weather in europe. and the gulf line pipeline may be contributing to what is an increase in the supply curve that's going to do it for us on "squawk on the street. "tech check" starts now. good tuesday morning, welcome to "tech check." coin workforce. and a media stock resurgence we will break down calls on warner brothers, at&t and disney later, we are live at the jpmorgan health care conference. the ceos of medtronic and novartis are joining us this hour after a muted start, we're seeing the major indexes move

higher the dow is up about 0.2% and the nasdaq up a similar amount and this comes out of a strong start to the year. let's stay with the markets and the recent valuation reset we have seen in the stocks, e especially the tech sector let's look at how far we have come down. it depends on what point in history you're coming from >> let's look at the last few years. we've seen big swings in stock prices and valuations because of the covid lows and the postrecovery highs and where we are. you look at the s&p and the nasdaq 100, we're talking about this notion that stocks are trying to find appropriate valuation, for that inflation is higher and people are looking to put their money in the s&p is trying to find some poot footing

having valuation-wise, is where it gge s interesting. you have an index that's falling from 24-times forward earnings to where it is right now, 17-times forward earns if you look at that valuation compression, that's where you start to see some of the opportunities that some traders are looking for. within the s&p 500, you take a look at the sectors. you mentioned technology and what's happening overall with communication services if you look at those two sectors, those two sectors now have seen their valuations fall. the blue line is technology. over the last few year, it's gone from around 28-times forward to where it is 20 times right now. the orange line is com services. here, it was 25-times earlier in the last few years now, closer to 15-times. by the way, within those particular sectors, a handful of stocks are indicative of the

valuation compression that we've seen if you look at some of the big names that have seen the valuations move lower, take a look at microsoft. it was at one point, 35-times forward earns, it's now 22 amd on the semiconductor said was 60-times forward is now 18 netflix has gone from 90 to 30 and meta has gone from 31 down to 16. what it comes down to is whether or not there's any valuation ideas as a result of this situation. >> okay. dom, help me out with history. you overall, it came from 24-times to 17 times first of all, if i recall, high teens isn't cheap. and i got a question are these forward earnings -- is the "e" correct or is it going to come in this next earnings season and change that >> those are great points.

there's an argument made by strategists out there, that say ternings story has not been reflecting the possible down side that's ahead. we look at forward price to earnings, the issue you have, is forward price to earnings is forward-looking but also predicated on analyst estimates. you have to assume that the analysts are correct with their projections of what the earnings are going to be. if you look at the other point you were trying to make, with regard of what's happened in history and whether the valuations have fallen by enough, high teens is expensive in many measures, especially historically making. and the tough part about the comparisons is over the last 15, 20 years, you've seen a massive array of the different interest

rates. the issue is whether there is no alternative to investments for nothing to where they are right now. you can make an argument that fundamentals argue more. a lot of the investors are trying to figure out whether the valuations as they currently stand are actually good, versus what we've seen in terms of the interest rate environment that we've seen tech and com services, to a certain degree, they are now at the tip of the spear >> dom, that's what i was going to ask you about is valuations may make sense i an easy money environment, which we've been in for the last decade-plus. things are changing. i guess everyone is trying to figure out how long the fed is

going to keep rates at an elevated level or whether they will go higher precovid valuations the right metric do we need to go further back to the dotcom era or further back >> the point that you're making is a valid one you want to look at the historical comparisons it may not be fair to go to the height of dotcom as indicative of what happened since the height of the pandemic boom and recovery we've seen. the issue is whether or not the valuations are the driving force. we haven't talked a little about the higher interest rates come higher borrowing costs and a slowdown of the economy. are earnings going to be affected, especially for companies that depend on capital markets to fund expansion. if the expansion is not necessary, given the macro

economic environment, whether or not the companies should generate the profits they need to that becomes a wild card, as well it may not be fair to say that the dotcom boom is apples to apples in the recovery but folks are trying to figure out if there's that downside if there is, that doesn't portend well of what it looks like in the next six to nine months >> dom, thank you. the next guest sees equity premiums putting pressure on sectors. nyu stern professor. equity risk premiums getting a lot of talk now. can you make it easy to understand for viewers and talk about why it's important to watch

>> we're going to talk about the conversation we just had they are reflected by the growth and earnings and what risk interest rates are over the last decade, we had a trifecta of really low rates, and risk capital in abundance. 2022 was the year of adjustment. first, you saw interest rates go back to pre-2008 levels. we haven't seen that in a while. we saw people pull back from markets. the invasion of ukraine and the potential for recession. and risk capital in a sense, went into retreat. i don't think this is going to change dramatically over 2023. risk capital in a sense is not

going to go back to where it was in the last decade the higher equity premium means that people are going to expect higher in stocks you are to pay less to earn higher it's a composite measure that captures where are now you're actually talking about the process we're watching, for example, today, with apple and efforts going more vertical in at least the engineering. can you explain why that is important? >> i think in tech hardware and equipment, you have high margins. there's a growing market and your customers weren't splintered the challenge that the sector faces, is the business is getting commoditize.

it will be niche values. but it will be prizing pressure, and you've seen this prior to 2022 you look at the semiconductor business, the growth is down to 8% or 7%, a period of high growth i don't think that's going to change going forward from that perspective, when you are pricing these companies, that's what you're doing when you look at historic ratios, you assume the companies would revert back to where they were precovid or pre-2017 because th business has shifted >> what is the impact of overall bonds? corporate bonds, muni bonds? government debt in general, becoming more attractive as a source of yield and income

what does that do to tech stocks >> it gets us back to a normal time i am old enough to remember times before 2008. and people complain about the 4% t-bond rates, they haven't lived long enough to get some persp perspective. maybe the aberration is not what happened in 2022, but what happened between 2008 and 2021 we are returning to a more normal time. that might be healthy for all of us the reality is 0% interest rates. and capital flowing to companies with no earnings and not even a pathway to making earnings is not healthy for an economy in the long term. from that perspective, 2022, is a return to sanity >> aswath, free cash flow is a metric that a lot of ceos are touting these days in the new market environment for some of the high growth

companies, stock base compensation is some might argue a diluted factor what is your stance on it and how do you think the average investor should be pricing it in >> i treat stock base computation like any other expense. you're giving away a slice of equity every time you grant it it doesn't make any sense. they are paying out my equity. >> do you think it will be handled differently going forward by ceos and companies themselves >> it is already an expense to fix this analysts reversed it the accounting forr coming to is senses 15 years ago. but analysts refused to let go

>> professor, we're going to talk more about this as we move into the new year. and have more hindsight on 2022, as you suggest we'll talk soon. thanks aswath damodaran >> the ceos of medtronic and novartis and coinbase set to cut 20% of its workforce. we'll talk to one analyst who is staying bullish despite the massive drop "tech check" is just getting started. good luck. td ameritrade, this is anna.

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i screwed up. mhm. i got us t-mobile home internet. now cell phone users have priority over us. and your marriage survived that? you can almost feel the drag when people walk by with their phones. oh i can't hear you... you're froze-- ladies, please! you put it on airplane mode when you pass our house. i was trying to work. we're workin' it too. yeah! work it girl! woo! i want to hear you say it out loud. well, i could switch us to xfinity. those smiles. that's why i do what i do. that and the paycheck.

welcome back medtronic shares have had a tough time in the last couple years as the company waits for elective procedures to return to prepandemic levels the ceo speaking at the health care conference. and with us now, geoff martha. good to have you good to see you. i want to get into some of the technology updates

give us your update on the diabetes business that you have in turnaround mode and the easing of some of the headwinds that have been affecting business for several months >> it's great to be back with you. the answer questions on diabetes, this is an exciting area for us. we treat insulin independent diabetics with the cutting edge therapy. it's a series of a sensor and insulin delivery device and sophisticatedalgorithms. you learn your sugar level, to predict your eating habits and get the diabetics in control and we have new therapies out on the market, outside of the u.s., where we are growing roughly 15% the last few quarters outside of

the u.s. we're getting the therapies in the u.s. and that is real ly dependent o an fda inspection that we're waiting on the other boost is elective procedures coming back we're finding most of our areas back to prepandemic levels there's a few that aren't quite there. but they're inching their way back, and in a high 95%-plus range, back to the original areas. over all, the market dynamics are getting back to prepandemic levels and we have a number of therapies, beyond diabetes, the new products hitting the market at jpmorgan. >> you embarked on your restructuring before that became something that so many other companies across the

economy are looking at and now, have. walmart's former operations supply chain person working on your cost of goods sold and whatnot. how does that fit into the economic times that we find ourselves in now, where the gross margins have beenaffecte and you're looking at a multi-year process of getting them back to where they were a few years ago. >> sure. to your point, january, we started this well before the current economic environment, with supply chain issues and things like that and the reason was, at medtronic, we're at the intersection of health care and technology there's so much opportunity when you combine the advancements of bioengineering and the robotics or cloud computing or a.i. what we wanted to do is make the company more focused on innovation-driven growth making the company more nimble and putting more into our

research and development and one of the areas to get more -- free up more of our income statement to invest in research and development was to reduce a more aggressive plan to reduce the cost of goods sold and consolidate the global network of manufacturing facilities and distribution centers. and that's when we brought in greg smith from walmart to engineer this and bring down the cost, to create oxygen, to invest in the exciting technologies, that ultimately will result in new standards of care across several different therapeutic areas, the card cardiology, the neurosciences. >> so many companies of all sizes are going through the process. you talked about capital allocation about how it is not just allocating capital to businesses that are growing top-line but to businesses that are profitable when you look at those earlier stage technologies, you

mentioned a.i., that have a lot of potential but revenue is off what kind of filters are you going to use to determine how much to put in those at this point? >> well, like you mentioned. we're prioritizing where we can have the biggest patient impact. what we are prioritizing, these are age-related diseases and the population around the world is getting older things like heart valve replacements minimal techniques to replace heart valves you mentioned diabetes another one at the conference, is new therapies for fibrillation and the medical technology is getting to the point where in some cases it's considered the

front line therapy ahead of current drugs. these are the areas, robotic surgery is another one we're prioritizing -- these are large patient pools around the world. where technology has a big impact in improving the efficacy -- improving access, right? as well as reducing costs. and these are the areas. coincidentally, these areas happen to be very high margins we have to get our gross margins back to where they were prepandemic. this market selection is the inflation and things that affected gross margins and this market selection is one of the ways, shifting the mix is going to get the margins back to where they were prepandemic. >> medtronic, working on efficiency and trying to invest in the future like so many technology companies geoff, thank you >> great stuff after the break, bull calls for warner brothers, discovery, and at&t

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warner brothers discovery rallying 28% our julia boorstin joins us with some of the catalyst for the media sector >> after media stocks, particularly warner brothers, underperformed the s&p last year now, analysts are finding new companies. warner brothers discovery shares are up 5% today, on two bullish notes. b of a just added warner brothers discovery to the u.s. one list of the best investment ideas of the year, with a $21

price target for the $12 stock saying, quote, the spring launch of a new combined direct to consumer service, a more robust film slate, incremental in the sentence it makes the risk/reward highly att attracter. goldman sachs, warner brothers discovery as the most attractive with key execution off a rough 2022 year-to-date with today's gains, warner brothers discovery up 20%. netflix, comcast and disney shares are up between 8% and 9%. guggenheim with a buy note on disney, saying they see the most

impactful valuation updates to be driven by bob iger. and investors will be watching bob iger's commentary in the disney report. a lot to watch did the media stocks hit bottom? >> i'm wondering whether or not you feel like this is about macro drops that can benefit the whole universe or is this about companies that have done heavy lifting in terms of cost? >> they are companies that have done a lot of heavy lifting. but you have to ask what are the catalysts right now? there are films performing at the box office and there's more potential in the streaming defense. you have netflix and disney with thecost ad-supported streaming services when you have discovery with a better offering for consumers, something for sticky and appealing, because you get more in one service the question is, are these going to be catalysts and show these

are services that will be robust and resilient and tougher economic times i also think there's a lot of questions about the ad market. we're going to hear a lot about the ad market, both from the social media players, from the tech giants and also from the media giants where are ad dollars going are we going to see more advertisers say, we want to be associated with premium content like the content on hulu or are they going to be saying let's shift more money over to meta that's another thing where there could be more opportunity for the traditional media players, the safety of premium content. >> that picture will fill in here in the next several weeks julia, thank you very uch. an interesting time for media to start the new year let's get a news update with contessa brewer. >> we're watching business headlines right now. jerome powell gave a speech overseas this morning, insisting central banks need to be free of political influence to tackle inflation. powell said the fed is not and will not be a climate

policymaker. his words. cvs health is looking to buy oak street health in a deal that could be worth about $10 billion. oak street shares are surging more than 30% on that report from bloomberg virgin orbit shares are plunge after the company ditched its latest mission to launch and its second launch failure. illumina is tumbling, saying the 2023 profits will be lower than expected. it's fallen in the downturn of the biotech sector up next on "tech check," coinbase planning to lay off 20% of its workforce that stock is about 85% off its 52-week high is it enough to right the ship or is more pain to come?

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a pretty tight range we got past the j. powell headlines. we are moving into what are calling a bear market rally. some are down on semi. on the cseas, morgan stanley is

upgrading royal caribbean. and this is on apple plans to drop some of the key chips to use an in-house design something we'll be talking about in the coming weeks. there's point base shares, moving higher on the growing list of companies, cutting costs and workers. it's cutting off 20% of its workforce, after a stop of 18% in june. ceo brett armstrong are blaming it on unscrupulous actors and there's likely more shoes to drop shares are down about 80% since 2021 lisa alice, joining us alongside kate rooney. lisa, let me start with you. you have to adjust to the audience how you get to the $200

price target what kind of growth does that assume ahead that does not comefrom trainin volumes and profitability. the crypto winter and the ftx fallout. >> that's true we do assume thatthe crypto market begins to recover in 2024, consistent with the prior cycles, typical crypto cycles have been about three years. if 2021 was the last peak year, we put a recovery in 2024. one not close to what we've historically seen. on that measure, an outlook for 2024, that's a little above 2021 we're only a $200 price target is about eight-times in that year to put it in perspective, high growth names that cover like a block are over 30 times. you know, we could mean wrong by 4x and it would be a valuation

of that level. it gives you a sense, if you believe in the crypto cycles and that crypto willrecover, and that coinbase is fine, as they are indicating today if you have the strong stomach and can handle the level of deep volatility and bottoming in the market, there will be tremendous upside on the back of this, that will hopefully be towards the end of this year and that's uncertain >> it begs the question, where that revenue and growth is going to come from that trading revenue, at least the fees, they're never coming back you have finance in the market and more competition if coinbase is cutting now, who is developing the next products that will develop the crypto economy that coinbase talks about? >> that has been the base for coinbase they have conceded that, yes, trading fees will be con

pressed. brian armstrong and the rest of the executive team have made the case since the ipo, like lisa said, you need to have a strong stomach. he likened it in this scenario to the dotcom era, the boom and bust and the internet companies that made it through that, were more disciplined on cost. everybody wants to be amazon in the end. they are making that case to investors that we are tightening our belts and we're going to make it through this and are best positioned in the market at this point that's the new bull case they will be able to rein in spending withsome of the cost cuts and stock base conversation was a huge expense for them. >> absolutely. lisa, if you are assuming that coinbase will emerge and survive and thrive in the long term, the next cycle will look different, isn't it it's the most regulated, the

most transparent play, but this industry, does that make it a profitable business? or is the next winner going to come from somewhere else is it going to be a private company that doesn't have to build with all of the regulations or scrutiny in place? >> i don't know that we believe necessarily that crypto trading, which has been the big killer use case in this cycle is going to be the killer use case in the next cycle but coinbase is, as kate highlighted, rapidly diversifying their business away from the dependency on trading and focusing on simply being an infrastructure provider for the e ecosystem, regardless of what news case it is. this could be nft, digital asset transfer and ownership, which is a huge amount of enthusiasm in the industry this could be using crypto for the boring - >> quick question. you say they are diversifying.

are they or are they trying to is there revenue coming from significant coming from other places >> there's subscription services they tried to towards. one question going forward, they talked about, in this round of layoffs, cutting in other places and saying some of the projects that were more ambitious that aren'tshowing the more near-term promise. they are scaling back. they will have to balance cutting costs and not necessarily investing in the growth, moon shot projects they may have done a year ago and trying to figure out what's going to work. one thing that brian armstrong did work is self-custodial wallets to adapt and say, if you don't want coinbase you can keep it with us and charge from that. they are trying to adapt to the new environment. >> we know what happened to the nft business

thank you both after the break, we head back out to the jpmorgan health care conference, and sit down with the ceo of novartis that stock is well outperforming the s&p. skipped the market downturn in 2022

it's been a strong few months for the health care sector and key names in it, in the past six months. the s&p is flat. but health care is up 3% among the biggest winners, novartis, which has seen a jump of 7%. meg terrell joins us from the jpmorgan health care conference. meg? >> vasant is here. let's talk about the transformation of novartis tell us about what that means and where you are in the process? >> when you look at how novartis was created, we were a broad case we've done 100 million transactions to focus novartis down, to developing and launching medicines successfully

what that positions us for in the future is one of the largest pure play innovative medicines company. we're doubling down on the r&d some of the new technology like radio and gene therapies that's going to be right path to generate sustained growth and profit growth for the future >> is that something that investors are looking for? they want a pure play investment we saw j&j spinning out the consumer group merck is not getting rid of its animal health division is that something that the investors are pushing for? >> if you look at how fast technology is moving if you look in the last five years. we've had rna editing, cell and gene editing it will be hard to allocate capital to those areas and be in our situation, contact lenses and medical devices. it's the right strategy for the long run

i would also say, when you look at the multiples, clearly entrepreneur play companies demand a higher multiple we are hoping that will allow us to rerate over time. >> speaking of selling gene therapy, which is a big space for you guys, and growing, thinking of personalized medicine, how big of a part the way we treat medicine generally do you think it will be over the next few years and when we see successes, like with merck and moderna, using rmna >> on the cell and gene side of things, it's maturing. there's an opportunity to treat broader and broader areas. can you move on to cancer to severe neurological exercise gene therapy has had a pause as we work through the challenges there's more chances to treat patient populations in gene therapy. for single-patient therapies, the key is, can you get to

scale scaleability for the business to be profitable and sustainable, you have to scale the technology to get the price of goods down. for us, where our focus is on xrnas. we have a small rna of a product, that you know well and a few others in development. a big effort in our research labs we've not gone into mnra yet we are value it but we are looking at interfering rna technologies >> you're also in neuroscience, as one of the five core areas. and you list a.l.s., parkinsons disease. not so much alzheimer's. but where we are, given the approval on friday, does it make it more interesting to you to potentially invest more in >> alzheimer's is the biggest indication in the neurodegenerative space and the toughest to have a large impact on patients. parkinson's, a.l.s., we can find

gene-driven areas, where we find drugs that have a high degree of plausibility alzheimer's has been tough the hypothesis is maybe come to the end of the story let's see. i don't know i think the key is to find new mechanisms can we find something beyond ameloid in alzheimer's some of the things we're working on, can you link snrnas to antibodies or find other ways to get the technologies into the brain to help alzheimer's patients this is really early stage stuff. >> interesting vas, thanks for being with us. >> great to see you, meg >> back to you, carl >> fascinating interview when we come back, why one wall street firm says love isn't a battlefield. we have the top picks in the dating space, as bumble gets this roll call after the break to adapt in a fast changing world, you could hire a professional pit crew.

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now cell phone users have priority over us. and your marriage survived that? you can almost feel the drag when people walk by with their phones. oh i can't hear you... you're froze-- ladies, please! you put it on airplane mode when you pass our house. i was trying to work. we're workin' it too. yeah! work it girl! woo! i want to hear you say it out loud. well, i could switch us to xfinity. those smiles. that's why i do what i do. that and the paycheck. i screwed up. mhm. i got us t-mobile home internet. now cell phone users have priority over us. and your marriage survived that? you can almost feel the drag when people walk by with their phones. oh i can't hear you... you're froze-- ladies, please! you put it on airplane mode when you pass our house. i was trying to work. we're workin' it too. yeah! work it girl! woo! i want to hear you say it out loud. well, i could switch us to xfinity. those smiles. that's why i do what i do. that and the paycheck.

welcome back bumble shares they're up about 5% this morning on this report after gaining about 3% yesterday raising its weighting to

overweight saying they mate the revenue is just 10 to 15% of revenue today. they're also bullish on the international business and third they see xf headwinds moderating jeffreys saying match has a clear pathway to accelerating revenue growth it's worth noting over the past 12 months match shares are down the bull case is that it's 5 to 10% revenue growth guidance for the fiscal year is conservative especially given these product catalysts at its two apps, tinder and hinge

the question they're asking is whether the market is big enough to support the multiple dating products >> this bullish reversal, one third of bench mark funds are now overweight china >> john, the big take away of conversations we've had with fund managers. the strategy for 2023 is bet on specific countries like china. and even with the out-performance in chinese stocks as of late goldman sachs shows china is trading at a 19% discount to other emerging markets, and so far only one third of em bench marks are

overweight compared to 31% on brazil and mexico. if we track the reopening 98 cities across the mainland have seen mobility return from early january. that's according to analysis from morgan stanley which predicts chinese markets can jump an additional 16% by year end. their top pick is alibaba in the internet space but also recommend some of the chinese sportswear companies as well as some of the travel names >> okay. that's a good big picture. i wonder how much a bet on chinese stocks is a bet on the chinese government getting the economy overall under control. and specifically now that covid appears to be getting somewhat under control, is real estate

the next trend to -- >> one of the reasons so many wall street analysts are expecting china tooutperform, the ggp estimates now 5.2% goldman sachs pointing out in their note that one of the key risks looking at china's economy is the market challenges around the property market sector because even as much money china wants to put into that sector there's some real systemic issues there >> absolutely. and the upcoming lunar new year is going to be a key test to consumer strength in the country. but helping this reopening case also is a stronger yuan. >> when the customer there feels like they have pricing power and they have more purchasing power, they're absolutely going to feel like they want to spend more on

travel and it's a key part of their sort of lifestyle prepan dem so i think the question is how fast the pace is in the next week we'll be watching the numbers. booking holding of all the travel names has the highest exposure to that country, and then for outbound travel airbnb as well. are we starting to see that shift similar to the american consumer not only staying at hotels but vacation rentals as well >> airbnb making that bet they're going to be traveling outbound seema, thank you so much by the way you have the rab coming up. as we head to break want to remind you tech check has a podcast. microsoft apparently mulling big investment in the parent company of chadept that story next when we're back in just a moment

one more thing, microsoft is looking to make abig bet on chat gpt with plans to invest $10 billion in its parent company bringing the valuation to $29 billion interesting deal structure here. microsoft to get 75% of open

ai's profits until it makes its money pack, then microsoft and other investors will each have a 49% stake leaving openai with 2% of the company this investment is on par with some microsoft acquisitions in recent years valued with it its purchases of skype and get-hub one commented it sounded like a shark tank deal. john, i think you'd agree. i guess the question is what does that say about how microsoft is doing this? >> well, to me it says this is when a $29 billion valuation is not a $29 billion valuation. this thing open ai has got to milwaukee like 13 ish billion dollars in profit before microsoft owns a little less than half of it.

until then it's getting 75% of the profits. >> morgan stanley today we don't see this as a threat to that position but the risk is it could force google to push out their own products sooner it's going to be a really interesting story in tech. let's get to the judge welcome to the half time report front and center this hour rally watches. some say stocks have reached a critical point to start the year we'll discuss with the investment committee as josh brown makes a big move in this we've been all around the world here today right now dow is positive by just three s&p is flat, and that's kind of where we are, and maybe we're holding ahead of