecting numbers were too high.

[317] And I think there's a belief going into it maybe tonight that maybe if expectations are low enough, you can take a flyer on it.

[318] And at least the valuation is a little more palatable.

[319] It was, I don't know, as of yesterday, it was something like 25 times forward earnings.

[320] I mean, it was, I don't know, 40 or 45 times if you go back, you know, like I said, two or three quarters.

[321] So it's moderated.

[322] So it's still 150 price target for you on that.

[323] What about NVIDIA 175, which is having a little rebound today, but hasn't really come back from last week?

[324] No. Has the narrative changed?

[325] Well, I think I said this earlier on CBC a while back.

[326] I think the whole deep seek thing.

[327] The fears are very much overblown.

[328] But that being said, you know, there's an overhang and like you can't prove a negative, right?

[329] You can't prove that it won't be an issue.

[330] And if people are now worried that it could be an issue, I mean, that just may take a little bit of time to clear.

[331] And you can sort of fold that on top of some of the supply chain issues that they've been having.

[332] You know, they're ramping up their new platforms and these are very, very complicated things.

[333] And they're going to sell every single one that they can get out the door.

[334] The question is, how many of them can they get out the door?

[335] And so there's some incremental nervousness just around them getting supply chain in order as you go through the year.

[336] And couple that with this broader uncertainty around AI and DeepSeek and everything else, it's creating a bit of an overhang.

[337] I think it was overdone.

[338] But wasn't the uncertainty around just how much spending would have to get done on these advanced AI models?

[339] And what we got from Meta and Microsoft is unchanged or lifted.

[340] And that's what's expected today from Google.

[341] Yeah, I think so.

[342] And to be fair, I think with NVIDIA, I don't think anybody's worried that demand this year is going to moderate because there's a concern like, well, what about 2026?

[343] What about when they launch Rubin, which is their next platform?

[344] will demand for that be curtailed because of this.

[345] And I think worries about a potential 2026 air pocket were already there.

[346] It's just the numbers have gotten so big so quickly with NVIDIA.

[347] The natural question is how sustainable it is.

[348] And so those worries have always been there.

[349] And now given the deep seek and the narrative around we're going to need less compute, which I do not believe, by the way, but given that narrative, there are people who worry more about 2026.

[350] And so I think that's where people are looking.

[351] Stacey, thank you.

[352] We got a lot done there.

[353] Stacey Raskin.

[354] Up next, Disney reports results tomorrow morning.

[355] A rundown of what to watch and what's at stake from that report with Jim Stewart, who wrote the book on Disney.

[356] That's coming up.

[357] Closing Bell.

[358] We'll be right back.

[359] Welcome back.

[360] Disney reporting earnings tomorrow before the bell.

[361] The company has beat earnings estimates in the past six releases.

[362] Here with more is Pulitzer Prize winning New York Times columnist Jim Stewart.

[363] Welcome back, Jim.

[364] Nice to see you.

[365] Thanks, Erin.

[366] Nice to see you.

[367] It's sort of this, it's a zoom out picture with Disney.

[368] So they won the proxy fight with Nelson Peltz.

[369] The stock kind of in the near term.

[370] bottomed around last summer and then has had this slow grind higher.

[371] How much conviction do you have in the turnaround?

[372] Well, I think near term, it looks very solid.

[373] Iger has stabilized things back there.

[374] They're firing on all cylinders at the movie studios.

[375] They've got a lot of momentum.

[376] The streaming picture is a lot of the mysteries about that are coming into focus.

[377] I think all that is good.

[378] I think what's been a cap on the stock and why it's been kind of a slow grind is longer term.

[379] There's still these.

[380] Bigger questions.

[381] Number one, how profitable can streaming ever be?

[382] Number two, what are they going to do with ESPN?

[383] They're going to be translating that into the streaming format, presumably this fall.

[384] That's a big question mark over a huge chunk of their revenue.

[385] And then, of course, there's still the succession issue.

[386] Iger says he swears he's leaving this time in 2026.

[387] And so there's a lot of nervousness about who is in a position to take that over, especially given all the trouble they had the last time they tried it.

[388] Do you have any intel on that, especially around the internal candidates?

[389] Well, some.

[390] I think there's a lot of input going on there.

[391] They've got the search committee.

[392] They've got James Gorman, who was very successful at picking his successor, but he's a fresh set of eyes here.

[393] I would say the way the wind is blowing right now is the four internal candidates.

[394] Everyone assumed it'd be one of them.

[395] I wouldn't necessarily bet on that.

[396] What I'm hearing is that they're all very strong candidates in some ways, but nobody has that.

[397] perfect set of qualities that the committee claims to be looking for.

[398] Now, maybe nobody has that.

[399] And one of them will get it as an insider who will grow into those other roles.

[400] But I would say right now there's been some pushback from Wall Street and there's some reservations on the committee about the internal candidates.

[401] That's very interesting.

[402] Not sure we'll get any update on that, but...

[403] Clearly, Wall Street is waiting.

[404] They'll probably say, well, things are going fine.

[405] The committee is doing it.

[406] I don't think we'll get a lot of news out of that, but I think people will be asking about that tomorrow.

[407] I mean, it has been, to your point, as far as quarterly performance and improvement about the streaming profitability.

[408] And they have Hugh Johnston in there, who is the CFO.

[409] And since he's joined, you have seen things like margins of Disney Plus improve.

[410] But to your point, how far can that go?

[411] Well, I think we're going to see more improvement tomorrow.

[412] I'm pretty optimistic about that.

[413] But a lot of that is this self -inflicted wound from the creative community in Hollywood when they all went on strike last year and the streaming services learned, whoa, wait a minute, we don't need to spend so much on condo.

[414] We don't need to spend billions of dollars.

[415] The result is, you know, for the working creative people in Hollywood, it's a recession going on now.

[416] So everybody has cut way back on spending, with the exception possibly of Netflix.

[417] And they're learning that they're not losing that many subscribers because of it.

[418] So they've really been able to hold the lid on spending.

[419] And I think there's a question of how long that can go on.

[420] Is that an enduring condition where they can really ratchet it down like that?

[421] Or is the competition going to heat up?

[422] You've still got those big, deep -pocketed tech companies, Apple Plus slowly expanding and moving in there, Netflix with a lot of money to spend, Amazon.

[423] They can go back to the nuclear war anytime they want.

[424] So I'm not sure that we can really count on that going on indefinitely.

[425] And then the parks.

[426] We always watch the parks.

[427] I mean, they took a hit from the storms, but otherwise cyclical business.

[428] What are the expectations here?

[429] Because they were getting a lot of pricing power.

[430] At one point, I'm not sure.

[431] I think there was some pushback eventually.

[432] Well, you know, the parks have had, you know, until just very recently, they've had, you know, like double digit percentage growth in what was considered a relatively mature business.

[433] So, you know, that obviously can't go on forever.

[434] But they are expanding capacity.

[435] They're adding the cruise ships, which are highly profitable when they're up and running.

[436] They are spending more.

[437] Are they, you know.

[438] They're spending billions.

[439] There's a lot of maintenance work that needs to be done.

[440] There's a lot of ride upgrades.

[441] It's a fairly capital -intensive business.

[442] They've got to spend some.

[443] But I still think long -term that it's a very positive outlook.

[444] But it's not going to be the great growth engine.

[445] I think really streaming remains the big question mark.

[446] And if they can break out, if they can ever get close to the Netflix margins there, it's a very good business for them.

[447] What's keeping them from having Netflix -like margins?

[448] Well, that's always been a good question.

[449] I mean, look, there are only two main levers here.

[450] One is cost and the other is revenue.

[451] And I guess it's the revenue side.

[452] I mean, the average amount they get prescriber is way lower than the Netflix gets.

[453] Their margins are way lower.

[454] They've got numbers.

[455] They've got the $200 million.

[456] level and then some which is kind of considered you know the holy grail for scale and it's you know streaming is clearly a very scale business the more you get but the cost of keeping those subscribers they just simply in the marketplace have not been able to get the price that netflix does yeah i mean that that's that was one of the criticisms certainly pelt had going into his fight um jim thank you very much You've given us a lot to watch for tomorrow morning, Jim Stewart.

[457] And do not miss a first on CNBC interview with Disney CFO Hugh Johnston tomorrow morning, 710 Eastern on Squawk Box.

[458] Up next, we are tracking the biggest movers as we head into the close.

[459] Christina Partzanovelos is back with that.

[460] Christina.

[461] Well, we've got a beauty giants makeover that comes with deep cuts and a health care heavyweight's vaccine troubles send its shares to yearly lows.

[462] Those details on stock movers next.

[463] 20 minutes here until the closing bell.

[464] Let's get back to Christina Partsinevolos for a look at the key stocks to watch.

[465] Christina.

[466] Well, let's start with shares of Estatologer because they're falling after their earnings report.

[467] They're seeing weakness in Asia, travel, as well as retail really continuing to weigh on their results, quote, significantly pressuring the firm's net organic sales, which fell 6 % year over year.

[468] The firm expecting sales to actually fall 10 % to 12 % in the upcoming quarter and plans to cut 7 ,000 jobs in a wider cost -saving effort.

[469] Shares down 16 % in all of that news.

[470] Shares of Merck hitting a new 52 -week low as the firm says it plans to halt shipments of its HPV vaccine into China until at least mid -2025.

[471] It really needs to offset higher than normal inventory levels.

[472] Demand specifically is plunging in China with sales for the vaccine Gardasil falling 17 % year over year.

[473] Shares are down 9%.

[474] Sarah?

[475] Yeah, dragging on the Dow.

[476] Thank you, Christina.

[477] Also watching shares of PayPal getting slammed down 13%.

[478] Mackenzie Sigalos is here with what's behind that move.

[479] Mackenzie?

[480] Hey, Sarah.

[481] So PayPal shares down nearly 13 percent despite beating expectations on the top and bottom lines.

[482] The real stickler here is payment volume missed expectations.

[483] But CEO Alex Chris emphasized the company's focus on profitability by growing acquisitions like Venmo and Braintree.

[484] Now, we talk a lot about Venmo because PayPal spent years trying to monetize it in the face of growing competition from names like Cash App.

[485] Venmo's volume was up 10 percent from the year ago quarter thanks to its debit card and user growth.

[486] Another key area is checkout.

[487] PayPal's fast lane, a one -click payment option, is gaining traction, going head -to -head with Apple Pay and ShopPay.

[488] The company, though, facing headwinds from growing transaction costs, which is weighing on profitability.

[489] Now, looking ahead, PayPal is guiding to stronger profitability and rolling out a $15 billion share buyback program.

[490] Sarah?

[491] I'm reading some of these notes.

[492] A lot of the analysts, it looks like, say that the reaction is overdone.

[493] BTIG says it's drastic, the sell -off.

[494] and calls guidance conservative.

[495] Thank you very much, Mackenzie, for running us through the PayPal numbers.

[496] Still ahead, Chipotle among the big names reporting in overtime.

[497] We're going to run you through what to watch for in that report when we come back.

[498] Closing bell.

[499] We'll be right back.

[500] Quick programming note.

[501] Do not miss a first on CNBC interview with White House AI and crypto czar David Sachs.

[502] That's coming up next hour, 4 p .m. Eastern on Overtime.

[503] And up next, we're going to get you set up for earnings at the top of the hour.

[504] What to watch for from EA, Chipotle and Snap.

[505] That and much more when we take you inside the market zone.

[506] We are now in the closing bell market zone.

[507] CNBC senior markets commentator Mike Santoli here to break down these crucial moments of the trading day as always plus three key earnings reports to watch in overtime today.

[508] Steve Kobach on Electronic Arts, Courtney Reagan on Chipotle and Julia Boorstin on.

[509] snap first mike what stands out to me is that you have some names like a palantir up 24 while you have an estee lauder down 16 or paypal down 13 even a 5 move lower for pepsico is big in other words big rewards and big punishments off earnings what does that say about the posture of the market outsized moves i think on balance it shows you expectations were relatively high now palantir Massive high momentum story as well as a very, very kind of vociferous beat in terms of revenue growth.

[510] So you take that aside.

[511] That stock kind of has a life of its own.

[512] In general, I think the market prefers this mode of company by company figuring out how they came in and rotating away from the dangerous stuff.

[513] And, you know, today it is mostly about mega cap tech supporting the indexes.

[514] I also find it interesting we closed on the S &P on Friday at 6040, 6040.

[515] We are at 6 ,034 right now.

[516] The high for the day was 6042.

[517] We lost 40 -something points yesterday.

[518] We gained back the 40 today.

[519] And that's because while in the short term, the market is treating tariffs on, tariffs off as a bit of a binary, I think everybody really realizes it's not make or break for the economy.

[520] It's not make or break for earnings growth.

[521] Well, they're seeing through it.

[522] We're trying to see through it.

[523] I do think that's exactly the case.

[524] And I think the market just wishes to kind of be free of it.

[525] We're never going to get comfortable.

[526] and say we're not going to get a headline that scares the traders.

[527] But for now, we're able to kind of hover 2 % below all -time highs in this range we've kind of been in for a few months because the earnings, at least psychologically, are supportive, even as we have things like February seasonality might not be that good.

[528] Well, I'll add also the bond market's been supportive.

[529] I mean, very little movement, and the trend has been to buy.

[530] which has calmed things down a little bit.

[531] It has.

[532] Now, the 10 -year has not really been able to crack below 4 .5%.

[533] Maybe you don't need it to.

[534] I'm not sure how low you want to see bond yields go, given the fact that we still have, you know, at last report, pretty healthy growth and still 2 .5 % inflation.

[535] But yeah, bond market has been able to kind of clear the way for stocks to do their thing.

[536] I still think it's a little bit of a fragile equilibrium here because we are going to be surfing headline to headline.

[537] I still think there's some frothy stuff that starts to get a little bit nutty at the first.

[538] suggestion that it should.

[539] AppLovin is starting to fly today.

[540] All those other names.

[541] But that's just the way bull markets go sometimes.

[542] All right.

[543] Let's talk earnings because, Steve, Electronic Arts is tumbling so far this year.

[544] What are investors looking for in this one?

[545] Yes, Sarah, they're looking for this big question.

[546] Why football club?

[547] That's the soccer franchise video game that EA makes.

[548] Underperformed expectations.

[549] This comes after last month when EA revised its guidance for the fiscal year ending in March.

[550] Down on weakness of that soccer franchise.

[551] Now expecting as much as $800 million less in sales versus the highest expectations today.

[552] And they're hoping for some answers.

[553] Was this a new seasonality in sports games?

[554] A trend unique to electronic arts?

[555] Or is this a signal for a broader drop in the gaming space?

[556] By the way, Take -Two and Roblox, other gaming companies, they're reporting earnings on Thursday.

[557] And ahead of this earnings report, got to give you a fun fact, The Sims turns 25 years old today, Sarah.

[558] That's a nerdy one.

[559] Thank you, Steve.

[560] Steve, go back.

[561] Courtney, what are people watching from Chipotle?

[562] Well, Sarah, it's Chipotle's first quarter with Scott Boatwright as the CEO.

[563] He was previously the company's COO, named interim CEO in August, and then permanently taking over in November.

[564] So investors are going to want to see a continuation of strong comparable sales, expecting growth of 5 .7%.

[565] Comparable sales actually have grown all but one quarter, and that was in 2020, for the last seven years.

[566] Pretty impressive streak.

[567] Also in focus, did smoked brisket drive traffic?

[568] And we all know guacamole is extra.

[569] But how much extra if 25 % tariffs?

[570] On Mexican imports are levied in a month or at some point in the future at that level or otherwise.

[571] Investors and consumers like me want to know.

[572] Like many casual and fast casual dining, though, improvements on its app matter, too, along with the streamlining processes in the kitchen that the company has been talking about.

[573] Now, Chipotle shares are lower since it last reported by about 2 .5 percent, underperforming the S &P 500 and well underperforming the consumer discretionary, which is up more than 15 percent in that same time.

[574] And of course, Chipotle is a company.

[575] in that Spider ETF.

[576] Back over to you.

[577] Okay, Courtney, thank you very much.

[578] Mike, you just heard the setup on Chipotle, tariff risk for sure from Mexico.

[579] But even though the stock is underperformed, it's kind of maintained its levels.

[580] It's not like falling out of bed.

[581] And there were leadership questions, right, with the new CEO coming in.

[582] Yes.

[583] What's the hang up?

[584] I think there was a little bit of a rethink when they did have the CEO turnover.

[585] It has held a very premium valuation, but man, it really got expensive.

[586] It was sort of a one -way, this is a category killer type of a concept.

[587] The market has a willingness to believe on something like a consumer services turnaround.

[588] Starbucks has some traction right now.

[589] It almost feels like it's getting a little bit of the Chipotle money and the benefit of the doubt because that's a story that's obviously struggled for a while, whereas Chipotle is more or less coming off of a relatively strong period as a category.

[590] This is, you know, casual and fast casual has been the place to be.

[591] The market has really thought that that was a resilient area of spending for consumers.

[592] Yeah, Kava, a good example of that as well.

[593] Yeah, even Brinker, yeah.

[594] Brinker's been like a moonshot.

[595] That's been an amazing stock.

[596] All right, Julia, what should we expect for our Snap?

[597] Speaking of underperformance, this one has taken it hard over the last year or so.

[598] Well, after Meta's revenue and user growth exceeded expectations, the question is whether Snap is similarly benefiting from AI implementation and growth of Snap's direct response ad business.

[599] Now, analysts project that Snap will grow its revenue nearly 14 % and its earnings by more than 73 % from the year ago period.

[600] Analysts also expect the company to add 8 million users, which would be a slowdown from the prior two quarters.

[601] Another key factor to watch here is AI, how it's improving advertising.

[602] also the adoption of Snap's subscription chatbot, MyAI.

[603] But beyond Snap's results, we're also listening for any commentary on the impact of the potential TikTok ban.

[604] Guggenheim saying, quote, Snap would be the greatest beneficiary of spend shifts on a percentage basis.

[605] And as we await the outcome of the Supreme Court ruling on TikTok, UBS says Snap is still a TikTok headline -driven spot.

[606] Back over to you.

[607] Okay, Julia, thank you.

[608] Besides the TikTok ban on Snap, I mean, Meta, it just, Snap's performance stands in stark contrast to Meta's.

[609] I mean, Snap is really just a trivially sized business and stock relative to Meta, obviously relative to Alphabet.

[610] It's never really shown sustained profitability.

[611] It always seems to be in need of some kind of extraordinary event or some kind of rescue like a TikTok ban that would make it a net beneficiary.

[612] It's like a $19 billion market cap.

[613] It's like a billion dollars.

[614] a year in stock -based compensation.

[615] You know, they could just sort of never quite get escape velocity in terms of the fundamental performance to sort of justify where it is.

[616] It's a volatile stock.

[617] It'll trade on sort of directional improvement or deterioration for sure.

[618] And it's always seemed like an asset that's of a size that if somebody wanted to buy exposure to that many young users, you might be able to do it by acquiring the company.

[619] But it doesn't seem like that's where the company is thinking right now.

[620] What else stands out into the close?

[621] Energy is popping 2%.

[622] having a nice move for a sector that has Still getting some relief off of the lack of the tariff in position, I guess.

[623] And also, we have seen laggard sectors from last year continuing to keep some traction.

[624] That definitely includes health care.

[625] Not so much today with health care, but absolutely in terms of outperformance on a year -to -date basis.

[626] Breadth has been better today.

[627] That's been a bit of a struggle.

[628] There have been more new lows than new highs on a 52 -week basis for a while.

[629] And in fact, still in the Nasdaq today, there is right now.

[630] You know, you mentioned the bond market earlier.

[631] It feels as if the case...

[632] For the Fed to be even more on hold or have a higher bar toward easing again is the tariff uncertainty is going to keep them there.

[633] I think that's OK as long as the economy doesn't show like it needs any help from the Fed. And so I think we're in that spot where we're fine for now.

[634] We're not really calling on the Fed to get more active on that side.

[635] But I do think it wouldn't take much to tip us in that direction after the jolt's number today.

[636] Mary Daly, San Francisco Fed this afternoon, said that she highlighted the economic strength, said basically.

[637] that uncertainty is not paralysis and the Fed is attuned to the risks.

[638] You know, I wanted to kind of get up and applaud when Powell in his press conference last week said, uncertainty is just the state of the world, right?

[639] We always say the market hates uncertainty.

[640] Well, if you don't have uncertainty, you're ignoring something or you have a blind spot because that's the fundamental.

[641] essence of reality is it's always uncertain and so when we recognize the uncertainty it's almost as if okay fine at least we're alert to what might be able to might go wrong or not We get a jobs report on Friday.

[642] Job openings today came in a little light, but as I said earlier, still elevated, still pretty healthy.

[643] Quits rate was unchanged.

[644] I think the hiring rate is the thing that you look at and say businesses are not really rushing to add people.

[645] Again, it's this fragile equilibrium where the quit rate is still at a healthy level, but the hiring rate is really depressed.

[646] Maybe that's because labor supply is not what you'd want it to be, and maybe it's because it's a wait and see.

[647] is there's a little undertow from AI replacement or something like that.

[648] Productivity growth's been good.

[649] But yeah, I don't think it's a real worrying sign, but it's something to keep an eye on in terms of softening up of waiver conditions.

[650] So guess what?

[651] Just like that, we've made up all the losses from yesterday.

[652] That's 60 -40.

[653] There you go.

[654] There we are.

[655] We are now higher on the week.

[656] We're up three quarters of a percent on the S &P in the close.