Closing Bell Overtime: S&P 500, Nasdaq Hit Records Before Falling; Mr. IPO On Reddit; Is AMD Nvidia-Mini? 3/8/24

0:00Well, the major averages snapping a two-day win streak, closing in the red for the week. That's the scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. Well, the tech sector, the major underperformer today, while real estate was the big winner, chips, the big reason behind tech sell-off. NVIDIA, Marvell, and Broadcom all getting crushed today, but coming up, a top analyst tells us the name of another chip maker that he says looks like the, quote, NVIDIA Mini because of its big upside potential. Yeah, anybody can take that. Well, one tech stock also bucking the trend today.

0:36Samsara, you can see they're closed up almost 14%. The company's CEO is going to join us exclusively to discuss his big revenue beat and strong outlook. But for now, let's get to the market action today with our panel. Joining us now is Dana Diario of Investnet and Tracy McMillian of Wells Fargo. Happy Friday to both of you. Dana, so we've got another round of inflation data coming next week after what was a pretty tame jobs report, I guess. small caps have been pretty sensitive to the higher for longer narrative. Do you see anything changing? Well, I think it really is going to turn on whether we see this rate cut obviously coming in June.

1:17So small caps, as we all know, are more interest rate sensitive. It's interesting because growth is more interest rate sensitive, right? And growth hasn't suffered at all, obviously, in this rally, even though it's longer dated cash flows that have to be discounted back at a higher rate. But we have seen small caps suffer and certainly be very interest rate sensitive through the course of this rally and all through last year, and largely because they're not as easily self-funding, right? They need to go to capital markets more often. You have corporate teams that are now all of a sudden facing much higher rates than they had to in the past.

1:48So not surprising at all. I think the big question is, do we get this cut in June? And do we indeed stick the landing? I think all signs seem to point there, but I don't know that I think it's guaranteed. Okay. And Tracy, you say go to quality, don't take on too much risk, don't jump into small caps yet. But if the economy is generally healthy, which the data today would suggest, isn't this a time when the right small caps with the right stories could actually outperform? Yeah. So we've been favorable large caps for quite some time. And we're actually looking for an opportunity to move into small caps, to move into some of those riskier areas of the market.

2:32You know, it seemed like maybe late last year might have been offering up some of that opportunity. And, you know, more lately, we've also seen small caps just starting to outperform large caps. But what we want to see is more evidence that we are closer to the start of a cycle and not the end of a cycle, because small caps do tend to outperform at the start of a cycle. So, you know, we want to see things like, you know, growth continuing to expand, breadth continuing to expand, interest rates moving lower from here. And if any of those three fail, then we're probably not going to see a continuation of the outperformance of smalls just yet.

3:24Okay. Dana, I realize stocks took a breather today. Most of the major averages are lower on the week now. But in general, we've been at such a torrid pace for the S &P, hitting record high after record high. It's not the only asset class, though, that's been doing that. We've also seen record highs in gold and this week record highs in Bitcoin. What does it say about diversification and what does it say about whether you should be putting something like Bitcoin in your portfolio? It's an odd barbell market, right? I think, you know, it's very interesting what you're raising. And, you know, coming from an investment platform with a lot of retail investors, obviously, I have to point to the advent of ETFs.

4:04I mean, the decision by the SEC to enable spot Bitcoin ETFs is just going to be huge. And you're going to continue to see a tsunami of interest because now you have a liquid, easily available way to earn a Bitcoin return. And it's backed by major asset managers. So folks who weren't ready to dabble in the actual currency are now going to say, OK, here's my opportunity to get a little piece of this. And it has a lotto ticket like aspect to it. Right. So there's great research out there talking about the fact that even normal risk aversion in investors allows for some position in the portfolio in Bitcoin simply because it can only go to zero.

4:42And the skew on it is so high that, you know, it has this opportunity to pay off dramatically. So I expect to see that continue for sure. Interesting. OK, well, Tracy, I'm just looking at your notes here. You say it's time to be defensive in equities and fixin income and that you're going to reiterate the focus on quality and reducing risk in portfolios. What does that mean? What does that look like? What would it take to change that? Sure. So what it means is that we think there's probably going to be a slowdown, a moderate slowdown ahead in probably the next couple of quarters. So perhaps more of a soft patch in the spring and summer months.

5:22And that could be precipitated by some of this pent-up demand from the pandemic starting to moderate, consumers being more reluctant to borrow at high rates. We're starting to see delinquency rates on autos and credit cards and even mortgages starting to rise. So even today's slower wage growth says to us that the economy slowing together with consumers not earning quite as much could lead to lower revenues. And that is something that we think could precipitate a decline in the equity markets. And so we're saying large cap to us, that's higher quality. We're underweight smalls for now. and within fixed income, you're looking at the short-term part of the curve as opposed to long-term or high yield.

6:22So continuing to stay up in quality, looking for a soft patch that could lead to lower prices, we think that it won't be significant or it won't be extremely severe. And that will give us the opportunity to move into some of the riskier areas of the market. Okay. It is pretty incredible how tight credit spreads have been as well. Tracy McMillian and Dana DiOrio, thanks for kicking off the hour with us. With the S &P finishing down about 0.6%, 51.23 is the level there, finishing lower on the week, too. We'll check out the move lower in some of the chip names today, which really dragged the broader market lower.

6:59NVIDIA down 5%, Marvell off by 10%. AMD is also lower, but holding up better in today's trading session than the rest of the space after a new note from Milius today calling AMD a possible quote-unquote NVIDIA Mini. Well, joining us now is the author of the report, Ben Reitzes, head of technology research at Milius. Ben, we have you on all the time, but you always come up with these very clever titles and these very interesting notes. So now we're going to dive into this latest one from you, and that is this idea. First of all, before I even get into the notes, why did we see the chip stock sell off as much as we did today, including NVIDIA, which has just been on this rampant rise for months now.

7:43It was a fun morning until it wasn't. Yeah, I think, you know, look, nothing goes up in a straight line and you do for some digestion. And obviously you saw some of the laggards in the Mag 7 intact, like the Apples and the Googles catch a bid today. I think that there's just really been a consensus call that some of these laggards are struggling and, you know, there was a lot of short covering today, perhaps, and those names. And everybody was long the same names. However, we've seen this before. We've seen some digestion days. We are in a once-in-a-generation cycle, in my opinion. So we're staying the course.

8:21We thought we could get out of here a little bit on a quiet Friday, but, you know, not so quiet. So anyway, we're staying the course. OK. Sounds like some profit taking afoot here. And, of course, we did get some earnings that investors really picked apart in overtime yesterday, to your point. OK, let's talk about so-called NVIDIA Mini. You talk about, in this note, the inferencing phase, which is now what's in focus for investors who are looking at the so-called picks and shovels of AI. That's right. That's right. Well, we actually upgraded in AMD only a couple months ago, and it seems like an eternity ago at a much lower price.

8:57And it's been ripping up until today. You know, I think that the inferencing phase is really neat because that's what happens after you train a model and then you start typing or speaking into these models and getting stuff out of it. And inferencing is going to explode as models go into production. And AMD has come up with a chip that is just excellent for inferencing. It's got it integrates high bandwidth memory that everybody is seeking right now. And it's a real excellent chip for inferencing. And frankly, what we think is going to happen is that these guys are like mini NVIDIA on about a nine-month delay.

9:35And a lot of the cloud providers are going to be buying this in droves this year. And I think you see upside revisions. We think that this chip in particular fits that niche in inferencing really well. I think you're going to see guys like Meta and Microsoft buying it quite a bit as we go throughout this year. And it's setting them up really well for next year. Now, obviously, NVIDIA is still the leader. We think they're doing great, you know, some profit taking, but we're staying the course there as well. Ben, I'm looking at a chart of the relative strength of AMD and NVIDIA versus the S &P 500 over the past 12 months.

10:11And AMD has almost 2x'd it. NVIDIA almost 3x'd it. What would it take for AMD to have the kind of performance of an NVIDIA? Would it be this new product that they've got coming out really proving to be the kind of NVIDIA substitute, not saying equal performance, but really make a strong value argument? Well, this product, you know, is going to have a much smaller share than NVIDIA. NVIDIA is driving this whole sector. In fact, we think NVIDIA is doing everybody a favor developing this whole market for everyone with their full stack approach. We feel that they're so dominant and doing such a good job.

10:54The cloud providers are like, hey, we need a number two, and we need our own custom silicon for certain workloads. And NVIDIA is filling that. I think that this chip is going to be in very strong demand. I don't think NVIDIA – I'll be surprised if AMD gets more than a 10 % share of this market, but that's plenty. I mean, that is massive upside revisions from where we are. and actually you just showed a graphic of the AI revenue and I think there's upside to those. So I feel like when we see them report as we go throughout the year, you can see some NVIDIA-like in terms of upside, but that's because of this inferencing thing and they should do pretty well.

11:36Well, I think Jensen Huang would say, actually I know he would because he has, that software is a moat for them that developers are going to need to write to CUDA. And so is that going to limit AMD's potential now that there are so many that are already, you know, writing to this NVIDIA-based environment? Even if AMD's got something that, you know, performance-wise, price performance-wise is competitive, they're still going to want to go with NVIDIA. I think the broad market will. I think one of the great things about NVIDIA's chips is that they can be used for inferencing and training, you can get the most out of the investments.

12:14So they are going to continue to lead. I think a lot of the cloud providers, though, that are going to see this inferencing explosion are going to go with AMD, at least for certain things. And there's going to be a place for it. You know, they're going to want to keep NVIDIA honest. They're not going to be able to develop their own silicon for everything. And this is going to fit a certain need. But, you know, NVIDIA is going to lead this. They do have a moat, I think, in training, which will continue to grow. They have a great position and they're going to do a lot in inferencing. And I think just AMD getting 10 percent a share is quite a bit of upside.

12:49And we talk about it in the note today to what those numbers can look like. It's pretty spectacular. And they're just a little later than NVIDIA. And it should get going if we start using AI apps. Yeah. Well, with NVIDIA at a market cap of$2.2 trillion, Mini isn't so bad. Ben writes this. No, not bad at all, John. All right. And don't miss Overtime's exclusive interview with AMD CEO Lisa Su. That's coming up Monday at 4 p.m. I'll be live from the company's campus in Austin, Texas. Looking forward to that. Well, tomorrow is the 15th anniversary of the generational market low at the end of the great financial crisis.

13:28Mike Santoli takes a look at how the market has performed since then. Mike. Yeah, Morgan. Well, stupendously well is how it's performed. And, of course, March 9th of 2009 was the ultimate low during the financial crisis, just as the economy was maybe exiting a recession. So this shows the overall trend line from then. The annualized total return of the S &P 500 over this time period has been 16.7 percent. So that's well in excess of the very long term typical return that you might expect around 10 percent. Well, that's what happens when you start to measure near a point that represented, I don't know, something like a 13-year low in the S &P 500.

14:05So what you see here, too, is after this recent rally we've had, it hasn't even taken you to the upper end of this path that you can see on this logarithmic chart, which means all percentage changes travel the same distance on the chart just to actually smooth it out and correct it for the long-term effects. There's another way, though, to draw this trend line that kind of uses the pandemic period as a bit of an anomalous overshoot. And it shows you you might be getting to a point where we could use a rest. So just take that for the big picture context. Now, take a look here. A more near-term issue with this market and how it's over-dependent, at least in the short term, on the highest momentum stocks.

14:44So this goes all the way back to the early 90s. And this is the percentage of S &P market cap, which is near 50 percent now, that is in the 100 highest momentum stocks in the index. So you take the 20 percent of stocks that have been up the most in the last year, and that's half the index right now. And so you see it can theoretically cause some instability as that unwinds or as basically the market tries to rotate away or even if those stocks become a bigger piece. It looks dangerous, except I'll point out that early 2021, late 2020, when you did manage to have this momentum unwind, but the overall market managed to hang together for a while until we were anticipating Fed rate cuts.

15:22So it doesn't have to be fatal, but it explains some of the jumpy action that we've seen today and also earlier this week. I mean, we talk about this generational bottom. It's also known as the Hanes bottom to cite a former very renowned CNBC anchor to the fact that we're 15 years out from that. I mean, how does it speak to what we've seen in the market and how it's behaved since then, especially since we have had more cycles, more bottoms? Yeah, it is remarkable. In fact, it's worth pointing out, as you allude to, that we have had two kind of cyclical bear markets in that period of time. Actually, in the last four years we have and then some bad corrections along the way to 2011 and 2015, 16.

16:00So it's not to say that it's just up, up and away. It's more of a reminder that if the if the market pendulum has swung so far to the negative side, which was really awful returns over the prior decades in 2009, it's going to make it up in the forward years. Now, that might not be the best thing for longer-term forward returns because we are expensive and we are working on 16-plus percent annualized gains in the last 15 years. So in theory, we should lower our expectations for what the market can deliver, you know, let's say over the next 10 or 20 years. All right. Mike Santoli, we'll see you again in just a bit.

16:35Now, shares of Internet of Things company, ticker IoT, Samsara, surging after beating revenue estimates and issuing strong guidance. The company's CEO is going to break down the quarter next in an exclusive interview. Plus, the man known as Mr. IPO, University of Florida professor Jay Ritter, on whether the record market rally could spark a wave of companies going public this year. Overtime is back in two.

17:05Welcome back to Overtime. Shares of Samsara hit an all-time high today after beating revenue estimates for its fourth quarter earnings. And it's not just today. The shares have had quite a run, up like 85 % over the past 12 months. Joining us now is Samsara's co-founder and CEO, Sanjit Biswas. Sanjit, you know, quite a quarter once again. I'm interested in your perspective further on something you mentioned on the call last night about how you're tapping into a different budget than a lot of software companies. You're selling into the operations budget, companies wanting to be more efficient, more safe.

17:43Why is that such a booming business right now? Hey, John. Thanks for having me. It's absolutely a different budget than I think what most IT buyers are used to thinking about, which is the CIO's budget. We're selling to the world of operations. We work with companies like USIC, who locate all the utility services underground and dispatch 12 ,000 technicians to go mark the streets. These are businesses that run throughout all different kind of macroeconomic environments, across all geographies, and really the backbone of our physical economy. So what's interesting about that is how much emphasis they have on things like safety, on efficiency, things like asset utilization, fuel spend.

18:23And these are all the sort of operational considerations they have, which are ongoing concerns. They always want to do a little bit better. So is there a disconnect here, I wonder, in even how some investors are thinking about software going forward? Because so many of the use cases that we hear about AI are actually operations-based, but most of these companies aren't actually selling into the operations budget. And maybe talk about that within the context of connected forms, where I think you plan to make some news in June as well. That's right. So we have multiple applications on our platform.

19:00So what we've built at Semstar is a data platform. There are about nine trillion data points a year that come in in the form of GPS locations, billions of minutes of video footage, all kinds of sensor data. But to your point around AI, it's a tremendous lever or tool for us to analyze all of that data, find insights in it, and help our customers take operational actions. In other words, change their behaviors to reduce their risk on the roads, which for many of our customers saves them millions of dollars in insurance payouts. They can change their routes. They can change how they drive to save millions of dollars on fuel.

19:31And so AI is a tremendous tool for that because there's so much data analyzed. There's no way people could look at it and find those insights, but computers can't. And this is, again, all about the application. So we use AI as a real bedrock technology on top of all these nine trillion data points to go surface those insights. Sanjit, I'm curious, just a macro question for you, given what you just said right there. I mean, you're working with construction companies, governments, transportation firms, infrastructure. In terms of these different end markets, what are you seeing right now in terms of the demand picture?

20:04And how much does the macroeconomic backdrop actually factor in? Well, as I mentioned, these companies, they're the backbone of the physical economy. They run our planet and they make up about 40 % of GDP. So they are very massive industries. But it's worth noting that most of these businesses have been around, many of our customers have been around 50 to 100 years or even longer in some cases. So they've been through these economic cycles. They tend to continue to focus on customer experience, operational efficiency, managing spend. And so those are evergreen challenges for them. They have ebbs and flows in terms of demand.

20:37And that varies by industry. We're diversified across over 10 different industry verticals. So it's hard to say there's a single picture or a single thread that we're seeing across customers other than they all want to be safer, more efficient, more sustainable. So an investor new to Samsara might look at the chart and think, oh, well, am I too late? You say that you're planning to grow headcount 30 percent in fiscal 25, half of that going into sales and marketing. In this quarter, you sort of had a record 185 customers in the 100 ,000 plus annualized recurring revenue cohort. What is that sales and marketing spend going to be able to do for you in understanding customer need and continuing to accelerate your revenue growth?

21:23Well, John, the context here is that we're selling to a very large market. We're talking about a$60 billion total addressable market. It's growing about 20 % year over year. So there's a lot of activity around digitization. And to engage with these customers, we need to grow our sales and marketing team who are our go-to-market force. That investment you mentioned in headcount, a lot of it's going towards sales and marketing. A lot of it's also going towards R &D. We're continuing to double down on technologies like AI that I mentioned earlier. So for us, it's about being balanced. It's about being sustainable.

21:55We're going to maintain where we are in the rule of 40. and we're just going to continue to sell into this very large market opportunity and serve our customers well. As long as you're doing that, I don't think many people will argue with you about growing that marketing and sales spend. Sanjay Biswas, CEO of Samsara, thanks for joining us. Thanks. Yeah, and a down market, 14 % gain for the stock. Well, Reddit is ready to kick off its IPO roadshow next week. Up next, the man known as Mr. IPO tells us whether Reddit's move could spark a wave of IPOs this year.

22:30Welcome back to Overtime. Next week, Reddit will begin its roadshow as the company prepares to make its debut on the New York Stock Exchange later this month. Reddit will be the first major tech IPO of 2024. Well, here to share his outlook on the IPO market is Mr. IPO himself, Jay Ritter, professor of finance at the University of Florida. Professor, it's great to have you on. Thanks for being with us today. I'm pleased to be here. So last year was pretty quiet for IPOs. In the last couple of months, we started to see some green shoots. You could argue that's kind of extended into 2024. All eyes are going to be on Reddit, certainly, to see how this tests the market.

23:07Your thoughts on this moment, where we are at near record highs for public markets. And in the private markets, there's been some re-ratings or some devaluation coming off of that big bubble we saw in 2021. Right. The last two years, there's been very little IPO activity, with the exception of a fair amount of micro cap IPOs, companies going public at four or five dollars a share, raising 10 or 20 million dollars and generating no institutional interest. But what we're seeing now is a pickup in more substantial operating companies going public. But last year, we were seeing about two per month.

23:52Now we're seeing one or two per week. And I expect that pace will continue to pick up as we move back towards more normal levels. OK, what would normal levels look like? I assume if we were actually going to look across history and not just the last couple of years, 2021 would probably not look normal. So what would the pace of normal be? The pace ever since the Internet bubble burst in 2000 has been a little over 100 operating companies going public each year, roughly two per week. So we're getting close to that level of activity. The one thing that kind of clouds that calculation is, as I mentioned, the last couple of years, we've had a lot of these micro cap IPOs, which had been pretty unusual in the previous 20 years.

24:49We're still seeing them, but the bigger, more normal companies are going public now as well. Yeah, Jay, one of the companies that I'm looking forward to perhaps coming public is Rubrik. Bipple Sina over there has joined us. But I wonder if sometimes the market is a little too hot for companies to feel comfortable. I'm thinking of late 2020, early 2021 when Snowflake, when C3 AI came public. I think a firm waited until early 2021 trying to get the market to cool down a bit. And comps wise, those companies got kind of hurt, didn't they? Well, at the end of 2020, a lot of the companies going public were rocketing up in price, leaving a lot of money on the table.

25:37And it took a little while before the investment bankers were willing to raise the offer prices a bit. And so some of the companies that waited until 2021 were able to take advantage of the higher offer prices. Those that continued to wait into 2022 generally regretted it. And that was definitely a problem for them. Jay Ritter, thank you for joining us. You're welcome. And it's time for a CNBC News update with Bertha Coombs. Bertha. John, President Biden said today that he would sign into law a bill that could lead to a U.S. ban on TikTok if it passes. The bill would give parent company ByteDance six months to divest from TikTok or be banned from the U.S.