than people thought, and anyone who thought that it was a slam dunk in terms of disinflation being here has to probably revisit that should be an interesting session. 167, that's a pretty big selloff from the nasdaq. s&p down 43. tomorrow's friday, so we have one more day to settle things. make sure you join us. "squawk on the street," meanwhile, coming up next. ♪ good thursday morning, welcome to "squawk on the street," i'm carl quintanilla with david faber, mike santoli at the new york stock exchange cramer has the morning off premarket really didn't like the macro today. appro ppi comes in hot, up 0.7, although the year on year is a fresh sicycle low. >> lot of fed speak. our road map is going to begin with the murky macro outlook,

wholesale prices with that big claim. we've got some pain in media this morning, keeping an eye on shares of paramount, which are going to be down you've got a tough ad sales market, a lot of costs for streaming. $500 million in negative free cash flow, but they say, hey, they're going to turn things around over the course of this year and cisco's strong quarter ceo chuck robbins saying the company is better positioned now than any time in his tenure. he will join us exclusively later in the hour. let's begin with the hotter-than-expected ppi number. it's a lot better than 11, which was the story almost a year ago, but still hotter than the market expected >> yeah, the slope down is not as steep as we have been getting used to and wanting, i guess, and the market, you know, has been dealing with some hot data all around this week, so cpi, only marginally so, retail sales and now ppi and now the conversation quickly turns to,

we were worried if we could navigate a soft landing. the mester comments, cleveland fed president, saying that she preferred a good case for a 50-basis-point hike last meeting as opposed to 25 that really got the futures' attention because i think this measured, quarter point per meeting pace where we're going to kind of navigate gradually toward the terminal rate was pretty acceptable, i think, to the stock market but here we have a market that is up 8% year to date, started to get overexcite. there's a bit of a beta chase, a bit of a grab for risk we've been talking about the, you know, the bear hunt that was on yesterday and the day before where a lot of heavily shorted stocks were running as well as that former boom/bust. >> the goldman most shorted stocks were up 4.5% yesterday. you've got a lot of hedge funds that run what we call tight nets they have a lot of hedge, meaning, they're shorting a lot of stuff, and man, they sent

some of those names up sharply yesterday. not sure what that's a sign of, if anything. >> it's really a sign of essentially the market outperforming the way people were positioned, and i do think you have, again, that kind of people reach back for familiar names. if this market's going to run, let me hitch myself to the fastest-moving vehicles, and that's sometimes a coinbase, which goes up 10% in a day, talking about that by the way, roku is up a lot >> they confirmed that, ultimately, because it had a good one tesla, another name that's been moving >> less heavily shorted but certainly is part of that vein of, you know, when people get excited, they grab for those things so, i think it's all part of the same complex i have been saying that it's not either healthy or unhealthy. if it was all that was going on in the market, it's not ideal. but it's what happens when the market starts to run, you know i mean, and that's what we have been doing for the last, you

want to call it four months, six weeks, you have been bid all -- every dip has really been grabbed. yesterday in particular, we were up 1% on an intraday basis, even hop the market didn't do a lot, point-to-point, so we're going to get tested here two-year yield back at the highs. that gets your attention, and we'll have to see if we can handle this. we've navigated through a not-great earnings season because the overall earnings base is fine and the estimates are coming down, but not rapidly, so we'll see. the risk-reward changes when prices go higher >> we'll see what yields do. ten-year above 3.8%. santelli is talking whether or not we start to target 4%. you mentioned the less ideal names rising jpmorgan said yesterday, this is not fighting the fed, this is taunting the fed between the crypto names and the meme names and as a result, he looks at the

ndx two-year yield correlation breaking down and says maybe this ends up with a correction of 5 to 10 >> that would be perfectly healthy and not a big deal and leave us well babove where we were, so i wouldn't argue with that on any basis. what we have been doing so far is this month is trading at a 3% range, holding this 4,100 area you're going to hear some people who are bearish coming into this week thinking that we probably were vulnerable. seem to forget what the calendar was, because now they're saying we're only being held up because it's expiration on friday. it doesn't necessarily directionally change the story what it does is sometimes traps the market at certain index levels if there's no other overriding factor, so maybe that's what's kept us in the 4,100s for now >> is it concerning to get a biggest month-on-month ppi gain while philly fed continues to crater >> i was going to say that it's such a lumpy, uneven

picture of the economy right now. industrial production weak this week too, so manufacturing is really following along the script of, look, leading indicators say we're in for a downturn, we're going to get negative quarterly gdp numbers on the other hand, anything labor-related, spending-related and of course inflation related to that is holding up much better, and so there is this kind of hot-cold offsetting currents, and we're trying to sort those things out. >> right, but isn't it just where -- i mean, the market seems to be adjusting to something we've been talking about, which is the idea that terminal rate may end up being higher the fed going to be more stubborn, and they're not backing off. john gray in asia making president of the blackstone, saying, like a lot of others, the market's too optimistic over the economy weakening at this point, and the federal reserve likely to take rates up to a 5% to 5.5% level for a while. i was struck by blinder on our

air saying, i may go to 5.5% >> i've been using the hashtag, dimon's revenge. >> he was talking about 3% ten-year treasury yields were too low, and they went to 2% yes. but you're right it's a different regime. and i think that there's a way to frame that, though, that says,we have a market that now has an assumption of a 5% short-term rate. you already have short-term treasury yields there, and atlanta fed gdp for this quarter is at 2.4% real so, what does that mean? does it mean the economy's so good it can handle it, or it's all building up the pressure to give away all at once? >> there's an amazing split between the market's bet and atlanta fed or goldman yesterday reiterating their recession call goes down, now 25% odds as opposed to consensus, 65% odds that's a huge split. >> it is a huge split. i mean, all of the, again, like all of the playbooks from past

cycles tell you, look, the odds are rising just look at all the things we use as beacons, this gets you toward that 65% over some period of time. maybe by the end of the year i guess the question is, you know, how much does it matter? what's the character of th downturn going to be i remember -- we can all remember in 2015 and '16, there was an industrial recession. there was an earnings recession. there was not a broadly defined total economy recession. the market did nothing for two years. >> also remember the mid to late '90s when we had 6% to 7% interest rates and we were doing just fine. >> it's completely all about the crowd psychology around it, much more than it is some kind of precisely tuned math in terms of what people will pay for assets. but look, as i said, when you get up 8% in six weeks, giving some back is not a big deal. on the other hand, you keep looking at the cyclical leadership, the small cap stocks

doing fine, and it doesn't seem like the market is pricing itself for a downturn. so, if higher for longer means it's higher for longer accompanied by an economy that holds up, maybe the market isn't out of tune with that at the moment >> yeah. well, certainly, on the micro front, i'm trying to keep a list of names that have guided above or raised guidance that would include crocs and roku and cisco pretty good revenue guidance for the year chuck robbins saying the company is better positioned now than it ever has been since eight years ago. >> the environment we're operating in remains dynamic, cisco is better positioned today than at any time i became ceo almost eight years ago >> we're going to get a chance to talk to chuck in a few minutes when he joins us talked about the quarter and what this means. they normally give pretty colorful macro commentary, cisco. >> their revenue guidance, up as

much as double digits, is pretty significant call and you can see, moved up afterhours there it is, pushing $50 we'll have a lot more time to talk to him. >> we should ask him there's some commentary that even the rune guidanrevenue guie raise is about clearing, because orders may not be as strong. we'll see what that means and how long a tail that type of activity has >> there was chatter yesterday their highly skewed enterprise over service providers cancellations looked minimal pretty decent call from some of the traysding desks >> speak of earnings, we've been focused on -- you guys want to move on? forget it. we'll talk later, after the break. >> we'll talk after the break. the bitcoin rally, in the meantime, does roll on charl cha charlie munger still slamming the cryptocurrency you'll hear what he told our

becky quick. we have starts, claims, philly fed, prpi and still at least for more fed speakers. we're back in a minute power e*trade's award-winning trading app makes trading easier. with its customizable options chain, easy-to-use tools, and paper trading to help sharpen your skills, you can stay on top of the market from wherever you are. power e*trade's easy-to-use tools make complex trading less complicated. custom scans help you find new trading opportunities.

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reporting earnings the company's, you know, got a lot of negative cash flow. $500 million for the full year is what they're talking about. this will be the peak year of losses bob bakish in the many interviews we've done has indicated that, '24 is the year in which they believe they will get to profitability in streaming. of course, speaking of streaming, the 9.9 million subs added was very strong, the strongest of any of the streamers out there. quality of subs may be a question remember, they got a walmart deal but that's a big number. i'm sure they'll get some questions on the call specific to that. i think the q&a has just begun, and they're taking a 1 ppt 3 to $1.5 billion impairment charge they're writing down a lot of stuff for showtime as they merge showtime on to paramount plus. their costs will go down given the breadth of the platform. they're sticking with franchises on showtime, but that has

resulted in a number of shows being cut. you may have heard about it, some chatter in the media press about that, but it's a 1.3 to $1.5 billion charge. ad market, we've heard stabilization as the word. they're using it too you're down, but you're getting more stable. comcast referred to it roku talked about that as well and so has paramount sort of said things are starting to stabilize. that may add a little bit of a bid to some of these media-related names. >> some of the reports on the call, bakish saying improvements, recent activity in the auto market is encouraging, and david, as you know, leaning into franchises, they mentioned scream, "paw patrol", bakish says the new "mission: impossible" is out of control. >> i don't know if you knew this tom cruise does all his own stunts >> that's right. >> but a lot of this bump in the paramount plus subs is because "maverick" went to direct >> that certainly helped, and obviously, "maverick," the number one movie

spielberg told cruise he basically saved the motion picture industry in terms of people going to a theater. we talked a lot about the negative -- i mean, the company doesn't generate any cash right now. in fact, it's less, as they call it, $500 million for the year. $631 million goes out the door for the dividend every year. that's for shari redstone and national amusements to a certain extent we questioned bakish numerous times about that they maintained that dividend. the cfo said, we expect cash flow to be impacted in advance of meaningful year over year improvement in 2024. when we return to positive cash flow, we'll continue to manage our balance sheet with an eye to navigating this short-term berkshire, unclear what it is they see here, but they like it. >> a lot of upside was box office filmed entertainment, a strong area, which is always -- you don't know if the market's

willing to project ahead that that's going to continue so, often, that's not a huge component of the multiple, even though they had a very good fourth quarter in the box office but yeah, i mean, berkshire owns 15%. >> at least. >> thereabouts you want to ask how to get a short squeeze? get a cheap stock that's in all the value indexes and people think it's in secular decline, buffett's not selling his 15%. therefore, the short is a percentage of float is even higher that's the squeeze formula >> a all a good point. and overall, in terms of when you look at the overall business, whether it's disney or our parent company, comcast with peacock, whether it is warner bros. discovery or paramount, everybody's trying to figure it out in terms of their cost structure, how to compete with netflix, which obviously is sort of out there on its own at this point. it's got its own thing going it is profitable so, it's all about, where are you versus netflix and what are you doing with your cost structure? >> at what subscriber level you anticipating you can break even,

you could be profitable, you have scale, and you're here to stay >> meantime, jessica over at b of a mentioning today, actually, the title of the note is, everything's on the table, which is what iger told david, but her point is, several potential outcomes for hulu, but the idea that disney acquiring comcast stake is the most likely >> it does seem that way obviously, it's a week ago that we did our iger interview, and we ended that with nelson peltz saying, no more proxy fight, but one of the key news-making things that iger said -- there's roku -- was about hulu and that, again, general entertainment, not where their focus is, and certainly bringing up the idea that they could be a seller of the 66% or 67% of hulu that they own. the question is, who's the buyer? jessica bringing up, you know, it's our parent company is the most likely buyer. if that were to be the case. but there's a lot of moving parts there, including, what are

you really getting if you're not buying the production entities to a certain extent that fuel hulu, fx and the like? we'll see where it ends up but it's an important component of disney's overall picture in part because if they were to have to buy in the $9 billion, it adds leverage to their balance sheet. >> i mean, roku, we did show those lines. that is going to be trading higher as well so, you know, pretty much -- >> and it was up yesterday, to your point so, this is just an additional gain on top of what were those gains yesterday going into the print. >> you know, talking about advertising stabilizing just a little bit, it's an interesting situation. it's another one of those charts that was just to the moon in pandemic times it crashed it's interesting at a $9 billion market cap, you know, and just given how central, for now, the role seems to be in internet tv streaming, whatever it is, just as a utility, just as a component of tvs, as a player in

the sort of free streaming tv networks, this is the year when apparently non-paid tv households will surpass paid tv households by e-marketer numbers, so that's their -- the hunting ground, i suppose. and it's like, $1.3 billion in net cash it's a very interesting situation, even though really, no projection ahead to profitability for the company. >> no. they do guide ahead for the quarter on revenue and ebitda, and you got a lot of the sell-side trying to catch up atlantic today raises their target from 40 to 76, not that much farther from where we are at the moment. >> it's not like you really put a traditional multiple on it that makes sense at this level it's much more like, what is this asset worth if it's going to be a lasting player in this galaxy of streaming services >> or does it just get bought? >> i always thought that tivo was the model in a way it was a technology, it was a brand, and then it was just something on the back end of

streaming. >> for sure. still to come this morning, as we said, our exclusive with cisco's chuck robbins on the quarterly beat and post guidance he'll join us at post nine futures, meantime, continue to nurse the ouchie from some of the hot inflation dataod a tays ppi comes ahead. more "squawk on the street" in a moment dad, we got this. we got this. we got this.

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opening bell coming up in a few minutes. futures are decidedly negative after some of the ecodata we got at 8:30. coming up, cisco's chuck robbins here at post nine talking about the quarter and the raised guidance on revenue, including keescily macro picture looks li, peal for tech. we're back in just a moment.

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sitting on a goldmine. call coventry direct today at the number on your screen, or visit coventrydirect.com. >> announcer: the opening bell is brought to you by nuveen, a leader in income, alternatives, and responsible investing. talk some crypto bitcoin's rising to a near six-month high, building on yesterday's gains as this

proposed rule by the s.e.c. that could squeeze digital asset platforms, not as stringent as some investors had been expecting, but then there's berkshire's vice chair, charlie munger, opcontinues to blast crypto >> it's just unspeakable it's an absolute horror, and i'm ashamed of my country that so many people believe in this kind of crap, and the government allows it to exist it's totally, absolutely crazy, st stupid gambling with enormous house odds on the orther side, and they cheat in addition to cheating the betting it's just crazy. >> munger, not terribly new or surprising, although becky suggested on "squawk" this morning that ftx has probably prompted him to ramp up the rhetoric >> it would seem so, probably somebody who's been skeptical

all along, you feel some vindication. because of ftx but also because of what happened to a trillion dollars getting wiped out in market value and then with the s.e.c., essentially going around and trying to define a lot of the crypto-related projects that the kind of, you know, defi stuff, the high-interest, highly engineered loans as securities that should have been registered as such. it creates a little bit more momentum for this skeptic's case i don't know i think people who believe in crypto, believe it's something more than just a trading asset among true believers, probably aren't there to say, 99-year-old guys are the ones we're trying to pull on board >> munger's other point is that sovereign currency is one of the best things that's ever happened to mankind, in his view, but i wonder if you think the action is in any way related to the cbo's forecast of what's going to be added to our debt in the next ten years >> i don't think so. it feels like it's still just

trading as a digital risk asset, to be honest i mean, it's really going right along. bitcoin prices, right along the lines of a lot of the gamier parts of tech. i guess, longer term, clearly, that's part of the base bull case, but look, the dollar is -- it's down a little in the last few months, but there's nothing that's happened in the last few years, really, that's compromised this sense that the dollar is an enviable global currency, in a sense >> i guess unless you listen to ray dalio in dubai arguing that maybe the chinese yuan will make a run. >> that's fine there's all these different ways to mix it, i suppose, but look, a trillion dollars is where the asset value is right now it's really not something that you even have to have an opinion about. in my view, it's always been that there's no right or wrong price. you don't have to necessarily have an opinion about it at this level, at this moment. >> let's get to the opening bell here with the premarket close to

session lows at the big board this morning, asymmetric etf celebrating the recent listing of two new etfs, and at the nasdaq, ocean biomedical celebrating a listing via spac, david. see if that activity picks up. >> yeah. as we said, many of them liquidate, and it's not a bad investment your money back and something. >> yeah. you had some forced saving for a little while >> exactly in a market, obviously, last year, certainly, where you would have not done well if you had been invested in the broader market but the spac craze is obviously long over, though they continue to sort of percolate >> for sure. i was going to mention, i mean, just in terms of stocks that had the massive run, then the bust, and then a big revival, shopify this morning it opens down almost 15% now, that's after doubling off the low in october

delivering earnings after the close yesterday that were pretty much better than expected across the board. the guidance, a little -- perceived as a little bit light or conservative, which implied a real deceleration of organic growth so, we'll have to see exactly how that jibes with what the street was already anticipating, whether it's read to be too conservative but right now, that's going to lead the giveback of some of the higher beta stocks >> even those -- we had, actually, some target increases up ten bucks to $55. overall, breadth is pretty negative here at the open, mike, only a handful of s&p components are in the green cisco is going to be among them. we'll talk to chuck robbins in a minute but there were, as i said, some names that had decent guidance we mentioned roku. crocs with a beat, double beat, and then they got above on q1 revenue, eps, and full-year eps. >> and then we got twilio, which is also up over 16% right now, sort of the story is getting

serious about profitability, seems to be. also, an unexpected buyback, a billion dollars, jeff lawson, cofounder and ceo talking about that, and their decision there he's also buying, what, $10 million of stock in the open market as well mike, i don't remember -- are they declassifying are they moving to one-share structure? >> i don't know if they are. >> later this year somebody had -- i'm looking for it i haven't found it you know, perhaps it explains some of the moves that are very pro investor they're making here looking at morgan stanley note, the investor message finally shows as read about twilio and you can see the response it's getting in the stock market >> yeah, for sure. you know, it's interesting you talk about the dual share class stocks have been really strong, because that's a proxy for that ipo, you know, era. the vxf is an etf i look at all the time it's everything in the market outside the s&p 500, so it's got

all blackstone and the -- all the private equity, of course, but also uber and square and airbnb and all those stocks that never made it into the s&p 500 because of profitability reasons. it's been massively outperforming this year. again, there's so many ways to slice this market this year and say, you know, people rediscovered their appetite for risk just to have a little bit of a rebuild now, a little gut check on that. >> yeah, twilio, by the way, a lot of those recent job cuts may start to kick in they do guide above for opera net and that's the first peak above the 200-day in about a week and a half for twilio >> super majority is ending. the super majority at twilio is ending important, guys, because we don't see that that often, and certainly, in some ways, you could say, oh, they're getting ahead of i t because they're doing what they have to do to notattract an activist >> and the perception is that,

in this general area, there has to be some kind of mop-up consolidation, so that down the road, who knows what happens >> finally, real quick, not a name we mentioned, but femsa, i wanted to mention. fomento economico mexico it's a big company they're getting rid of their heineken stake, $7 billion plus, and a number of other things they announced as well, at femsa, but they are going to eliminate their ownership stake in heineken, which is -- trades, and heineken says, hey, we will be -- heineken will carefully consider the implications and evaluate all options following the announcement by femsa and including that may be acquiring those shares from femsa in any future sale. this is going to take some time. they're not talking about right away they're talking about, you know, a two-year plan here at femsa. in fact, 24 to 36 months, a number of different thing

they've announced, but that stock is up about 5% all right, let's talk about another stock that's up in a market that is down substantially right now. of course, we talked about it a lot at the top of the show in terms of the market's response to potential hawkishness at the fed. but cisco shares, well, they're still getting a boost this morning, this after earnings topped expectations, the company raising its full-year outlook, chuck robbins telling analysts that demand for its products remain stable, and supply chain, that overall improved. joining us now is the man himself, mr. robbins at post nine great to have you. there's a positive response in the market, though perhaps less than some may have anticipated, given those revenue numbers. on the call, your cfo said that you have had better visibility than we have ever had in the past i'm not sure if he was speaking of specific parts of the overall market or overall, but talk to me about visibility and why you guys feel so confident, because the market may be sort of saying, well, we're not so sure.

>> yeah. well, first of all, thanks for having me, and i want to just thank the entire team and particularly our supply chain team that has worked tirelessly over the last two years to get us to where we are today the visibility is created by a couple things. number one, we've been embarking on this business transformation for the entire time that i have been ceo, and we're now at a point where 44% of our revenue is recurring, and i think that's just not quite understood yet. so, if you go back eight years ago, we would have to take orders in the quarter for roughly 75% of our revenue in a quarter, so you just didn't have as much predictability as we have now so, you've got that. we got $23 billion of arr. we have $32 billion of rpo, of which $17 billion is going to revenue in the next 12 months. and we have a backlog, as we end the fiscal year, post the guidance that we just gave, we have a backlog that's going to be in excess of twice the normal backlog as we exit a year. all those things just give us good visibility

>> you've said the backlog far exceeds historical levels, even as you're drawing it down. explain to people why that's the case and what that means >> well, i think the whole notion that we're actually just draining backlog, our backlog was created by significant customer demand, so it's not like it just showed up and so, we have -- and then our order growth remains stable. this last quarter was the third highest q2 in the history of the company from an orders perspective, so it didn't feel like, you know, this thing is falling off a clip, by any stretch. and so, when you combine the rpo and the fact that we have revenue on our balance sheet that's coming off every quarter, with orders remaining stable, and with our backlog, we have a high degree of visibility and feel confident >> chuck, what would you say to those who want to take your results and sort of impose them broadly speaking on a stronger-than-expected economy how would you characterize things you've been with us any number

of times and certainly not been as positive as you have been >> i've been here when china shut down. we talked about power supplies i remember that. that's not a lot of fun. but today's much more enjoyable today to come on the air but it's -- look, i think it's mixed. i think it's very mixed. i think that if you look at the industry segments that we have, we have some, like financial services, that continue to be strong for obvious reasons their businesses are doing really well. those who have significant exposure to consumer or they are having tougher times, they're not as -- it's not as consistent as you would think so -- but overall, i think when you balance it all out, our enterprise and commercial business group double digits sequentially u.s. federal is very strong. our service provider business effectively, those customers are the ones who built long-term ordering plans, and so as we see lead times begin to come down,

they're just going to have different ordering patterns that we have now. so, to be in range sequentially on orders at a time where our lead times are coming down significantly, i think that's a positive >> when you talk about 44% recurring revenue, kind of subscription-based, software service stuff, that's the life of that? i'm trying to figure out what the arrangements are in terms of how often that has to be refreshed. >> well, so, that number gets reflected in our rpo, and that number -- rpo's $32 billion as we exited the quarter. and $17 billion of that will be recognized over the next four quarters so, the average on our software deals are -- they're typically three-year kind of deals so that's a rough estimate. >> one of the things i remember you talking about last year was the danger of talking ourselves into a recessionary mindset, and i wonder if you think you can judge at this point whether or not we've done that or avoided it >> it was really funny in deavos because i told your colleagues who were interviewing there, i

said, the only time we talk about a recession is when you look us in the eye and say, are we going to have a recession so -- and we discussed, as the business leaders that were there, we said, look, we control a lot of the emotion around spending we control the narrative around whether we're spending or not, and if we all decide we're going to go into a recession, we're probably not going to spend, which could trigger us into a recession. one other thing i think is important, i think that the ceos of today have basically been developed as executives through lots of times of crisis, and so you don't see this knee-jerk reaction to cut spending because we want things to get back to normal because none of us believe that -- what is normal we just think there's going to be another crisis a year from now, another crisis. that's what we've had to deal with, so i think there's a little bit of that mindset >> you think that explains labor markets, capex plans

i mean, some call it worker hoarding, but i guess in your view, it's just a better radar with which to see through cycles or see through crises? >> i think that ceos today understand that, again, there is no normal. so, if i stop investing, particularly in technology right now, then my competitors may not, and i could be -- i could find myself at a competitive disadvantage in a real hurry and i think that's part of the mindset that's going on with some of the ceos >> back to the quarter itself, chuck. software subscription sales were up 17% year over year. looking at a note here -- >> i think it was 15%, but yeah. >> okay. sorry. well, they had 17% >> we'll take their number >> yeah. although they come -- they actually end by saying, listen, they're encouraged cisco subscription revenue reached a new high in software but still believe the company needs to take steps to significantly accelerate its software subscription business to sustain what they say is the transformation into a

software-centric company do you agree with that if so, what do you need to do to take those steps to significantly accelerate >> well, there's lots of ways you can do that, but we're looking right now at, over the course of the next couple years, transitioning a lot of our portfolio to be offered as a subscription so, you'll see a period in the future where we'll offer traditional networking as a subscription, and so, it's going to take some time. there's business model implications, operational implications there are offer implications, software implications, so that will take a little bit longer to get there, but that's one of the things that we're trying to do to actually do just that >> on the call, you were asked -- you know, you made some comments about a.i. and chatgpt and the opportunities. not a lot of follow-up i was a little surprised because you said the following this is a massive opportunity for us nobody sort of said, well, what does that mean so i will ask, what do you mean by that, when you say you're in active discussions with lots of customers around it? what are you expectations here, both broadly speaking, since

we've been talking about a.i. so much, and more specifically to cisco? >> that was the last question on the call, so nobody had a chance to follow up, but i think, look, i'm really proud of what our teams have accomplished in the web scale infrastructure space if you think back three years ago, it's basically nothing, and now it's a multibillion dollar business for us. and so, as we engage with those customers in particular, they are building these a.i. networks with compute and underlying high-performance networking behind it that are going to be bigger than their current core cloud networks, which is hard to even fathom. and the underlying network performance behind that is going to be -- required three to four times the performance to be able to deal with what they need. our teams have been building this incredible silicon that's powering these platforms that we're selling to them for their infrastructure today they're two to three to four times the performance at 70% to 80% less power consumption, which is a big, big deal so, we think, over the next five years, this is a really big opportunity for us

>> chuck, cisco's become a pretty aggressive returner of capital to shareholders through buybacks and dividends what do you make of the current kind of villainization of buybacks would it make a difference to your capital return if there were a 4% buyback tax? >> i don't think so. the 1% obviously didn't impact anybody. i think, look, this is a highly emotional topic that everybody has a different opinion on maybe it's a bit like bitcoin that you guys were talking about earlier today. but i think that, look, we're going to do the right thing for our shareholders and we're just going to run the business the way we're supposed to run the business >> let me end on another somewhat emotional topic, this is china, relations between the u.s. and china continue to deteriorate. you know, you have some business there, not as much, but you do rely on it for certain parts, obviously, you referenced when there were supply chain issues what's your take on the latest, and what are your fears there in terms of what might occur? >> well, prior to the most recent incident, we were a bit optimistic after the g20 when xi

and biden sat down and had a conversation a small group of us met with leo when we were in davos and felt good about the commentary from him and how he was thinking about wanting to re-engage with the west my hope is that we work through this latest incident, we come to some agreement, and get back to where we were headed, where we realize we're going to skpcompe. we're going to be competitive as cups, countries, but we need to figure out how we're going to do that in a way that doesn't put stress on the global company. our business there is not massive at all, like 2% or 3% tops, but we are highly dependent on them for supply chain. they're very good at it, and we still have a lot of supply chain there. >> yeah. chuck, always appreciate your coming by. thank you. >> great to see you guys as we go to break, a lot of ecodata to chew on yields close to session highs at the moment ten-year just about 15 basis

points from a four handle, and we'll see what the rest of the day bring us in the way of fed speak. we'll be right back. power e*trade's award-winning trading app makes trading easier. with its customizable options chain, easy-to-use tools, and paper trading to help sharpen your skills, you can stay on top of the market from wherever you are.

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not much green on the s&p heat map at the moment you can see breadth is decidedly negative all sectors are red, and the ones that are getting punished the most, very leveraged to rising rates utilities and real estate among the worst of the group as we are hanging on to 4,100, butot b ny much dow down 322 don't go anywhere. when covid hit, we had some challenges. i heard about the payroll tax refund that allowed us to keep the people that have been here taking care of us. learn more at getrefunds.com.

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alphabet's google looking for help from it employees to work out the kinks of its a.i. software according to a company-wide e-mail it's asking employees to help fix wrong answers, saying a.i. learns best by example. separately ibm's chief arvinds krishna in an interview says the practical use cases for a.i. and quantum computing in a few years. he was asked about the impact on labor and his general view is that the world is short of labor demographically, structurally, and that maybe this time this

kind of automation is a good thing. >> productivity shock is the one maybe positive spin on that, an maybe the way to think about it much more than, you know, consumer user interface how it's going to change, obviously, search, big implications there i think that the mood has cooled a little bit with regard to alphabet's botched demonstration given that microsoft had a glitchy effort in retrospect if you have a $1.2 trillion company, hopefully they have time to figure it out. they're correct they're not always first to market google was not the first search engine remember how many there used to be. >> true. >> we'll see. >> i'm hearing that sundar pa char is going to be under pressure and it was not well done and makes them look bad people questioning whether a company that has invested billions how they possibly could lose what everybody assumed was a lead. >> well --

>> and we'll see. >> isn't it not just the classic like we have a massive high margin near monopoly business and why are we going to be the ones to disrupt it it's the classic dilemma. >> that may be the case. >> you may be reluctant to go all-in on it. >> they have been developing the technology some time and potentially going to be -- >> right. >> if i'm pichai ya i'm wondering if i'm going to keep my job. >> for sure. >> we're all going to watch that meantime, of course, the question about the supply tech stack. our kristina partsinevelos is joining us with a look at what the a.i. mania might mean for chips beyond say nvidia, right >> beyond. i have to mention nvidia feels like yesterday we were talking about the metavest and now artificial intelligence. it was mentioned by cisco's ceo, a.i. being built on decades of machine learning embedded in business processes it's not an overnight fad and why so many analysts are bullish on the longevity of this trend i have to get to it driving up

names like nvidia, ubs pointing out microsoft chatgpt used about 10,000 nvidia gpus to train the model and nvidia stock up 5% year to date begging the question, is that stock growth justified or is it just people jumping in to the topic de jour. bank of america says they could lead the a.i. race, something cisco's ceo said today, jpmorgan calls out broadcom and marvel as beneficiaries because google needs to ramp up its processes regardless if they didn't do a good job, it's chat bot a $1 billion broadband customer where marvel sells cloudships for a.i. taiwan semi benefits given its revenue comes from the sale of super advanced chips none of this will happen overnight. these chip names still have to deal with cyclical trends. weaker demand, take out auto for

a moment, supply gluts, capital expenditure cuts from meta and the list continues, aren't buying as many chips, while trying to figure out how much inventory to have on hand so we avoid a shortage we saw during the pandemic in other words, a.i. is not an overnight phenomenon, but it will take time to ramp up and putting into question the stock jump that we've seen thus far is the highlight. >> it's interesting the short-term surplus but potential long-term deficit while gelsinger feels like he's stepping on the gas and brakes at the same time, i imagine. >> begs into question every run up we've seen thus far he's an example with the foundry level. tsmc did post gains in january with their sales report, but overall they are cutting back and spending more in japan and in the united states so there's a lot of these questions to i guess questioning why the run up has happened quickly and if it's justified in the near term.

>> who is left out >> well, it depends on the exposure you're talking about xpi, auto who is left out? i don't want to say intel because there's a lot of - >> pc focus. >> exactly exactly. so you've got a huge -- applied materials, which we know they're coming out with earnings overall there's many that we could talk about. >> yeah. again, it's a complex, complex business given the various industry silos that they serve thanks good to see you. kristina partsinel we watch the markets here, dow down 376 just shy of 4100 on this very busy thursday. don't go anywhere. but seriously we need a reliable way to help keep everyone connected from wherever we go. well at at&t we'll help you find the right wireless plan for you. so, you can stay connected to all your drivers and stores on america's most reliable 5g network. that sounds just paw-fect. terrier-iffic i labra-dore you round of a-paws at&t 5g is fast, reliable and secure for your business.

good thursday morning. welcome to another hour of "squawk on the street. i'm carl quintanilla with morgan brennan, david faber live at post nine of the new york stock exchange markets getting a little bit rattled by some of the hot inflation today. ppi came in above expectations and then some of the fed speak as well, as they saw a case for 50 basis points last meeting dow is down and the s&p down more than a percent. >> we're 30 minutes into the trading session. here are three movers that we are watching this morning. roku shares surging on

surprisingly strong results as spending remains strong with key gains in verticals like restaurants and travel the shares up 13% right now. zillow in the green as well after beating estimates on the top and bottom lines telling shareholders the company is continuing to invest in, quote, a tough housing market while others retrench. okay they're not higher and down slightly shopify headed in the same direction, a better holiday quarter than expected but the guidance that's slowing revenue growth hitting that stock. you can see the shares are down 16.5% right now. president harley finkelstein is going to join us later this hour to break down the results and more detail perhaps around that guidance. >> we'll get some more on the earnings names in a minute first let's dig into the eco data that did send markets tumbling with steve liesman. >> if you slept in you missed a lot. markets taking a hit from a one-two punch from hotter inflation numbers and fed speak.

loretta mester saying we are, quote, in it to win it, regarding the fed's battle against inflation and, quote, we have more work to do in that effort she said the fed needs to bring the rate above 5% and hold it there for some time. she supported, she revealed a 50 basis points hike at the last meeting with a hike at 25. meanwhile the producer price index, it came in hotter than expected, suggesting more pressure up the pipeline and joining the consumer price index which we got on tuesday and showing inflation not coming down as fast as the market hoped or expected. 6% year on year for that ppi there. all that means a hope for spring pause could be off for the federal reserve after a week of data that showed the data declining more slowly and the economy growing faster the fed may not hike until may and go away. it may play more in june and hike rates again markets have increasingly priced this in, the possibility of

hikes in june, with a 54% probability of a june hike you can see that by adding up the two bars to the right and a 46% chance that the fed stops in may at 5.8 that's been going back and forth between little battle there, does it do one more quarter or another quarter. that read could end up being correct after the cpi and ppi showed less and inflation. yesterday's retail sales report showed better growth that report prompted a rethink among forecasters, but just how weak the first quarter is going to be, gdp wise in january, the cnbc rapid update survey saw a 0.2% gdp that number now stands at 1.5% with some even above trending at 2.5% on a lot of that gain from the retail sales report yesterday. okay while the 50 basis points hike is on the table for a possible fed response, fed officials i think are more likely to use quarter point hikes that will allow them to move more slowly in response to data and take account of the risk of over

tightening and policy lags guys >> the conversation, steve, i'm going to go back to a question i've asked so many times before over the past almost year and that is, how long typically does it take for all of these hikes by the fed to actually entrench themselves into the economy and be fully realized as we do, perhaps, get closer to this, to the end of the tightening cyclical but you are seeing resilient data where things like labor are concerned that tends to be a lagging indicator. >> i'm afraid the answer is nobody really knows. you could take examples. seems like on the one hand, markets raised rates a lot and tightened financial conditions a lot in response to the fed talk and job and that was a positive response as far as the fed was concerned. another example during the time rates were so low, i'm sure the

corporations that you cover, they went out and termed out their debt into the future so these guys, a big chunk of the corporate debt and high yield market doesn't have to refinance for a couple years in that regard it may not be several years until those companies feel the impact of higher rates so there's different tracks. housing feeling it immediately corporate debt market maybe a couple years before it sinks in. >> steve liesman, thank you. our next guest arguing he thinks inflation is poised to ease and we're seeing signs of that the central bankers are likely to even pause their hiking cyclicals. global investment cio bob dahl joins us on. i'm going to ask you a question about -- i realize stocks are down today, better than 1%, but in general what we've seen in recent weeks the game of chicken now, between stocks and bonds, who historically tends to be right? >> the bond market often leads the stock market and it's moving

up in yield, which is not great news for stocks, and i think you add to it the interest rate effects the p/e and, of course, the e is earnings and earnings estimates are coming down. feels like we're a bit ahead of ourselves in this equity market. >> so it more likely to go lower before we go higher? how do you see this playing out to the year end? >> i think we're going to frustrate the bulls and bears this year and have a flatish sort of year so far this year we've frustrated the bears, maybe we'll have a chance to frustrate the bulls. i don't see we're going much of anywhere inflation is way above what the fed would like it to be. earnings estimates are coming down yield curve still inverted leading economic indicators have rolled over. sentiment has moved up lot of bullishness out there we need a pause here, morgan. >> so what's an investor to do with their money >> yeah. you know, buying a 10-year

treasury at 3.86 is probably not a bad idea target end of the year for us on the 10-year is 3.60. i can make a little money there. if you're uncertain like many of us, it's a very confusing time, 4.50 on a 2-year is not that bad either. >> seems to be talk in the last couple days maybe we're going to get pops in volatility here in the coming weeks or months do you expect that as well, and what are the ramifications of that, given the current environment and the fact that there are more questions than answers? >> you hit it on the last part of that question, more questions than answers it's always uncertain and confusing, but i think it's extra unserp and confusing you've got this sentiment that says, well, maybe the fed is almost done and inflation is coming down, maybe there will be lowering rates by the end of this year and a soft landing, but you have equally strong voices and i lean on this side to say that inverted yield

curve, the rolling over of the leading economic indicators, declining money supply, it that all tells me -- and earnings estimates come down. fourth quarter earnings reported in the first quarter have not been great relative to expectations, so i think we have more air to let out of the balloon and i think that that pause that refreshes meaning some decline in equities probably makes sense here,ing moren. >> morgan. >> your thoughts on international markets as we have seen the market strengthen and the yields tick higher sense that the fed has not done or necessarily as close to done with its tightening cyclical and places like japan you have a governor coming in at the central bank there expected to be a little bit more hawkish than the previous one. how are you thinking about international versus domestic? >> like last year, our view is international stocks will, again, beat the u.s.

hopefully it's not by going down less like the case last year those markets are a whole lot cheaper. the countries have lots of problems, don't get me wrong, but allocations there are pretty low for at least u.s. investors. i think it will probably take some renewed decline in the dollar, which is not happening at the moment, for that to come true, but our guess is when the year is over, international will have done a little better. >> okay. bob doll, thanks for joining us today. >> all the best. >> the dow down almost 400 points right now. >> despite that, we've got cisco up nicely one of the top gainers on the s&p it beat system and more importantly, perhaps, it raised its guidance, thanks to an increase in recurring revenue and improvement in its supply chain. chairman and ceo jchuck robbins joined us to discuss that and the quarter and the opportunity he's seeing in a.i >> if you think back three years

ago it's nothing and now a multibillion dollar business for us as we engage in those customers they are building a.i. networks with commute and underline high performance networking behind it, that are going to be bigger than their current core cloud networks which is hard to fathom and the underlying network performance behind that is going to be -- require three to four times performance to deal with the speeds they need. >> very strong quarter across the board. you're seeing a positive reaction there the discussion of a.i. in terms of potentially a growth lever, morgan, for the future as well we talk about the arm supplier so to speak. cisco would seem to be in that picture as well. >> absolutely. i thought his last answer about china tensions which we know cisco has had to navigate over the years, even though it's not necessarily a big part of their overall sales, got my attention too in light of what we've seen with the identified objects and that surveillance balloon we've been talking about on the show. >> for good reason. >> to his point the supply

chain, even though they don't sell a lot in china, they rely on the chinese supply chain for their product, and it does come back to something you've talked about, the rising tensions in part because of the balloon and other objects we've shot down and what that's going to mean for future relations between the countries. >> he said what i would expect him to say, we need to compete and figure out a way to do that without straining the global economy. we use the term cold war, so much like a new cold war, but it's very different in the sense that we have two economies that are incredibly intertwined and what happens between the two of them affects the rest of the world. it was not that way during the cold war with the u.s. and the ussr different dynamics and not an apples to apples comparison when we talk about this. >> i also liked his answer about ceo mindset, that the current generation of people leading companies have been trained to deal with crises repeatedly.

>> that was interesting. >> and that's why they don't freak out on head count or capex because in chuck's view, what is normal we don't believe normal is going to happen. >> it's been -- that was fascinating because it has been an incredible decade plus, if you will, with different types of major events transpiring and corporate america in many ways, just in recent years, being sort of pushed to have a bigger voice at the table around all of it. as we head to break, here is our road map for the rest of the hour more on the media outlook as paramount and roku head in opposite directions this morning. rxr chairman and ceo scott rexler, making headlines after giving worn out offices back to the bank we'll talk about that and a lot more. markets continue to see pressure as investigators weigh the murky fed outlook and rising rates today. more on the key movers to watch with the dow down 340.

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let's give you a look at two companies in the media sector. they do different things roku really lets you stream essentially and sells advertising. paramount, you know what they do. moving in opposites directions after reporting fourth quarter results. both stock up sharply yesterday. paramount has had a very good year and still does, up 37% despite that 5% loss today the company reporting numbers that included some highlights,

9.9 million subscribers added to paramount plus that was the largest of any of the streamers for that fourth quarter. obviously, yellowstone, other things helping that or some of the spin-offs from that show helping. "maverick" helping as well going to the platform. a walmart deal that may mean some of the subs are not high paying they are raising the price for the service but investors may focus on the fact that free cash flow negative 500 million, basically for the year, and that is kind of going to be more of the rule this year as well talking about next year or peak losses this year and moving to profitability next year. bob bakish is talking about the fact, the question i ask many cease, it will be similar to the old media business when it gets to profitability and many of us have questions about the nature of profitability of streaming. they are growing subscribers substantially and merging

showtime into the paramount plus platform advertising market has stabilized. >> yeah. >> the "yellowstone" halo is really, including real estate market in a place like montana, is quite fascinating, but going back to roku, too, the signs of improvement in the ad market, the fact that even throw it's the country's largest maker of streaming hardware, the vast majority of revenue comes from advertising, not just the ads viewed on home streaming service but the ads that appear on other streaming services that are viewed on roku devices which kind of really speaks to, perhaps, this idea of cable bundle 2.0 with the idea that things will look very different than how they currently look for the streamers and back to your point about what that means in terms of the path to profitability for many of these media companies as they have made this move to follow the cord cutters. >> yeah. everybody trying to sort of play against netflix, which, obviously, is a success,

particularly the last quarter in terms of where they are on subscribers and profitability. nobody else is quite there yet and everybody is adjusting how they get there in terms of cutting costs. we spoke to iger from disney a week ago, $3 billion content cost cut sports they're targeting, that's a big number given the $16 billion they spend on disney plus this is a story in that business and one we continue to watch as they all try to navigate it. as for roku, you know, you take a look at the two-year, mike santoli pointed this out, representative of the speculative fervor we've had and then the fall even with its move up this year the stock is still down sharply. >> oh, yeah. nowhere near the 400, 500 level wur you're talking about bakish on the call, general entertainment clearly makes sense for us variety says that's a swipe at comments iger has made and

saying although the pramic ad market is troubled, auto, pharma are categories doing well. >> there was a back and forth with rich greenfield about our interview from last week they see general entertainment as their core franchise in a way at paramount plus. disney, obviously, sees it differently given all the franchises they have. >> all right well, still ahead, tensions continuing to grow in ohio as norfolk southern pulls workers from a town hall over what they call growing physical threats. the latest there next. ayitus

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investment life, there are headwinds and tailwinds and one of the headwinds is inflation, and i think more inflation over the next 100 years is inevitable given the nature of democratic politics flix politics in a democracy. i think we'll have more

inflation. the daily journal owns securities instead of bonds. owns common stocks instead of government bonds. >> berkshire's vice chair charlie munger predicting more inflation ahead yesterday at the daily journal meeting streamed on cnbc.com. stocks falling again sharply on another hot inflation report david, i know you mentioned the comments from jonathan gray. >> i did. >> looking at a higher for longer scenario which the market is trying to get its arms around. >> you knew where i was going. going through my pile of papers trying to find the comments but they were as you said, karl, he thinks the market may have gotten ahead of itself anticipating the end of inflation. >> the risk then is does something in the equity market break, does something in the economy break? but to liesman's point about the amount of corporate debt that is fixed, at least for a while, and the notion that gray says, david, which is that we're not nearing levels of risk that we saw going into the great financial crisis. >> nothing like that

and steve made that point. if you were -- if you did not lock in your capital structure over these last few years, man, you should be fired. i mean - >> it's kind of like - >> there are companies that have floating rate debt and it's hurting them already. >> households made the same decision when they refied an an argument that anyone who could refi back when rates were low probably took that opportunity, right? >> yeah. yeah without a doubt. >> it gets back to the entire conversation we've been having, soft landing, hard landing, no landing now. as has been discussed over the last couple days it reminds me this idea maybe private markets, you could -- you might not see the full impact, if there is going to be a big impact in the private markets for a while yet, alley mccartney coming on earlier in the month to talk about that as well after the break, more on the quarter that's sending shopify shares plunging amid what finkelstein is calling, quote, persistent macro economic

challenges and will join us next

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number on your screen, or visit coventrydirect.com. i'm frank holland. here's your news update at this hour president biden arrived at walter reed hospital for a routine physical exam, his second since he took office after his physical in november of 2021. his doctors said he was fit to successfully execute his presidential duties. vice president harris is in germany for the munich security conference as the war in ukraine nears its one-year anniversary harris will reaffirm international support for ukraine and outline the path forward. portions of a georgia grand jury's report on potential election interference by former president trump and his allies are scheduled to be released tout, but we won't know if the panel is recommending any indictments. back to you.

>> thank you norfolk southern down 7% since the derailment of 150 car freight train carrying hazardous materials on february 3rd which derailed in east palestine, ohio, leading to the temporary evacuation of thousands and controlled release of carcinogenic chemicals and shares are down another 1% right now. the company's ceo alan shaw releasing an olypen letter sayi kwoes i know you have questions about whether norfolk southern will be here and we will stay here as long as it takes to ensure your safety and to help east palestine recover and thrive this on the heels of a town hall to address the cleanup efforts in which norfolk southern representatives did not attend due to the, quote, growing physical threat to employees and community members and the, quote, increasing likelihood of participation of outside parties. ohio's environmental protection agency saying the latest tests show water from five wells supplying the village's drinking water are free from contaminants

but recommending that private water wells be tested as well. the state estimates the spill affected more than seven miles of streams, killed some 3500 fish, and the state ag has informed the freight railroad it is considering legal action based on reports there seems to be five federal lawsuits filed with this. norfolk southern it should be noted has established a $1 million community support fund and has been directly compensating and reimbursing residents. 2.5 million and counting so far. these types of derailments and accidents are exceedingly rare to put this in context it's very tragic and awful and a situation that will go on for some time, and for which we've seen analysts just this week note that you could see a quarterly charge tied to this as well. they don't happen regularly, and it does speak to the fact that

based on federal law, railroads are forced -- are made to, as common carriers, carry these hazardous materials as well. something that was in focus with the crude by rail situation and the fiery accidents there. this is tragic i keep saying it on our air, but i think this is a situation where there's more questions than answers, but from an inves investor standpoint stock is down right now a number of analysts saying if history is any indicator, the stock will at some point bounce back for what that's worth. >> they're under pressure. cbs did a story that some employees expressed concerns about excessive weight before the derailment happened. "usa today" piece norfolk southern fought against an obama era safety rule that probably mitigated some of the disaster, so they're going to be dealing with this for a while. >> they're going to be dealing

with this for a while and i will say since that evacuation was reversed earlier in the month service was lifted and working through a backload of cargo or backlog of cargo so service does seem to be running along the norfolk southern tracks, the network in general also, it's 150 car train it's actually not one of the bigger trains that freight railroads tend to run on their networks it was actually an even bigger train even just a few months ago and was made smaller to be more efficient. so it's a terrible situation, but there's just i think a lot of nuance and a lot of details and fallout that's going to come out of this and we don't know yet. >> watching the markets here kind of a rhyme with yesterday's session as we're repairing some opening losses dow down fewer than 300 points as the 10-year manages to get below 3.85 we'll bk ren mitebeache ia nu *g trading app makes trading easier.

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getting back to shopify shares are moving lower as the platform issued weaker than expected outlook for the quarter. harley finkelstein joins us. you mentioned 3 x beat on revenue but is the street picking on the q1 revenue guide? >> thanks. let me start with the results from q4 and talk about the guidance because that's coming up a lot are right now i think 2022 marked a strong year for shopry fi and reflected not only our merchants and businesses but shop by itself. gnb was up for the quarter for 2022, we actually saw $200 billion of gnb go through our platform, three times more than in 2019.

about 560 million consumers bought from the shopify store last year. we've powered over half a trillion of global commerce. on the revenue side we saw revenue for q4 in come in $1.7 billion, up on a currency basis. all that happened at the same time adjusted operating income grew to $61 million and operating expense growth continued to decelerate from q3 to q4. what i hope people see is the last two quarters have proven we can drive cost structure and grow revenue and invest in critical areas and you see brands like supreme and black and decker and mattel migrating to shopify in terms of the guidance we can't change macro, but we can focus on building the best products and focus on growing our market, market share, but i think the outlook reflects the prudence and this morning we got inflation numbers everyone was surprised about and we want to be able to operate in a way

that's resilient and be prudent about what the street expects but generally, [ inaudible ] i don't expect it to be now. >> your reference to 2019 makes you wonder whether or not we are still dealing with the back side of an enormous covid pull forward, would you argue that's still in the mix >> look, i think if you just look at some of what's happening right now the macro trends, 2022, 2021, saw the largest amount of business registrations just in the u.s. alone relative to the previous ten years. shopify has become the de facto place to start a business. we expect a lot of merchants will come to us. at the same time, we're also expanding our product. you're seeing capital and things like audiences and you're seeing things like fulfillment network gain traction. if you look at the attach rate, we're growing our attach rate which we view as a proxy for the value and usage of our products by our merchants and we think, you know, prepandemic, shopify did well

during the pandemic we were quickly to pivot and make sure every physical merchant that needs to move online did so. we went to work building our point of sale products during the pandemic so when the pandemic was over all those online retailers were able to reopen and migrate back to point of sale. 25% for the quarter year on year now that we're post-pandemic we also believe that we can continue to be resilient not just about growing our products and building better products or business, it's about operational discipline and that's baked into the dna of shopify. we've been profitable five out of seven years since ipo and we were profitable pre-ipo and not a venture backed -- we weren't raised on venture capital like other companies do and take our medicine when we need to we were early doing layoffs which is not something fun to do, but we do what we need to do to succeed long term. >> just sticking with the macro the fact that you work with so many businesses from small businesses to the biggest businesses, what are you seeing in terms of your customers behaviors given the uncertain macro environment and

particularly on the smaller business side where you tend to see changes in behavior earlier when the economy starts to come under pressure >> i think the companies that are going to succeed in the next version of the economy and certainly through this year are going to be the ones that have a amount of value to their customers. we have a starter plan that allows aspirational entrepreneurs to get started not every entrepreneur will succeed but if shopify becomes a place to start, they stay with us indefinitely. we see small businesses starting with shopify and announced components mattel and i announced on stage last month. we believe larger businesses are also looking to one future stack. they don't want to have 300 engineers on their own running their commerce they want to future proof their commerce and know as new technology and innovation comes out in retail and commerce they can get that right away. we're seeing from both ends small merchants and large

merchants shopify is a place they're gathering too. look at audiences, for example, which is our way of ensure merchants on shopify able to reduce their return and ad spend and get a conversion rate and spend less on customer acquisition. because of our scale we're about 10% of e-commerce in the u.s. able to create products for millions of stores on shopify they could never do on their own and leading to good things and makes more small businesses more successful going forward to go back to 2008, you know, that's when we saw a lot of people join shopify during that recession when they wanted to supplement their income or they wanted to replace their income if they lost their job and as long as you were a company that creates a lot of value, your customers will stay with you and more will join. >> so just to put a fine point on that you telling me shopify is recession proof if we were to see one? >> certainly not shopify is very thoughtful about recessions and preparing for recessions this idea we can grow our revenue at this rate, but also, you know, reduce operating expense growth and become more

profitable over the long run is very important that's the reason why, you know, i was surprised by the reslun from the market from our q4 we showed great growth on the top line and showed growth on the bottom line and all the while we're making these changes like some of these layoffs that, again, not fun to do but is necessary taking our medicine because we want to be a long-term company. shopify tends to do well when the markets don't do well because we're the place where small businesses and entrepreneur goes to make money. >> harley, there's been some focus on stock based comp of late i'm curious to get your read, let's call it 140 million for the december quarter versus 96.5 million last year. so it is up substantially. how do you view it right now and how is that playing out? >> david, i think stock based compensation ties leaders and people that work at the company to the company's success long term we have more -- a lot of stakeholders, our investors, merchants where we operate, here in canada now, but also the general market i think generally it's a good thing if you're prudent about

it in terms of what shopify is doing, i'll say this, i've been a shopper a third of my life, it's my 13th year here, this is by far the most stacked team we've had at the company we have jeff hoff moois are our new cfo. this is the best team. last week we had shopify editions put out 100 new product and features and we did that courtesy in june so the pace of shipping and the importance and quality of our products is unlike anything we've seen the quality of our team is unlike anything we've seen shopify is becoming if not the, we're on our way now. >> i know you talk about taking your medicine and you addressed head count last summer before a lot of this became commonplace does that mean you think head count is steady for 23 are there further cuts to come >> we think we can keep things steady and only make mission critical hires where we're at right now is a very good place for us to execute and being incredibly efficient. we don't expect major increases in head count.

it will stay fairly steady one of the nice parts in terms of the opportunity for shopify is some of the best people on the planet want to work for shopify and we're being thoughtful about who we bring in we think we can keep head count at this spot the next year or so. >> harley finkelstein, thanks so much for coming on. >> good to see you. >> in light of the quarter and guidance big lineups next hour on "techcheck" the view from the c-suite as the ceos of twilio, synopsys and toast all join us to break down results at all three names coming up in just about 15 minutes don't go away. we're back in two. this is ge aerospace, advancing flight for future generations. ♪ welcome to a new era of flight.

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tenants are going to the new buildings because they're fancy and they're terrific, et cetera, but they're leaving huge, you know, swaths of vacant space, both new york, midtown, chicago, south street, san francisco market street, they're all, you know, suffering. >> that was sam zelle yesterday on the closing bell discussion the shift in office real estate, the newer higher-end buildings getting plenty of tenants but

leaving a lot of empty space in places in new york the return to office rate continues to climb, still well below prepandemic levels. we're at about 60% of workers saying they're back in the office at least three days a week chairman and ceo scott rechler is here at post nine to discuss what he's seeing and made some news as well i want to get to always good to have you on this conversation it's an important one, and it continues. i mean, what are you seeing -- you made news saying you were potentially going to give back buildings of yours to the bank it sounded perhaps more than it was. give us sense as to why you said that >> i think sam hit the point, there's a flight to quality and that's happening in the commercial real estate market and it's something that was happening prepandemic. it got accelerated with the pandemic companies want to be in the types of buildings that enable them to attract their employees back, to have experience, the right level of amenities, close to public transportation, and those are the higher quality

buildings. some buildings it's coming out of the pandemic are not going to be able to be competitive as office buildings anymore, and so, you know, we've looked through our portfolio, project kodak, said which of our buildings are digital that will be competitive in the post-pandemic world and which ones are film and that we should make sure we're allocating our resources to digital and building new buildings and new space and the stuff that's film we have to take a different look at and think are there other alternative uses for those buildings. when we call to our portfolio, 90 buildings, 30 million square feet of commercial space, there were two buildings that we said okay, are likely not going to make it as office buildings and we're in the process of trying to convert them to mixed use office multifamily self-storage along the way. i think that's going to be a large swath of the office markets, maybe 20% of buildings that are going to be competitively obsolete, but it doesn't mean that all buildings are all the same we are seeing a tremendous amount of activity in the higher

quality buildings. this past january was the most leasing that new york and manhattan has had since the pandemic happened, right at that level. we've seen ourselves 2 million square feet of leases we have out, again, when you think about what those leases are, tenants that want to go to the higher quality buildings or renewing because they want to build out their space, put in the amenities and they need longer term leases to justify the investment for themselves and the landlord like rxr. >> we're dealing with the way people work. things are never coming back to five days a week, everybody comes to a central business district how early are we on what you're talking about in terms of your portfolio, what you're seeing now, but what do you expect to see two, three years from now as well >> yeah. and you hit it, right. the jeanne is out of the bottle. it's not going back to where it was. even at rxr we have a fridays where we let people work remotely i think four days a week, three days a week, is what's becoming the norm that doesn't mean people are taking less space but it does

really impact the ecosystem of our cities, transit systems, and how everything functions in that regard so we have to get through that adjustment it's going to -- i think we're in the early innings and a little bit in the quiet before the snoorm yostorm. >> what's the storm going to look like? >> you have the hybrid work shift we also have this interest rate regime change that has turned capital structures upside down people that values buildings, low interest rate environment, now a normal interest rate, those values aren't the same we're seeing that not only in real estate but tech and everything else that's out there. the combination of both is resulting in companies having to take a hard look yesterday vornado announced they're in default on a large building in the city brookstone is in default in l.a. blackstone walked away from a building last year i think we're in the early stages and i think, you know, the challenge here is illiquid

market the credit markets will take a while to work its way through this this could be much more like the early '90s when we start going through the process, it's going to be a two or three-year process to actually work through restructuring the debt, get the -- figure out which buildings are going to be successful and come out the other side. >> which, of course, raises the question we were talking a little earlier in the show, too, but when it comes to commercial real estate, and there have been a number of reports and analysis that a third of global commercial real estate debt is floating rate debt and just what that means in terms of -- what that means in terms of that next shoe to drop, as you talk about it, and how long it's going to happen. you're saying two to three years. >> to your point, even in new york there's $15 billion of cmbs coming due this year if you're a lender or even an investor, you don't want to go to an investment committee meeting and say i want to lend or invest in an office building. there's too much uncertainty so

that's exacerbated the i will liqu -- illiquidity. they're marking loans down once they're marked, they'll want to be sold. i think what's going to happen this year, as they're marked and come to market, you try to sell them in an illiquid market which means probably the prices will be lower than where they're marked which will set off a self-reinforcing downward cycle on values, which would make things, again, a little more challenging for office buildings. the trick for someone like us is not paint them all with the same brush and say there's dislocation in this market which buildings are digital and how do we invest in those buildings, whether our buildings or third-party buildings that need capital and have the confidence to invest and ride out the storm and come out the other side. >> yourpoint about repurposing is interesting pre-covid we talked about how you turn a b mall into something else is it different with high rises? how would you characterize our ability as a country to turn real estate into something new

>> carl, your point on malls is probably the best example because that -- if you think about that process, it was probably a ten-year process from when e-commerce happened and everyone realized b malls weren't competitive. we're turning a b mall in white plains to apartments we had to have government provide the incentives and then you do that. office buildings like in brooklyn that has great views back to the city, 100-year-old building, high ceilings. we have to get through some zoning, deal with the lenders, but you can see multi-family, mixed use office that works some are more challenging where you have tenants in the building, you have to have them move out, the infrastructure and floor plan so it makes sense that doesn't mean also, by the way, you're tearing down buildings. >> are we going to start tearing down stuff in midtown manhattan? is that going to happen? >> we're tearing down a motel

and build an office building there. it highlights the point sam made we have tenants every day coming into our marketing suite for the building coming -- >> ultimately the demand is less for space, office space, right >> i mean, i don't know when we settle out if demand's going to be less for office space the companies that are taking space for us aren't taking less space, right they're now -- if you're going back to new office space, you're not going to say, you need a hotel with carl. you won't your own desk. we'll collaborate where you can have a cup of coffee - >> can you do that at the exchange for us? >> the keurig upstairs is pretty good the net result hasn't been that way but there's flight to quality. that's happening and the overall economic environment -- >> and the reliance on the municipalities to get it right and actually help. >> that's the big thing. if municipality get it right, they can accelerate this

process. if they provide tax relief and actually provide regulatory relief, you can get through that transition process much more quickly than the other ones would. >> it's always good to have you and continue this discussion which i hope we will in the future meantime, all february long we are celebrating black heritage through the stories of some of our cnbc teammates, contributors this is plexico capital founder and managing partner lo toney. >> reginald lewis was so inspirational in my career and getting my excited to go out and conquer the world of finance the work we're doing here at plexo capital i hope will empower others or at least inspire others to create generational wealth.

welcome back to "squawk on the street." keep an eye on shares of lockheed martin and raytheon china adding the companies to unreliable entities list ra

raytheon declining to comment. keep in mind it's the missile and defense system specifically being sanctioned at raytheon, not the aerospace business, which have commercial aircraft lockheed, contractor saying, quote, foreign military sales are government-to-government transactions and we work closely with the u.s. government on any sales to international customers. lockheed martin closely adheres to united states government policy with regard to conducting business with foreign governments. u.s. policy is, we don't sell weapons to china and defense contractors are not allowed to work with or in china. so, you could say all of this, even though the shares are under pressure today, along with the broader market is, perhaps, more bark than bite, david. especially when you take into account that the focus of this entities and subsequent sanctions are really on taiwan arms sales, 2020 and more recently and three-quarters of the $19 billion plus backlog we have of

arms sales to taiwan actually dates before that. something like 2015 to 2019. >> got it. and we can see those stocks not getting hit too broadly. the broader market is well down. we are seeing signs of green, including tesla up 1.1%. that's it for us on "squawk on the street." time to send it over to "techcheck." welcome to "techcheck. i'm carl quintanilla along with deirdre bosa and jon fortt today. ahead we'll speak with the ceos of three big movers today. twilio surging on earnings and this buyback announcement, and synopsys and toast gets burned, down 20-plus percent after a wider than expected loss. opening the door for more gains, doordash up 43% this year ahead of its earnings after the bell we have a preview of a very busy session on the micro and macro, dee. >> we begin with a look at today's markets. investors arst