Tesla probe, Reddit earnings, market outlook: Morning Brief

Tesla stock (TSLA) is being dragged down lower after US Department of Justice (DOJ) officials are focusing their attention on alleged securities and wire fraud in their ongoing investigation of the EV maker's full self-driving features. In its first-ever quarterly report since going public in March, Reddit (RDDT) beat earnings estimates, noting daily active user growth as the site continues to optimize its AI model across the platform. Uber (UBER), Shopify (SHOP), and Affirm (AFRM) are also taking a hit in Wednesday's session after reporting earnings.

Morgan Stanley Global Head of Corporate Credit Research Andrew Sheets joins The Morning Brief to discuss whether market trends are the result of micro or macro drivers.

This post was written by Luke Carberry Mogan.

Video transcript

It's 9 a.m. here in New York City.I'm John Smith alongside Brad Smith and this is Yahoo Finance, his flagship show the morning brief features here pointing to a lower open 30 minutes ahead of the opening bell on Wall Street.The dow coming off of five straight days of gains.Its longest win streak since December the S and P 504 days in a row.Treasury yields also ticking slightly higher as investors track a slew of fed speak this week for hints about the path of interest rates.We're also tracking oil prices falling this morning on indicators of weak demand.So let's get to it with the three things that you need to know your road map for the trading day.Yah, finances, Jared Madison Mills and Josh Shaper.Have more.Thank you, Brad.We are tracking a slew of corporate earnings left Uber Shopify and all trending take after reporting those quarterly results.And we're going to hear from arm holdings, Robinhood and Air B and B among others.After the Bell, Tesla shares under pressure ahead of the open here.The Justice department reportedly looking at whether the company committed securities and wire fraud fraud as part of its auto pilot investigation.Reuters reporting that prosecutors are probing if Tesla and Ceo Elon Musk misled investors about the company's self driving capabilities specifically around whether the cars can drive themselves.Tesla's autopilot and self driving systems can help with steering braking and lane changes but are not fully autonomous.In shares of REDDIT are soaring after its debut earnings report, the company beating on the top and bottom lines with daily active users rising 37% year over year to 87 point million.82.7 million above analysts expectations.But so much of the stock movement we're seeing is coming from Reddit's guidance, reddit seeing adjusted even in a range of 0 to $15 million versus a loss of $13 million.Wall Street had expected stock futures edging lower 30 minutes before the opening bell on Wall Street.But Tesla is under pressure here.Reuters reporting that the doj autopilot investigation is examining whether Tesla committed securities and wire fraud in its self driving claims.So we're tracking shares of TSL A here pre market.They are down by about 3.5% and it certainly has been one of the larger claims that Tesla has continued to lean into and how big of a deal full self driving will have not just for its company but for the safety of the roadways.That's been their pitch thus far.However, the claims that they're making to investors, to consumers here will see exactly what the investigation does yield here exactly when we're seeing the stock under pressure, not a huge surprise one given the news, but also given the fact that we have really seen a run up since we did get that latest earnings report.So again, when you see news like this, this is just another reason for investors to kind of take a step back here, assess the current valuation of Tesla, given the fact that there are so many macro concerns surrounding this name.In addition to the latest news that we're getting out this morning here on this probe.So you couple that with the fact that we are seeing slowing demand for the EV space are certainly lots of questions around the Robo Taxi, how realistic that is and exactly what that timeline looks like there going forward and also just the ability here for Tesla to continue to sell cars at the rate that they have been without lowering prices even more.We've certainly seen that pressure margins here over the last couple of quarters.So that of course, is front of mind here to investors.So again, you get a report like this news out like this here from what we're hearing exclusively from Reuters, no surprise that we're seeing shares sell off just a bit now off nearly about 4% here ahead of the open.You know, the interesting thing is according to some surveys and the AAA survey continues to come to mind to me because as much as we talk about auto full self driving and autopilot full features there, you know, there's still a lot of consumer skep skepticism that is in the market right now.A AAA survey that they continue to run year over year that's looked across some of the fear or uncertainty right now.Around full self driving.66% have expressed fear of drivers on the road right now in the US have expressed fear, 25% expressing uncertainty regarding fully self driving vehicles.They cited continued lack of trust trend and this that really peaked and prior year.And so as we get kind of more of the updates on this, it's really going to become a core talking point for some of the automobile manufacturers, especially in the electric vehicle landscape which we already know the demand environment has been waning a bit right now.So what is the next big trick that they can pull out?Well, for many of them, they had been leading into full self driving, but is there something else that they should be messaging knowing that the consumer mindset right now is actually still a little bit more skeptical than not the full self driving realm here.Yeah, we can see uh this news here this morning also coupled with the fact that we had Rivian Miss as well.It's really weighing on the entire ev industry landscape.So it's not only Tesla, it's not only Rivian that are under pressure here this morning, you've also got Nicola off another just off just about 1% here.You have canoe also trading lower Neo X paying some of the Chinese automakers there, ev automakers also trading lower on this news.So again, when you get something like this, this is this is a move that not all could potentially affect Tesla shareholders, but you also see the pressure more widely based when you talk about ev adoption and exactly what that could mean for this space down the road.We're also tracking reddit here this morning.Reddit is among the top trending tickers on Yahoo Finance.The company posting its first earnings report as a public company and investors.Yeah, they seem to be liking the news here, Josh Schafer is here with the details.I mean, Josh, I forget the mascot's name already.I know I should remember Sn That's right.I didn't forget SN All right.Well, for you guys here, I've just been tracking the earnings report on Reddit, right?That's what everyone did.So for Reddit, I'll read you the numbers, right.So when you take a look at the numbers for Reddit, it really was, I think the second quarter revenue guidance here that probably impressed the investors the most uh second quarter revenue guidance coming in in a range of 240 million to 255 million.That was above the streets estimates for 228 million.And then we were talking earlier about the adjusted EBITA guidance for the current quarter coming in a range of $0 to 15 million.That's above what the street had been expecting.The street was actually expecting a loss of 13 million.So perhaps upside in revenue here may be driving some of the potential profitability gains for reddit.That has been a looming question since this company went public.Of course, is a, how are they gonna make more money?How are they gonna bring in more revenue?And then b when will that eventually lead to profits?I think overall reading through some analyst notes this morning, people were just generally impressed with the quarter.I mean, Reddit beat what the street was expecting pretty much up and down this report even when you look at something like daily active users coming in at 82.7 million.And I think the looming question now for this stock is going to be, what do people think of the valuation after we open the market today?It starts to shoot up somewhere in the 10 to 15% range is where it's been this morning.Remember the last time we really saw Reddit take off right after the a short report came out almost instantly and people started questioning sort of the valuation in the future plans here.It seems like the most bullish people on Reddit are still talking a lot about the A I strategy overall and that's kind of the long term play here.Yes, exactly.And you've got to ask yourself just how long that's going to take to really materialize.Right.And that goes to the question about what that growth is going to look like in the coming quarters because there certainly is a lot to like within this print.But I think those that still remain on the sidelines, we're going to be talking to one analyst later in the program who's still has an underperformed rating on the stock.And he's just pointing to that future growth and exactly when the dust settles and some of this excitement leaves what exactly the realistic growth is going to look like for red, but also just evaluating this type of name, given the crazy trading action that we have seen and given the fact that it is the meme stock.I would think that that would make the job even tougher here for these analysts when they're trying to figure out really the fundamental story here when it comes to REDDIT.Yeah, I mean, when you think about that Shana and sort of zoom out from like a slightly macro perspective, right?It was a good report and the stock is up a little over 10% in pre market trading.That's not crazy.But, but, but that's how this works, right?That's normally what you're supposed to see if you get a beaten raise for a stock that hasn't done that well, going into the report, a 10% move is certainly not unheard of.And that's something that, uh, our markets reporter Jerry Blicker was writing about in the morning brief newsletter this morning.We're starting to see some of these meme stocks.Like, yes, they've been on a run.Look at Carvana shares over the last two weeks.Right.But should we even be calling Carvana a meme stock anymore?But it also had a good earnings report, right?And that's why that stock is moving.And I think that's why Reddit is moving here.So for now, it seems relatively tied to the fundamental story.We'll see how much people want to talk about A I today.And then I think you start to get into a Yes, that's a use case for Reddit potential revenue driver.But what is that revenue driver?I mean, it's just still a massive massive question for this company.Yeah, they were talking about particularly within this earnings release in a world where content is increasingly A I and are generated.Reddit remaining one of the few uniquely human places on the internet that according to the press release, of course, here.But ultimately, I think it still comes back to for where A I plays a role within their strategy.What is the biggest source of spending that we've heard about over the course of this earnings season.It has been where meta is gonna spend further into A I where Google or alphabet is gonna spend further into A I.And so what that Capex looks like for Reddit could be one of the next big catalysts that investors have to think about in their spending profile in this.And is Reddit gonna be AC X taker?Right.Sure.I think that's an interesting part of the story too, Brad.That was something that Laura Martin over at Needham highlighted in her note today, they put Reddit on their conviction list and she said she thinks Reddit's data will become table stakes for all generative A I large language models over time.In essence, if you're going to get into the gen A I large language model game, if you're gonna make something like Jack GP T and you want to have something that can interact, you're gonna want Reddit's data of humans talking to use that, right?And so if they're gonna be a Capex taker from that sense of everyone that wants to get into A I, a lot of people wanna get into A I, so maybe they benefit from that and it certainly is the case and you can see it across the board when it comes to some of these, so many of these.Well, I guess now positioned, I mean, sorry, Josh, thanks.Let's talk a little bit more about earnings season because we are almost in the final stretch.We've got just about 80% of companies in the S and P 500 reporting.And we're on pace for a 5% earnings growth rate in the first quarter.In that perspective, that's the biggest gain that we have seen in nearly two years according to the latest numbers out from factset.But there still are some key names that are on top to report, especially in the retail sector and could potentially signal or it will at least give us a better sense of the consumer joining us.Now, we want to bring in Brian Jacobson, an X wealth management chief economist and strategist, Brian.It's it's great to see you here.So let's start with earnings season right now because when you take a look at that growth number, I just mentioned 5% earnings growth, the best that we have seen in nearly two years.What does that then tell us just about some of that momentum?Maybe that we should expect to see or is shaping up to see here in the coming weeks and quarters?Yeah.Thank you for having me.And earning season has turned out to be better than a lot of people expected.I think according to Factset numbers, it maybe was 3.4% expectation coming in or at a 5% run rate.And that's really, you know, I think helped support the markets here, provided a bit of a floor here.But now what does it mean for the future, going ahead, we have seen a divergence really continue where you have more tech companies, more oriented companies tied to manufacturing and industrials, outperforming retail.When I look at say xy, so consumer discretionary, how that has actually lagged the broader market.And so why is that if the consumer has been doing the heavy lifting with growth so far?What does this tell us about the future?The market might be sending a signal that the consumer is getting a little winded here.We're seeing the screws begin to Titan and maybe the baton is going to be passed to manufacturing, industrial and maybe more export oriented companies that are really hitching their wagon to the global growth recovery as opposed to just being concentrated with us growth, Brian, why is it that companies that actually post earnings surprises this earnings period are actually being rewarded less than the five year average here?Yeah, that's really interesting, isn't it?And that's something that we oftentimes track is the surprises if they beat.Is it the headline number that the market is focused on?Is it the bottom line number?And when we do the analysis, it appears as though it's more driven by the guidance that they're giving about what to expect for the balance of the year or even over the longer term.So they can have a positive surprise for earnings.But that's really just telling you what they've done lately as far as for the past quarter, the real key question of for markets being forward looking is what's really coming ahead, what's through that windshield and that's where you sometimes get positive surprises.But then coupled with a little bit of that negative guidance and then the stocks get punished or they don't get rewarded as much as what you would otherwise think.Brian, what does that then tell us about valuations?Because when you have stronger earnings here, a couple with a pullback that we've seen, it makes these valuations look maybe a bit more attractive at this point.But how sustainable are these current valuations?Yeah, so we've done some analysis here at Annex on investment committee.As far as there's a lot of people who are out there who look at say price to earnings or they take the inverse of that the earnings yield and they compare it to the 10 year treasury yield.And they say, hey, you know what, there isn't much of a gap there.The 10 year treasury yield is really rich.Uh As far as high, the earnings yield is really low, maybe that's a could have signed for the future.But really if you think back to that growth story, stocks hopefully will be able to grow those earnings.Whereas the coupon income you get from a treasury that doesn't grow.And so we think it's a fairer comparison to look at the price to earnings relative to real yield.So like on inflation protected securities, you can look at the real yield and that gap isn't nearly as narrow as what the gap between earnings yield and nominal treasuries are.So we think that it's actually for valuations as long as you are looking at companies that are quality profitable and that have that earnings runway ahead of them as far as that growth, that's where we think the better opportunities are and the valuations are therefore more sustainable when you have fed members questioning policy tightness right now and not taking off the table, a potential cut entirely and, and not and for this year, potentially, but then also leaving on the table a potential hike here.I mean, that that's signaling a little bit more unease that the markets may have to ingest here.What do you think the reality of how the Fed is evaluating this current economic reality and, and environment could net out in?Do you, do you think we'll see another hike?You know, not yet.I think that we actually aren't going to see a hike as a until we've seen a few cuts.So at some point in the future, they will likely have to hike again.But from what level?And I think it's actually healthy to show that there is that disagreement on the fed keeping hikes on the table.Chair Powell effectively said there's a very, very high bar in order to hike rates, other officials have said no maybe that bar isn't quite as high.So really what matters is the committee decision and chair Powell is really at the center of that committee.So his view is probably the most important and there's that very high bar to actually hike.We believe that inflation is going to start trending lower.The first three months are not a prelude to what to expect for the next three months for inflation.Now, of course, that could be proved wrong next week when we get the CP I number.So we'll have to wait and see on that.But so far it does look like they would rather hold rates where they are for a longer period of time as opposed to reversing course and starting to hike again.Yeah, CP I next big test next week and then of course, we're gonna have a lot more fed speak that's still yet to come this week as well.Just Brian lastly, while we have you here when you talk to your clients, if there are pull backs and they're looking for opportunities to add into their portfolio or just hold on to cash right now, what is the strategy that you hear them employing most often, most often they're actually looking at fixed income looking for those opportunities to get these higher yields.And so one of the strategies that we really like following is when you think about the short end of the yield curve.So think about short term investment grade.There's lots of great ETF s and mutual funds out there that you can find using the Yahoo Finance screener.So short term investment grade or triple AC L OS, things like that on the short end.But then longer term look at higher quality.There's nothing wrong with say a 10 year treasury ETF or something along those lines uh to get that type of income.So on the short end, you can go for higher yield.On the long end, you can go for higher quality.Brian Jacobson, always great to talk to you.Thanks so much for giving us some time here for your insight, nex wealth management, chief economist and strategist.Thanks.Well, we are just getting started here on the morning brief, coming up a Tale of Two Ride, hailing companies lift and Uber, moving in opposite directions on the back of those results, we will dig into the details next and Shopify shares are plunging on expectations of decline in it gross margins.We're going to dive into that earnings report plus red chairs getting a boost from strong result in his first print here as a public company.We will speak with one analyst though who still kept skeptical on the stock.We got all this and more.You're watching the morning, a Tale of Two Ride sharing companies here, shares of Uber and Lyft, moving in opposite directions on the back of first quarter results Uber sinking after reporting a surprise loss in the quarter.But Lyft seeing its active riders grow at the fastest pace since 2022.So they're taking a look at Lyft first here and some of the results here as we were diving into this both yesterday and then again this morning, pouring through some of what the remarks were that the company gave.Talking about the start to 2024.Very strong first quarter results David Richer, the CEO talking about rides and gross Brookings growing by more than 20% year over year here.And then also saying that they're on track to deliver on some of those four year goals with a higher level of free cash flow than we initially shared than they initially shared here.So that could be one of the reasons why you're seeing shares react positively as well here on that free cash flow projection.Yeah, exactly.When you take a look at this program here, at least from Lyft, there's not many signs of any consumer weakness when you take a look at a lot of these uh key uh earnings uh numbers here that the company is putting up and it almost tells the story that Lyft seems to be getting better and better or in a better and better position here as the quarters come on because there's lots of questions about what exactly their competition is going to look like or their ability to compete with Uber when it comes to obviously the dominant player within the space.But when you take a look at this report, it's improved all here for 2024 free cash flow conversion, healthier rider, also driver metrics as well.So that's a big reason here why we're seeing a Lyft really uh perform up to expectations and exceed expectations in many instances here in its most recent quarter.And then we are seeing shares or the stock getting rewarded as a result.Now, on the flip side, a bit of a different story when it comes to Uber, some disappointment there around their earnings sprint and exactly that myth that we saw there when it comes to exactly what the growth trend look like.There were, we saw a bit of a deceleration in bookings growth as well.So pointed to maybe possible saturation that we could be seeing within their market.So again, a very different story here.And as a result, you're seeing Uber shares sell off just a bit here ahead of the open.We're looking at a drop here of just over 7.5%.Yeah, you know, here's a few things to take away with this too.I mean, Uber, you're looking at the price right now, which is well above what about $25 above where the company one public a whereas Lyft is still trying to get to that level, get back to that level.It's been a different type of story for Lyft because they don't have the same type of diversification, specially across the eats or freight delivery type of.And I mean, it's not freight like putting things on a ship, but at the same time, it is trying to get things from point A to point B A.Anyway, all these things considered the diversification, both geographically and in service offering has looked different between the two, all that said for investors that are trying to figure out where the most opportunity within this ride sharing uh industry is the comeback story of Lyft has been really interesting over the past year.Shares are up by about 98% over the past 52 weeks here.So you got a question if there is more rotation into a company like Lyft, both both on price right now and on potential valuation going forward from this point.Given some of the announcements that they're trying to chart forth as well here, but Uber not too shabby in aggregate here.That's a very good point.All right, let's move on to another name that's trending here in Yahoo Finance this morning.And that is Shopify shares plunging after announcing it anticipates decreasing gross margins during the co current quarter as it deals with the impact from the sale of its logistics business to flexport.Now, the company is saying that's revenue is also taking a hit as a result and you're looking at shares falling nearly 20% here in the pre market trading beyond some of those headline numbers here, the and that surprise loss, they're also facing some higher operating costs.That of course has been a headwind here for the company in most recent quarters.And then when you take a step back and you talk about the weakening macro environment or concerns around the macro environment right now, a cautious consumer that of course will potentially and is already weighing on Shopify's results.And we're seeing more of a bearer take here on this print and on exactly what the current quarter could potentially look like here for Shopify.Yeah, you know, it's interesting, they're talking about seeing the strongest version of Shopify in the history.Outstanding Q One performance proof of the dedication to the new shape of Shopify.What that shape looks like to your point in a moderating consumer mindset in terms of where you're purchasing uh is also something worth tracking going forward from here.But the gross merchandise volume that was up 23% merchant solutions was up 20% as well.And then it's interesting as you look through some of the different areas that they did see more shop ability.Um Some of the what we would typically look at as the aisles here.Uh It's gonna be interesting see where they see even more of that recurring revenue come in, especially given the gross profit that actually grew 33%.However, investors still sending this lower here free market right now, about 18%.All right, affirm shares.We gotta talk about this one.They're moving higher after reporting the third quarter revenue jumping 51% from a year ago.The company giving better than expected revenue guidance for the current quarter.The buy now pay later company also seeing gross merchandise volume climb 36%.Hey, where else did you hear that?Yeah, we just talked about it.But anyway, all those things considered, one of the major things that I jumped to within this report is you're taking a look at some of the actuals versus the estimates being top and bottom.One of the areas that they're actually seeing more purchasing diversified growth for gross merchandise volume across all categories and products with everything except for sporting goods.And now they're growing year over year, not good news for Dick's sporting goods or perhaps some of the other sporting goods retailers.But here's where it got interesting categories such as electronics and home and lifestyle that underperform were gross contributors during this most recent quarter.Even they got in on the action here.You're seeing a bit of a shift then highlights me how people are spending a bit differently this time around.What stuck out to me in this report was the delinquency trends and kind of the stable, the stability that we're seeing at least when it comes to a firm numbers because the 3060 day rates they were essentially flat 90 day delinquency rate that actually fell.So what is the signal?Well, you talk about maybe potentially uh more sturdy growth, more durable growth here going forward and that growth potential.What exactly that looks like here for fiscal 2024?And then the impact that this could ultimately have on guidance here for future quarters.That of course, is one of the driving factors in this print as well with shares up nearly 2% travel and ticketing.Also a major important driver growing 35% year over year that tells you that people are changing how they spend about vacation.Very true.All right, we'll keep right here on Yahoo finance.We got much more coming up on the way.We got the opening bell on Wall Street.We will be taking a look at how the trading day is shaping up all through the major averages.Look to open the day in the red.We'll be right back and there.You've got a live look at the opening bell here.Take a look at the Nyse where you've got Floor and Decor or Decor.It's a big debate in the newsroom here.How you pronounce Decor or Decor.But anyway, they're ringing the opening bell at the Nyse and at the NASDAQ.No mista.That pronunciation Zapata A I ringing the opening bell there.Let's get a check of the market sponsored by Tasty Trade here.We've got all major averages lower here across the borders.We're taking a look at the global and international heat map.Let's zero this in on.Yeah, of course, as us Americans would do the S and P 500 you're seeing that down right now by about 4/10 of a percent.Here's a look at the sector activity that we're seeing at the gate.Staples leading it back.Yeah, you have staples.One of the uh, one of only two health care, the other uh sector here opening at least for right now, very, very early trading.But opening here in the green.On the flip side, you got consumer discretionary.Not a huge surprise when you look at some of those earnings prints out this morning, the stock reaction that we're seeing that's under pressure here off just around eight tens of a percent as well as communication services there.So two sectors that had been leading the way also really leading the way when it comes to earnings results as well.On the flip side here today, they're actually falling under pressure as well as the real estate sector off just around 7/10 of a percent.We have team coverage here continuing that team coverage on the opening bell.Yahoo Finance is Jared Blier is standing by with a closer look at some of this early action, Jared.Thank you, Shana.Let's go to the Wi Fi Interactive.I am going to plot the year to date charts for the major indices.And, uh, what I want to point out here, here's the dow, we've had a nice day thrust off of these lows.Still about half way to go between the high and the low here to get back to those highs.But the S and P 500 has really accelerated.All the major indices have cleared their moving average, the 50 day moving average.And now these record highs are in sight as I've been writing.I don't know that we can get materially beyond them until we pass June.We do have a little bit of bearish seasonality, but in the meantime, it is risk on and I got to track what's happening in the 10 year T note yield.Uh We do have a 1 p.m. auction today.We can see it's up by about three basis points given the fact that we don't have a lot of news this week, that 1 p.m. auction is gonna get a lot of play here.And then here's the US dollar index.Now, I'm going to show some candlesticks you can see on a three month chart.We have uh three days up in a row and this is significant because the dollar is the tail that wags the rest of the dog.And a lot of that has to do with multinational corporations, commodity cryptocurrencies, dollar effects all of them.So let's take a look at those sectors again, what I wanted to show Shana you mentioned staples and I believe utilities, staples is back to record highs.Staples.And utilities, in fact, are the only two sectors that have managed to climb back to the record highs so far.A little bit defensive.But we'll have to see how this all shakes out.Like I said, it might be a case of selling the rips until we finally clear that may seasonality.Headwind guys.All right, Jared.Thanks so much for breaking that down for us.Let's talk about some of the broader moves that we're seeing within the market and the bond market here because between sticky inflation, future potential rate cuts here and wars playing out in the Middle East and Ukraine, it's reasonable to argue that we are currently in a macro driven environment here for the market but with assets now moving with unusual independent, at least according to our next guest, he's arguing that if you look just under the hood, we might actually be in a micro market here for more on this.We wanna bring in Andrew sheets.Morgan Stanley Global head of corporate credit research.It's great to have you here.So talk to us just about when everyone is saying this is a macro driven market.You're saying it actually might be a micro driven market.Why?Yeah, thanks.It's, it's great to be here.So look, I think it's very understandable.I think if, if we, we read the news, if we talk to other investors, all the focus is, is often on these big macro variables, you know, when is the fed going to make its first great cut, you know, where are interest rates going?Where's inflation headed?Uh you know, some of these geopolitical concerns and, and, but if that were the real driver, I think if it were these big picture issues that were driving the market, I think what you'd expect is a lot of different assets, a lot of different stocks, a lot of credit all moving together, all moving kind of to the same side of the ship at the same time.And that's simply not what we see.I think this year so far has been unique in how independently individual stocks, individual credits are moving from each other.And, and I think that's important.I think that's a real sign that a higher for longer rate environment can mean that overall things are fine but, but individually you have winners and losers and it creates a really good environment for stock picking for kind of active management because individual stocks, individual credits are moving separately from each other, even as the overall picture is somewhat more stable.So I think that's an important distinction that we think really matters to markets.I mean, Andrew, it just seems like for so much of the, we've been trying to figure out will they won't they?With the fed?That's a macro you have to weigh in all of these exogenous threats also macro, I mean, where are the, the biggest micro indicators that are having more outsized impact than those macro events that we've had to discuss and continue to keep tabs on?Yeah, I think that's a great point.So I, I guess, I think about this in, in a couple of ways, you know, one is right.We went from the market at the start of the year pricing in almost seven rate cuts from the fed to the market today pricing in, you know, less than two rate cuts.And over that time, the market has been generally strong and and credit markets have been strong, spreads are tighter.So I I think the market has clearly shown that despite, you know, very different expectations of fed policy, it it can continue to operate, you can, it can continue to be ok. And I think we see this in a more, you know, kind of narrower level or more recent level where, you know, again after that, that GDP number, I think it was two weeks ago where it looked like the headline GDP number was weak.We we thought it was a little bit better but the initial read of that was it was weak GDP.It was high inflation, you know what helped turn the market around.It was a very micro development around earnings.So earnings season has generally been pretty good in, in Europe in the US.So I think you see that in the ability of earnings to offset some of the scarier macro headlines.And I think you see this just generally with year to date performance with, you know, despite some big wings in fed expectations, I think the market is telling you that it can, it can handle that as long as other conditions are met.So Andrew, that is the market almost priced to perfection at this point.And then what does that ultimately mean here for investors, identifying those best opportunities?Yeah.So I think this is a question that really varies depending on what market you're looking at um for for European equities, for example, we we do not think that's a market that's that's priced for perfection.We still have reasonable upside to my colleague's targets.Um We think the loan market in in the US kind of closer to uh to my area of credit uh where where yields are still above 9% for us loan.Uh We do not think that that price for perfection uh in the context of a soft landing.So it certainly, I think varies depending on where in the market uh you know, you look at.But overall we we think that there are still opportunities uh around that that are, that are not yet kind of fully baking in the soft landing scenario.Andrew always a pleasure to get some of your insights.Andrew sheets.Morgan Stanley Global, head of corporate credit research Thanks so much for taking the time.Good switching gears here, reddit share surging on the back of its first report as a public company.But our next guest still skeptical about the stock more on this after the break, Microsoft doubling down on A I investing over $3 billion to build out infrastructure in Wisconsin.President Biden heading to Wisconsin today to make the announcement with Microsoft President Brad Smith Yahoo Finance's Dan Halley joins us now.Hey Dan, what do we know about this?That's right, Brad, this is a $3.3 billion infrastructure investment from Microsoft in Racine, Wisconsin.This is the same place where uh President Trump had talked about Foxconn building a massive facility for uh displays.They ended up cutting that back significantly uh and uh not really meeting those uh ambitious goals.Uh And so now Microsoft is moving into this space uh with this facility, it's gonna be a data center uh obviously with A I exploding, they need board data center as part of the uh issue that Microsoft said in their last earnings call was that the reason why uh they didn't see more A I revenue in the quarter was because they just couldn't meet demand for A I needs.So this will help them build that out.Uh In addition to that, they're going to offer uh educational programs for uh nearby uh residents so that they can train up in A I uh as well as a program to get uh local business leaders to start using A I.And so this is all part of kind of Microsoft's effort to kind of smooth the transition uh for companies into uh more A I use cases while continuing to build out the facilities that they they need to to run this kind of technology.All right, Dan, thanks so much for bringing that down for us.Again, Microsoft shares though, still under a bit of pressure here following the open off just about 2/10 of a percent.Dan, thanks.Let's get to REDDIT because shares there are surging after reporting revenue surging at 48% from a year ago and its first earnings release as a public company ad revenue alone soared 39%.The social media platform also giving revenue projections here for the current quarter that are well above the streets expectation.You're looking at reddit now up just about 5% since the start though of trading.When you take a look at that max chart, you've got shares up just about 11%.So here we are today above 51 bucks a share for more on these results.We wanna bring in Mark Schue, he's Bernstein Internet equity research analyst joining us now.Mark, it's good to see you.So talk to us just about this print because it looks like at least at first glance, there is certainly a lot to like within this report you though, don't seem to be convinced why?Yeah, first, uh thanks for having me and, and it was objectively a great first uh report uh or, or print out of the door uh for Reddit now is a public company.Uh and the top line numbers look great, you know, revenue growth uh growing well above expectations led by ad growth, which is what you want to see.Uh and engagement growth or, or user growth is also kind of very strong.Um And so near term, we really like it, it's kind of a tactical play.I I think they have some very easy compares.Um You know, what we're starting to see is that there's just a really robust digital ad market at the moment management on the call last night shared.You know, this is kind of one of the best brand markets for brand ad spend since 2022.Uh You've seen it reflected elsewhere, pinch or Snapchat seen this massive acceleration uh in advertising growth uh and on the engagement front, um you know, a lot of that engagement has actually been driven by logged out users.Uh So, you know, anybody who's been on Google has probably seen reddit blue links show up more and more.Um you know, it's good to get those users, they're probably slightly lower calorie users, that's been the biggest bulk of of kind of their engagement growth.And you know, as we know that over the longer term.Those are just tougher users to monetize.Yeah, you're probably talking about me, Mark, I, I mean, I, I sometimes forget my password to reddit but uh don't tell any of the scammers out there that anyway, all these things considered, where is the biggest growth opportunity for Reddit right now?I mean, reengaging with some of those users as you were just mentioning a minute, a moment ago, but also on the monetization, it's more than just a platform where they've gotta be able to have advertisers that are willing to run campaigns.There, there are other efforts that they need to put forward to monetize, right?Uh That's right.And you know, and so first is you wanna bring advertisers onto your platform, so you need to have something to sell.Uh So they've been building out kind of a suite of ad products, some of which look really similar to what we've seen else where uh we heard management last night, talk about potentially getting into search ads.There's a lot of on platform, search behavior, video ads which are certainly very popular right now across tiktok meta, you know, youtube, et cetera.So there's more products that they can bring to the table and then beyond advertising, you know, they do have the big A I data like fencing deal with Google.There's a few other smaller ones that they kind of mentioned.So there's, you know, kind of call it A uh a platter of monetization opportunities ahead of them here.What, what type of additive do you think the A I and because of user generated content and, and data that takes place on the platform as we were discussing earlier, really exhibiting that human realm of conversations, you know, what type of additive do you think that could be over time to the revenue to the bottom line for this company?Yeah, it's, it's, it's a good question and you know, and so far the biggest deal is obviously the the Google one to kind of ingest that real human uh you know, kind of data into some of those generative A I the Gemini results.Uh And I think we'll see, you know, if, if Google sees real value in it that it helps kind of create more authenticity in the responses, not who can kind of, you know, scam the algorithm, the best or flood the algorithm the best to kind of deliver whatever results they want.Um You know, we, we, we'll see if the others kind of come on board.And I think that's one marker we're watching to see, you know, does open A I get involved and do a licensing deal, does does meta with Lama do a deal, does anthropic.And so, you know, we'll see how valuable this data is if we see the other big foundational model builders follow suit.Mark, talk to me just about what it would take for you to be a bit more bullish on this day when you, when you take into account what we're learning from this report, it seems as though, although maybe too early to call that it's almost turned a corner here in terms of profitability.What that timeline looks like.It looks like user engagement though, is still there.What do you need to see in order to be more convinced?Yeah.You know, I think, uh the, the truth quarter as I call, it's gonna really start in the third quarter where you start lapping the change to, to kind of the Google algorithm.Uh The compares get a little bit tougher from a monetization ramp perspective and then we'll see, you know, how kind of real and durable.Uh Some of their efforts are that are underway.Um You know, can they actually take some of these logged out users and convert them to being more kind of consistent engaging users?Uh Can they know about enough about the users to be a valuable medium for advertisers to deploy, you know, ad dollars, not just for top of funnel kind of brand campaigns, but real, you know, commercial intent, driving purchasing behavior, uh type of ads.And then we'll also see if any of those follow through A I deals show up.And so, you know, we're, we're watching it closely and I think they've got another quarter, at least ahead of them with, uh you know, with, with probably very solid results uh on, on the table.And we'll see in the second half of the year of, you know, whether some of the more challenging efforts that are required for me to get more constructive at this price, uh show up for investors that are even looking out to that, that third quarter as you were mentioning here.What are some of the dynamics that we could see play out on a Reddit as a result of an event like a general election season?Yeah, you know, they, it's an interesting one because generally speaking during an election season, brand campaign platforms tend to do quite well.Uh You know, you've seen it in the past with youtube as the election based advertising is not an insignificant number.Uh You know, we'll see how valuable kind of the, the reddit based is.It's, it's certainly not the core reddit advertiser today.And, and so it's kind of 5050.It might be a platform where they'll actually see uh the influx of, of uh political based ads show up as well or uh it could go the other way where, um you know, kind of their current advertisers tend to pull back during an election cycle because it does tend to get dominated uh you know, by kind of political based ads, Mark Smolik, who is the Bernstein Internet equity research analyst.Mark, always a pleasure to speak with you and get some insights.Likewise.Thanks for having me.Certainly, we've got all your markets action ahead.Stay tuned.If you're watching the morning brief another chapter in the closing saga of collapsed crypto exchange.FTX.According to a court filing, the company is saying almost all of its customers will get their money back.The company is saying it owes creditors about $11.2 billion.And the plan says that customers whose claims amount to $50,000 or less will receive approximately 118% of the amount of their allowed claim the reorganization and still has to be approved by the bankruptcy court here.It's worth noting that of course, when the company collapsed, when FTX went down back in 2022 late 2022 Bitcoin at that price back then was what, somewhere around $20,000.And as we're taking a look at BT C US D here today, I don't know if we have the chart that we can toss up here on the screen, but we should still be north of $60,000.61 $62,000 if you want to round up at home.So all these things considered, there's kind of AAA hefty delta between what some of these people may have owned within FTX and what they will be owed as a result of this settlement.That's such a good point there, Brad, especially when you take a look at the behavior here of Bitcoin ahead of this bankruptcy.Filing, right, because they had sold off just about 50% here ahead of that.So when you compare that, the time of the value there, what it was during the, from this bankruptcy filing to what it was today, seriously, a very, very large gap.And it's also about where this funding is going to come from.Nearly 100% of them or 99% of it coming from what they had raised from the company's investment portfolio.And within that reports here, that anthropic they're holding there, uh they they sold the shares there and that for nearly $900 million this year.So again, many of the many of those who have been affected by this filing are going to get 100 and 100 and 18 cents, I guess on the dollar here when it comes to when it all evens out.But again, like you were saying, this has to be approved, there are still a couple of processes that need to take place before this is finalized.But I think that this doesn't really remove the uncertainty aspect surrounding crypto surrounding Bitcoin, right?And why so many people even remain on the sidelines when it comes to these type of investments, you can make the argument.FTX is very much a one off type situation, the fraud, the allegations, everything that had been confirmed there and found in court.But still, when people think about investing in crypto, I think there is a hesitation here with a large portion of the investment audience who is a bit skeptical and a bit nervous of putting their money in crypto because of everything that has played out over the last several years.Well, we've had some major profiles that have tried to emerge and cement themselves as Bitcoin or crypto barons instead of making sure that they were cementing the service of the products that they were providing to actually sustain the well being of sentiment for the industry at a whole here.And, and what, what do we mean by that?I mean, you, you look at FTX and, and Sam Beman Fried now who has also for FTX, they've had to previously approve a settlement with Blackly as well.That was the largest creditor of FTX have been continued missteps for the people who were looked at as barons that's put a dent in the sentiment and it homo points exactly back to why uh Satoshi who wrote the and and pioneered the Bitcoin white paper is so anonymous because it wasn't supposed to be annexed or be able to be made or broken by one figure and one figure alone here.And so that was the prevailing origin story for Bitcoin and Cryptocurrency here.Uh Larger question here of now when you've got so many large financial institutions involved and invested, where there's gonna be more of an effort to make sure that there is regulatory practices that actually solidify the sentiment from this point forward.Yeah, exactly.We were talking a bit to Anthony and Pagliano about that yesterday and just in terms of what exactly that could potentially look like here in the years to come.All right.Well, coming up next hour Madison Mills is going to be here with for a new show catalyst.We are going to be breaking down what's next for the chip sector and everything you need to know.I'm looking for that forward to that.We got our Pringles ready outside and you got other chips that you're gonna be talking about too.Also later on in our 11 a hour, stay tuned for wealth where we'll be discussing why new home buyers are drawing a line at fixer uppers.We're talking to you.If you're fixing up a home fixer up, that's a new one.You're watching Yahoo Finance.