Tech-heavy markets are feeling the brunt of the global IT outages linked back to a CrowdStrike (CRWD) software update on Microsoft Windows systems (MSFT). Julie Hyman and Josh Lipton monitor these market moves in Friday's final trading hour in this episode of Market Domination.
Microsoft corporate vice president and deputy CISO Ann Johnson comes onto the program to explain how and why these outages occurred, believing it to be linked to "something that was unexpected" and beyond CrowdStrike's control.
Baird managing director and market strategist Michael Antonelli talks about whether markets (^DJI, ^IXIC, ^GSPC) still have room to grow as investors move out of Big Tech and eye the uncertainty surrounding the 2024 election and Federal Reserve interest rate cuts: "I want everybody to remember the US economy is not an on-off switch. It's a dimmer... It grows brighter, grows darker. That's how it works."
Top trending stock tickers on the Yahoo Finance platform today also include Travelers Companies (TRV), Intuitive Surgical (ISRG), and Starbucks (SBUX).
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This post was written by Luke Carberry Mogan.
Video transcript
Hello and welcome to market domination.
I'm Julie Hyman.
That's Josh Flip in live from our New York City headquarters.
We are giving you the ultimate investing playbooks to help tune out the noise and make the right moves for your money.
And here's your headline blitz getting up to speed one hour before the closing bell rings on Wall Street.
It's not a cyber attack.
This is an outage, this is an unintentional type of outage, more of an update related reversible type of a problem.
It will take probably a couple of days to rectify and remediate that.
But I think the straightforward message that it is under control, I think has been alleviating some of the initial concerns earlier.
I still think that we are on a collision course.
Um You know, it's very clear that congressional democrats want him to step aside, but it's also very clear that the Biden uh team and Biden himself wants to stay in this race.
Um, the COVID diagnosis and the fact that he's home off the campaign trail only restarted this.
I do think that, you know, we're looking at a situation where Biden has the delegates and if he wants to be the nominee.
He still has the ability to be the nominee.
Another driver.
Uh, certainly in the coming years is the ad tier.
We have ad tier members over 30 million this year and then rising to over 40 million next year.
Management has said like, hey, it's a good entry point uh for uh for consumers in those markets.
Um So it should be a, a tail wind to member growth.
Uh In the coming years, we've got one hour to go until the market closed.
So let's take a look at the major averages.
Not a happy end to the week.
If you are a bull here, we've got broad selling pressure.
Whereas earlier in the week we, we're seeing rotation, we're seeing some up and some down today, it's mostly down at least if you're looking at equity.
So the right now the Dow was off almost 350 points, 9/10 percent, the S and P 500 down a half a percent.
And by the way, set for its worst week since April down by 1.8%.
And then take to the NASDAQ any relief there.
It's down 6/10 of 1%.
Any relief in the small caps.
Nope, down three quarters of 1% and always sitting at the top of the trending ticket list today has been one stock and one stock only and that is crowd strike down 13% after a massive outage that has been linked to the company historic outage, not a hack, not a, not a cybersecurity incident, simply a software update that caused this what's really been described as just this historic outage at this point, Julie.
Yeah, a lot of comparisons being drawn to Y2K and that outage that didn't happen, but this sort of scope wise similar to what we might have seen at that point and also connected with Microsoft since it seems to have come to the various systems that it affects through Windows systems.
And we talk about systems affected.
We're talking about airlines, we're talking about medical facilities, we're talking about media, we're talking about banks.
I mean, really just a broad swath of the global economy that was affected by this.
Uh and we saw it really play out one of the quick interesting things that we have been seeing as well is that one of the areas that has been getting?
I said everything selling off today.
That isn't quite true.
Bitcoin.
Bitcoin is working, that's an area where people have been going into looking to if chaos is happening.
If global systems are not working.
Uh a place like Bitcoin has been gaining some dollars.
I also wonder how much is that?
Is that a potential Trump trade as well?
I mean, Trump, you know, right now has the edge just coming off his speech last night at the RNC and Trump has been actively, has been the trick coin candidate.
But I think that additional catalyst today.
All right.
But the top story of the day, a massive it adage causing chaos worldwide to airlines, hospital systems, businesses and banks all reeling after an update from cyber security giant crowdstrike causing a major disruption.
Yahoo finances, tech editor Dan Halley is here with more, Dan.
Yeah, Josh, this really kind of just comes down to a single update uh and more or less a single point of failure uh for this entire uh internet backbone basically.
Um just to kind of give an explainer of uh how this all seemed to come about.
Crowdstrike sent out an update uh for its software.
Crowdstrike is used by a number of fortune 500 companies.
Honestly, companies around the globe clearly.
Um it impacted Microsoft systems.
Microsoft is the world's largest operating system uh for uh laptops and desktops.
Um And as a result, any not any but a huge number of systems that were running windows and had crowd strike as their cybersecurity provider went down.
Uh And so that took offline uh businesses as Julie was saying, uh airlines had uh ground flights, um hospitals had to uh cancel procedures.
Uh Banks, uh bankers couldn't get into their their systems.
Uh You know, I mean, we're, we're seeing those kind of images come in of, of the blue screen of death.
Uh Basically that, you know, critical failure uh for, for windows systems.
Uh and this all comes down to, to that single update.
Now, why did this all happen at once?
Well, uh some of the experts that I spoke to uh essentially said, look, cybersecurity is so important when an update goes out, it points to different flaws uh in, in systems that uh Attackers also learn about, right?
This is an update goes out, the information is published about it.
Attackers aren't dumb.
Uh And so they know what the updates fixing if companies don't fix a, apply those, those updates and, and fix those flaws, that Attackers can go after them.
So, uh the updates were applied across the board uh to uh crowdstrike customers.
And that's why we saw this huge cascade of failures uh across various businesses.
Now.
Uh Crowdstrike says that they're deploying a fix.
Um It's gonna take some time for, for companies to go ahead and actually get these fixes in place.
Uh This person at Forrester had said that uh some uh it uh people have to actually go in manually with plugging in keyboards into systems and fixing this on uh on their own.
It's not something that they can just automate.
Uh And so it's not something that's just going to go away at the drop of a hat.
This is something that's going to take a while to, to truly remediate.
But it kind of comes down to this idea of, you know, there's these individual companies uh uh that are relatively small uh as far as number that power, the current internet.
Uh And uh some of the folks I spoke to had said that's this point of failure where you have such a small number of individual companies running something that is so important to modern life.
And when one of them does something that makes things go haywire, it just annihilates everything that we, we use.
Well, um you know, it's still going on for some, as we continue to see some of the ramifications of this.
Thanks a lot.
And we're going to continue our coverage of this outage because while the crowd strike update is the root cause of the outages, it took out Microsoft systems that were running the program.
Joining us.
Now to explain more is Anne Johnson Microsoft, Deputy Chief Information Security and Corporate Vice President and thank you so much for joining us.
I'm sure it is a very busy day um at Microsoft.
Uh So what can you tell us about sort of, especially for us laypeople about how this sort of percolated through systems and then the process of, of turning that around and getting everything back up and running.
Yeah, thank you so much, Julie.
Thanks for having me on Look, Crowdstrike.
Uh pushed out an update last night.
This is similar for folks that aren't, you know, steeped in this technology all the time.
Think about if you update, updated an app on your telephone, right though, this was not a consumer impact.
This was largely enterprises who were running crowdstrike as one of their security solutions to help them be more c and fend off these large global attacks.
Um and customers who um had solutions with crowdstrike and it was a global it outage.
Uh We are working really hard.
We're working with crowdstrike.
We are having a lot of conversations with them.
They have published guidance on the website.
I would strongly encourage people to follow that guidance because there's a lot of misinformation as you can imagine out there um on so social media and in different places and we also have teams of engineers working to make it easier for folks to apply the fixes to this Crowdstrike cloud update.
We are working and having conversations with crowdstrike.
We've been on the phone with them all morning.
We have teams of engineers and of course, we have teams of our support engineers working directly with customers to try to get them mitigated and up and running just as fast as possible.
And, and I'm curious how long do you think this last before?
You know, it it's fully resolved.
We do see um you know, some recovery but you know, is it hours days and, or, or just too hard to say at this point?
Yeah, Josh, that's such a hard question to answer because every um customer think these are large, the largest enterprises in the world potentially and they have really complex systems.
And because Crowdstrike is such a integrated part of those systems.
There are times when they're going to have to do manual updates.
We are working with crowds really fast to try to remove all of that manual process and try to get to a place where customers can do a more updated and automated process.
But at the end of the day, customers are moving as quickly as they can with the support from us, with the support from Crowdstrike.
And we're, we're conscious and empathetic that we need to get global business back online.
Um And when you have um one of the companies that uh you work with, roll out an update like this, what kind of sort of because I know it happens a lot, they put out updates frequently to try to address all of these threats.
What kind of testing happens beforehand?
And what kind of conversations are you regularly in with crowdstrike and other companies like it?
Such a great question.
So look, our engineering teams always are working with any of our partners who are publishing security features that impact our systems to try to avoid a situation like this, right?
And those are ongoing conversations.
There's a very rigorous program where the partner is encouraged to test thoroughly and I, I certainly wouldn't in any way anticipate they didn't test thoroughly.
This is obviously was just something that was unexpected and has caused this global event and the thing we really need to focus on right now is getting people back up and running as quickly as possible.
We are focused with crowdstrike with our customers are doing that and there will be plenty of time post this event to figure out exactly what went wrong and how we can make sure that something like this does not happen again, an a a broader question for you and I, I know folks are asking right now about whether we are just too reliant ann on too small.
A number of companies powering uh the web.
Well, it just seems to be a key issue.
A key question folks are, are asking after this event and I'm I'm curious to get your take on that.
Josh, I think people ask those questions after any event, right?
I I think that we and I've been in tech forever, but I think that we always have to look back post these events after we get, like I said, our focus right now is getting customers up and running as quickly as possible.
That's where all of our resources are focused.
But post this event, I think there's an opportunity for all of us to take learning and make sure we do better in the future and that we work incredibly collaboratively with both government and businesses to make sure we have robust ecosystems.
So we can withstand events like this and they don't have this type of impact.
Do systems need to be more open than they are now um ironically, in order to try to prevent some of this, you know, that's an interesting framing just because this was a third party solution.
So it was you by definition, a very open system, right?
A third party provided an update to their Microsoft customers um that brought down global it systems.
And by its very nature, it's actually a definition of an open system because this was a Microsoft law against a Microsoft system.
So I don't think that that actually is probably the move ahead opportunity.
But like I said, the focus right now has to be on getting customers safely and securely back online, getting all these businesses back up and running.
There will be plenty of time post the event to think about what's next and how we build more resilience into the ecosystem.
Thanks Ann really appreciate your time today.
In the meantime, we're watching shares of crowd strike.
They are down by about 12% in today's session in the wake of those outages with more on what this disruption means for the company and others in the cybersecurity industry.
We're joined by now by Trevor Walsh citizens.
J MP Securities Equity research analyst, Trevor, thank you so much for joining us.
Um At the very least, this is not a good news headline day for uh the, the, the likes of this company.
So where do they go from here?
How do they address this?
And is this just sort of a short term issue or is it gonna be a longer term one?
Yeah, thanks Julie.
Uh Great question.
Uh I mean, I think in, in this interim period, it's, it's certainly, um, as you said, pointed out, it's, it's not something that the company wants to happen.
But, uh I would point out that in terms of outages caused by cyber tools, um maybe on a smaller scope that that's not necessarily an uncommon uh occurrence in my prior life kind of working in industry.
We saw this happen um quite frequently, especially with endpoint security tools because of the nature of their, their access to operating systems.
Um You, you do everything you can to kind of mitigate those risks around testing before you launch and going into production, et cetera.
Um But um clearly there were some, you know, hiccups or mistakes made on on this end.
So, III I would commend the company.
Um and, and Mr Kurtz, uh kind of going on, you know, shows throughout the day to day and um kind of being very transparent and how, how they're both fixing um the issue itself and looking to work with customers um on the go forward.
So I think in terms of just the, the, the brand reputation, um yes, some damage certainly.
But I think that the company is doing everything kind of um above board and as best as they can to, I think, help, help customers through the situation.
Trevor.
It's interesting.
I saw some of your colleagues on the street who also covered this name saying uh the timing of all this though, um from crowds strikes perspective, I is not great.
They said Trevor, the, the point being it's happening the last two weeks of the quarter which they pointed out are, are very important for the company.
Could limit Q two upside.
I'm curious as a financial analyst.
How are you thinking about that issue?
Yeah, I think it's uh it's certainly one to consider um time timing is everything with a lot of these things.
And when you're at that, that um two week crunch uh le less than that at this point for them.
Um that is when you are kind of all systems go of trying to bring in those, those P Os and, and whatnot.
And um tho those types of issues when they come up, can, you know, even if the customer not a acting nefariously or trying to, you know, rake you over the coals from a price perspective that can cause pause around a deal for sure.
Um Again, I think the criticality of proud strike as a security platform.
Uh And so I think outweigh some of those uh issues in the sense of, you know, customers can't afford to just turn them off and not renew because of, you know, one of one incident, they're just too, they're too tied into the ecosystem, they're too critical of, of a, of a tool of what kind of within the overall stack.
So I think those conversations certainly have a potential to emerge.
But, um, I, I can see the company kind of, you know, doing what it needs to do to kind of make, um, make customers.
Right.
Could there be a little bit of noise around the corner?
Absolutely.
But I, I think again, I think that's a little bit more one off basis rather than like kind of a broad, broad based risk.
Well, at the same time, Trevor in terms of how the market is reacting.
Well, Crowdstrike is down, some of its competitors are up.
I mean, we see a gain in shares of Palo Alto networks, we see a gain in shares of Sentinel one, for example, do you think some of its competitors will be able to capitalize and, and take some share?
I think in terms of significant market share type of movements?
I I don't see that at this point.
Um could there be anecdotal wins within kind of the immediate again, last couple, the next couple of weeks and in the next quarter?
Sure, because I think that um there are some some customers that might, you know, either be evaluating new endpoint solutions to kind of net new and have crowds strike and center one, for example, side by side and maybe this helps to, you know, make that decision kind less favorably.
And crowdstrike f in favor.
Uh, but, um, I think that benefits Sentinel one a little bit more versus Palo Alto just given the scale and scope of those two businesses and kind of one or one or two big wins to Sentinel one means a lot more than, you know, uh, a single maybe smaller deal taken away, um, by Palo Alto from Trout Strike.
Um, but I think your former guest, uh, Miss Johnson, kind of, I think set the tone, uh, pretty well in terms of, I think just generally how companies seem to be reacting broadly to this incident.
It's more of a team all hands on deck.
Let's just get, um, critical infrastructure, key companies within, you know, that use crowdstrike and Microsoft up and running again.
Uh I think, you know, companies that would sort of use this as an angle, um, in a real aggressive way, um, might think twice about that just again because I think there are the, the, the sh they, they could very much be kind of in the same boat.
Um, you know, later down the line, Trevor brought a question for you.
Now, you've seen this kind of trend of consolidation of vendors in, in, in Cyber, Trevor.
And I'm, I'm curious whether going forward, do you think it'd be more scrutiny of that trend?
Just because maybe some folks think Trevor, you know, maybe it's better, we have more players instead of fewer?
Yeah.
And I think that that's, that's right, Josh, in terms of at least uh people taking a look at that uh that that priority or that strategy.
Um But uh regardless, I think that there's, there's the platform strategy and trend from the side of the vendors like Crowdstrike like Palo Alto.
But then there's also the overall um take from C OS and the users where, you know, they're not necessarily wanting to consolidate and have a mega mega mo monolithic single tool in their environment for the reason that you know, that that creates one single point of failure.
So I I think you have to kind of differentiate a little bit between the the marketing, speak of, of the vendors and then the actual users themselves and to be sure there's, you know, given where the macro environment it is and budgets are.
Um there's definitely I think opportunities for tool consolidation, but I don't think we necessarily live in a world where, you know, Microsoft uh Crowdstrike Palo Alto become the singular security tool um for these large enterprises.
It's not kind of the, the, the way in which I, I see things heading.
Trevor.
Thank you.
Helpful perspective on this whole situation.
Appreciate it.
Thank you.
We're just getting started here on market domination.
Coming up, stocks are headed for a losing week with another down day in markets today, but with more earnings on the horizon, are we prime to see a turn around next week perhaps?
And among those companies reporting earnings will be Tesla will speak to an analyst later in the hour about what to expect from the EV maker, especially in the wake of former President Trump's comments on the sector last night, the ground more market domination still to come.
Markets have pulled back from all time highs this week and sinking again today.
So we have seen that.
Have we seen the peak of the year or can we expect a turnaround with more earnings next week and a potential rate cut ahead for more.
Let's welcome in Michael Antonelli Baird, managing director and market strategist, Michael.
Always great to see you.
So you got all three indexes in the red here, Michael as we, as we head into the weekend.
What do you, what do you tell your clients, Michael about this market?
Yeah, it's, you know, it's, uh and it's certainly an eventful month that we've been through.
So who, you know, who's to say Friday?
We wouldn't also be eventful.
So I've been, we've been talking and thinking about, is this the top?
In fact, we just put out a piece of content today to our clients asking is this the top?
And, and you know, we can look back at this interview a year or two from now.
I don't think it is and I'll tell you the various reasons if you want to dig into those.
But uh we do get Pullbacks in the stock market from time to time.
It's been a while.
I saw some, some data from Bloomberg that it's been a while since we've had a 2% pull back.
Uh, and, and what we're seeing, I think over the past few days is one of these, just like summer doldrum type selloffs.
I don't, I don't see anything in the news or in the economic data or anything to support the fact that the top would be in or that this sell off that we're having is driven by something in particular.
Uh, I just think we're in one of these like summer doldrums where the news, uh, as it pertains to the markets just kind of gets a little bit slow.
Um, Michael.
Ok.
So let's dig into it.
Why, why, why isn't it the top?
What?
And I guess another way of asking that question is what will further catalyze the rally from here?
There's a couple of things I think that are driving stocks right now.
I'll just tell you the two or three.
I think that that are the most relevant here.
A fed rate cut.
Obviously, we do talk about that a lot.
Uh This was the first bull market in like 50 years to have not started with rate cuts.
So a rate cut would broaden it out.
I think that's one of the reasons you saw Smalls do so well, this week, uh household balance sheets, sub 3% mortgages, still low unemployment.
All those things are still the case.
Uh and then rising earnings like you're you're mentioning on the show earnings next week, I just looked the other day for earnings, 12 month forward is about 262.
Now it just continues to go higher.
So earnings good household balance sheets rate cuts, positioning.
A lot of people are probably underweight smalls.
So that's why you saw that big move lots and lots and lots of reasons why the market still keeps going.
And we're not even talking about A I or GOP drugs there.
How closely Michael do you watch Sentiment as just a variable?
I ask because some of your colleagues, some other strad just say to them, they're looking at certain sentiment indicators and they use words like giddy, Michael sentiment such a, I wish there was a way to just grasp onto it.
Right.
And, and, and just really understand how it affects, uh and how to measure it and how it would affect uh where we are in the current cycle.
Uh It doesn't seem particularly giddy to me based on a couple of different things.
I mean, certainly there are pockets of the market that, that can get a little bit over their skis.
But why is it not giddy?
Well, earnings are going up, rates are coming down.
Those aren't giddy things, right.
Those aren't just, uh you know, those aren't just kind of, I, I feel good about the world.
Let me buy stocks and video which we talked about a lot, makes a lot of money.
They have a lot of earnings.
So I don't particularly feel like it's super, super giddy.
Uh, but sentiment, when it, as it, as it pertains to stocks, it pertains to who's invested in what I think can definitely be worth watching.
It just doesn't scream to me that it's really bad right now.
Well, and then of course, there's also sentiment in the real world as separate from sentiment in the markets and there it's complicated.
Um as we are in a pretty contentious political year, I'm curious, Michael.
Um how closely you've been watching what's going on, not just in Washington with the conventions, et cetera.
Um You know, there is and it seems an increasing drumbeat of speculation that President Biden might step aside as Democratic candidate for president if that happens, what happens in the market, if anything.
So I spend a lot of my career talking to our clients about the intersection of money and politics.
I do it a lot.
I, I say it's like tiptoeing through a minefield, but I have to do it right.
That's what, that's what one of my goals is to help people understand uncertainty and how it impacts your money.
Uh I will say this, I have been had the view or the take all year that the stock market knows everything it it can about these two candidates.
Uh the two lead, the two leading candidates right now, President Biden and former President Trump, it knows everything about the two, their policies and you know that we, we've had a lot of time with these two, with these two candidates.
So that's why I think the market really has kind of shrugged them off if something changes right in the interim, if, if the candidates shift, which we don't know whether that's going to happen or not, the market will readjust to that new uh that new piece of information.
But let me say this because I think this is super, super important and we've seen it today with this crowd strike thing.
Markets hate surprises.
They don't hate news, they hate surprises, things that completely catch them off guard.
The changing of a candidate that people were talking about isn't catching them off guard because we're talking about it right now.
Uh So there isn't really a surprise looming.
Maybe there is and, and I don't see it yet, but as long as we're talking about something like CRE or that's when the market can come to grips with it and price it in when it gets caught off guard like this crowd strike thing.
That's when, that's when the market gets caught flatfooted and, and things have to shift rapidly.
Michael.
I'm just, I'm just curious but ahead to next week, uh important economic data point on tap P ce I, I'm curious, Michael, what you're looking for there and how important do you think that is for the market.
Inflation is a story for the market, I think is mostly just mostly irrelevant at this point.
II I really do.
I think some of the recent data that we've seen even when we see hot inflation numbers hot, right?
A little bit above three, the market has still gone higher.
So I think inflation is a story.
The worry for the market is over.
Why?
Because we were worried about the kind of wage price spiral we saw in the seventies or inflation we saw in the seventies, the market was worried about the tails of inflation.
We've clearly lopped those off.
Um So if it fluctuates between 2.7 and 3.1 or 2.6 the market can handle that.
So I I do think that the fed has enough kind of cover now with, with the, with the weakening labor market, it's not as hot anymore there.
I think they have enough cover to do a rate cut and not have to worry about inflation.
But another take, I want everybody to remember that the US economy is not an on off switch, it's a dimmer, it's a dimmer, right?
It it grows brighter, grows, grows darker, that's how it works, not on off switch.
The the economy is dimming right now and that will give them the necessary tools to, to to to have a rate cut.
Mike.
Always great to catch up with.
You have a Good weekend.
See you guys.
Thanks.
Well, a recent entrant on our trending ticket list is Starbucks those shares of 5.5%.
That's after a report from the Wall Street Journal that Elliott management has taken a big stake in the coffee chain.
The journal reporting, the activist is privately seeking ways to boost the share price.
It's unclear whether Elliot would want board seats, but it, it's pretty clear to understand why they might get involved here.
The shares are down some 18% year to date.
Even with this little bump up that we're seeing here today, Josh.
Yeah, it's been rough.
I mean, remember when Starbucks reported uh in the spring in April, you saw weaker than expected quarterly profit and sales cut their their outlook.
So it has been tough for Starbucks.
Um some details here.
I mean, we're still waiting to see how this shakes out according to the journal again, doing this reporting.
Um They are pushing for changes.
It's not clear exactly what the situation the journal describes as fluid possible.
They, they reached an agreement privately.
Starbucks does have results on tap Q three is coming on July 30th.
So maybe you get some more details of that.
Maybe Howard Schultz, of course, who was the long time head of the company had left and come back and left and come back.
Um He's still one of the biggest shareholders.
He owns about 2% as the journal points out of the stock.
Um And the stock has fallen a lot since he uh ceded the reins to Lockman Narasimhan uh back in March of last year.
Um So we'll see exactly what Elliott plans to do.
Let's turn to some other trending tickers that we are watching here today as well.
One of them is intuitive surgical.
The shares surging by 9% after they delivered a beat on second quarter earnings driven by a big uptick in procedures and system sales.
Piper Sandler Baird R BC capital BT IG.
They all raised their price targets on the stock and it all has to do with the Da Vinci surgical robot.
That's one of the big um products of this company and services associated with that robot.
They rolled out a new one and it seems like the roll out is going well.
Yeah, I mean, investors clearly like this, we're up about 10% right now.
I did reach out to Matt Taylor over Jeffries.
I was just interested for Matt's take on this.
He told his clients listen, bottom line solid print.
I mean he didn't find much to, to find fault with here margins outperformed.
He sees the results as encouraging his words.
He raised his numbers uh and his target does remain though at a hold for now.
Um That is just on valuation according to Matt and the stock, the stock is of about 35% so far this year.
It's how to run.
Now that Da Vinci surgical robot, we mentioned procedure growth that was 17% placements of its surgical systems um rose by 3% to 341.
Both of those numbers, by the way, beating estimates.
We're also watching Dow component travelers.
The insurer revealing a jump in second core profit is higher investment income offset, steep catastrophe losses, lower than expected growth though in net written premiums weighing on the stock here.
Uh So Q two profit heat expectations, the top line doesn't CEO is saying we are pleased to have generated a strong bottom line results in the quarter that include a record level of severe convective storms across the United States ca catastrophic losses 1.51 billion pre tax.
They say, uh catastrophe losses primarily resulted from numerous severe wind and hail storms in multiple states.
It's tough to be an insurer right now.
Uh given the weather patterns, given climate change, affected weather.
Um and you know, you have to wonder how the insurers are gonna look, you know, we've seen um, property and casualty insurers pull back from some areas, for example, that were more prone to these type of events.
So we'll see how all this plays out.
Yeah, it's tough and, and by the way, most analysts agree and they're, they are on the sidelines on this name.
All right, coming up, Tesla is set to report second quarter earnings next week, we're gonna speak to an analyst on the other side of pre preview, what investors should be watching out for state two more market domination still to come.
Tesla reporting second quarter earnings on Tuesday after the closing bell and investors will be looking for any new information about Tesla's much anticipated robo taxi event.
But how many people are even using full self driving in Teslas?
Now for more, we bring in George Generic managing director at Can Ingenuity.
George.
It's good to see you.
Um You know, obviously there's been a lot of focus already on uh Tesla's margins on the fact that sales have not been fantastic, not just of Tesla's, but of EVs more generally.
So let's let's start there and what you expect to hear from the company.
Hi.
Uh Thanks for having me.
Well, we already gotten a glimpse as to what Tesla's deliveries were for the second quarter.
Uh The incremental news that we'll get from the call will be as you alluded to the margin trajectory of the firm.
How exactly what appears to be a Gangbusters quarter in their energy storage business translated into profits.
Uh And really importantly for us is the FSD take rate.
Yeah.
So if you remember during the quarter, they lowered the price of FSD to about $8000 if you're paying a license $99 a month, if you wanna buy the recurring revenue portion, the subscription and they also give people a month free.
Well, how is that translated into consumer appetite for the product that's really, really important because for us before Robo Taxi even happens, we have to figure out what the consumer appetite is for full self driving offering that they have available to them today, particularly when that'll help dictate the earnings trajectory of the firm for the next couple few years before Robo Taxi kicks in.
And George does, does, do they disclose the take rate for FSD or what do you watch to sort of extrapolate that number?
Uh We're just gonna ask, I mean, they don't disclose it during the call.
Uh, they have sort of alluded to the backwards math in a couple a couple of quarters ago.
So in the US, it appears to be that the, the take rate has historically been probably in the high teens.
So every time someone buys a Tesla vehicle of the, the high percentage actually adopt for the full self driving, it's nothing.
It's not a metric that they traditionally give up.
Uh, so hopefully, if we get our question, we'll ask, uh, the management team on the call.
Like I said, that's really important not to mention they did, they have alluded to the fact that they plan on launching a few new vehicles before the, the $25,000 vehicle comes out.
So, you know, people have called it the model 2.5 so to speak.
And so we think that could really help volumes like this year, early next year.
So we'll see what they have to say about that.
The last we heard about it, I think it was at the shareholder meeting, Elon Musk said he's really excited about them.
I'm just curious, George, as you think about, you know, you mentioned the Robo Taxi event one George, what you think you, you might see at that event and two George how long before you might see, you know, real meaningful financial impact there?
It's a really good question.
Uh So in our model, we haven't built in a Robo Taxi line yet because we're still waiting to see when it's coming out what the economics look like, et cetera.
Uh Suffice to say that the timing is incredibly unclear.
Look, we have Robotaxis today.
They just operate in limited operational domains.
I mean, they're offered by Waymo in cities like San Francisco and Phoenix and I believe in Austin and, but the problem with that particular service is that it's really, really expensive to build their vehicle, right?
The Tesla vehicles have an advantage because according to Elon Musk, they only have cameras in the computer, but the hidden cost and we recently put a note about uh out about this is that the difference between in approaches is that Elon Musk is building a massive data center infrastructure to support that, right?
So, and he's disclosed that it's cost cumulatively cumulatively well over $10 billion to build that.
So we put out a note that really tries to break down what the cost per vehicle is.
Actually, if you include all the back end spending, they have to put together to enable that vehicle.
There's a really hard debate right now in autonomous vehicle circles, what's the right approach?
Do you have this neural network approach where you use only cameras and you build the stated infrastructure that literally dictates the terms of how that vehicle will drive or you put more sensors on the vehicle.
You have some A I but you also have some hard uh hard coded software rules that will sometimes override what the A I tells the vehicle to do.
It's a really big debate.
Some people think Tesla will win.
Other people think that Tesla is a little bit too aggressive in how quickly they're deploying A I um George, this is all really meaty stuff having to do with the nuts and bolts of the company.
But as usual, there's a lot of noise when it comes to Tesla and I got to ask you about that noise.
Uh We had some commentary from former president, Donald Trump.
Uh He talked about evs last night in his commentary at the RNC and I wanna play that for you and get your reaction and if you are going to do this all over our country, this crazy electric mandate, if you're gonna do this all and by the way, I'm all for electric they have their application, but if somebody wants to buy a gas powered car, gasoline powered car or a hybrid, they're gonna be able to do it and we're gonna make that change on day one.
I myself have two hybrids at home.
Um, George.
Uh, if we do see, uh, a Trump win in the White House, I, I, I'm not sure which mandate he's referring to there.
But what do you think that's going to mean for Tesla and the broader EV market?
Uh So look, uh we've had ev incentives that have come into place after the inflation reduction act was signed into law and those incentives assuming that the people who buy the vehicle uh meet the income requirements and that the vehicle itself uh is within a certain price range, you can get $7500 off from a, you know, federal tax perspective.
Um The interesting thing is though, if you look as to when those incentives were put in place and you look at what Tesla's vehicle sales have done, I, I'm confident they've helped, I mean, $7500 off is a lot of money.
Uh but Tesla's vehicle sales really haven't grown significantly since the beginning of 2023.
It's been part of the issue with the stock.
So that really means to us that yeah.
Yes, it'll definitely have an impact if those incentives somehow are taken away.
They, but there's so many other things at point I mean, if you recall late in 2022 Elon Musk started to really talk about the impact that interest rate increases were having on vehicle sales.
So let's just say in an environment where those ev incentives come off, but rates go down, that may be a net positive for the vehicle sales.
So nothing operates in a vacuum.
Clearly that $7500 going away wouldn't be a good thing.
But there's so many other factors here at play that, you know, we'll see how it all works out.
George, we're always lucky to have you on the show.
Thank you for joining us.
Thank you for having me businesses around the world coming to a halt on Friday after an update from crowd strike software took out computer systems, running Microsoft's Windows platform.
Could this have been avoided?
And how quickly is it being resolved for more?
Let's bring in Fred Cola, the Ceo of Kayla Fred.
It's good to see you.
Um Your, your thoughts Fred in reaction to this outage.
Um Yeah, I'm seeing it described Fred as, as the most spectacular it failure ever.
I, I, is that how you're seeing it, Fred, it's hard to say.
I, I don't know if I would call anything the most, any kind of failure, but it's a challenge, I think.
Uh Crowdstrike is a fantastic company.
They happen to be one of our competitors, but they are an absolutely fantastic company and what they experience is what any software company can experience.
You know, technology has become the world's become reliant upon technology and making sure systems are secure and always available is what Kay and crowdstrike and other organizations do.
It's a nonstop battle against the bad actors to make sure that systems and, and data are protected and available.
That means a constant updating and constant uh modernization and relevancy making of software products.
And unfortunately, uh for crowds strike and crowdstrike customers, uh this time hit a little bit of a snag and it's, it's very disruptive.
Well, and, and just how disruptive it is, Fred.
Um does that show us that there are not enough, maybe redundancies in systems around the globe?
And do you think that in the wake of this, there'll be an effort to maybe remedy that I think this the detail of this specific event or incident I should say has not a lot to do with redundancy.
It has to do with, you know, some quality assurance and, and some other issues and some, some testing issues.
But I do think that large banks, airports, I mean, all of us myself included, we've seen people impacted by this.
I do think it's going to raise a call for a little more awareness, a little more governance about how companies like Kay and Crowdstrike operate.
I mean, the impact that companies like crowdstrike and Kay have, the net impact is incredibly positive without people like like Kasia crowdstrike, these systems wouldn't be available because they'd be ransomed and they'd be hacked and there'd be a lot worse things happening but there is always the risk of mistakes, human beings do it.
So I think this is something that the entire industry, uh, crowdstrike, CAA Microsoft, all of us.
We need to look at and make sure that we're on top of and doubling down on the efforts to avoid any element of a human error.
And Fred, I'm, I'm just curious, you know, the criminals, bad actors, rogue states, Fred when they see a um an event like this, what do you think they're thinking, you know, does this in some way encourage them, Fred?
I don't know if it encourages them.
What's encouraging, this is gonna sound contradictory, but it's encouraging that so many it departments are investing in technology like crowdstrike if we had this conversation four or five years ago.
And you know, companies like crowdstrike, if crowdstrike had, you know, the similar thing happened, there would be substantially fewer organization in organizations impacted, which would mean fewer organizations were protected against the possibility of data theft and ransomware as they are today.
So I, I think that the the bad actors around the world are seeing this and they're realizing that they need to up their game because it organizations around the world are getting smarter and investing more money in the layers of defense that are required to protect ourselves from these bad actors.
So I don't think what we're seeing from crowdstrike is something that makes the hacking community and the bad actors feel better.
I think it's, it's a one in a million mistake and it happens and I think overall as society and as an industry, it's a good thing that more and more systems are investing in the money to be protected by technology such as crabs.
Uh, Fred.
Finally, how long do you think it's gonna take for this to sort of play out at various organizations?
I mean, everything seems to be mostly back up and running.
But do you think that there will be repercussions for a while?
I think you'll see that the tail of this will go for a little while.
I think in most the way most large systems and it organizations operate.
Automation is the name of the game.
Automation is what prevents manual mistakes and allows massive amounts of work and changes and adaptions to happen quickly in this particular incident.
This is a again a one in a million type of an incident.
What this is causing is a lot of manual actions to remedy it.
So the larger the organization, the longer it's gonna take for operations to return to normal because it requires a manual restart and some manual things to be done.
But I think, you know, this later this evening tomorrow, I think 95 to 99% of the impact should be remedied and I think that tail will continue to, to wean down.
And by the end of the weekend, I think just about everyone should be back to normal, Fred.
Thanks a lot.
Appreciate it.
Thank you.
Stay tuned.
We got more market domination.
On the other side, regional bank saw profits in that interest income fall year over year in its most recent quarter.
The bank also saying its exclusive deal with the treasury's debit card is likely to end.
Joining us to discuss is David C managing director at We Bush covering mid cap and regional banks.
David, it's always great to see you to talk regional banks.
Maybe not the happiest day for Comerica Bulls though.
When you look at that agreement that looks like it's likely to end.
What kind of effect is this gonna have at come and kind of how does it push forward from here?
Yeah, so it is uh unfortunate development for America to lose the Direct Express uh business.
So this represented the bottom line here is that it could impact their net interest income by 100 and 65 million is what we calculate because it represented an average of 3.3 billion of not interest bearing deposit.
So if those deposits uh non-interest bearing deposits are invested in a cash type of investment of 5% that's where we get the 165 million and it represents about 15% of eps.
So that's why we're seeing the negative stock reaction today.
I'm curious, David, as you look at your coverage universe, um and just looking a little farther out, are, are there reasons uh for optimism, David, you know, potentially lower rates?
Um you know, maybe uh changes in administration with less regulation.
How, how are you feeling about it?
Yeah, it's a great question.
You hit the nail on the head on, on both of the key factors.
Uh lower interest rates can help credit quality, it can help ease uh deposit costs.
And then on the, you know, political front, if we do get a Trump administration that could lead to deregulation and potentially an increase in M and A activity, there's been a lot of hand wringing over the past few years when deals are announced, it takes a long time for the approval to go through.
We think in AAA change in administration could accelerate the time in which it takes to approve a deal and could encourage additional deals to come through uh on the flip side here.
Um What are we looking at in terms of?
And I guess these um items are sort of agnostic to politics, right?
Net interest, uh income and how that looks going forward as well as loan growth going forward.
How are you sort of modeling those two things out?
Yeah, so net interest income and net interest margins, we are expecting them to be kind of stabilizing here in the second quarter and third quarter.
The key factor for the driver behind NI I is, as you noted, you know, loan growth and unfortunately, it's the messaging coming from the regional banks this week is that loan growth is tepid and is likely to remain tepid in the near term.
And what could accelerate it be the catalyst uh for increased low growth is lower interest rates.
Loan demand right now is low because many borrowers are viewing the high cost as a headwind to them wanting to take out additional loans.
So lower rates could be a very nice catalyst for the for the loan growth.
Some other picks, David, I want to get your thoughts on first citizens as a name.
I know you like how come David?
It's had a nice run here already up about 30% this year.
Yeah, one of the key things with first citizens that I'm anticipating when they report earnings next week is a potential sizable stock repurchase plan.
Uh So their capital levels are among the highest of the regional banks at 13.5% ce T one ratio.
They say that they want to get that down to around 10.5% by the end of next year.
So that implies they could be buying back stock upwards of a billion dollars per quarter.
Uh looking out over the next six quarters.
Now we do anticipate they'll either announce it with earnings next Thursday or shortly thereafter.
Um Another bank that you like is M and T bank which already reported its numbers.
Um the shares already up around 21% a year to date and they had a pretty positive reaction to the print also.
How much more upside do you think they're gonna get?
And, and where is that catalyst gonna come from?
Yeah, so we're anticipating about 20% upside to M and T they too um announced that they're resuming cherry purchases in the second half of the year.
They have more capital flexibility and they did take their NI I guidance incrementally higher with the earnings print.
And then probably one the most important things is credit quality for M and T. They announced with earnings that their criticized assets came down in the quarter and that's been one of the pushback items when I talked to investors is their credit performance.
But now that we're seeing this inflection on criticized assets, we think that there is room for upside for M and T. David.
So good to have you on the show today.
Have a great weekend.
You as well.
Thank you.
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