Nvidia earnings, housing market outlook, BNPL regulatory pressure: Market Domination

On today's episode of Market Domination, Yahoo Finance hosts Julie Hyman and Josh Lipton break down the trading day's biggest stories and latest trends.

Nvidia (NVDA) topped earnings expectations and announced a 10-to-1 stock split. Will McGough, Director of Investments at Prime Capital Investment Advisors says the company's AI play "has huge implications across multiple markets." RBC Capital Markets Software Equity Analyst Rishi Jaluria adds, "80% of CIOs are telling us that they are either currently in production or expect to be in production with AI over the next 12 months, so the appetite is real, the use cases are real." Macquarie Head of US AI and Software Research Frederick Havemeyer notes that cybersecurity companies will benefit from the AI race, pointing to CrowdStrike (CRWD), which he believes will see growth as the competition heats up.

New housing data reveals that April home sales fell below estimates, declining more than expected: a 1.9% drop month over month. Realtor.com Chief Economist Danielle Hale expects the real estate market and buyer activity to "ramp up" with every mortgage rate dip but forecasts a "slow comeback" overall.

Goldman Sachs upgraded Shopify (SHOP) to Buy from Neutral, raising its price target on the stock to $74 from $67. Meanwhile, Citigroup downgraded Hims & Hers Health (HIMS) to Neutral from Buy and raised its price target to $20 from $16.

Buy now, pay later (BNPL) stocks (AFRM, PYPL, SQ) are under pressure after the Consumer Financial Protection Bureau proposed a new rule that would force lenders to adhere to the same consumer protections as credit cards.

This post was written by Melanie Riehl

Video transcript

Hello and welcome to market domination.

I'm Him that Josh Lift in live from our New York City headquarters.

We are giving you the ultimate investing playbook to help tune out the noise and make the right moves for your money here.

Your headline blitz getting you up to speed one hour for the closing bell rings on Wall Street.

MS. Earnings are very important because in general, if you look at what has been critical to S and P's rise, it's been big tech and MBD is a critical component.

Probably the most important component of that subgroup of just six stocks.

Nvidia is growing and evolving.

Could it have a short term impact on the market here?

No question.

Do we own it?

We own it.

Are we staying in it?

Yes, NVIDIA is one of those names.

I think if you hold it over the next decade, you're going to be very well rewarded while some of the headline numbers were light of what was expected targets clearly making progress.

Its same store sales was down less this quarter than it was last quarter.

Uh Plus it showed progress on its gross margin.

We've got one hour to go until the market close.

And we're taking a look at the major averages.

Although today, I'm actually going to start with the video.

We got to get to the major averages in just a moment.

But Happy NVIDIA earnings day to those who observe, we have the shares pulling back from the record high where they closed yesterday.

We're going to dig much more into NVIDIA, but as we've talked a lot about and we're going to talk more about, the stakes are high with the shares of 90% year to date.

So let's get to the major averages here because there's a lot to talk about when it comes to them as well.

We are seeing the dow go to the lows of the session here off right now, about 6/10 of 1% the S and P 500 off now about a half 1% as is the NASDAQ, what's going on.

It looks like it is the Federal Reserve Minutes which were, were, were released just about an hour ago.

That seems to be to blame here in those minutes which were from the meeting that concluded on May 1st.

Participants expressed willingness to potentially tighten policy further if we continue to see inflation readings that are not showing much relief.

And on top of that, we had Goldman Sachs is David Solomon speaking in comments at Boston College and saying he expects zero rate cuts this year and he says the risk of real and palpable economic slowdown is now big than it was six months ago.

Now, stocks perhaps not down more because those Federal Reserve minutes in that discussion occurred before we got the latest CP I report which showed a little bit of relief on the inflation front.

So all of that said we are seeing that pull back.

I want to get to sectors here real quick within the S and P 500 energy down the most right now, consumer discretionary materials, utilities pretty broad based, sell up.

In fact, the only group that is hired right now is health care, Josh Julie, let's get right to it.

Invidia.

Earnings are just over an hour away.

The report where Wall Street has been waiting for, of course, our own Dan Halley is here with what to expect, Dan.

Yeah, I think obviously the, the big news here is it's gonna be the, obviously the, the top line and bottom line numbers, but then the, the guidance going forward.

And I think, you know, after seeing the massive jumps that we had seen in the prior quarters, uh the, the big news is going to be how did they do this quarter?

But then what's happening next quarter?

And what does that mean as far as Wall Street's interpretation?

Right, because we're gonna start to, to lap last year where everything started to really blow up and we saw these, you know, 100% 200% gains.

Right.

I think the last quarter, uh, the revenue is around 21.6 billion something, uh, in, in that area, uh, nearly for that one quarter, nearly the entire revenue of the year prior in one quarter.

So we're gonna have to what, what that means for this quarter and then moving forward those comps, what that looks like and how Wall Street responds to that.

Are you gonna say?

Well, look, you're not doing 300% growth.

I don't know what to tell you.

You know, we're out or are they gonna say?

Ok, you're still the odds on leader in A I.

And frankly, they are still with, with the hardware that they have to offer as well as the, the software mode that they have.

Now something you and I have been talking a little bit about is what these chips are being used for within A I.

And there's sort of two phases of A I that are important.

There is the training and this is something I think we talked about a little bit yesterday, the training where you're building these large language models in the generative A I, right where they're learning, then once you get them trained, then you have inference where they actually start working, they start making connections.

I'm saying it like it's a brain but we, we uh you know, who was it?

Who said this week, we don't wanna anthropomorphize them too much.

Was it, Sata Adella, who said that in any case where they start making forecasts and making uh thinking for lack of a better word, right?

So the thing is to sort of figure out where NVIDIA fits in, it fits into the training, we know that and then what happens?

Yeah, I mean, look the the the training is, is really the the heavy duty processing that, that these companies need these chips for.

If you're gonna be training, you're, you, you need that kind of hardcore performance infer, you still need that performance but not as much.

The the the the the data heavy side of training requires these big chips.

But you can use less powerful, more efficient chips for infer incing itself.

That's not to say that you can just like pop out a laptop chip from like, you know, my Macbook and start Infer.

That's crazy, but it, it doesn't need to be these kinds of heavy duty Invidia chips.

And so I think the, the, as we start to see companies go from training to infer, what does that then mean for NVIDIA overall?

Does that mean that companies will start opting for less powerful and more efficient chips so that they're not consuming as much and as much energy and not paying as much when they uh sign on with cloud providers.

That's a question that that is really important for NVIDIA to answer.

Let me see, we were talking to Dan Niles on the show, you know, smart guy, long time tech investor and, and NVIDIA fan.

And we asked Dan, you know that when you're talking to your clients and they wanna ask you about downside risk, what do you tell them?

He, he named a few different points but then he said something that, you know, he said one risk he talks to his clients about is how, you know, yes, it's a chip giant but the real secret sauce is the software.

That's what's locking the customers into the silicone.

And his point being, of course, there's the efforts to develop these, you know, open source alternatives.

And II, I don't Dan, I did not see that as a near even intermediate term risk, but how do you see it?

I think that that is something that a lot of companies are keeping in mind.

And so I think it's, it's important to, you can look at it almost from how the cloud evolved over time, right?

When the cloud computing really started taking off initially, it was, well, let's sign up for a cloud provider, right?

And then you saw a company say, I don't wanna get locked in with one guy that's just not good for me, that's not good for competition.

Uh My clients might want something else uh customers might, might not wanna pay for this particular client or maybe I don't wanna have all my data relying uh sitting in this one place.

Maybe I wanna have, you know, uh it on uh another provider.

So now you have what's called a multi cloud strategy, right?

It just makes more sense to, to disperse your, your data across different areas.

And so I think you can kind of look at it in that same way where you initially go.

OK. We have these NVIDIA chips.

They're great.

You're seeing the, the hyper scalar, the Microsoft, the Googles, the Amazons, uh they spread out, right?

They have their own chips now that they're, they're building their own training and infer chips.

Uh they have NVIDIA, they have a MD.

Uh I'm sure they're using Intel as well at, at some point.

But I, I think that the, the effort is going to be this, this more open source idea.

And yeah, C A is uh the, the, the software mode, right?

Once you build on CU A, you're building the software for that particular architecture.

And so now there's ideas of, well, how can other companies maybe open that up so that you don't have to just rely on C A, you can get beyond that chips that can work with C A even um just quickly, a little perspective, a pause for some perspective.

Here, we have two pie charts because we were looking a few years back 2021 at what the revenue breakdown looked like for NVIDIA at that time.

And by the way, uh NVIDIA was the Yahoo Finance Committee of the year back in 20 16.

But this revenue under $17 billion and gaming was still 46.5% of the revenue, 40% was data center.

Fast forward to 2024.

The or, and fiscal 2025 for the company.

But um or fiscal actual 2023 fiscal 2024 excuse me, revenue, $61 billion.70 8% of that data center.

And it's not that, that the gaming side is, is losing.

I mean, maybe during that period, the, the 2021 where we saw the spike with, with uh COVID people going out and purchasing cards.

And then we also saw the uh the crypto kind of surge was, was going hard at that point, people buying those up.

Uh and then on the secondary market, they were selling for like, you know, $1500 when I mean, I'm a gamer, I couldn't get that man.

Um But yeah, and then you, you, you look at how it's kind of changed to now where the gaming side is, it's cooled off a little bit.

People still are buying those chips though.

It's still the, the I mean, look, if you look at a breakdown between NVIDIA A MD and other uh when it comes to dedicated chips, NVIDIA crushes everything, right?

So it's not as though gaming isn't an important business for them.

It's just that the data center has exploded.

It's not that the others aren't growing.

It's that, that is growing so much more.

Dan, we're gonna check in with you again.

Thanks so much.

Appreciate it.

Although expectations for Nvidia's first quarter results are high.

Once again, topping those estimates has not necessarily translated into big stock moves in recent quarters, Josh Schafer is here with more on that as the bogey's gotten a little bit tougher, right?

I, I'm, I'm totally mixing my sports metaphors there, but it's gotten harder to beat, uh, whatever, whatever that, that's a metaphor, we know a forever, right?

But for NVIDIA, really, the last couple quarters, we've seen that beating and raising as they have been doing hasn't always necessarily meant that the stock pops like most stocks pop in that scenario.

So what you're looking at here is the implied options or the implied move for the stock after earnings.

Uh, according to options, this is from the Friday going into earnings that's in purple.

The blue is the actual earnings reaction.

So today, we're looking at perhaps an 8.5% move closer to 9% move now per options.

But when you look at these blue and purple lines, you see, they don't actually line up that much.

So, really the broad takeaway here is what the expectations were going into the report don't quite matter that much once we get to about 415 this afternoon and it hasn't really been that accurate.

In other words, we have no idea.

We have no idea.

And then the other takeaway from this graph is that in Q two and Q three of last year NVIDIA did beat and raise and the stock didn't even go up.

Right.

And that is something that could very well be a reality tonight into tomorrow.

Right.

The stock is at an all time high right now, or just off an all time high and up, over 90% going into the print.

It's always something I think just important as investors to keep in mind when you're kind of staring at your screen later tonight, or maybe tomorrow morning and you read the commentary and it all, it all could seem relatively positive, but the stock isn't in the green.

Well, maybe there was just a massive rally reading into the reading into the print and it's just not enough to move a stock that has rallied over 200% over the last year.

It's something we've seen on earnings over the last couple of quarters.

We're gonna find out.

What about the broader market, Josh?

Yeah, it's gonna be interesting to see what happens with NVIDIA in terms of the broader market, right?

So we know obviously it is a large portion of the S and P 500 at this point, the NASDAQ 100 many of the major indexes and it is able to move those indexes quite significantly.

So we were looking at your screen here is just simply the weighting of the company in the S and P 500 it's about 5% of the S and P 500/6 percent of the NASDAQ 100 so on and so forth there.

So essentially, if you see a big move in this stock tomorrow, it might also mean that you're why you're seeing a move in the major indexes.

And that's not even really getting into the fact that we know if NVIDIA says something about A I demand, that means X or Y for chips as well, right?

So if they're saying positive and now for utilities, maybe for hyper scalars like there, it could be very broad.

And I think that's the main thing I'm interested to see tomorrow.

As you just mentioned, Julie is sort of the utilities, energy trade and that real A I broadening that we've had does that now trade on NVIDIA earnings too.

I don't know, but it certainly could to some extent, right?

And it's gonna be interesting to me, something to watch in the market action tomorrow.

Find out it'll be fun.

It will be fun.

Thanks Josh and be sure to tune into young finance tonight and tomorrow, Dan Halley and I will be speaking with NVIDIA, Ceo Jensen Huang after the earnings call.

So you don't want to miss his comments, stocks near the lows of the day as investors wait for the results of Nvidia's first quarter earnings.

It's coming up after the bell, expectations we know are high for the tech giant and the stocks move this year accounts for a quarter of the S and P five hundred's gain according to Deutsche Bank.

Joining us now is Will mcgough Director of Investment at prime capital Investment Advisors.

Will good, see you.

Thanks for having us.

So let's let's maybe start there.

Will NVIDIA after the bell today.

What are you expecting?

What does it mean for the market?

I just wanna know who's not talking about NVIDIA.

I've been in New York, New York for a couple of days and all of our meetings A I is the buzzword.

So it's uh all eyes are on NVIDIA today as you just showed Josh, it's gonna drive the market with 5% weight in the S and P I don't specifically run our stock portfolios.

I'm a multi asset guy, but our P MS are looking at operating earnings.

They're trying to see if competition is gonna drip in a little bit, take away a little bit of market share.

And so that's what our guys are looking at.

Of course, we own NVIDIA like everybody else and we'll be observing just like everybody else.

Well, and how are you thinking about it or are you thinking about it from a macro perspective?

Right?

Not just Invidia specifically, but the whole A I play, it's as, as you just mentioned with utilities, it's coming down.

Utilities is like a two or 3% waiting sector of the S and P A lot of folks think it's old economy getting bid up with utilities, but it's really a tech driven uh buzz move here.

So I think it's uh got huge implications across the economy.

It's uh could command multiples higher.

Uh you know, for example, last year it was no earnings growth.

It was all multiple expansion earnings seasons coming through this year with multiple saying about the same.

So could we enter a period where multiples could be rationally viewed higher when everybody else thinks they should come back towards average because of A I I think that's something that investors need to think about.

Well, do you, when you think about NVIDIA, do you think about it now?

And do your P MS think about it as kind of a gauge, a broader barometer rather than just, you know, does it say something more than just about NVIDIA itself at this point?

For sure, you have to think about trends and A I is a trend is driving speculation.

What could be market breath with small cap sos getting built up.

It could be A I with large cap growth max seven.

Uh the US economy of stock market is like a super tanker.

It takes a while for these trends to percolate.

They go on for a while and it takes a while for a new trend to develop.

So you have to be aware of these trends in the market to ultimately position your portfolios.

Speaking of trends, what is the inflation trend?

That is the other big question right now that's gotten overshadowed by NVIDIA.

We got a little bit of a hint of it in the Fed minutes where participants said, well, maybe we are gonna need to tighten more.

The market seems to be sort of shrugging that.

I mean, how did you read those comments?

They were a little dated.

I mean, I, I casually checked in on it before I was coming here to prep and it was more hawkish than I expected as you would.

Most investors in its markets down a little bit today because of it.

Uh The Fed likes to float speakers that have different theories out there to see how the market may react to cuts or no cuts.

And we're kind of in a camp where we may see the unexpected of a hike if this rate, you know, inflation, Jay Powell told you, he, he basically took that off the table.

We could see it.

I mean, that's what's gonna happen if inflation stick here and rates stay higher, which I think is a good thing.

Ultimately, if you have a higher rate environment, we haven't seen it and gosh knows how long.

Uh so we can kind of get back to the old regime from like the sixties and seventies where you've got competition for capital with debt investors and equity investors it is healthy.

We deal with a lot of retirement investors.

So having cash rates higher is a good thing.

Uh capital market assumptions increase higher when rates are when risk free is higher too.

So I think higher rates are good.

We're just uh conditioned to a bias of a low rate environment that's changing.

And a lot of folks have grown up in this industry with low rates and that's all they.

Yeah.

So we have to see how that's going to affect, you know, cyclical and secular trends going forward too.

But that said, I think, you know, mcdonald's has come out with the value meal target's gonna reduce prices on 3000 items or something like that.

So we could be at peak inflation uh peak rate move.

Um And we could just be talking about all this could just be a whole bunch of nothing.

You know, the old adage sell in May and go away.

I think it's a good strategy this year.

It's uh we got all this news baked in markets should just settle down over the summer.

Enjoy your summer break because when we come back in the fall, we got an election.

So all that volatility I'm taking off for the summer.

Well, thank you.

Appreciate the, the green light on that.

Thanks so much for being here.

Appreciate it.

We're just getting started here on market domination coming up.

Shares of target are seeking today after it missed on earnings.

We'll check in on the retail giant and a few other trending tickers on the other side.

And at 430 Eastern time, it's the latest edition of our new show.

Asking for trend.

We dive into the latest numbers from NVIDIA and breaking down the moves that will be affecting your money and be sure to tune into Yahoo Finance tonight and tomorrow, Dan Halley and I will be speaking with NVIDIA, Ceo Jensen Wong after the earnings call.

Stay tuned.

We've got more market coverage after this.

Let's get to some trending tickers.

First up, target shares of the retail giant are sinking after a target missed on earnings.

It also issued a forecast for the current quarter.

Well below expectations, target shares have lost nearly half of their value since touching an all time high back in November of 2021.

They are up this year um before today, they were up by about 9%.

Although obviously they have cut that, but the stock is down the most in November 2022 today after they reported comps fell 3.7%.

That is uh comparable store sales um which was the fourth straight quarter of decline.

Yeah.

So the stock taking a big hit.

What are bulls saying today?

Julie?

Well, D A Davidson's Mike Baker got a buy ring.

Here's what he told his clients bottom line is that the best print he said, you know, you gotta acknowledge that but largely is basically in line thinking, this is not uh justifying the kind of sell off we're seeing for stock trading at a below average.

Multiple.

In other words, he thinks it's attractively valued here with comps poised to turn positive.

He said margins are still improving.

We think this makes for a buying opportunity.

He reiterated his buy rating.

That's interesting.

I mean, even uh Simeon Gutman over at Morgan Stanley who also is an over has an overweight rating.

He was used about the increase in SGN a sales general administrative costs at the company.

And that was a head scratcher for some of the other analysts as well.

And then on top of that, you have traffic and average transaction falling 1.9% last quarter, which was really something that uh analysts said was concerning, you know, they saw a drop in home goods and furniture and apparel and food.

So, you know, there's, it's the this current quarter could see an uptick, but we'll have to see if that guy I spoke to Mike Baker over D A Davidson.

He kind of made the comparison.

He said, you know, he buys on both likes Walmart, but he's like, listen, they are best in Breed firing in all cylinders.

Target turnaround story.

You know, you're the believer you don't.

Finally our next trending ticker.

Let's check out Lulu Lemon here shares falling as much as 7%.

They found the news that its chief product officer to cho is leaving.

So that was, that was the news, you know, chief product Officer leaves.

It does not sound uh really like she's getting replaced.

Apparently the responsibilities.

It sounds like it said, gonna kinda getting shifted to other colleagues.

And I did see some analysts who cover the company quote as saying this news just kind of added to these broader worries.

They had this means for the sales weakness.

In other words, people reading into it, you know what I'm worried about the belt bag.

Are you familiar with the belt bag?

Ok.

It's a fan is what we used to call Fanny pack.

And then it got like a 20 twenties makeover and now it's called a belt bag and you don't always wear it around your waist.

Sometimes you wear it around.

Ok?

I have two Lulu and belt bags.

I read in one of these notes today or one of the commentaries, the belt bag might be going out.

Really?

Lemon's belt bag.

I like my belt bags.

I don't wanna get rid of my belt bags.

The Fanny pack has made a big comeback.

I gotta tell you.

There's all I really, yeah, it's a whole thing.

I might have to switch to my daddy Dover.

I have too many of these things clearly, but my point there is a bigger point here.

It's not just about my own personal what I'm carrying around my stuff in, but that, that is little lemon losing some of that cachet is kind of the bigger question here.

Remember we talked to Adrian Yee, um who talked of Barclays, who talked about that the wide leg denim trend was hurting Lulu.

I remember that uh conversation with her and she said that this was sort of an incrementally negative data point that this uh executive was leaving.

They do report uh Q one result coming up, June 5th.

So hoping to get a little more insight and guidance that time and analysts are looking for the smallest same store sales growth that we've seen in quite some time for the company.

Finally, we're taking a look at some buy now, pay later stocks, a firm paypal block, they're all lower.

Today, after the Consumer Financial Protection Bureau proposed a new rule that would force the lenders to adhere to the same consumer protections as credit cards.

So it was sort of an interpretation of existing rules and laws that would create more parallels between credit card companies and some of these companies.

In other words, you know, that they would have to, I don't know, adhere to some more stringent standards, although a credit card company has to assess a borrower's ability to repay.

They're not suggesting that the B NPL companies will have to do that.

It's interesting.

It's not surprising maybe Juliette, you see regulators at least kicking the tires more and more because B NPL has grown.

So I mean, just it just as an industry.

So this big jump and usage as e commerce just exploded during the pandemic and now others have jumped in.

I mean, how many big banks even offering these, you know, pay overtime products?

So maybe not too surprised to see, you know, Washington at least taking harder looks and in firm for its part said uh in an email to Yahoo Finance that they've already disclosed that the CFP B already oversees some parts of their business and they're gonna continue to work with them.

So we'll see how it ends up affecting them.

Well, new data on existing home sales for April out today, that number declining for the second straight month to an annual rate of 4.14 million.

Yet the median price of an existing home sold rose by 5.7% year over year, just over $400,000.

Joining us now, realtor.com, chief economist Dan Yell Hale Danielle, it's good to see you.

So as we look at these numbers and this continued weakness, can we mostly point the finger at, at mortgage rates which have not come down?

Yeah, I think mortgage rates and the resulting lack of affordability in the housing market is a key culprit behind this disappointing print today, I should say somewhat disappointing print.

So 3.14 million, I'm sorry, 4.14 million.

A modest decline from last month.

Home sales have been at this relatively low 4 million plus level for the past several months.

They're really kind of struggling to out of here because there are some significant challenges in the housing market, not just higher mortgage rates, but also home prices that hit a new high for this time of year and continue to present affordability challenges.

In order to really make some headway against these challenges, we're going to need to see more building.

The housing market continues to be short on supply even though we did see some optimistic numbers, some signs of improving supply.

We're still not at a point where supply is ample enough uh, to help cool off home price growth.

Danielle, let's stick with mortgage rates for a second because I, I'm on mortgage news daily here.

They're telling me the 30 year fixed Danielle 7.09%.

I'm interested where you think that is, you know, six months from now, Danielle, 12 months from now.

And what's, you know, what's the rate that we need to see to really jump start greater activity, Danielle, you know, do you, do you think it's 6.5, 6 lower?

Well, when you look at outstanding mortgage debt, 90% of it right now is under 6% and about two thirds of it is under 4%.

So for existing homeowners who are, you know, maybe reasonably happy with their home but ready to make a trade either up or down or to something different uh it is really expensive to try to get a mortgage at a 7% rate compared to their current rate.

90% some of them are under six and two thirds are under 4%.

So it makes it a lot more expensive to move.

The closer we get back to uh to those numbers, I think the more we're going to see housing activity ramp up and every drop in mortgage rates brings some potential buyers and likely sellers as well back to the housing market.

So every little step down is going to help.

But you know, I think we're not going to get to levels where we're going to see a jumpstart in housing activity.

I think it's going to be more of a of uh a trickle or a slow comeback in housing activity as those mortgage rates come down.

Danielle, I'm really curious about the new home market versus the existing home market, right?

The existing home market much bigger to be sure, but we are not seeing the same kind of pricing pressure in the new home market.

You know, we're seeing incentives still be offered because the home builders wanna move those homes.

So if people are looking right now is new, are new homes actually more affordable on a relative basis, they're not necessarily more affordable on a, you know, an absolute price basis.

But I think new homes are definitely an area that consumers should explore, especially if they're in a region like the South where builders have been really active.

Parts of the Southwest.

Builders remain active.

And so, you know, builders don't have a low existing mortgage rate that they are tied into.

And so they have continued to build and create inventory is available for buyers.

They also are, you know, they're a business and so they're very pragmatic when looking at the market, if they need to make incentives in order to make a home purchase affordable for buyers, they have shown a willingness to do so whether that's cutting asking prices or offering mortgage rate, buy downs either temporary or longer term.

And so as a result, if consumers are shopping and they see, you know, if they haven't considered new homes, it does make sense to consider them new homes right now because uh builders have done a good job of keeping up their pace of activity represent about 30% of the market of homes for sale.

So it is likely that consumers are going to have new homes as an option to consider and perhaps more so than they can find in the existing home market today.

All right, Danielle always appreciate having you on the show.

Thanks so much for joining us.

Absolutely.

Coming up, we're playing ball in the latest edition of our series.

Goodbye or goodbye.

Find out which sports media stock to be a home run for your portfolio.

Stay tuned, more market domination after this, please.

It's a big noisy universe of stocks out there.

Welcome to.

Goodbye or goodbye.

Our goal to help cut through that noise to navigate the best moves for your portfolio.

Today, we're taking a look at sports media stocks in a match up between one intellectual property owner and a distributor.

What's the best way to play it right now?

I'm here with Chris Moran CO cio at the be fun.

Thanks so much for being here.

Appreciate it.

So let's get your by stock and it is Atlanta Braves.

Now, this is an interesting one.

You were interestingly enough, not the first person who has talked to us about this stock, but it is not one that's widely held or that is as much talked about within the sort of media space.

The shares are down over the past year, about 8.5%.

But if you look at it, you talk about the loyalty that people have right to something like the Atlanta Braves.

Sure.

I know everybody wants to talk about A I today with, this is in many ways the anti A I play.

This is in person.

This is 100 and 50 year old company.

It's the oldest continuously operating sports franchise in North America.

The Atlanta Braves, there are very few opportunities to own sports assets in the public markets.

This is one of them.

And as you talk about owning sports in the public markets here, you we have seen in the private markets that there's been a lot of growth.

So this shows here on this chart, the NFL and where we've seen that growth, the NBA, the MLB, the NHL and the compound annual growth rate altogether 16%.

So in the private markets, we have seen that growth, sports assets have appreciated actually greater than the S and P over this time frame.

Uh They've been great stores of value for lots of reasons um that we'll talk about but uh there again, very few ways to participate.

Yeah, there aren't very many ways to participate.

So what's interesting is that you say that the Atlanta Braves are, are treating any discount to that private market value, which is sort of counterintuitive.

Well, so we, you know, first you start with what, what the private market value is.

First, we, we calculate the private market value of the team based on where other uh sports teams have transacted in the market over the last 10 or 20 years.

And we have a look at that.

Actually, these are some of the recent cops uh in, in various leagues.

Um The Phillies are the most relevant.

Um They sold a minority stake for seven times revenue.

We value the Braves at something like 5.5 or six times revenue.

You add the value of the real estate which they have around the park and you get to a value of something like 3.5 billion for the company divided by the 62 million shares.

And uh you get to a stock price in the high fifties versus 40 today.

Ok. Got you.

So that is a, a considerable discount.

And it is illustrative to see, you know, the Phillies valued it at $2.8 billion.

And then you have to ask with seeing those valuations kind of as the result of deals and knowing how much people are willing to pay for them.

It has to lead you to ask, could we see a deal with the Braves?

Right.

So there's been a persistent discount in other sports assets.

This is a little bit different because this asset is controlled by John Malone and the folks at Liberty media who split it off uh just about a year ago in July, uh in my view as a uh to position it for sale to a private who can capture that trophy value and close the discount to private market value.

Would we potentially see a sale of part of it or do you think it's more likely you sell, you sell the entirety of the public company?

Got you.

So we always talk about what a risk could be potentially.

And in this way, you say boredom is kind of a risk.

In other words, like if you no catalyst, you go kind of muddle along without a deal or something else happening.

I use boredom in particular because a lot of people find baseball boring.

It's not gotten more exciting with some of the rule changes.

But yeah, listen, there's not a lot of downside in my view to the private market value of this franchise.

It's not like it's gonna get technologically disintermediated or they're gonna fall on their face in terms of earnings.

Really.

It's just a matter of the discount persisting for a very long period of time because there's not a transaction to surface the value.

Do you happen to be a Braves fan?

Also, I am not a Braves fan.

I am a New York Yankees fan.

I was gonna say your accent implies you would be more a Northern uh fan than an Atlanta Braves fan.

And you guys do own Atlanta Braves and your portfolios.

Our clients are actually the larger shareholders of this company.

Ok.

There you go.

So let's talk about the stock.

You don't like.

This one is interesting.

It's Disney now these years are up over the past year.

There's been a lot going on with Disney.

Obviously, the first reason you say you call it analog dollars for digital dimes.

What do you mean by that?

So first of all, let me preface this by saying before I get all the dis nerds out there.

Uh Mad at me, Disney has fantastic intellectual property and is run by a very great leader in Bob Tiger, but it's still not immune to the forces impacting the media industry and and I started as a media analyst 20 years ago and I'm very familiar with those and, and that's basically this um concept that media companies were over earning for decades in the old big pay TV bundle system that has come apart with streaming.

And uh it means that the companies are gonna earn less going forward.

And Disney's done a pretty good job of, of transitioning their business to direct to consumer, but it's never gonna be as good it once was and still has some challenges in the immediate term.

And you also, when you also say analog dollars for digital dimes is that, you know, they do have an analog business also in the form of the parks, but they're also investing all this money and trying to make streaming sort of work.

Yeah.

And this and the parks business is more than half of the IDA, more than half of the cash flow of this company and, and more than half of the value too.

But we still like that business on a secular basis.

The experiential economy is one we've uh been a proponent of it actually.

Um it works for the Braves as well, but that one actually has some cyclical challenges coming up.

Yeah.

And let's talk about that, the economic sensitivity and those, those parks are not getting any less expensive, that is for sure for those of us with Children who've been there recently and uh you know, both both Comcast which owns the Universal Parks.

And Disney have called out a moderating demand this summer in their, in their parks just as we get through COVID normalization and, and frankly, as the consumer is a little bit strained and can't spend as much.

And then we showed that stock chart at the beginning where the stock is appreciated, something like 18.5% over the past year.

And as I said, there's a lot that's been going on, namely a big proxy fight, right?

That has helped in part drive the shares up.

What now?

Yeah, exactly.

That's sort of the issue is that, you know, a lot of the catalysts are in the rearview mirror, whether it's the, the try and proxy battle that, that you referenced, uh taking costs out, um getting the DTC business, the direct to consumer business to profit, neutral, profitability, which they've all done and check, check those boxes.

And that's why the stock has done well from here.

It's gonna be more difficult trading out of, call it a 20 times kind of uh multiple slight premium to the market.

Uh And there's just not a lot of enough of margin of safety for us to continue owning it.

Ok.

So let's talk about what then could go, right?

That would maybe change your view, you know, if they do have good assets, they do still have Bob Iger in there.

We don't know what's happening after Bob Iger, but you know, he could turn the ship from here.

It's largely an execution story.

And if they over execute, if they take more costs out, if they get direct to consumer uh right, faster than we think they will, the other side is gonna continue to dwell.

The other thing I'd mention is this is an industry that's undergoing consolidation.

You've got paramount subject of a takeover battle.

Warner Brothers.

Discovery could be another one.

I don't think it's likely that anybody buys Disney, but there have been whispers of Apple for example, being interested again.

I don't think that's likely but it's, it's not a nonzero chance and that is a risk to the upside.

Now, you said you wouldn't want to own Disney or do you guys have some Disney?

You've owned Disney in the past?

We've been saying goodbye to it.

Interesting.

Ok.

But you still have a little bit but you're, you're working it and we're very tech sensitive.

So we have clients with very low basis.

Understood.

Chris, thank you so much.

Let's let's summarize what you're telling folks here.

You say you would buy Atlanta braves holdings based on a significant discount to sport teams, private market value.

On the other side, you think avoid Disney amid the decline of traditional media and lack of catalyst going forward.

Chris Mirani, good to see you.

Thanks for coming in and thank you so much for watching.

Goodbye or goodbye.

We'll be bringing you new episodes three times a week at 330 pm Eastern time for some calls of the day, Goldman Sachs upgrading Shopify today to buy it from neutral and raising its price target to $74 up from 67.

So, you know, this stock is interesting.

It's been under some pressure.

It's down more than 20% so far this year.

Goldman says though, ok, that is an opportunity because they say yes, there's an investment cycle weighing on margins, more mixed consumer spending.

We know that's been weighing on the stock.

But they tell their clients, you stick with this because Shopify has significant technology mode in e commerce, software share gain across e commerce cycles.

They point out bottom line that's gonna drive.

Goldman says durable growth at scale.

Goldman does point out some risk.

But bottom line, they say this one is a buy to their clients.

Yeah, and the stock is down like 25% year to date.

So they're looking at it and seeing all of that that is perhaps priced in and not justified given that.

Um and they talk about the, the company has been in investing in what they call large adjacency.

In other words, you know, sort of bolt on technology, things that are adjacent to their business that will be a creative over time.

And that's also one of the reasons uh that they like the stock.

Yeah, there are some downside risks.

They point out, listen, they say consumer spending could be worse.

That would, that would pressure GMV shares in Ecommerce could be a impact.

They said by kind of aggressive investment from companies rivals.

That's Amazon Temu, but that is not their base case here that they're buyers.

Um And then we got him and hers to talk about also Hims and hers being downgraded over at Citigroup to neutral from buy.

But the analysts are also raising their price circuit from $16 to $20.

The stock is down 7%.

I have to say this is one of the more effusive downgrades that I have seen here because the analysts, they're still like him and hers over the long term, they talk about the, the recent announcement that the company is going to be selling G LP ones through their site and they say assuming an average monthly average selling price of $230 a month, this equates to an almost comically large $30 billion revenue opportunity.

I love that, but the stock has rallied a lot.

So that's basically why they're saying they would take a policy.

That's it.

After the announcement.

They say listen, the stock jumped 20% added about 760 of enterprise value, leaves little room for upside in their opinion.

They say given the significant uncertainties around the economics and durability of G LP ones, we are moving to the sidelines indeed.

And so are other investors today to some extent?

Well, coming up, we'll bring you down the best ways to position in your software, your portfolio in the software space after some key announcements in the sector in recent weeks, stay tuned for the Yahoo Finance playbook.

On the other side, Microsoft is going all in on A I.

The company this week announced a new category of P CS called Copilot plus their computers equipped with so called A I PC chips and will now run on open A is GP T +40 model.

So as software technology continues to advance, we're looking at how to navigate the big picture and the best ways to position your portfolio with the Yahoo Finance playbook.

Let's welcome in Rishi, Juria R BC capital Market, software equity analyst, as well as Frederick Havemeyer, the head of USA I and software research at Macquarie.

Gentlemen, thank you so much for being here.

I guess.

Let's start, first of all with the Microsoft announcement itself and sort of how we should think about it as investors, how big of a deal it will be, how incrementally um it will add to revenue, etcetera.

R. I'll start with you.

Yeah, absolutely.

And thanks so much for having us.

We were just out in Seattle at Microsoft build this week and look, I think the introduction of these A IP CS is actually going to be a really big game changer to getting generative A I in the hands of every knowledge worker out there.

Right.

Recall when you use any sort of GP T system today, it requires a fast internet connection, a lot of computing power.

Now, you know, it's going, it's going to take time to, you know, they get light enough that, that everyone can use them, but you'll be able to use some of these more small language and medium language models locally without a super fast internet connection.

And so that I think will enable a lot more kind of general purpose.

Uh A I use cases and workloads that previously didn't exist.

So I do think this is a very exciting announcement for Microsoft, Fred.

Let's bring you in here as well.

Same question, Fred.

So you know your reaction to that Microsoft event, you know Rishi says these new A IP CS game changer, Fred, do you agree?

So for the past year, we've been making the call consistently that A I is going to have to move to the edge, it's gonna have to move to the device.

And in many cases, this does require hardware like what Microsoft is rolling out to do it.

And it's what would get us excited both about making this successful to consumers and knowledge workers plus also being able to drive uptake of A I in a profitable way.

Because if you recall, I think one of the last time I was on Yahoo Finance, we had a great time talking about what smaller language models mean large language models still quite large but nevertheless smaller mean to uh margins.

And as we found we explored in the past, we think that achieving uh 80% to 90% plus gross margins with running generative A I models can be done by using small language models on specialized hardware or on local devices.

So I think quite exciting, Fred, just follow up on that, you wrote a recent note about how consumers are gonna determine the impact here.

And I keep trying to figure out if where we are in the A I cycle is still um push or it's starting to be pull.

In other words, like all this stuff is coming out are customers particularly on the retail side asking for this or these companies still at the face where they have to convince them that they want it.

I think that when we look at products out there like chat G BT, I think we already see that there are north of 100 million users that I would qualify in many cases as consumers really interested in these types of products.

Now commercializing it and making it something that's useful and interesting for consumers.

I do think that there are technologies out there that have been perhaps what you describe as a solution in search of a problem.

And at the same time, I do think that it's very clear to us that the technology of generative A I model of large language models is something that we find fit with consumers over time chat GP T did.

And I think that with the right interface and the right uh platform, we'll find it over time.

I mean, I'm a user of Meta's Rayban glasses, not here to discuss meta but just the glasses.

They're fascinating.

They're really good.

And I really enjoy having this like modality of working with, with these A I models sitting right in my glasses.

So we'll see over time, Rishi.

Same question.

I mean, when you look across uh your your coverage universe Richie, what, what kind of customer adoption and engagement are you seeing when it comes to, you know, these new A I products and features?

Yeah.

Um A absolutely.

And I'm glad you have me alongside Fred because I, I definitely agree with him on a lot of what he's saying.

Uh Look the, the what what I would say is when we're talking to companies, we're talking to Cio S CTO S heads of it.

There is real appetite for A I usage within the enterprise.

Um A lot of this, I would say maybe 70% of it is actually net new budget.

So it's not even cannibalizing other parts of it.

It's coming out from other parts of the organization.

Um So there's real money being earmarked.

Uh We're, we're, we're seeing uh I'd say 80% of Cio S are telling us that they are either currently in production or expect to be in production with A I over the next 12 months.

So the appetite is real, the use cases are real.

And remember we're still at very, very early stages of this.

If I draw the analogy to the internet stages, you know, even though GP T four, incredibly powerful, this is probably 14 4 dial up level, right?

We haven't even reached the high speed broadband.

So I think there's still a lot more way for the technology to advance from here, but already seeing real interest from the enterprise and from consumers as well.

So we know you guys both like Microsoft, even before this latest event, you guys both have outperform ratings on that one.

Fred with you, I wanna dig into a couple others because you like a couple of the cyber security names including crowd strike and we recently heard from Palo Alto that seemed to make uh investors a little uncomfortable here.

Do you think uh the likes of a crowd strike are gonna benefit from A I as to how it relates to cyber security or is it just a more general cybersecurity play?

So we do think that it relates like crowd is really benefiting.

I think from generative A I as a trend while they're not selling generative A I themselves, we think that the advent of generative A I is making it much easier for Attackers to exploit a lot of things like for example, fishing attacks are becoming far more sophisticated uh Attackers that want to build software are getting also just power ups now being able to use generative A I perhaps to actually build malware more effectively.

We think that Crowdstrike which protects the endpoint, it protects the device as the last line of defense against all those attacks that have penetrated every other of security is really well positioned to defend against the brand new unknown threats that we think are likely to emerge with the advent of generative A I.

So really like crowdstrike is our top pick for just overall trend based exposure to generative A I in the cybersecurity sector.

Rishi 11 name I'm interested in.

So you got Apple forms on Microsoft Crm.

So, Fanella and Benioff, you also Richie like Zoom uh which has been a tough slog, you know, in the red richie year to date over the past 12 months.

Why is Zoom A buy here?

Yeah, I think Zoom has a really interesting play when it comes to A I.

There is so much unstructured data when you think about video and audio even, you know, non verbal communication that I think Zoom has a really interesting road map.

I think the hiring of actually from uh Microsoft was, was a great one and I really like that kind of thought leadership m uh sorry Zoom has put out on having a Federated A I approach.

Um You think about things like sales coaching that uh it can tell sales people look, you're not making eye contact, stop wandering and make eye contact with your prospective customer.

Uh hr when you're doing interviews with people, hey, this body language suggests that uh um the, you know, prospective employee might be wrong or, or lying, maybe problem with one or two follow up question.

Um And I think about those use cases, maybe even vertical them for the contact center where contact center Zoom has been getting a great amount of success.

I think Zoom is very much an underappreciated A I play in my book and I love that it will help you be more human or interact better with other humans.

That's a sort of a fascinating offshoot of all of this.

You got 11 other one, you guys both like is sales force and Michelle take you quickly on this and then we'll get Fred's opinion on on why you think it is gonna benefit here.

I mean, that stock has also had some exogenous things going on, activist pressure, et cetera.

Yeah.

Um I I will say my uh bullishness on sales force is more related to the self help element of the story.

I think there's a lot of margin expansion from here.

Um There's a lot more cost cutting, they can do a lot more efficiencies they can bring to the organization.

So the stock feels very much undervalued in my book.

And I think there's upside to numbers and upside to the multiple from an A I perspective.

I, I will say maybe I'm a little counter consensus on this.

I want to see more out of sales force when it comes to A I, in theory, they could be a huge beneficiary.

They're a system of record uh sales, people, marketing, people all rely on a day in day out and it's a huge platform with this massive ecosystem, but I just haven't seen enough innovation out of their A I road map where I would contrast that with hubspot, which is another name that we really like that has been showing a lot of innovation on the CRM front.

So I think salesforce has its work cut out on the A I front.

All right, Fred, quickly want to get your take.

Yeah, I think I'm, I'm quite aligned here actually with how Rishi is approaching this.

I think in the big picture of the software space, uh Microsoft, of course, we talked about fantastic.

I think service now stands out to me as one of the top uh generative A I picks in our portfolio sales force.

I really like, I do think that you have an opportunity here to just thoroughly imbue generative A I and A I throughout the entire sales force stack, makes sellers.