US GDP, retail earnings, C3.ai CEO talks demand: Morning Brief

Stocks (^DJI, ^IXIC, ^GSPC) are on the path to open the Thursday session amidst Wall Street's outlook on the Federal Reserve's monetary policy and slowing growth in US GDP (Gross Domestic Product). CFRA Research Chief Investment Strategist Sam Stovall sits down with Morning Brief Hosts Seana Smith and Brad Smith, diving into whether interest rates matter more to markets than Friday's Personal Consumption Expenditures (PCE) print.

Loop Capital Markets Managing Director Anthony Chukumba weighs in on the state of the US consumer by analyzing retail earnings out from discount store Dollar General (DG) and electronics outlet Best Buy (BBY).

Other top stocks trending on recent earnings results include Salesforce (CRM), Foot Locker (FL), Kohl's (KSS), and Okta (OKTA).

C3.ai (AI) Founder, Chairman and CEO Tom Siebel also joins the show to discuss the artificial intelligence developer's fiscal fourth-quarter earnings and the use cases pushing AI demand.

This post was written by Luke Carberry Mogan.

Video Transcript

It's 9 a.m. here in New York City.

I'm Shana Smith alongside Brad Smith and this is Yahoo Finance's flagship show in the morning Brief Well, sales force dragging the dow lower here ahead of the open.

You've got the major average on set to open in negative territory.

This coming after the sophomore giants guidance coming up short in terms of the street's expectations and investors are weighing a fresh reading on the economy GDP for the first quarter clocking in at 1.3% that's in line with expectations and down from its initial reading, the latest print showing signs of a resilience economy here.

Let's get to it with the three things that you need to know this Thursday morning, your road map of the trading day, Yahoo Finance Jared B and that for right and Alexandra Canal have more.

That's right.

Stock futures are falling this morning with the fed's higher for longer mantra weighing on major averages.

Investors were also greeted by a fresh reading on the economy GDP for the first quarter, clocking it at 1.3% in line with expectations and down from the initial reading investors now brace for potential volatility as the news is digested and from the economy to earning sales force is weighing on the dow this morning, the stock is down 16% in free market trading.

After reporting its first revenue decline in almost two decades.

Sales force also issuing softer guidance by lowering its four year subscription sales growth to slightly below 10% on the company's earnings call sales force said the results were impacted by budget scrutiny and long deal cycles and and Nelson P selling his entire stake in Disney after the media giant successfully fended off activist campaign in April.

He sold his position at around $120 a share which yields a return of about 1 billion.

According to sources that fund trying fund management had owned $3 billion of common stock in Disney, including the shares owned by Marvel Entertainment chair.

I well, features are in the red with investors digesting the fresh econ data out this morning in the US economy growing at a slower pace in the first quarter than initially reported, reflecting softer than expected consumer spending.

GDP rising 1.3% annualized in the first three months of the year.

That is below slightly below the previous estimate.

Now, for more on this, we wanna bring in Sam Stovall.

He is Cfras Research Chief Investment strategist is here and Sam when you take a look at the market reaction right now, not so much in the equity markets but really what we're seeing in the bond markets here this morning because we have treasury prices here pushing higher yields falling on the heels of this reading.

So I'm curious how you're looking at this latest data, printing exactly what this means in terms of how this factors into the fed's timeline for a potential rate cut.

Well, good morning, Sean.

Uh uh I think it's just one of several factors and probably least important one compared with tomorrow's P CE report.

Uh But certainly it was a bit of a uh encouragement in that Q one GDP growth came in uh slower than was originally estimated.

Uh Of course, there's still the forecast from uh GDP.

Now, Atlanta Fed, uh looking for greater than 3% growth in the second quarter.

Uh So I think we'll have to wait to see what transpires for the uh entire quarter.

But I think tomorrow's P CE will be more important than this GDP report.

Sam.

I'm focusing in on some of the areas where there downward revisions here, whether that be the price index for gross domestic purchases, uh or that be the current dollar personal income and then another one profits from current production.

W which of these is kind of most significant or has an outsized impact on where we did see GDP come in versus the previous estimates.

Well, I think dower revisions uh to these growth areas are important across all three.

Certainly whatever has to do with the consumer is the the most important in my opinion, since the consumer represents about 30 70% of the overall economy and also is very influential when it comes to inflationary readings.

Uh But we also know that these uh data are subject to vision.

There will be a third revision before all is said and done.

Uh So I would look uh more toward regular consumer confidence as well as the employment data when it comes out uh a fa week from Friday.

So Sam, how is all this factor into your investment strategy when we're talking about really what is going to be driving the equity markets in the near term?

Is it now all about the fed because of where we are within the uh earning cycle?

Yes, it is.

Uh A I is driving tech uh and uh the semiconductors, but E I earnings and inflation are driving the market.

And now, as you just said, with Q one earnings essentially completed and we're waiting uh for forecasts for Q two.

The focus is entirely on the fed and inflationary readings.

We think at the earliest, the fed will cutting rates in September.

We had been saying for a while that we thought we'd get two cuts this year.

September and December, but I would tend to say that we are becoming less confident about the start in September.

So certainly a concern that investors have to deal with right now.

Sam what about the notion of a potential rate hike?

Is that something that you think at all is a possibility at this point?

Uh, well, possibility but certainly not a likelihood it might be back on the table, but it's pretty far back on the table if you will.

Uh, so, I mean, we have to remember what fed Chair Powell said, highly unlikely, uh, about a rate hike but certainly with the 10 year yield climbing, uh with commodity prices rising uh with economic data remaining resilient.

Uh I I think it's at least the risk is back on the table though remote, where where does risk also lead to any rotation for investors who are trying to figure out once we do see the fed start its cutting cycle, how they should be positioned.

Well, right now, I mean, we're seeing rotation since the uh the dow hit 40,000 on May 17th.

Really there has been no place to hide except tech and communication services.

Uh Whereas if it's not A I related, it was in the red.

Uh But historically, when the fed does start to cut interest rates that tends to benefit stocks uh tends to benefit large and small cap stocks tends to benefit the uh the the interest sensitive areas like financials and real estate, as well as the more growth oriented groups pushing the defensive like consumer staples healthcare uh off to the sidelines.

So, uh I would tend to say that depending on when the fed does start to cut interest rates, then I think we could be seeing, uh, risk on once again, Sam, when you take a look at the action that's played out since Nvidia's earnings print just last week, we've seen an out performance in Nvidia's stock yet.

When you take a look at the broader market, when you take a look at the S and P, we haven't necessarily seen, uh, that euphoria follow suit.

What is this signal to you?

And is this kind of divergence that we're starting to see between NVIDIA and the performance of the rest of the market?

Is that worrisome at all to you?

Yes, I think it is.

Uh because when you look to, as I had mentioned before, since the recent hive, uh at least for the dow above 40,000.

Uh The best performing group was technology up 4.3%.

Uh and the S and P 500 while the market itself was negative and all other sectors except communication services were in the red, even the defensive areas.

And when you look to the best performing sub industries, not surprisingly semiconductors was up 14%.

Uh Good reason that uh expectations are that this group will post a 45% increase in earnings this year, 35% gain next year.

But also those A I tag alongs like heavy equipment, heavy elect equipment that are meant to power the A I areas also the independent power producers, all of which were up by 7% or more.

So I I would tend to say that if we don't get a broadening of participation once again, uh then that we could be uh retesting the low that we saw on April 19th, Sam Stovall CFR, a research chief Investment strategist.

Thanks so much for breaking this down with us and uh giving your perspective here ahead of today's opening bell, Sam.

Appreciate it.

My pleasure.

Thanks, sales force shares plunging this morning after reporting its first revenue miss in nearly two decades and slashing its forecast for subscription and support revenue.

The company's president saying on a conference call that they saw quote elongated deal cycles, deal compression and high levels of budget scrutiny.

For more on this, we're joined by Angelo Zino CFR, a research analyst.

Uh that was essentially a deal makers triple whammy if you will and not in a great sense there, Angelo.

So what do you make of that?

Yeah, I mean, I I'd say kind of, you know, we're in an environment right now where, you know, enterprise dollars are kind of tough to come by and you know, we are big believers that this is kind of an environment where um the enterprise space needs to invest heavily in A I and um a lot more dollars are going into A I initiative.

The problem is it could potentially be coming at least in the term at the expense of kind of increasing, um, the increasing revenue trajectory for sales force.

So, um, there's, there's kind of a lot of dollars to kind of, you, you've got to fight for these dollars here.

And as far as kind of, um, sales force is kind of concerned, um, I think they're kind of, um, looking at a, I, at least in the near term is more of a headwind rather than a tailwind.

Angela, let's talk about the stock reaction that we're seeing right now.

You have shares off just about 17% ahead of the open.

If this does hold, it will be the biggest drop that we've seen in sales force since 2008.

The street's reaction to this investor reaction to this.

Do you think that's warranted?

I think it's a little bit of an overreaction, to be honest with you, I mean, we kind of look at the, the, the growth numbers here.

I mean, they grew 11% roughly in line here in the quarter.

Clearly, all the disappointment is in terms of the guidance you're looking at, um you know, at least for the July quarter, 7 to 8% growth kind of um you know, the lowest growth rate in the company's history, definitely a concern out there.

Um And actually, you know, creates more uncertainty in the back half of the for this company.

They kept their revenue guidance roughly intact of about 8 to 9% top line growth, but when you kind of look at the July guide here, um it almost anticipates a little bit of a pick up, um kind of going into the back half.

So if we were not to see that, um, you know, that would, you know, definitely kind of, you know, potentially, you know, lead to another leg down in terms of the shares or at least allow the shares to continue to uh be muted in nature.

That's that um you kind of look at the, you know, where the stock is trading at from a from a evaluation perspective, trading about 2021 times our calendar 25 EPS estimate as well as free cash flow expectation out there.

And when you kind of look at the margin trajectory, the recurring, you know, uh you know, business na uh recurring revenue nature of this company, it's hard for us to kind of see more downside, at least from a valuation for the company.

If that is the case, then, I mean, this is an all out rejection perhaps in the near term of how much the company might be spending.

And we were talking about the Capex continuing to expect cap X for the fiscal year to be slightly below 2% of revenue they mentioned on the call.

Uh That's really been the hit on a lot of companies as they've talked about their A I investments.

Is that what's playing out here today?

Yeah, I mean, as far as kind of, some of the Capex concerns on, on the software side of things, you know, clearly it's been, I, I'd say more on some of the, you know, the cloud based type companies out there now that, that said, I mean, um, you know, sales force does have to continue to invest aggressively um on the, on the R and D side of things.

And, um, but that said, I mean, you, you're looking at margins holding up extremely well right now, um for this company, in fact, we actually had to increase our earnings estimate for the calendar per year because of the fact that they continue to execute so well, um on their earnings side of things.

So, um I think right now the, the, the real issue right now is um on the growth trajectory for this company, it's, you know, where does the, the growth number really kind of bottom out here for sales force as well as, you know, for the entire kind of enterprise software space?

You know, you kind of look at at sales force specifically.

I mean, they essentially doubled their revenue during the pandemic years, um over a four year time time span.

So I think there's, that's part of the issue right now is kind of um you know, having that a higher, a much higher kind of revenue base where you've got to now try to find a more normalized le level four kind of revenue growth.

And not to mention, um a lot of those A I initiatives kind of the, the investments that they're making into A I probably doesn't come into fruition until late 2025 early 2026.

In the meantime, a lot of those A I dollars that the enterprise is spending on probably going into, you know, um towards, you know, training, um you know, creating uh investing in these models, renting kind of that, that GP U space on the cloud side of things, which is why you're seeing an acceleration of growth on the cloud side of things and you continue to see that growth rate decelerate on the staff side.

Should investors be bracing for another large scale acquisition?

They talked about this a little bit on the call last night?

I think it, I think the door is open for that potentially and I, you know, they were definitely asked about it.

I don't think they, you know, they provided the answer that most have hoped for and that was um you know, we're, we don't wanna, you know, we're not looking for any type of M and A here.

Um But that said, I mean, we saw a number of activists kind of jump into the stock in, in, in 2022 early 2023.

And um you know, clearly, um if were to kind of, you know, look at the investment community out there, they don't want um any type of massive M and A within sales force.

But um when you kind of look at kind of some of the speculation out there in recent months with um a potential deal of informatica.

Now that's kind of been retracted.

But that said, I mean, it looks like sales force um potentially is looking for M and A out there in order to kind of reinvigorate growth within the company.

We'll see.

But that is absolutely a risk.

I think for investors out there for this name.

All right, Angelo Zino, great to have you.

Thanks so much for hopping on with us here this morning.

CFR A is a research analyst.

Stay tuned here for catalyst.

Next hour, we will be speaking with R BC Capital's Rishi Juria about sales forces results and what exactly that signals about A I euphoria.

You won't want to miss that.

Well, activist investor Nelson Pell's officially selling off his entire stake in Disney.

That's a source familiar with the matter telling Yahoo Finance.

Now this comes nearly two months after Disney successfully fended off his proxy battle.

Yahoo Finance's Alexandra Canal joining us now with the details.

Hey Ali.

Hi Shana.

Yes, a surprising development.

But then again, maybe not so surprising considering Pelz former battle against the company.

But a source familiar with the situation did tell Yahoo Finance that Peltz sold his entire position at around a price of 200 of $120 a share that yielded a return of roughly 1 billion.

And like we mentioned, this comes after Disney successfully defeated Pelts in his quest to secure board seats at the company that ended a month long proxy battle which ultimately kept the Disney Board intact.

Now pelt he fund trying fund management had been officially owned $3 billion worth of common stock in Disney that included the shares owned by former Marvel Entertainment chair.

I pro what is interesting though is that at the time of the shareholder meeting?

And this was prior to the announcement of the results pet said that regardless of the votes outcome, try and would be watching the company's performance closely and that the long term track record quote remains disappointing since that meeting, Disney shares are down about 15% but the stock is up about 12% since the start of the year.

Of course, Disney had pulled out all the stops ahead of that proxy vote to really solidify investor confidence that included announcements like an investment in Epic Games, a soft launch date for its ESPN streaming service, a new box office films like an animated moan sequel.

Disney did not respond to Yahoo finances request for comment regarding the Pelts news.

All right, thanks so much.

Tracking all things, dis everyone.

We are just getting started here on the morning brief.

We've got a retail round up.

We're going to speak with one analyst who says results from Best Buy and Dollar General Show.

The death of the US consumer has likely been greatly exaggerated and shares of C THREE A I jumping, jumping as Destiny's Child would say, after giving an upbeat full year guidance, we're going to speak with the company's CEO Tom Sel later on this hour.

Plus a huge revenue miss for sales.

We're sending shares plunging.

We're going to speak with an analyst about what this means for the A I euphoria on catalysts all that and much more.

You're watching Yahoo Finance Dollar General shares in the Green Year up just about 2.5% after seeing same store sales climbing over 2% in the first quarter.

This comes as more consumers are searching for value, they're searching for discounts.

The retailer also reaffirming its full year guidance for more on this.

We want to bring in Anthony Cumba.

He is a loop capital markets managing director Anthony.

It's great to see you again.

So talk to me just about some of the trends that you're seeing within dollar general and really what that tells us as we take a step back more broadly about the strength of the consumer right now or some of the pressure that the consumer is under.

Sure, absolutely.

So look, I think that um retail stocks in general have been under a fair amount of pressure, particularly over the last several weeks.

There is this uh concern about the health of the US consumer.

But, you know, look, we saw, we saw these better than expected numbers from Dollar General.

We saw better than expected numbers yesterday from Dick's Sporting Goods.

I mean, the US consumers still kind of hanging in there.

I mean, I always say I try to think about things very simply.

Right.

If the consumer is working and unemployment is still below 4% and the consumer is generally making more money.

Right.

And we did see uh almost 4% wage growth um last month, which continued a long string of wage growth that's higher than inflation, they're going to continue to spend.

I think, you know, uh the rumors of the US consumer death death are greatly exaggerated.

How much should we then read into where the consumer is shopping right now as well?

I mean, if we're thinking about the consumer going to dollar general, does that not signal pressure and, and a trade down perhaps from some of the other stores that they would regularly engage with?

I think that's a very fair point.

Uh that consumer is definitely being more um sort of discerning.

Um because, you know, inflation is still stubbornly high and you do have that sort of cumulative impact of inflation.

So even if the inflation rate is declining, you still have had, you know, a couple of years now of elevated inflation rates.

So, um so, you know, look, they, they are definitely um trying to be uh thoughtful in terms of where they're spending.

Um, and they are looking to save money.

Um, you know, Dollar General and you said had a nice comp, but Walmart also had a really, really strong quarter.

So they are spending, but they are definitely trying to make their dollar go.

Uh, you know, further, given the fact that, you know, they're paying more for groceries, they're paying more for gasoline, they're paying more for rent.

Anthony.

What does this then tell us just about Dollar General's position right now within the group?

And then when we talk about their ability to capture more market share, how optimistic are you that that's feasible at this point?

No, general is kind of at an interesting, you know, sort of point right now because remember like last year was an absolute positive dumpster fire for Dollar General.

Um I mean, you know, comps were declining for most of the year.

Um They got a lot of really, really bad press, you know, I mean, you never want to be on John Oliver's show, right?

Uh Getting sort of taken down and, and basically what they ended up doing was bringing back um their CEO Todd Bezos and now they're, you know, in this sort of turnaround mode.

Um A lot of that is trying to improve the in-store experience.

So improving uh in stock levels, uh improving uh customer service.

Um and so to some extent, it's a little like I don't want to read too much in terms of whether they're gaining share or losing share because a lot of it is just, you know, take a lot of it's just a self help story, right?

And, and sort of righting the wrongs that were done under the prior ceo Anthony while we have you, we we'd be remiss not to talk a little Best Buy.

Best Buy shares.

Also on the move this morning after its comparable sales declined over 6% in the first quarter.

As consumer demand for electronics, Wanes, Anthony Jamba, I gotta know what assessment of Best Buy, especially with some of the categories that they saw some significant declines in our continued push back within and they were talking about that appliances, home theater gaming, mobile phones, uh really the largest drivers of this comp sales decline.

Yeah, I mean, it kind of goes back to what we were talking about before.

Right.

So Best Buy, I mean, these are very, very high ticket items that are also largely discretionary.

And so if you're paying more for once again, rent groceries, gas, you know, maybe you don't need to buy that new, um you know, 60 inch television, maybe you don't need to um get the iphone 15, maybe your iphone 12 is perfectly fine.

Now, part of the reason that best buy uh stock is up is that, you know, they did a really nice job controlling what they could control.

So even though comp store sales were down 6%.

The operating margin actually expanded 40 basis points a year over year, uh, and earnings were up and they reiterated their guidance for the full year.

So to some extent, you know, kind of back to how I kind of started this conversation.

I think that, um, you know, a lot of folks were, were expecting, you know, maybe sort of a miss and lower and the fact that you had to sort of beat and reiterate, um you know, it was certainly better than when people were expecting, but certainly, you know, look the, um you know, that, that there's, they're still kind of dealing with that pandemic driven demand pull forward in consumer electronics.

And then when you add elevated inflation on top of that, it makes it really, really hard for them to, you know, grow their sales, but they're doing a great job of managing what or, or of controlling what they can control.

So then Anthony, given that, do you expect to see some sequential improvement when you look ahead to the remainder of the year I do?

And a lot of that um is based on product innovation.

So, you know, the earnings call just end and they talked a lot about these upcoming A I um optimized P CS.

They're gonna have a sort of big launch, I believe it's the middle of June.

Um And so that should certainly help.

They talked about, you know, some other products um, you know, some new innovative eer phones that are coming out, um, you know, hopefully for them, the macro gets a little bit better, but even, you know, with their second quarter guide and so, so the comps were down, as I said, 6% in the first quarter and they're expecting them to be down about 3% in the second quarter.

So sequential improvement and they said that may comps are actually a little bit better than that.

So I do think that product innovation and hopefully a better macro will um help them as the year progresses.

Yeah, that's a huge question of whether or not generative A I and consumer tech products can revive or at least be a net positive for some of the replenishment rates on big sale electronics here, Anthony, thanks so much for taking the time here today, Anthony Chico, who is the loop capital markets managing director.

Great to see you.

Foot Locker shares are surging after reaffirming its sales and profit outlook for the year.

The retail company saw comparable sales fall 1.8% during the first quarter, but still coming in above the expected drop of 1.9%.

Take a look at shares, a foot locker.

Oh man, they are sprinting higher by about 14% right now.

I I was looking for one good analogy there.

But ultimately, yeah, I tried, but there's two things that I highlighted within this report, at least in my uh notes of, you know, multiple pages here on the day because there are so many companies we're covering one lower mark downs year over year.

That is good.

You have more consumers than that.

It would show at least comparable to last year that are willing to pay full price on merchandise that they want here.

And so that comes back to their strategy in inventory selection here.

Um And then additionally here, the lace up plan that they're talking, you think out the 2028 they're looking to get this to generate and re reiterating this 8.5% to 9% EBI margin target.

They communicated that back at their March 2023 Investor Day and in this most recent quarter, that's sitting at about 2.8 to 3.2% in terms of what they're guiding towards here for the 2024 financial outlook.

So perhaps slightly ahead of schedule, at least as of right now, we'll see what the compound annual growth can look like on that or on the road to that target.

Yeah, I think when you take a look at these numbers, it points to the fact that Foot Locker business may be stabilizing.

You talk about those turnaround efforts, some of the various strategic initiatives that have taken place under the current CEO they start to be or at least it looks like things are starting to improve on that front.

And they're benefiting from some of these cost efficiencies, some of these priorities that they have put in.

And you talk about the fact that Foot Locker is able to sell many of their products at full price.

A lot of that having to do with exactly what you said, the inventory levels and digging into that just a little bit deeper inventory levels actually declined by more than 5.5% here during the quarter.

And that also just better positions the company to leave a bit more rooms when it comes to new products this summer.

And also looking ahead to the back to school season.

And of course, you talk about some of that uh momentum uh coming in here ahead of the very important holiday quarter as you look ahead to the end of the year.

So there is a lot of like within this report and I think that's a big reason why we are seeing shares off to the races here ahead of the open when you got a pop of more than 10%.

Do you like that one off to the races off to the races?

All right, let's check in on another retailer.

We've got Coles shares are plummeting after reporting a surprise loss in the first quarter.

Coles also slashing its full year guidance.

Now expecting net sales a decline between two and 4%.

Very different story.

What's playing out of Kohl's right now, you're looking at a drop of just about 24%.

And as a result, many of the other, uh, department stores, some of the other department stores, when you take a look at Nordstrom, when you take a look at Macy's are also declining on the heels of the, of this disappointing report here from Cole's and you can see it almost across the board here.

When you take a look at some of these numbers or com sales, they declined 4.1%.

That sales falling just over 5% merchandise inventory is a bit of an improvement there declining about 13%.

But again, the company saying that lower clearance sales versus last year represented a more than 600 basis points drag on com sales.

So certainly, uh Cole needing to make some adjustments here to right size their business.

Yeah.

Staying with our track analogies for a hot second, uh failure to launch De Qed off the blocks, whatever you wanna call it right now, shares are declining and heavily.

And one of the things that you went back to that net sales decrease 5.3%.

1 of the bright spots for cos, hey Sephora.

So people are still buying into what we had seen in strength, uh for Blue Mercury and some of the little luxuries of making sure that your face is, primped, powdered and looking good.

I don't even know if you primped your face powdered.

Do you, do you?

I don't know, I, I look, I'm, I'm new to the makeup scene here.

I only put it on every day now.

Um, but all these things considered that was one bright spot.

We'll see what that carry over looks like for a company like Ulta as well here.

Yeah, exactly.

And you, you talk about some of these partnerships that have paid off coal, seeing some bright spots within this report.

But again, overall when you're taking a look at sales declining as much as they have and also given the weakness in the macro environment, a bit of worrisome here for investors.

Wow.

Lands end is still around.

My goodness.

Ok.

Le Yeah.

Awesome.

All right.

I'm gonna, I'm gonna see what they have in terms of the summer style.

See if I need to be outfit in some, uh, Searsucker, maybe some salmon salmon pants.

Why not?

You'll send me in it on Friday.

We'll find out anyway, that's the DTs and that's the opening bell as well here.

You've got Land's End, as we mentioned, aforementioned, uh, ringing the opening bell.

And then you had another great company at the NYSC.

Kicking things off over there, didn't catch a glimpse, but no doubt, great folks.

Anyway, taking a look at the major averages out of the gate right now, you're seeing the dow down by about 1% S and P 500 that's lower by about 3/10 of a percent.

And the NASDAQ composite that's down by about a quarter of a percent.

Well, right now, just briefly, we wanted to check in on some of the dow components because one of the major drags that you're gonna find there is no doubt CRM sales force.

And it looks like that is the biggest percentage decliner here for.

And it's not even close, uh, for the dow as it's down and opens lower 18% after its earnings report yesterday, disappointing investors here.

So ultimately, uh, we'll see how that continues to weigh on the DJ I Dow Jones industrial average here throughout the day.

And that's why you're seeing the Dow off over 300 points right here at the open.

It's also important to take a look at some of the movement that we're seeing within the bond market here this morning.

Following that GDP plan, we are seeing treasury prices move to the upside yields, moving a bit lower.

Following that reading here, a lot of this recalculation just in terms of what exactly this means here for the Fed and the Fed's plans to potentially cut rates before the end of the year.

That's a conversation we will continue to have here on Yahoo Finance throughout this morning.

Let's get over to Jared Blier who's standing by with a closer look at some of that movement that we're seeing here at the open, Jared.

Yes, Shana, the woes for the dow.

They continue today.

The Dow has just been under performing the general market and especially the NASDAQ.

So here we have the Dow down 300 points today and I'm going to show you a four day chart.

So this is representative of this week, it's down 2.4%.

Now, take a look at the NASDAQ.

NASDAQ is up 9/10 of a percent.

So, what's going on?

Well, the Dow has a few components that are dragging on it more than others.

Uh Boeing was a big drag last week but we also saw weakness in mcdonald's and some of the financials.

So it's been kind of broad based within the Dow.

And I just want to show you though not to be too negative what we have in the S and P 500.

Now, guess what?

We're still up about 5% for the month.

And Ryan Dietrich studied this, he said when the S and P 500 is up five percent in May.

June has been higher five out of six times in the past three times, the rest of the year added at least double digits.

So we might be in for a little bit of a pause here.

But nevertheless, we do have uh strength probably as a tail wind.

Just want to show you the VICS real quickly that is holding above 14, that's been elevated and then a little bit of a reprieve in the bond market today.

You can see the tenure tino yield down six basis points to 4.57%.

And I want to end here by showing some divergences that have appeared in the market.

This is software in Purple versus socks, which is uh chip stocks in Cyan and chip stocks have been flying recently and software has simply been slumping very reminiscent of the dow industrials versus transports only a week ago guys.

All right, Jerry, thanks so much for breaking that down for some of the trends that will keep an eye on here.

But coming up, we are looking at what is a moving Yahoo finance is trending ticker page.

Some other trending tickers here as we open the markets this morning, we've got more on that.

When we come back, we will be right back.

Boeing is set to tell federal regulators its plans for tackling its safety and quality problems today.

One of the huge things that we're continuing to track is all of this coming after a fuselage panel blowout on an Unalaska Airlines flight in January.

Can the plan reignite confidence in the aerospace giant to break down what we can expect?

Yahoo Finance's very own.

Alexis Keenan is here.

Hey, Alexis, good morning.

Yes.

So today is actually a deadline for Boeing to submit this FAA report and it's supposed to say how Boeing is going to overhaul its manufacturing process to prevent what the FAA described as systematic quality control issues.

Now, the FAA reported, uh the FA ordered this report back in February after a series of failures of Boeing's max type uh aircraft and the latest you mentioned there in January that Alaska Air flight that experienced that mid air loss of part of the fuselage on a Boeing 737 max nine known as a door plug.

Now, Boeing's leaders will attend this meeting including including outgoing Ceo David Calhoun, they'll be talking with FAA officials during this meeting.

And Boeing says that the actual report though, that's not going to be made public today.

And that's because Boeing is expecting that the is going to go through this process of asking for amendments.

It's going to ask Boeing they think to make changes and so they say they just need to take time in order to get it into its final form.

The report though certainly a pressure on Boeing production max production was halted by the FAA the expansion of that aircraft program back in January after that door plug failure and Boeing on top of it is contending with this looming decision from the justice department on whether or not the justice department is going to criminally prosecute the company for violating that deferred prosecution agreement that Boeing entered into with the doj to settle the affairs over the two crashes of the max aircraft in 2018 and 2019.

So some of the steps that Boeing has been taking though to overhaul their manufacturing, they've been sharing those things with the media.

Some things include stand downs where all of the employees in a particular factory will stop working and they will express uh concerns about their workflows and they'll be able to really voice what they think would improve the production at their facility.

And everybody listens to this.

There are thousands of Boeing employees taking place uh taking part in these uh these meetings also more hiring more training for Boeing employees.

Um also more reporting on the the process.

Uh more trans as the planes and the aircraft are configured within the factories.

Also Boeing uh buying a lot more tools and equipment, they say um but Boeing says that this is not a quick fix that this report and what it's going to require Boeing to do is going to take years to fully implement.

They say guys, all right chairs down more than 30% over the course of this year as all of this plays out.

Thanks so much Alexis for continuing to track this.

Appreciate it.

We're also tracking shares of Octa today.

They are in the red after the company raised its full year outlook and its Q one earnings report.

It now expects to rake in between 2.53 billion to 2.54 billion in its 2025 fiscal year.

Now, despite this Octa CFO still noting the difficult financial environment saying they take a prudent approach to forward guidance and they're factoring in a stable but still challenging macro environment consistent with the, with what they've experienced over the past few years here.

OK.

So Macro environment, one thing, but I, I think that there are other concerns as the company did get salt and peppered with questions about the data breaches and how they're seeing that show up in some of the financials.

I mean, it continued to come up time and time again.

I think it was about three or four analysts at least that brought it up yesterday um during the earnings call and also noting some of the remaining performance obligation growth, deceleration, implied growth, deceleration, high single digit range in the second half and then caution around the new customer and trying to figure out what the quantifiable impact to the Q one numbers is from the breach which the company kind of skirted around answering whether or not they could actually see a direct financial impact or quantify it.

Um But that certainly is looming over some of the shares and the price reaction right now.

Yeah, that's, that's really important to point out here, Brad.

And also I saw some of his commentary around further consolidation within the industry was interesting.

He went on to warn just about some of the dangers that could come if any one company begins to then cover all of cyber needs.

So he's saying that he does expect maybe to see a little bit more uh consolidation M and A ahead.

But, but at the same time I'm sending off some, I guess warning signs just about what exactly that could entail and some of the risks that, that could then bring about here to some of the industries at large.

But when you take a look at these numbers at what they did report the fact that they raised their full year forecast, the fact that their Q one results beat expectations.

The street overall seemed pretty pleased with the numbers that they did report you and Morgan Stanley saying that it was a solid beat in a tough environment.

This coming despite some of those macro economic headwinds right now and ever, we are actually upgrading the stock to outperform saying that the company exceeded those tempered expectations.

And despite some of those challenges, its current valuation is not a stretch and they have enough confidence to take the bet that the numbers right now are de risk.

So again, this is a stock that hasn't done a heck of a lot over the past year, you're looking at gains of just about 4% year to date.

You're looking at of about 7%.

So comparing that to the movement that we've seen in the broader markets, clearly an underperformance there.

Yeah, and a little bit of overlap in terms of what we're likely to hear from and continue to hear from Octa.

Oh, by the way, uh there's gonna be a conversation taking place a little bit later on today.

I'll let you tease that in a hot second but one of the overlaps.

No, no, no, no, no, no, no.

We'll go back to that one of the overlaps that we're seeing in this kind of triple whammy environment as a classified it early uh, with what we heard from sales force as well.

Elongated deal cycles, deal compression, high levels of budget scrutiny.

What's to say that Octa isn't also experiencing some of those things in the macro?

Ok. T time.

All right.

Well, let's talk about it.

We will be hearing from Octus Ceo Ted Todd mckinnon.

He's gonna join this afternoon on market domination.

That's in our three o'clock hour.

You won't want to miss that Octa, Ceo Todd mckinnon joining Yahoo Finance later today.

Let's talk about Palant here landing a $480 million contract with the US Department of Defense this week.

The deal is for the software company's prototype system.

It's going to help identify military points of interest and can also speed up intelligence analysts work.

Now, the contract is expected to be completed in 2029 and you're seeing some excitement surrounding that contract because they were off the highs of the morning.

But still the sock is up just about 1% here shortly after the open.

So here's why this is significant.

It's going to help uh really boost their military business or government business, which still makes up a majority of the revenue of their sales here.

They have been expanding into the commercial business, but government government revenue still making up the majority of volunteer sales when it comes to this project, specifically using A I computer vision to help soldiers more quickly and accurately identify targets.

So again, this uh contract about $480 million here, the new contract with the US army.

Yeah, they told me to be brief.

So I will adhere to that.

Uh and hold up.

Wait a minute.

Can we put some context in it there?

You're taking a look at the past five days activity, but here's the month, all right down uh by about 3%.

And the only added context that I'll put on to this is that government revenue that grew by about 16% year over year in the most recent quarter.

US government specifically in that revenue up 12% year over year 8% quarter over quarter and no doubt this deal will help some of the forecast that they had put out there of raising the revenue guidance to between 2.677 to $2.689 billion for the full year of 2024.

That's it.

All your markets action ahead.

Stay tuned.

You're watching the morning brief.

Mergers and acquisitions in the energy sector are in focus this week as Conocophillips agreeing to acquire Marathon oil and has shareholders approve merging with Chevron, the deal making in the energy sector.

It rose in 2023 hitting its highest level in over a decade according to the US Energy Information Administration.

But where do we stand in 2024 for more on this?

Let's bring in Yahoo finance reporter Anez Farre here and tracking all of it.

Hey, Anne.

Yeah, Brad and the M and a wave went into full swing really in 2023.

And it hasn't stopped with more than 230 billion in Explorer and producer deals last year kicked off by Chevron and Exxonmobil going after Hess and pioneer respectively.

Now those two deals were the largest since occidental petroleum.

But Anna Darko back in 2019 and speaking of occidental petroleum, the Warren Buffett backed oil producer announced the acquisition of privately held Crown Rock last year and most recent deal, as you just mentioned was announced yesterday with Conocophillips and Marathon oil.

Now, in fact, last year, the industry saw the most M and A deal since 2012.

The reason analysts are saying is really simple.

It's because for the last decade, the industry has under invested amid political and regulatory uncertainty over the future of oil and gas and pressure to move towards renewables has also created a reluctance to invest.

So companies are making up for lost time.

As one analyst put it, buying up inventory in order to expand in last couple of years.

It's been pretty evident that fossil fuels are here to stay for longer than previously anticipated oil and gas production hit new highs in 2023 after the price of crude soared in the prior year following the Russian invasion of Ukraine.

And the oil and gas industry has positioned itself as a provider of fuels like natural gas needed to power the booming energy transition A I data centers and the restoring of manufacturing.

Now, industry executives surveyed in December by the Dallas fed said overwhelmingly that they anticipate more mergers in the next two years.

Now, the 50 to $60 billion deals, those are mostly taken, but watch out for some smaller mergers as one analyst told Yahoo Finance, nobody wants to end up being too small to compete with the big guys.

All right now, thanks so much for bringing that down for us.

Speaking on that ongoing consolidation in the oil industry certainly has been a bright spot for the M and a landscape.

But let's talk about what these deals mean for our shareholders and the broader economy for that.

We want to bring in Jason Gableman.

He's TD Cowan's analyst covering integrated oil Refiners and liquefied natural gas.

It's great to have you here, Jason.

So going off of what ness was just telling us and especially in light of the news this week, talk to us just about what exactly these types of M and A deals, how it should be viewed from a shareholder perspective.

Hey, thanks for having me.

We think it creates a more healthy environment for shareholders.

If we think back to PRE COVID, you had a lot of small oil companies who are very responsive to prices moving higher.

So you'd have prices tick up and companies would start to drill more that resulted in depressed and more volatile oil pricing and less returns available to shareholders.

What we're seeing now is because of the consolidation, you're getting larger companies who have control of more of the oil in the US and are going to be able to execute on moderate low to mid single digit oil production growth.

Uh That should result in a healthier commodity backdrop where they'll be less responsive to spikes in oil prices and support higher and more stable oil prices.

What is the pass through effect to consumers from all this consolidation?

Jason?

Well, I think a more stable oil price certainly helps a consumer and anyone trying to manage their personal budget, manage it better.

Like I said, we're not going to see spikes.

So that works both to the upside and the downside.

And as a consumer, you're able to likely better manage your, your personal spending.

Jason, when we talk about the pep plus meeting, that's going to take place this weekend.

Of course, the extension of supply cuts is what is on the table.

They will be doing this meeting virtually instead of meeting in person.

Does that signal anything to you?

Just in terms of it's not too likely that we'll get any sort of surprise or what are you expecting to hear from this meeting?

I think that's exactly right.

It's one of the two recent updates that lead us to believe OPEC will likely roll over the supply quotas they're meeting virtually.

And the other recent update we've had is that OPEC will study the capacity, the production capacity of its member countries on June 30th.

If they were to be increasing the production quotas into this meeting, they likely would have studied those capacity levels ahead of the OPEC meeting, which is June 2nd.

What we also think that means is it sets up for production supply to move higher later in the year at the late November or early December meeting.

So a likely rollover uh of supply quotas in this meeting, but a likely increase in supply levels at the end of the year meeting, Jason Gableman, who's the TD Cowan analyst, Jason.

Thanks so much for taking the time here today.

Thanks for having me.

Certainly guys coming up.

The A I frenzy is in full force this morning.

We've got a breakdown of C three A is fourth quarter earnings results with the chairman and CEO.

You see him right there, Tom Siebel, coming up after the break, we're seeing more evidence of strength in the A I trade C three A I.

The latest company to add to the frenzy here.

The company's full year guidance for 2025 beating expectations.

The fourth quarter revenue up 20% from the year prior bolstered by subscription revenue.

Now all of this is pushing the stock higher this morning as we're tracking shares up 12% here with more on the results.

We've got the man behind the curtain himself.

C three A I chairman and CEO Tom Sel always, I mean office goals ignited every single time here, Tom.

Uh we gotta talk about this quarter.

What are you seeing right now in demand for A I products and specifically for C three A I as compared to the rest of the industry as this has been one of the broader thematic trades for the better part of a year now.

Um The, well, we're seeing the demand for A I infrastructure, the demand for A I applications, I mean, it's just staggering.

I mean, look at what's going on with the NVIDIA.

Uh these chips, the reason that people are purchasing these chips is to run enterprise A I applications and this is what we do.

So I think there is some pressure on the software market.

I think in many ways A I might be a headwind for the software market, but for what we do, it is definitely a tailwind.

The demand for generative A IA I applications and defense intelligence manufacturing, uh financial services is, is just huge Tom, talk to us a little bit more about where you're seeing that demand growth and the ability then to increase your market share as just one of the larger players within the space.

And then ultimately, what that is going to do to help drive some of that subscription growth, which is very important here to see three A I.

Well, I mean, this is a market share game we're in the, we're in the earliest innings of what will be what's expected to be greater than a trillion dollar addressable software market.

By the time you a generative A I, it might be a couple of trillion.

So this is the biggest market we've seen in the history of enterprise application software.

The game we're playing at C THREE A I is to see if we can establish and maintain a market leadership position globally.

And uh that's, that's what we're doing.

We're investing in growth, we're investing in technology, we're investing in sales, we're investing in customer service and this is manifesting itself and well, top line uh subscription revenue growth last quarter is 41% year over year.

That pretty good result, Tom maybe this is reading too much into things, but specifically on the operational side of the business.

When you think about the amount of additional space within data centers that companies like yours would need to make sure that they're taking up to keep up with demand.

That's I would perceive a, a rising cost.

How do you kind of expense manage through some of the increased demand?

Uh You know, we're finding that the, you know, the hyper scalar are keeping up with the demand of our customers.

So I don't think there's a shortage in silicon.

I don't think there's a shortage in infrastructure.

Well, we might actually run into a shortage in power.

Uh Believe it or not.

I think it's, you know, that's, that's the critical issue.

Uh as this market grows in the next decade is right now, there is not enough power uh available to power these data centers.

So we need to think about that.

And Tom before we let you go, just when you're talking about some of the demand exactly where that's coming from.

Uh federal side of things that really stuck out to me here, 50% of bookings coming from Federal defense and aerospace.

So something you asked about a couple of times here on the call, what is that ability here for growth or opportunity specifically within federal?

What does that look like for C three A I?

Well, it's, it's staggering and you know, when we get into, you know, defense intelligence community, we are at war with China uh in applying A I to, you know, hypersonics, contested logistics, predicted maintenance readiness, whatever it, whatever it may be.

And so we have the privilege of being able to serve uh in the Air Force and in the Marines and in the intelligence community.

And we're, you know, we're, we're, we're pleased to do so.

That's a that market grew.

I think revenue greater than 100% year over year.

And uh we think those investments continue.

Now when you get to the, the the the the civilian sector of federal, let's look at health and Human services, Social Security Veterans administration.

And there's a massive opportunity there for generative A I for enabling these people to improve the services and benefits programs to the American public.

So you know, the, the the defense budget, the order of 800 billion, you get into health and human services, social security, what have you you're now in, you know, greater than $2 trillion annual budget.

So this is uh they're making huge investments in these technologies going forward and uh we hope to be able to um uh participate in them providing better services to the American public.

Tom, it's always great to talk to you.

Thanks so so much for your insight here.

Making the time for us this morning.

C three A I shares up nearly 12% here in early action.

Tom Zel.

Thanks so much.

Thank you.

Well, coming up, we are breaking pending home sales.

They are out in just moments from now.

We'll discuss what this is about the state of the housing market plus black zones, global co head of real estate.

So to join us and share why data centers could be a big growth driver for CRE for commercial real estate.

We've got all that and more coming up on catalyst next.