fast food chain is here? >> i don't know. >> 10. >> $10 billion? >> yes. that voice may not be familiar. becky quick is back. "squawk box" begins right now. good morning. welcome to "squawk box" here on cnbc. we are live from the nasdaq market site in times square. i'm becky quick with joe kernen. andrew is out today. it's summer. >> andrew will be back tomorrow. >> he will. >> two out of three. >> ain't bad. >> is that meatball? >> meatloaf. let's look at what is happening

with the equity futures this morning. you will see there are green arrows with the dow futures indicated up 73. you have the s&p indicate d up 17and nasdaq up 82. the nasdaq snapped a four-day losing streak. it was up 1.6% for the biggest one-day advance since late july. that was big with interest rates. s&p up .70%. the dow down .10%. the nasdaq's gain of 1.5% after what happened with the yields yesterday could be a surprise. you see yields pick up like that and you may anticipate tech stocks would have a tougher time pushing forward. 10-year treasury actually trading at the highest level since 2007. i believe mortgages -- that's your story. >> what did we get? 4.37? it looks like two steps forward and one step back.

we can't relax. it is not 4.38. i have taken solace in the two-year inversion. it is not nearly what it was. mortgage rates on the rise. 30-year is 4.78. people think 8 -- is 7.48. people think 8% is in the cards. i have to call them. do you get that? >> i don't. diana olick probably does. >> poring over it. risen 29 basis points in the last week since the highest of november of 2000. >> i spent time looking at mortgage rates yesterday. i'm not in the market to buy anything. it has gotten so high and it makes me think what it will do to the mortgage rates. i looked at my rates. glad i locked in a while ago.

>> i got an i.o. recently. if you have a relationship, you can get one under 6%. >> you have to put a lot of money in a bank. >> the relationship with the bank. is this you? we have news overnight. microsoft actually submitted a new deal for the takeover of activision-blizzard offering concessions after the uk regulators rejected the original proposal. instead, the rights will be diff divested to ubisoft entertainment which is prior to the microsoft acquisition. shares of the company taking off on the news up 7.25%. you saw microsoft and activision

shares were higher on the news as well. the uk competition and market authority will investigate the agreement with the decision deadline of october 18th. the chief regulator spoke to "worldwide exchange" early this morning. >> we haven't taken a final decision. we are opening a new investigation, but microsoft made clear in the statement they believe this deal fully addresses our competition concerns. we will investigate that in the investigation we launched today. >> microsoft will be compensated with a one-off payment and market wholesale payment. if the cma rules against you, it is clear they won't do it. it is important that the deal get done. >> i don't know the ramification of not being in one small area of the world may not seem like a big deal. you want everybody on board.

you're not in the uk, but eu and in the united states, does an t -- does it really matter? >> it seems it is difficult to maintain and keep up. the cma is the target of frustration from business leaders around the world saying if you don't want businesses here, keep this up. >> exactly. we were talking about it yesterday. a lot of new tech rules. we went over the great tech companies that the eu is picking on again. once again, i was saying bitter party of one. do you have a single one? anything going on? >> our regulators are singing a similar tune. you wonder what will happen. >> it does seem -- that's not what it is. i am waiting for the first start up out of europe. i don't know. a.r.m. has filed for ipo on

the nasdaq. the company is owned by softbs softbank. it trades under the symbol -- >> a-r-d? >> you got two of three. close. a-r-m. a.r.m. reported $524 million of revenue in fiscal year ending in march. burying the lead. i think that earnings numbers was 50% of last year. fell by 50% that quarterly profit. >> the biggest filing on the nasdaq? >> it is. yeah. you know, you are the mobile phone market. down 50%.

>> people were talking about p a a.i. >> we will have a big discussion over a.i. it is interesting. all of the big players are funding the startups. it looks like is that good for competition? >> is it real competition? >> wouldn't it be better if the private sector, if it is the big names, they have money. >> i was going to say -- >> better than the government. let them do it. we'll see how it shakes out. they may end up, one of them, whoever does it right, will lead the way. who else? you don't always have all of a sudden a facebook comes along or something that disrupts everybody else. rather than do that than the public sector get involved. >> that is how china is doing

it. >> china. how similar it looks to japan in terms of totally -- >> dominate to a certain point. >> spend too much money and too much debt and prolonged period of underperformance. when japan did it, the gdp per capita was $50,000. china is not a high-end country. per capita gdp is $12,000. xi is moving away from the model and that model means you can't dominate the world if your economy is not growing. it could be half of what it was for the past 20 years. it could be 3% instead of 6%. in the wall street journal -- michelle is here.

we were $76,000 per capita gdp. they have more people. gdp -- now people are saying they may never pass us. the day is coming sooner rather than later. >> it is interesting what happened over the last 40 years. >> you remember the top of japan. when they bought pebble beach. >> was rockefeller center one they were going to buy? >> they were. ushered in 20 years of deflation and flat stock market. nothing good happens for 20 years. >> we will talk about this with michelle caruso-cabrera. lowe's out with earnings. $4.56 a share which was better than $4.49 of what the street was expecting. the comparable sales down 1.6% for the quarter.

that was better than the 2.6% drop the street was expecting. the company is affirming the outlook for the year. the stock off 59 cents right now. joining us for a closer look at the numbers as they hit is brian nagel. senior equity reacher at oppenheimer. brian, better than expected numbers and knee-jerk reaction as the stock is down. >> good morning, becky. this is a very relative to expectation and relative to fears, this is a solid report from lowe's. remember last week on the show, w we had home depot results. lowe's looks similar to home depot. that is the pressures out there with alumber prices and spendin issues. looking at lowe's from q2 results today, it seems things have gotten a bit better from the first quarter of the year.

it is all setting up, in my mind, for improving trends, particularly in 2024 and 2025. bottom line here, relative to expectations, this is a solid report from lowe's. >> lowe's is saying they are expecting full-year comparable sales down 2% to 4%. maybe that's why you are not seeing a bit more of a pop in the stock? >> i'm going to make a joke. it is early here. early on a tuesday in the summer. i don't think the stock has traded yet. i think this iwill be a modest positive when lowe's gets trading. the company reaffirmed guidance. q2 was modestly better than expectations. if i'm management at lowe's, there is not sentiment for guidance. there is a lot of year left. more important than that, a lot of unknowns in the near term. reaffirming guidance is actually

a positive. >> dithat sort of number wasn'ts shocking as home depot, was it, br brian? not as many quarters of that or are they in the same boat? >> they are about the same, joe. >> becky wasn't here with shrinkage. there is stuff to steal. how do you carry out a big piece of lumber. >> they steal machines. >> and tools. >> did they mention anything about that, brian? >> nothing in the brpress relea. what i hear from home depot and lowes lowe's, there has been an effort on the retail organizations to control theft or shrinkage. we are starting to see improvement there. that remains an issue. one way to answer your question,

not to get too detailed, the gross margins were lowe's beat eps in q2. it seemed mostly gross margin. that may suggest some improvement in the shrink front. >> adjustment for the full year operating margin of 13.4% to 13 b 13.6%. how does that compare? >> that is consistent. i think the real point is that what we are seeing with lowe's and this is one reason we like lowe's better than home depot is more operational slack in the business model. i talk about the ceo. i'm a big fan of his. he has done a great job at lowe's. we see with sales still softish, they are getting leverage through the pp&l. you think where lowe's is going, there is a stronger earnings

power because of the slack. you hit on the numbers correctly. >> brian, good to see you. >> nice seeing you as well. have a good day. >> you, too. >> steal a big riding mower. >> it is the power equipment tools. >> you won't get in front of that? >> i talked to ted decker, the ceo of home depot, they had unique brands that wind up on amazon. they know it is stolen goods taken out. it is unique to home depot. you find it online. >> if it were me, i would think about -- >> it is harder to steal stuff under glass. >> no joke. that is happening. >> i know! i know. if i go into that business, it would be a situation to be smarter about it. i'm not going into home depot carrying a bunch of flooring. i heard that was expensive.

people are carrying out. coming up, we talk hstrateg as we countdown to the gathering of the fed at jackson hole. you cannot talk about monetary policy unless you are at jackson hole. these people have to go out there. >> they are no dummies. >> as we head to break, here is tesla. interesting piece today that we are mimicking china's industrial policy. it doesn't work. an ev glut. stock up 7%. i'm not buying one. snapping the six-day losing streak. a plug-in hybrid. >> all of the fleets are required to hit these models of the ev. >> announcer: this segment is sponsored by truist securities.

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futures right now up 70 points on the dow jones industrial average. nasdaq indicated up a bit more. interesting that the magnificent seven are doing okay although rates are headed higher. those are the ones that aren't supposed to do well. my next guest says tightening financial conditions gives the fed less chance to be hawkish when they meet in jackson hole later this week. ross mayfield is the strategist

at baird. ross, it is good to see you. we are talking mortgage rates earlier and when they go up like this, anybody who gets a new home sees it as inflationary. is it inflationary or defl deflationary? >> i believe the mortgage rates spiking to 7.5% is deflationary. people are staying in the homes. people just aren't turning over homes. maybe it is inflationary at lowe's or home depot because more people are staying home and spending money there. we have seen the demand at 6% or 6.5% was solid. maybe unexpectedly solid in the housing market.

structural demand from the millennial dgeneration. you see the market freeze and the effect of what tighter rates can do on the interest rate sensitive sector like housing. when the economy is less interest sensitive than it used to be. hit a bump in the road in the rally. we haven't done much in august. it is based on 30 basis points in the 10-year treasury. we were below 4. we go above 4 and now we're threatening. that seems like it is not a huge deal unless it keeps going from here. is that the concern? >> yeah, i think there is some concern of upward momentum now on the 10-year. you have the fed particularly with the july minutes and inflation at 3% and they are talking about upside risk and they want higher for longer.

i think there is concern there is upward most mentum to rates. the market was in a tenuous place. rates rising and sentiment was hot and seasonal weak patch with extended valuations with the lack of upside catalyst after earnings came in fine and not blowing anything out of the water. so far, it seems like an orderly pause. you don't have leadership from the defensive stocks. you know, again, you need to be used to the 5% or 6% corrections amid the broader back drop of the cyclical bull market. >> in an overall, would you take a step back and wait for summer to wind down before doing anything? do you have a year-end target? does baird do that for s&p? >> we don't have a year-end target. you can ride it out. volumes are low. it's august. you can just wait it out.

i think the opportunity is probably in fixed income right now. i don't know if we're near peak fed. people have gotten that wrong a lot in the last 12 to 18 months. fed's willingness to go higher for longer has been underestimated. with that said, 4.3% or 4.45% ten-year treasury. you know the fed will have to reverse course. expectations are coming down. it is a good sign to get into high quality treasuries and extend duration. maybe a rocky ride if the fed continues to hike one or two more times if inflation proves to be sticky. maybe making more moves on the portfolio side rather than equity side. >> that is if you are diversified with the asset allocation. if you are young, you assume

rates -- for you to extend du duration, you think rates will eventually come down which will be bullish for stocks? why waste your time at 4%? it will not build wealth. maybe it barely keeps your head above water with inflation. no one ever became warren buffett or any of the guys -- what percentage would you put in bonds, ross? >> it depends on the circumstance. there have been savers and people living on fixed incomes for 15 years. >> insurance companies. i understand that. i don't know. >> if you are totally right. we know the long-term track record. the real wealth building and long term is in equities. >> you can buy a good company

with a 2.5% dividend and historically it goes up 15% a year and do the math. dividend matches the yields on the treasuries before the treasuries come due. you have the upside. you have the downside. we could be in a secular. there have been smart guys who say it will be different for the next five years. we paid it forward with the stock market. maybe we don't get 7% a year. that's possible. ross, thank you. >> they are a baird company. i talked to jason. i listen to them. i take jason's advice. >> they get to do what they want. >> they're part of the family. >> they can't tell him what to do? >> i can't. >> like squawk. ross, see you later.

thanks. when we come back, today's biggest movers and zoom video and downgrades for u.s. banks. "squawk box" will be right back.

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shares of zoom video are higher. earnings came in at $1.34 a share. they beat the expectation of $1.05. revenue came in above expectations. zoom claimed 218,000 customers were now part of the fold which is up 1% from the prior quarter. zoom raised guidance citing the growth and progress in cutting sales and marketing expenses. you can check it out now.

the stock is up 4.25%. the cfo will join us at 8:10 a.m. >> did you see the high? >> no, from the pandemic time? >> no. it's not too bad. >> from where they were? >> 420. we didn't know how good we had it during the pandemic. s&p global rating is downgrading five u.s. banks noting higher interest rates and deposit moves across the country. the ratings company lowered the grade for key corp and comerica and valley national corp. that's for people that won't mention names. pretend it is the marine corps.

umb financial and associated banc corp. >> spitting. >> right here. >> you did spit on the desk. >> rivercity bank to negative and view of zions bank is negative. and we are watching shares of bhp group. >> you can do it. >> the world's biggest miner. it warned of the slow outlook for china. the double digit decline from copper and coal and nickel. bhp says china has put policies in place to stimulate the property sector, but not translating as the company anticipated. the miner is slashing the dividend by 50%. >> a big company.

$150 billion. >> china matters. >> it does. coming up, china. saying it a lot. mounting debt crisis. we dig into how to stop the bleeding next. and a look at the shares of lowe's at this point. nagel was right. that wasn't real trading earlier. that's the real trade up almost 3% or $6.50 after they beat estimates. revenue in line and comp store sales sell less than analysts expected. as we head to break, here is the look at the s&p 500 winners and losers. what do you see on the horizon? uncertainty? or opportunity. whatever you see, at pgim we can help you rise to the challenges of today, when active investing and disciplined risk management are needed most.

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hi. good morning. welcome back to "squawk box." michelle caruso-cabrera is here. checking out futures. we are bouncing a bit. crappy august after the move from the orctober lows that no

one expected. shares of baidu jumping in early trade. sales jump in the recent quarter. net income up 43% as chinese regulators loosened their grip on the sector. sticking with china. mou mounting with debt crisis as they look for stimulus to boost the economy. joining us right now is cnbc contributor michelle caruso-cabrera. the surprise was it is so small. >> the rate cut would not help. china has a massive get problem. when you have a debt problem and someone extremely indebted,

cutting rates on a future loan they will take is worthless. think about the scale of the debt problem. bank assets, loans they have, $43 trillion at the end of 2022. they have a smaller economy than the united states and bank loans in this country are $23 trillion. roughly half. when you have that much debt, the question is how do you handle this? a debt crisis or big balance sheet recession like japan? that means you wait for years for people to payoff as they extend and pretend. when they pay off old loans or restructure, they don't have money to do other things like buy a car or do other things. >> they are in a happeap of economic trouble. >> heap of economic trouble. >> we need them to do better for the economy. >> yes. >> we need them to do better.

what does it mean? xi is still popular. no one is saying he is not. the economic story was part of his, you know, what he could rest his laurels on. >> 800 million people they brought out of poverty in china. >> in terms of what they do? >> he will mess with it. he will do things based on this that are not economically related to keep his profile high. i don't know what that means. balloons? farm land? south china sea? taiwan? it would be bad for us. >> it is how they handle the debt situation. when you have the debt situation, you can't use that money for other things. do they do restructuring for all of the local governments? >> you don't think they get aggressive on the world stage? >> there is a lot of xi thought, but if you read what has happened since he has come into

power and i paid attention to everything he said. you don't know what he thinks. some days he is supportive of the economy and other days he is a me-ist. >> he pulled in and reversed a lot of the capitalist. if he doesn't have bragging rights on the 6% gdp, what does he have? >> right. >> how many people are left? 800 million. >> 800 million more to go. >> empty apartment stadiums. >> they have two problems. the debt problem. how do they handle that? and two, they started to change the structure of the economy away from the reforms that started in 1979 which means they don't have the ability to grow to pay back that debt. that is the double-fisted problem that they face. i'm not sure he realizes that.

here's -- >> the article about being the new japan and having that sort of scenario set up. i hadn't thought of it. >> when japan's gdp per capita is 45,000. they went into a slowdown, they were a high-end country. they are going into the slowdown with the gdp of $12,000 per capita. >> you are talking about the gdp per capital. >> not the total. that would really suck if the whole gdp was $12,800. >> for the novice viewer. >> we're $76,000 in the united states. people look at us. i don't know. what i'm trying to figure out and i feel for china and its citizenry. i'm trying to figure out what it means for us.

>> economically, it means a lot. look at bhp, it is not an american company, but talking about the economic impact with china. we will invest and help you grow. now china is doing all of the reversals you are talking about that don't lead to growth. also a debt crisis. look no further than park avenue where waldorf has been closed since 2017 since unbonded insurance went bust. the degree that china has assets around the world and the same way the japanese did when they owned 30 rock. what is the implication here? those are the kinds of -- >> short australia? >> what does it mean for caterpillar and any car companies? >> it is not good. all of the assumptions that people made and investors made for 30 years that china would grow to reduce the role of government in the economy.

that is reversed. i argue it is not just the last three years, but started under tao. when i sat here and did stories from wen to xi, we were talking about the lost decade in china. we should have realized then, but didn't. this is a clue. they would not go as far as people wanted to go to have a more divergent economy. >> russia is getting covered. those two unhol yory alliance. >> xi is offering the brics summit and getting together with south africa. that is a disaster of an economy. >> and australia is totally tied to china sdp. >> they are. >> they will go into recession

sdplcrecession. >> it is why the united states has reached out to australia. they need to help australia when it comes to deterrence and helping them because they are right there. they have so much exposure geog geog geographically and economically. >> michelle, thank you. >> is there an election coming up? do you plans? >> i do work. i stay on top of international. >> is your public service career still in the works? am i allowed to ask? >> i would love to do public service. i would. >> you would? >> appointed or non-profit work. i'm the president of the ballet hispanic board. >> ballet? >> i wasn't asking about ballet. all right.

>> i'm on the investment committee of the e endowment. we struggle with your question of 4% or 5%. >> you are a renaissance person. coming up, the pe company -- i don't know any more. i need help. the pe company that owns arby's is close to buying the subway sandwich chain. and later, the u.s. tech officer aneesh chopra is looking at the a.i. sector. "squawk box" will be right back.

work capital is nearing a deal to buy subway sandwich chain for $9.6 billion. roark has pulled ahead of tdr and sycamore. subway has been owned by the two founding families for 20 years. the company has 20,000 u.s. restaurants. global sales peaked at $18,000 in 2012, but slowed as franchisees exited the system and new rivals entered. danny ddevito.

and owns stakes in arby's and other brands and has investments in other restaurant brands. >> the sponsor of the athletic centers play? >> jersey mike's. i like danny. >> i like him, too. philadelphia. "it's always sunny in philadelphia." >> that's right. >> he's a jersey guy. >> all of the crime is happening in the sunlight? >> exactly. >> nice. dick's sporting goods announcing layoffs ahead of the quarterly results this morning saying it will reinvest in critical growth drivers. the company will discuss reallocation plans during the earnings call today. that stock is up $1.21. when when come back, macy's is set to report. we will bring you reaction. the stock is up 26 cents.

we dig into the breaking news. microsoft with the revised takeover deal for activision to appease the uk regulators. we'll have that story next. bank. helping businesses both large and small, communities and the people who live and work there grow and thrive. we're proud to call these places home too. they're where we put down roots, and where together, we work to help move everyone's financial goals forward. pnc bank. this thing, it's making me get an ice bath again. what do you mean? these straps are mind-blowing! they collect hundreds of data points like hrv and rem sleep, so you know all you need for recovery. and you are? i'm an investor...in invesco qqq, a fund that gives me access to... nasdaq 100 innovations like... wearable training optimization tech. uh, how long are you... i'm done.

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microsoft submitted a newdeal for the takeover of activision, and uk regulators rejected its proposal. steve kovach is here and has the deep dive on this. this is an usual situation? >> yeah, exactly. this is what microsoft is willing to give up and get the deal through. microsoft will let a french studio best known for games like

assassin's creed, they will takeover licensing deals on cloud gaming services for 15 years. this means microsoft will still sell activision games the traditional way, and putting those games on streaming services, that will fall to uv soft. this new offer is set to put a third party in control of the streaming games. the cma says it's not a done deal yet and will still scrutinize these new terms and make a decision by october 18th. by the way, guys, over here in the u.s., the commissioners have a chance to review the deal again before deciding to try again on its own in an administrative law point, guys.

>> is there a point where it no longer makes sense for the deal if you have to keep chipping and chipping and chipping away? what is the thing they want? >> the mobile business. maybe one day the netflix gaming will come to fruition, and that's where all the money is in gaming. that's most of the concern here, or most of the appeal of activision for microsoft, and not to mention when the valuation dipped so much years ago. >> hard to come back and say, okay, we will find something else at fault? >> seems like this is the only issue -- remember, cma dropped a huge part of its opposition, and it said let's just talk about gaming and it's such a small part of the video gaming, and

microsoft is saying let's let a rival take care of it, and you would think that would aphaez the cma -- >> yeah, that would address the concerns. >> this is their posture since the beginning, we are willing to work with regulators, and this is after the fact in the appeals process, they are saying we will take care of it and do a streaming deal with a rival. >> opctober 18th, that's three months since the original date. >> yeah, and if the deal falls through, i think it's $3.5 billion, and i think it goes up to about 5 billion for the break feed. seems like it will get done, but the they are still questioning

that. so let's go through the macy's numbers. it's double what the street was expecting on revenues of $5.13 billion. physical store sales down 8%. digital sales down 10%. inventory down 10%. they are reaffirming their full year guidance, and as we just mentioned there's an earnings beat here, and they made a cautious approach and an uncertainty. overall, comparable sales over licensing goods are down. at macy's, beauty, particularly

fragrances with its backstage business, and those are the strongest categories. i spoke briefly to the ceo and he said the consumer continues to be under pressure, and credit card delinquencies are getting back to prepandemic levels, and we see as we have reported in past quarters a shift to experiences and services. again, that also said under armour is returning as a vendor in the spring. that's new. and nike, as a reminder, also, is returning in the fall. it's already baked into our guidance so it's elevated. i think when you talk to any retailer, they'll tell you it's

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good morning. the nasdaq notching its best day in august even as the yield on the ten-year treasury reached its highest level since 2007. we will look at the markets this morning. microsoft has a new strategy to win over uk regulators in its deal to takeover activision blizzard. and economists and harvard professor joins us to talk about the latest op-ed. the second hour of "squawk box" begins right now. good morning, investors -- oh, did you watch that yesterday? >> no. >> it said good morning, and then period, and then investors

will be doing this, and i read it, good morning, investors, and wapner liked it and thought they should write it into the show. i will do it. good morning, investors -- >> and everybody else. >> yeah, i guess there are people that are taking the trial run -- >> yeah, dipping a toe into it and seeing what they think. it's a pretty strong economy. >> yeah, if you can afford to buy a dozen eggs. when things go up over two years, they stay there. that's what i finally figured out. >> i was shocked at the long-term. if you are looking at precovid versus lesco individual, you are paying 25% more at the grocery store. >> gas is 60% above 20 -- when

he came into office, and they are bragging about -- oh, inflation is growing slowly -- >> wages are growing faster, and -- >> no, they are not. >> but there's a story, if you are trying to jump jobs at this point, way down. >> you get no raise. u.s. equity futures at this hour indicated up -- we'll be right with you. just hold that thought. nasdaq is up. rates have been moving higher, and the inversion, i am trying to find some type of silver lining. >> does the inversion matter? >> well, it's nice that it stayed at -- it could mean higher for longer. it's below 5. >> let's get over to frank holland. he's looking at the premarket movers. >> good morning, anchors. we are watching the gaming.

microsoft submitted a new proposal to the uk regulator blocking its's activation proposal, and i spoke with the chief executive of the uk competition and markets authority, now the only regulator blocking the deal, on "worldwide exchange." >> we have not taken a final decision. we are opening a new investigation. microsoft did make clear in that statement they believe this deal fully addresses our competition concerns, and we will be investigating that. >> the uk imposed a deadline of october 18th to make a decision, and microsoft issued a

statement, and we will have the full interview on cnbc.com. and then lowe's missed on revenue but reported a beat on eps and reaffirmed full year guidance. comparable sales were up 6% year over year, and now shares of lowe's up by 3% right now. zoom also raised its full year guidance above estimates. again, shares of zoom are up almost 3%. you have to remember they are still down 75% over the last three years. coming up at 8:15, the zoom ceo will be here. >> frank. thank you. anchor.

let's look at the market cn. there are a lot of people not paying a whole lot to the markets right now, they are on vacation, and if you look at the ten-year, what it's doing to mortgage prices and it makes people stop and pause, and what do you think about the valuations and what the fed is going to say? >> i think the rates going up is really important, because that's showing the embedded inflation. you guys were just talking about that. the front page of the journal says salaries are not going up that high, and look at ups -- >> yeah, their salaries are being renegotiated. >> when you start with a high base, you don't have to raise it that much but you raise it

enough that things carry through. the bond market is telling you that rates are embedded. real interest rates are going up, not just nominal rates, which then affects the consumer over time, to your point, you know, about what are we going to do? >> comps are down 2 to 4%. >> maybe people spend less on their homes now. that was the thing, when we are not buying new homes, we spend more on the car. and you can buy bonds, not just treasuries, but corporates at 2 to 5%, and not junk bonds either. you can look at other stocks. lowe's trades at 15 times earnings. there are still plenty of stocks. you can buy the j&j's of the

world, and comcast is doing well to date. this is when you look at your portfolio and say, hey, i can actually have a balance, and you say maybe i should be chasing the zooms of the world because nothing else is growing. >> the things with stocks, the high-tech -- >> yesterday, if you saw the video was nvidia, it was up 8%. that drove the whole market. nvidia's report is coming, and how is that going to flow through to microsoft? they have come a.i. stocks in a sense, so how are we going to do over there. i think the market can be broader. you can have a lot more maturity elsewhere, and it gives you that opportunity to get stocks that will actually grow. the fear also is when you see

yields go up this high, the whole dividend growth strategy. >> j&j's yield is 2%, and what did they raise it a year? 15%. >> and buy back stock. >> you just do the pmath on the rule of 72, and the best you are going to do with treasuries is maybe beat inflation a little bit. >> if you are lucky. after tax it didn't work either because of the dividend. >> you heard that on cnbc. or kramer's investment club. there's a reason people buy stocks. it's the reason warren buffett has more money than god. >> yeah, and it's a diverse portfolio, right? >> yeah, and it's the people that need the return of their principle -- >> you put the dividend strategy

and what are good core companies, and you will not always get it right but you diversify, and over time the key is to beat inflation. $100 15 years ago is not the same $100 today. what i see is, clients will say my risk is here but i need to live on this, and you have to marry those two and say what can you live with? >> you have a bunch of fat cats. are they buying munis? >> munis are cheap, and you have to be careful because you have to understand the local principle risk. >> yeah. >> and you have to figure out, because people do move, and if you buy the new jersey muni and move to florida, it doesn't make much of a difference. you get a better bang for your

buck in corporates. >> did you see the nick timarose story, where basically we are never going back to where we were? >> my entire career would say 8 and 7%, and jimmy rogers said we would never see below 6% on a treasury, ever, ever, ever, and he would have bet his entire fortune, and now we think 4.3% is high on a ten-year. >> it's funny. we always say we get this bias, and two years ago i will go back to that again, rates will never go up and we will never be at 4% again, and then you diversify again. you say, hey, if rates come down i want to be in growth stocks as well because that's where everything is. >> so we stopped talking about tina six months ago, and

suddenly there was an alternative. that alternative was under 4% on the ten-year, and if people took that advice and loaded up on duration six months ago at 3.9, they are already underwater. how do you know at 4.3 it will not be a year or two years from now, and if it's a ten-year, two years from now we could be at six theoretically. >> so i know your portfolios, and you want to take your duration risk, and what we do is go out two to five years. >> right. and then if the fed does cut, two years from now, then you have nowhere to go. >> then you have 80% of your portfolio invested. you have the opportunities to go back and forth and then you say, hey, i am not just locked in to, you know -- i mean, two or three years ago people were buying the

4% for years, and if you bought a bond fund, it's hard to get out of it. at least you can say i will hold it to maturity. now you have a perpetual risk in duration, so you have to be careful as to what you own. >> you can almost look at like a j&j almost like a convertible almost to get the yield. then you have a possible upside. >> it's bond plus growth, and you look at the balance sheet and where the dividend coverage is, because you don't want to fall into companies that have 6 or 7% yields. >> could have a big yield but that tells you there's a problem. >> the coverage of the dividend is not as secure as you think. it's when you buy a 9% bond, there's -- >> that has people worried. >> yeah, and you can say i got through it, but that's part of where do i want to be on the

risk curve on that one. >> thank you. we have earnings just out from dick's sporting goods. a dollar worst than what the street was expecting. sales drew 1.8% in the first quarter. dick's is also lowering its earning guidance for the year. and it announced it was cutting hundreds of corporate jobs, and they make up less than 1% of the overall workforce. the stock is taking it on the chin, down about 19% right now. >> that's unbelievable. >> yeah. coming up, a test for a.i. demand is on its way, and nvidia earnings due out tomorrow night. a number of analyst reiterating their calls on the stock, and

the analyst from key bank adding $70 to his price target, taking it to $60 a share. he joins us next. then harvard professor, ken rogueoff wl ilbe our guest. "squawk box" will be right back.

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oh, boy. welcome back, everybody. chip designer arm has filed $524 million on net income, and their fiscal 2023 year ended back in march. nvidia is set to report after close tomorrow. the stock has been on a run in the past year, and this has had many analyst lift their price target to as high as $800. one person joining us, he raised the price target on nvidia on $550 to $620. you know, john, i --

historically i looked at stocks when they go, and when they go they go. the momentum is tough to stop. sometimes it's even hard to -- you know, it's hard to even justify or rationalize what is happening but you better just get out of the way. is that what you are doing or can you back up the number with actual valuation calls? >> i think we can back it up from a valuation perspective. we are expecting nvidia to report meaningful upside to the quarter in guidance, so we did raise our numbers pretty meaningfully. we think they can earn 1761 in eps next year, and at those levels stock would be trading in the mid-20s. and certainly there's clearly valuation support here. >> i said when you get a momentum stock like this, i guess the biggest risk is in, you know, calling a top too

soon. what is the growth rate for nvidia right now? how long do you think that can be sustained? how many quarters? how many years? is it all based on us just not really understanding the potential for a.i.? is it five years from now are we going to look back and say nobody really understood how big of a market it was going to be? >> yeah, we have nvidia growing almost 90% this year, and almost 70% next year, right, just to put that into context. and the industry will be growing kind of in the mid to high single digits for the next ten years, so these guys are growing it at outsized earnings growth versus the broader market industry. over the longer term we think these guys can grow kind of mid teens to kind of in the lower

20% range, which, again, is well above the broader industry market. yes, we do think that a.i. and generative a.i. is a pretty significant opportunity. >> it's going to be not just a.i., but it's going to be -- i remember when, you know, suddenly when the internet was in vogue back in the late '90s, and it was no longer benefiting internet companies, just across the board, any company. that's going to be the same with a.i. in your view? >> i think there's similar -- you know, similar trends this time around. obviously the main investor question that i am hearing from most investors is everybody is trying to find the next nvidia or the next company that has meaningful exposure to generative a.i. to be quite frank, there's only

a handful of companies that are true enablers with generative a.i., and nvidia is at the top of the list. we think there will be broader market implications outside of semis, but that will take time. >> you said if it earned $17 you are in the mid-20s for a multiple, and you see the long-term growth rate in the mid-20s. if you can figure out an earnings per share number, you ought to be able to figure out what is not a ridiculous price for this? that's how you got to the 600, i guess? >> with the stock trading in the mid-20s relative to its historical multiple in kind of the low 40s, i mean, the stock, we think, is attractive. >> so this is going to be a

trillion-dollar company? what do you think? >> yeah, potentially if these guys can sustained the outsized growth rates for the longer term, that's a possibility. >> that's unbelievable. there are not many of those around, john. nvidia has only been on peoples' lips for three, four, five years? i don't know. >> i would say, you know, i think nvidia has been on people's a.i. list for quite sometime for the last three or four years, and more recently there was an explosion in the generative a.i. demand as it really hit the broader markets. >> all right. amazing to watch. like i said, i pity anybody that shorted this thing. people do that, too, because they can't believe it. i mean, that must be a bad feeling. they are not in the investment business anymore, i guess.

john, thank you. >> thank you. >> all i can think of is mr.t, i pity the fool. >> yeah. when we come back, ken rogoff. before we head to break, let's get a check of the markets. green arrows across the board for the futures. s&p futures up just over 20 points, and thnaaqe sd futures up by about 100 points. "squawk box" will be right back. look! what's up my trade dogs? you should be listening to me. you want to be rich like me? you want to trust me on this one. [inaudible] wow! yeah! it's time to take control of your investing education. cut through the noise with best-in-class education resources that match your preferred style of learning. learn your way. not theirs. td ameritrade. where smart investors get smarter℠. ♪

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welcome back, everybody. check out shares of macy's. the retailer reporting adjusted earnings of 26 cents a share on revenue of $5 billion. the physical store sale is down 8% year over year. inventory was down 10%. merchandise marvgin declined to clear through the seasonal product, and that stock is off by about 12 cents. dick's sporting goods had a

dollar worst than expectations. it was just shy of what the street was looking for. comp store sales were up 8% in the first quarter, and dick's is lowering its earnings guidance for the full year. if you read through the release, and i am trying to start to figure out what happened and why they missed by so much when the revenue was not off by that much. the ceo said their second quarter profitability was short to expectations due in large part because of the elevated inventory shrink, and a serious issue impacting many retailers. the street wants to hear more information about it. that stock down by 19%. to say we are going to miss by a dollar and it was largely because of shrinkage, and this

commentary is above the headline. shrinkage, clearly a huge problem for a lot of retailers. it's something everyone of them has mentioned and how the shrinkage is getting greater. they have not mentioned shrinkage at dick's in 20 years. >> got to be mature. got to be mature. i think we should start calling it stealing. what is it -- it's not really shoplifting, necessarily. >> well, look, the big problem -- this is organized crime that is come into a lot of these places. if you have just minor shoplifting, that's not going to add up to the billions of dollars it is in the industry at this point. >> reminds me of, what? >> everybody is dealing with weather and everybody is dealing with stealing. some are batter at it and sometimes it's used as an

excuse, and it's the first time it has been brought up in about 20 years at this retailer. >> let's call it dick's sporting go goods. >> i always want to say sporting goods -- >> yeah, still to come -- i really would have gone wild -- >> if tv was not watching us. >> yeah. shrinkage at dick's sporting goods. "seinfeld," right, they did it. stay tuned. you are watching "squawk box," and this is cnbc.

new this morning, a u.s. commerce secretary, gina romando will travel to china.

it will be the fourth biden envoy to visit the region, all since june. the debt super cycle that came for the u.s. and europe after the 2008 financial crisis could be knocking on china's door. it would be lucky if it was only as bad as that and not as bad as what was kin to japan. the global markets are on edge. let's bring in harvard economics professor, ken rogoff with more. i was shocked yesterday, ken, at how "the wall street journal" didn't mince words, and they said it was over, the model that benefited china from 1978 until now. 40 years, basically. is it over? is 3% the best they can expect?

that's average, and nothing chinaesque. >> i think we are at a turning point. you have to give credit to chinese authorities, and they are coming to the end of the line on the construction-led growth, the infrastructure real estate, and if you look at the direct and indirect affects, it would be 30% of their economy. the thing is, they are very good at it and they have built a lot. the japan had famous bridges to nowhere, and china will maybe have the high-speed rail to nowhere, and they are come into diminishing returns like every asian economy hit, and russian economy hit, and they have the aging demographics. yeah, i think two to 3% would be

a good out come for outcome for china, and property prices are under a lot of pressure. local governments are incredibly dependent on selling and reselling land for revenues, and they have a lot of debt. yeah, there's solutions but it's not so simple. they may face not a western-style financial crisis, but a chinese-style financial credit strain that still could be pretty bad. >> japan finally grew at 6%, ken, so it was only 30 years that it took to sort of extend, you know, sort of work off all of those excesses. is this going to be -- is it akin to that at all? is that wrong to think of it that way? >> japan is clearly on the extreme side of the financial crisis for whatever reason, so

where china is, is not in a financial crisis yet, but where it is, is it's growth model will no longer deliver by growth. they are just running in diminishing returns, and the at the same time, the innovation china was showing in the tech sector, that also has been stalling, obviously, because a lot of the measures the government has taken to takeover a lot of the major companies. china remains the second largest economy, and all of the hyperbolic predictions about china being twice the size of the united states before you can blink, i think you can forget about that, that they are going to take a long time to sort of meaningfully overtake the u.s. economy, if, indeed, they ever do. >> knowing you as i do, and i don't expect you to be able to

talk about the repercussions of what this means, but there are so many, what it means for us and the global economy and president xi, and the standard of living to the developed world. i was referencing your chess moves, it's like you are a grandmaster and you are 20 moves ahead, and so it's not wrong to ask you this. people want more in gdp, and xi and his position, will he be as popular and safe if he can't deliver economically, and if not do they get more aggressive on the world stage and is that a problem for us? >> those are really good questions. certainly i would guess that president xi maybe saw this

coming, and that's part of the reason he has tightened his grip in general. as far as his position being weakened, i am afraid to say if we look at autocrats around the world, russia, cuba, iran, this is not a period where they are easily overthrown. modern technology makes it easier for them to stay in power. but absolutely there's a concern that up until now china could feel it was winning at the globalization game, and it was growing fast and it could be patient, because in the long run it was just going to get everything. i think when it starts seeing its horizons more limited, and absolutely the typical young person is not nearly as optimistic about the future as they might have been five or certainly ten years ago, you know, it's a concern that it might lead to more issues on the

global front. obviously the taiwan straits is a tremendous concern. you know, coming back the what you said, china, it has been the big story of the last 40 years if you step back and look at what has happened in the world. the chinese growth has been phenomenal. i know progressives say we have reached this age of greater and greater equality, but not when we look from a world perspective. hundreds of millions of people have been lifted out of poverty into the global middle class, at least in china. if that's changing, it affects everything, the chinese and u.s. relationships, the most important relationship in the world, and i am glad the u.s. is trying to pay attention to it. we have taken a more aggressive stance since trump, and biden is not letting go of that.

we are facing deglobalization, and the impact on the u.s. will be more inflationary than deflation airy, because i think the low cost and high productivity in china was helping central banks keep inflation down. >> the property bubble -- they had to feed the beast, obviously, to keep throwing coal on the fire to get the economy going, and they also embrace their own brand of capitalism to some extent. in recent years i have watched xi, and i couldn't figure it out -- he went from industry group to industry group and tighten thegovernment control and actually sort of take back some of the free market characteristics of these things. did that hurt? why did he do that? was that about maintaining power, seeing this coming? >> that's what i am conjecturing, joe, that the

chinese realized this couldn't go on forever. they worried there could be unrest as things slowed down. this is just as a conjecture. i don't know. there was not so much tightening causing the slowdown, anticipation of the slowdown causing the tightening, and it remains to be seen. >> not a good story, ken. we shouldn't have any schadenfreude about china's problems, and ask not for whom the bell tolls. we are at logger heads with them, but for the global economy we need them pitching in with all of those consumers, so i don't how to view this? >> they have been accounting, i don't know, for two-thirds of global growth until recently, so from a cyclical point of view, it's not good.

on the other hand, you know, they are fighting with us for the hearts and minds of the developing world. they are our strategic counterpart in the world, and they are growing slower and that has an upside to the u.s., too. >> do you have a favorite piece in chess? is there one you really just love? is it the queen? >> the queen. >> the queen is pretty good. i don't know, ken, knights can do pretty thing -- i mean, do you love all of your children equally? >> depends on the position. yes, it's hard to pick a favorite piece. i like pawns because they can become queens. >> i knew you would say that. you could get ten of them? i don't know. thanks, ken. when is the last time you played? did you play yesterday? >> i think about it a lot, but i have not played in a long time. >> during this interview?

>> i have not thought about it during the interview, no. although xi saw many moves ahead if he was tightening in order to retain power. >> ken rogoff, thank you. >> thank you. we will have a detailed breakdown of this morning's detailed earnings coming up, and that's coming up in a few minutes. plus, microsoft submitting the new deal for the takeover of activision blizzard with a new set of provisions. "squawk box" will be right back.

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box." the futures are in the green. it's similar to yesterday, only to turn around. but it didn't get out of hand yesterday. closed down less than triple digits. check out the ten-year. a lot of it is keying off the ten-year or the two-year, and more the ten-year recently. all the action has been in the 'rn-year. 4.%. wee coming right back with mickey drexler.

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it's to die for. and it's all right here. streaming was never this easy, you know. this is the way. you really went all out didn't you? um, it's called commitment. could you turn down the volume? here, you can try. get way more into what your into when you stream on the xfinity 10g network. it's been a busy morning for retailers. so far, we've heard from lowe's, macy's, and dick's sporting goods. courtney reagan is back with some of the headlines. that was a lot to digest. >> a lot. and a very mixed bag across the board for retail. lowe's reporting better than expected earnings revenue, a couple of sales above consensus, but down 1.6%. the home improvement retailer reaffirming its full-year guidance across the board, citing a strong spring recovery and pro and online sales growth,

but also noting it was partially offset with lower do-it-yourself demand. but dick's sporting goods earnings coming up a dollar short of estimate. comparable sales also weaker. shares down sharply. it's the only retailer so far today that grew comps. the sporting goods retailer reaffirming comparable sales guidance, so mixed there. executive chairman ed sea-tac a stack said sales were much stronger, and attributed it to seven new house of sport concepts. stack told me that our consumers held up pretty well on all segments. the lower-income consumer, the higher-income consumer, we haven't seen any deterioration. however, stack did say that shrink, particularly theft is going up. he expects it may get worse. he said about a third of the margin pressure was from shrink. similarly, jeff gennette told me that shrink has evaluated and it is baked into its guidance as well. macy's earnings coming in double

the street expectations on slightly stronger than expected revenue, comparable sales moreau estimates, falling more than 7%. higher clearance markdowns hit margins. the department store reaffirming its full-year guidance, citing a cautious approach. i'll have an exclusive interview with macy's ceo jeff gennette on "squawk on the street" and we'll talk about all of that and more. >> court, thank you. a lot to dig through with all of this. we want to bring in retail luminary, mickey drexler. among his many jobs, he's the former j. crew chairman, now the ceo of alex noe. a lot of things are happening here. you have questions about the consumer, how they're feeling. what's your general sense? >> i'm not sure i understand it better. because this business, when i hear all the forecasts, i don't know how to forecast the business in this environment. inflation, people don't talk about it much, but you

experience it every day of your life. credit card usage is up. markdowns or sales or special promotions are still the norm and therefore, margin comp-store sales is critical. and the other factor is i always say product, product, product, marketing, et cetera. we're having actually a very good year so far. because we have, i think, good product newness. we don't have enough newness, but customers want style, they want value, and those drive, in my experience, in the fashion apparel world, that drives growth, along with distinguished personality marketing, it's an emotional business.

so i have no forecast for the holiday, other than, you know -- >> if things are doing well at alex mill, what do you get a sense just from inflation, as you mentioned, it's out there every day. is it a bigger problem for consumers to be able to keep up with it at this point? >> well, the sticker price on cars, i mean, you know, yesterday's "wall street journal," one car -- 132 cars, 100,000. i always thought like rolls royce's and whatever. but really, it's huge out there. inflation. and that's why i think it's going to be difficult. higher interest rates. i'm always a bad news nelly in the business. because then it makes us keep trying to beat ourselves with better numbers. and we don't -- right now, we

have a summer clearance sale. we don't put anything on sale during the seasons, because that's integrity of pricing. and you know, the best discounter in the world, i always say this about carol meyerowitz, t.j. maxx, they're, i guess, the biggest american department store and carol is a fantastic merchant. >> vicky, the rolls royce's are now $30 million. >> what did you just say? >> rolls royces are now $30 million. >> 300 -- >> no, they introduced a $30 million car yesterday. they're only making four of them, it has a manual top, but it's $30 million. >> you know, if anyone dares drive that car in public, they have no self- -- >> too much money. >> too much money. and even regular ones, i think are 300 or more. they're not the prettiest cars on the road, either. >> you talked about shrinkage.

what are you going to do? it just is what it is? >> it's always been. what can i talk about, with small -- we don't -- you know, we only have two shops. >> but the rest of the industry -- i mean, dick's sporting goods actually said that's why their stock down $28. i don't believe that. there's got to be something else. >> it's down 19%. >> 19% on -- >> a third of the margin -- >> from shrink? >> and the chairman thinks it's going to get worse. read the papers of, you know, all over america, san francisco, can't get arrested from it, what i know. >> that was me in a bar. >> yeah, exactly. >> the -- someone fired -- i forgot which company it was, they fired two women who chased a thief. you're not allowed to do that! and thiefs at their craft, i assume, are very good. so you walk in. look, starbucks the other day, i walked in to get a coffee, i

usually go to other coffee places, but all the ground coffee at the front door was gone and the guy was just taking it. and everyone watched. but that's going on everywhere. >> mickey, you talk about how you think that emotion really drives successful retailers. so who does that well right now? >> emotion is -- well, i'm trying to -- that's a good question. i think the -- oh, jesus. all the designers do emotion well. on the other hand, the clothes ex expire quite immediately or 3,000, 4,000. and all the products talk about -- it's like they're talking about rolls royces to consumers. and it's stunning to me, where

everyone is a lemming in a sense. i think restoration, my friend gary does it really well. and there's a lot of other people, i'm just kind of going blank now. but you know, yeah, i'm going blank. >> mickey, we are out of time. we're at the end of the hour, but we appreciate you coming into studio. >> okay, well. always available. take care. >> thank you thank you. >> thanks. "squawk box" will be right back.

good morning. big day for our retail earnings. new numbers from macy's, home improvement giant lowe's, and dick's sporting goods, which is currently taking it on the chin, on lower guidance and we'll talk more about it in a second. a lot of shoplifting and theft at dick's, hurting results. microsoft and activision make another run at getting their deal passed. british regulators will get you up to speed on the development. and an update on perhaps the stock of the pandemic, the cfo of zoom will join us on her company's latest results in trying to get zoom employees

themselves back to the office. kind of interesting. the final hour of "squawk box" begins right now. good morning, everybody. welcome back to "squawk box" right here on cnbc. we're live from the nasdaq market site in times square. i'm becky quick along with joe kernan. andrew is out today. let's take a look at what's been happening with the market. you're going to see the futures at this point for the equity market are up across the board. in fact, they've been gaining some ground through the course of the morning. dow futures now up triple digits. a gain of about 106. s&p futures indicated up by close to 25. the nasdaq indicated up by 115. all of this has been happening as treasury yields have been pulling back a little bit from those highs that they set yesterday. the ten-year right now at 4.308%. still above 4.3%.

the 40-year is at 4.4. and five-year at 4.44. >> and we've been talking about it this morning. microsoft and activision offering concession to british regular urals in a bid to get their $69 billion tie-up approved. and steve rejoins us. steve kovach with the latest. >> yes, joe, now we know what microsoft is willing to give up to appease the cma regulators in the uk to get this deal done. the new proposal submitted to the cme. microsoft will let you be soft. that's a game best known like assassin's creed on cloud gaming services for the next 15 years. this means microsoft will still sell activision games the traditional way, but placing those games on streaming services, that's going to fall to ubisoft. the ubisoft shares, by the way, up more than 7% this morning after the announcement.

now, cma is the last major hurdle to the deal. originally blocked it over concerns microsoft would have a monopoly over streaming video games. this new offer, though, it's designed to put a third party in total control of placing those activision games on streaming services, potentially solving the krcma's issues with the dea. the cma says it's not a done deal yet and will still scrutinize these new terms and make a decision by october 18th. and here in the united states, it's not over with the fcc either. things are on hold for now, but commissioners have a chance to review the deal again, before deciding whether or not to go through its own administrative law court before losing that case in federal court earlier this year, guys. >> i just think that they've been on a role, microsoft and activision. >> they're giving regulators every -- >> and i thought for a while, didn't you think, oh, boy. and some of these -- and bobby came along skand said, look -- d

i thought he was like a glass in a bag. oh, yeah, this is great. but he was right. you get the eu, you have the court -- >> microsoft did say that from the beginning. >> even before all of this started, they were giving up concessions. >> what i don't understand is the ftc. they already lost in court. they still might go ahead and take it to their own administrative law court? >> that's right. right now it's kind of on pause, basically, so the commissioners can review everything and decide if they want to move forward. it was supposed to happen this month, it looks like it's probably not going to happen this month, or if it does, it's very confusing. >> trying to scare other people from -- >> what happened back then, the chair's whole thesis this entire time, even if we lose this case, if we still win, because it puts that chilling effect. >> it's like guilty before you prove your innocence. zp >> it really is. and what you can see, the ftc under chair khan is doing is ch

chipping away at this thesis they put together to make it happen. >> how does the administrative law court under the ftc actually work? if they lose that to their own -- >> it sounds like it's a very long, drawn-out process, as well. you know, the real question is, let's just say that they get all of these results of the cma, can they still move forward with the deal, and close the transaction, and let the ftc do what the ftc is going to do, and if it really comes to it, unwind the deal. but it doesn't seem like that's going to happen. yeah, it's a mess. >> steve, thank you. >> thanks. also some signs of life in the ipo market. chip designer arm filing to list on the nasdaq. deirdre bosa joins us right now with more on that. hey, d. >> becky, science of life, but now the hard part, arm will have to deliver. we got that yesterday and it list on the nasdaq under the ticker arm, targeting about two weeks from now. now we have the financials, the ai case, the business model, now it is up to the bankers and

ultimately the markets to decide how much this thing is worth. $60 billion, that is the bottom end of the reported range that arm is looking for. that puts its trailing revenue multiple between an amd and an nvidia. on one hand, it plays right into the hype cycle, the filing arm is the foundation of the semiconductor industry and says that its own ctus will be central towards the transition towards ai. but for now, revenues are declining as demand weakens in its main-end market. currently, that's smartphones. and profitability has narrowed. there's a few yellow flags in the risk factor section. this is an over 200-page document. among them, competition from three open source technologies like that of risc-v. this is the arm china unit that operates completely independently.

and its softbank ownership whose interest arm may not coincide with its own interests or the interests of shareholders. there's caution about the company as an ai play. quote, new technology may use algorithms that are not suitable for general purpose cpu such as our processors. now, some things that could drum up interest over the next few weeks as we get closer to that listing, as arm's banker's embark on a road show is anchor or strategic investors. we've heard about this. we've talked about this. interest from an nvidia or an amazon for a small piece of this ipo. that could bode well. that could get the valuation up, especially if you have such a pure play like nvidia interested in having a piece of this company. >> that's a big if, but i can imagine that that would spark some serious interest if nvidia was interested. but deirdre, what you just laid out in the concerns list that they themselves put out is, the company is saying that it's an ai play. that, oh, by the way, ai may not work with our type of chip? >> and to be honest, that's

probably the position that a lot of companies are in right now, even if you look at a microsoft and a chatgpt, we don't know if chatgpt is going to be the google of generative ai, if it's going to last on and on. it is in a risk factor. they have to put everything in there. but it's a big one, right? they're saying they're central to this generative ai shift. is they don't yet have the revenue coming in from that. most of the revenue is derived from smartphones, which is an inclining market, versus nvidia, and say they're actually going to be booking revenue from this generative ai shift this year. so arm may not have to do something similar, but that's what you expect they'll have to do on the road show. >> but in your script, it actually said, new technologies such as ai may use algorithms that aren't suitable for a general purpose cpu like our processors. so we're an ai play, but ai may not work with our processors? >> well, keep in mind as well,

something that arm benefits from, it helps develops new processors and new chips from megacap tech companies that are developing their own chips. so there may be a way to get a form of it. but we don't know size of this opportunity. >> it is a bold new world and a lot of people are trying to figure this out. "d," thank you. >> thanks for sure. >> let's get to the markets. our next guest says stocks are clearly being driven by bonds and he expects fed chair powell to calm investors when he speaks. let's bring in ed yard eni. and we ask you and a lot of people why the ten year seems to be disconnected to the fed and fed comments and people have said, well, it's technical. people are buying ten-years around the world. so it finally did move. it moved 30 basis points or 40

basis points. is it in an extended uptrend, the yield, or are we near the highs? >> i think we're near normal, if you look at the ten-year bond yield prior to the great financial crisis back in 2008, right through the great virus crisis, during that period, interest rates were near record lows, close to zero. but now we're going back to a period prior to the great financial crisis in which the ten-year bond yield was something like 4.5% on average, if you look at the years prior to 2007. so i think we're kind of returning back to a normal bond yield. and maybe that's why the stock market isn't all that upset about it. normal isn't necessarily bad. >> is normal -- what was it when yields were 7, 8, c9% on the log

end? and you remember that. i wasn't afraid. the stock market wasn't afraid. and american business wasn't afraid. we did just fine in that interest rate environment. but i don't think we're ready for that now. and i think that would be a shock to the system. you do not think that above 6% on the ten-year is happening in the next two or three years? >> no. >> no, i don't. i have my concerns, as everybody does, about fiscal policy. clearly, the deficit is widen again and supply and demand in the past really never mattered that much to the bond market. it was always really inflation and what the fed would do about it. but i think in recent weeks, we've seen that the bond market suddenly really cares about the supply issues. it might have had something to do with the fitch ratings downgrade, just reminding us all that there really is a remarkably different profligate policy going on with regards to the outlook. and the congressional budget office has confirmed, if nothing

has chapnged in the law, the deficit outlook is pretty grim. but i think the bond market is still driven to a large extent by inflation, and i believe that the inflation used to date is definitely shown a great deal of moderation since last summer, and i think it will continue to show moderation going through the end of the year. >> well, we've heard that now there is an alternative to stocks. i don't consider -- i don't consider 4.3% able to just suck the air out of the stock market. that seems like a pretty friendly number. and i imagine that it's not different this time and we can expect stocks to outperform bonds over time. >> i think that the bond yield where it is today demonstrates that there's evidence that the economy is remark apply resilient. that earnings are going to be better than expected. not just this year, but next year, as well, and the stock market is looking ahead to next year. and i think the market's going

to hang in there. i think right now, we're in a pullback that will maybe last through the end of september, the traditional seasonally weak period. butt i think a year-end rally will prbring the s&p to somethi like 4,600. >> i hope we can get some growth in the economy that will allow us some of this debt. it's very concerning at this point, long-term. i don't know how we deal with it. we've got these people in washington. >> growth in productivity are really the answer for solving that problem. >> all they do is, they do things that make it hard to do that. from both sides. >> that's correct. >> thanks, ed. good to have you on. >> thank you. thank you. when we come back, we're going to go inside zoom's second quarter earnings and ask the company's cfo how zoom is managing through a growing push to get employees back to the office. and what a resurgence in

covid cases make for some of the vaccine makers. can recent gains be sustained over the longer term? we'll have that and much more when "squawk box" comes back. wake up, achievers. you're making the most of every hour of your life. except the hours that you're sleeping. so why do we leave so much untapped potential on the table? this is a next level bed, for a next level you. my circadian rhythm is kicking your circadian rhythms butt! it's not a competition. i know, but i'm still winning! so, it is a competition. save 50% on the sleep number® limited edition smart bed. plus, 60-month financing on all smart beds. shop now only at sleep number®.

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welcome back. "squawk box" retail names reporting earnings this morning and macy's on a list. it's now actually off a little bit, sounding a cautious note about consumer spending in the second half of the year. but standing by is conservative full-year guidance. however, second quarter earnings and revenue did come in above expectations. and make sure to catch macy's ceo later this morning on "squawk on the street." lowe's reported mixed second quarter results, but the stock's up sharply higher. earnings topped expectations, revenue slightly below. analysts were looking for a 2.6% decline. lowe's ceo melvin elvinson will speak with jim cramer tonight. and dick's sporting goods getting hit hard after reporting a 23% drop in profit in the second quarter. the company flashed its earnings guidance amid an increase in retail theft and slow sales.

>> in the outdoor category. >> but then it says here, dick's did say that it expects shrink to get worse before it gets better. nobody needs that. >> shares of zoom video rising on better than expected second quarter sales and earnings. the company also raising its full-year revenue and earnings per share forecast. pointing to growth in products for big business. joining us right now is zoom cfo, kelly steckelberg. kelly, welcome. glad to have you on the show this morning. >> thank you, good morning. >> one of the things you've been able to do is to come out with new products and services that have helped keep people around, even while so many people went back to work. what been the most innovative, what have helped? >> yeah, we are thrilled with the continuing expansion of our portfolio. of course, we have zoom phones, which is our cloud pbx solution,

which has been a real propel lap last night to our growth over the last couple of years. we also announced our contact center solution, which is natively built and seemingly integrates with the rest of our platforms. and then, of course, we have many solutions to support this hybrid work environment, that we are all facing today, including things like intelligence director, which places multiple cameras around the room, so that when you are working remotely, for example, and there are others in a conference room, you can still see everybody's face on the screen and in the individual square, which is something we all became very accustomed to during the pandemic and working remotely. and all of these solutions are doing a great job of keeping your workers and employees, whether they're in the office or remote, conducted in a very seamless way. >> kelly, i'm looking at the stock, which is right now indicated up by about 1.8%. so indicated up, but earlier, it had been indicated up much more.

earlier this morning, it was 4%. i think last night after the bell, it might have been even been 8%. part of that is some of the analysts are weighing in at this point and just running through the price targets. a lot of companies, firms on the street have actually cut their price targets this morning. baird went to $99 from 95. wells fargo went from $75 to $80. bernstein went from $82 from $92. obviously, those new price targets are all well above where the stock is right now. but they are moving things a little bit lower and maybe part of that is summarized by what a key bank analyst said, where the company is facing down-sale pressure among some of its enterprise clients. meaning some of these enterprise clients, because they have so many people back might say, okay, we'll continue to work with you, but we want a cheaper price overall for what we're paying for. are you seeing that at this point? >> so, we were really pleased with our q2 results. we beat on both our timeline as well as our profitability numbers. and we raised our full-year outlook for both revenue and

profitability, as well. one of the things that we did talk about with the analysts in our call last night was the fact that we have seen, given the macro environment, some of our customers that potentially have seen dislocation in their employee base wanting to potentially reduce the number of meeting licenses that we have, but we're taking that opportunity, and our team is doing a great job of sharing with them the value of the broader platform that we just talked about. so taking the opportunity to talk to them about how they could have savings if they convert from on phone to zoom phone. or how the zoom contact center could be the next generation great contact center for them. so what we've seen is this evolution of our customers as t they, as they are expanding, right-sizing in some areas, and expanding that in others. and i think that's what he's referring to. >> i'm not sure i understand all

of that. zem prem, i guess, is zoom on the premises for work rather than zoom on the phone. so companies are looking for ways to say, hey, we're not using it the same way we did during the pandemic. we would like to reduce the number of licenses or how this wo works. is it something that the analysts are justified in taking down their numbers, or do you think they're taking something -- you're giving them a little insight and running a little further with it? >> what we've talked about is many organizations have experienced a reduction in their employee numbers over the last several quarters, given this environment. and they might have to have fewer meeting licenses, but we're taking that opportunity to share with them how they can have savings across the rest of the zoom platform, buying zoom phones, buying zoom contact center. expanding zoom rooms, as their we canning their employees back into a hybrid work environment. so that's what we've seen. and i think that's what the analyst is referring to. while we may see reduction in

certain parts of a consumer spending with we're taking that opportunity to help them expand across other aspects of our portfolio. >> with other products and things that are there. so overall, are enterprises spending more or spending less? i know you've expanded the number of partners you're working with. is the spend up or down? >> overall, we've seen our customers spending equal or more. and that's evidenced by the growth in our revenue, both from an online and an enterprise segment. and then something that we look at, which is a metric of how our customers are spending last year versus this year, and that's over 100%. it's our net dollar expansion metric. >> but that's -- if you break it down per customer, are enterprise customers spending more or is it that you have more customers who have come in? >> our enterprise commerce individually are spending more. and that's what that net dollar expansion metric measures. a customer a year ago compared to the same customer base today.

>> great win understand. thank you. kelly, let's talk a little bit about what you guys are doing, too. it made news earlier in this last month when you all said that you want yrd eed your empl back on premises as well. it's part of the reality, what companies everywhere dealing with. it's a little different when it's zoom itself doing it and i think that made headlines. how's that going so far? >> it's going very well. we believe that a structured hybrid approach works well for us. it's great for collaboration. we hear from our employees. they want to see each other. they want to see their friends and colleagues. and so doing it in way that ensures when hay go to the office, their friends and colleagues are going to be there. and it's great for innovation. we are in the best position to leverage our technology, as i talked about, zoom rooms, making sure that it's working well to support a hybrid environment. and so we've asked our employees that live near an office to come in just two days a week, and this doesn't mean that remote work is not still part of the

future. approximately 65% of our employees, in fact, are still remote. 35% live near an office. and so we believe that this is a great balance and allows us to keep our workforce connected and keep us innovating. >> kelly steckelberg, cfo of zoom. c kelly, thank you for your time today. >> thank you, becky. coming up, we'll go inside macy's second quarter numbers and speak with an analysis. and what is driving confidence down among small business owners. at nt.nenuer w mbs, th'sex from big cities, to small towns, and on main streets across the us, you'll find pnc bank. helping businesses both large and small, communities and the people who live and work there grow and thrive. we're proud to call these places home too. they're where we put down roots, and where together, we work to help move everyone's financial goals forward. pnc bank.

cnbc and survey monkey out with a new pulse check on small businesses. and the headline is not great. kate rogers joins us now with a look at why confidence is once again hitting all-time lows. >> you said it. our cnbc survey monkey small business confidence index is out for q3. it shows sentiment falling just 42 out of 100, the all-time low level we saw exactly one year ago. there are a few reasons for the dip this quarter. more small business owners said that they were expecting a negative impact on business from both tax and immigration policy, and there was also a decrease in the share of owners who were expecting head count to increase in the next year. now, whether that is tied to sentiment or the labor challenges that some owners are

still having remains to be seen. there was also a dip in the share of owners who said that current business conditions are good, from 40% in q2 to 38% now. 15% said that conditions were bad. 46% called conditions middling. the biggest correspncern for 40 owners right now, jobs in the economy. immigration and the economy tied in a far-off second place and the environment came in third. fewer owners said that it was easy right now for them to access the capital that they needed to run their businesses at 48% versus 53% last quarter. this was something we noted during the regional banking issues we saw earlier this spring, but interesting it's coming now for owners again. the drop was concentrated among those who bank at larger institutions, according to our survey. so that was also an interesting point here, because we know a lot of small business owners do rely on those community and regional banking systems there. and they're having a bit of an easier time, according toaccess

need. >> yeah, you wonder, what if we were having crappy jobs number and bad gdp -- it's very strange. there's a weird disconnect. and we actually ask when we have some biden administration officials on, why the disconnect between all the -- you know, the things thatw we're seeing and they tout bidenomics, yet a lot of people don't seem to be feeling it in their daily lives. >> another thing you mentioned, job numbers, a lot of small business owners, not only in our survey, but in the national federation of independent business are talking about labor quality and the availability of skilled labor. there is an issue with finding the right workers to fill some of the jobs that are open. jobs in the economy the top concern for so many small business owners, so i think that could be why you're seeing some concern here, too. >> just wonder what would confidence be if things really, you know, hit the fed. anyway, thank you. good to have you on. >> thank you. >> all right. >> still to come this morning, is the evolution of ai mimicking the last generation of big

commuting? or put it another way, are today's leading ai players becoming too entrenched in spawning the next generation of companies. it's a potential regulatory and anti-trust minefield. and it's one that we will get to, next. u' wchayun. yoreating "squawk box" and this is cnbc. ♪ (upbeat music) ♪ ( ♪♪ ) constant contact's advanced automation lets you send the right message at the right time, every time. ( ♪♪ ) constant contact. helping the small stand tall.

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technology giants aren't just investing in their own ai systems, they're playing a key role in the ai start-up role and that is raising some red flags. julia boorstin joins us right now to break down the new investments, alliances, and possible pitfalls. julia, good morning. >> well, becky, it is a complex new ecosystem of giants and start-ups and the tech giants are right now playing an outsized role in this especially generative ai space because of the cost of infrastructure and computing powers necessary for generative ai. for instance, staff at spotify don't have the scale to generate their own ai tools, so licensing

open ai's chatgpt to run spotify's dj tool. and while open ai licensed and google licenses its generative ai technology, meta is challenging not only those tools, but that entire business model by giving away its open source lama 2 for free. it's expanding its partnership with microsoft by offering that tool through its azure platform. so microsoft and all of these other tech giants that provide ai infrastructure and tools are together investing billions of dollars into ai start-ups. chip giant nvidia that has backed dozens participating in a $270 million series "c" round for cohere, a $1.3 billion investment round in inflection zp ai along with a round into are upway, which creates generative ai videos from text, images, or video. open ai also backed inflection ai along with other ai start-ups, including typeface,

which is a generative ai content creator for the enterprise and builder, which is an app development platform. meanwhile, google invested in an t throp/c along with runway. but the tech clients are suppliers. they're also competitors in many senses and also potential acquirers of the start-ups they're backing, which could potentially limit the opportunities for young rivals. becky? >> all right, julia. if i'm an investor, i would want them to be doing just this. all of these technologies, these big tech companies have a lot of cash on hand. ai is the bold new world. we don't know exactly how it's going to play out, but if you've got money around and i'm an investor in your company, i would probably appreciate it if you were feeding some bets around to make sure you didn't get lapped and beaten out. >> yeah, absolutely! it's very smart for them to make bets in different categories. and think about microsoft, of

course, they want to be making a bet into a generative content company for the enterprise. thinking about how may be that might fit into the tools they already offer. but i think for now, these partnerships and investments are mutually beneficial. for instance, google informsed in anthropic and then announced a cloud partnership. in a space where some of these resources such as chips can be not scarce, but harder to get in the types of scale that you might need them, whether it's cloud infrastructure or chips, it's beneficial, because not only do these start-ups get investments, but they get access to the resources they need, because generative ai requires just so much computing power. >> julia, thank you! >> for more on this, on zpai an the kinds of regulations that could come from all of this, let's bring in annice chopra,

currently the president of care journey. i can see it happening already, anish. and that is there's too much power consolidated in too few tech companies. i can see the giants funding some of these start-ups. which is the way this all works, right? they may not have it in house, this is the proper way to do it. next thing you know, regulators are going to say, uh-oh! you know, google or microsoft, they acquired these really good starts. now they've got a lock on the history. isn't that -- we need to know what is going to be looked at or what isn't going to be looked at. and the way we are right now with lina khan and the ftc, i would be afraid to do any of this stuff. i wish we had better, more transparent ground rules, rules of the road. >> well, i appreciate the sentiment. but i think in this area, we have reasonably clear rules of the road on behaviors for competition policy. the three major agencies, the department of justice, the

consumer financial protection bureau, and the ftc issued a joint statement on ai, acknowledging the areas of competition remain the three big constraints. access to data, access to compute, and frankly, human capital, the talent necessary to make all of this work for the rest of us. so the cops on the beat are paying attention. they've issued that joint statement. be careful here, don't overconcern around the level of sne investment. more focus should be taken on the actions taken. and right now there's no smoking gun. there's no actions that i have seen that suggest that these large platforms are constraining competition in accessing these resources. if there's evidence of the sosourt, that is the type of thing that the existing laws on the books today would squash. >> i guess, anish , there have been people who have said the current ftc shoot first and ask questions later, or you're not

innocent until you're proven guilty, you're guilty until proven innocent. that would be a bad thing for us to do from a global competition perspective on ai, if we approach it the same way the ftc is approaching a lot of other things. >> i would be careful in how you characterize it. they're clearly careful on mergers and acquisitions, where there's been a gray area on how technology companies that offer products for free have evidence of consumer harm. they're exploring ways of identifying harm. in the area of ai, i think the idea here is more innovation, more start-ups, more human capital diving. in that will help the american economy win in the global context. that is a prof-innovation agenda that the biden administration appears committed to. and you'll hear more, i believe, in the weeks and months ahead, of start-ups combining forces to kind of demonstrate the power of the american spirit in this very important economy. >> i hope they're allowed to do that. it's weird, because the big tech

giants fund some of the current start-ups, and maybe end up having more than just a casual relationship with them. so that could hurt future start-ups, that aren't even around. so we're helping the current start-ups, which is good for competition, but now we've got to three three, four, five years down the road about whomever the start-ups are at that point. do you see what i'm saying? it's like, which start-ups are a favorite, which aren't? just let theprivate sector do what it's got to do with the intent of trying to make as much money as possible doing it. is that okay? >> not only do i believe that's the current status, to my knowledge, roughly tens of thousands of companies have asked for, call it, access to these new gpt 4 front ends at google and microsoft. this is not about a few winners getting access, these are tens of thousands of organizations, large enterprises, and start-ups

that are looking to incorporate what is clearly a productivity-enhancing infrastructure that will be permeated throughout the economy. right now it's about running as fast as possible for the platforms to open up the supply. i'm not seeing a lot of constraining. so you're right, conceptually to keep an eye on it. but on the ground right now, this is an open market place, and it's exciting to see the level of innovation in the, at least the enterprise and regulatored sectors that start to see the need for productivity gains in health and energy and education as we get to a more trustworthy and secure ai infrastructure. >> so you would expect some people that i was talking about that have voiced concerns about the extent of regulatory oversight right now, you expect them to be pleasantly surprised at the light touch that we see? you're predicting that at this point? we're going to let this baby breathe a little. you sure? >> my presumption is it should be all hands on deck. there will be more investments

in r&d, a public option infrastructure for the next generation of students. you'll see these commitments to create rules of the road, so we have some guardrails. and you saw the big frontier models already commit. and you saw in the president's announcement of commitments, calling on companies big and small to help address the cancer moonshot using these emerging technologies. almost encouraging more people to participate, to do the right thing to solve a big national challenge. my view is, there's going to be that innovation ecosystem support, with eyes on behavior. the minute there's any evidence that there's been some kind of insider dealing in prohibiting access and constraining for competition's psych, the existing laws on the books are will for a reason and they will be enforced. so let's not take a scalp to the broad statement as to whether or not the ftc is aggressive or light touch. it's a case-by-case approach. and in cultivating start-ups, i'm bullish on the engine running fast and furious with

guardrails. >> yeah. okay, all right. i feel a little better. >> we'll have you back on and hope nothing changes in the next six months and you come on like this and, wow, you were right, joe. >> thanks for having me. coming up, a look at some of the biggest vaccine maker stocks as covid makes a light summer comeback. we're going to talk about the new strain of the disease and which companies are best yoo ghited tfit . u're watching "squawk box" on cnbc. (fan #1) there ya go! that's what i'm talkin' about! (josh allen) is this your plan to watch the game today? (hero fan) uh, yea. i have to watch my neighbors' nfl sunday ticket. (josh allen) it's not your best plan. but you know what is? myplan from verizon. switch now and they'll give you nfl sunday ticket from youtubetv, on them.

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stocks of company that are manufacturing covid vaccines are getting a shot in the arm, so to speak. check out gains that we've seen from novavax and moderna just this week, this comes adds new variants spread. in the meantime, vaccine companies are preparing to roll out new boosters. joining us right now is jeffrey's senior biotech analyst, michael ye. what's happening here? a new strain that's out and the thought is maybe some of these vaccine companies will get a little extra attention and more people are actually taking the vaccines? >> well, it's great to be here, becky. and i think you're exactly right. i think if you put into it context, the vaccine stocks like mo moderna are down 75% off the stock. the stock was below 100 a week ago. and they're down 0%

year-to-date. i think you put it nicely that there's just a jab in the arm there to the stock, because there's a little bit of a move here in the stock in the last week, which we attribute mostly to short covering, dead cap bounce, and some resurgence on a view that, look, covid infections may start to perk up into the second half of the year. obviously, the vaccines will start getting rolled out. and there will be jabs into older people, so people are starting to look back at some of these stocks that are down huge year-to-date. >> would you trade into any of these stocks, just based on the covid idea, or would it take something a little more, like other potential vaccines, other things that they are able to do before you get involved? >> well, with i think in the short-term, i think it's certainly plausible that there's a bit of a rally. if you take a look at these stock prices, i'm sure they're up on the screen, it has been a long and painful road down for these stocks. and i think people are looking to get back into some of this from the short-term. mostly because there probably is

going to be some more attention to this. and in any case, in some people's mind, almost a hedge on the winter, the second half, if something does break out. and these have been long and forgotten. the bigger picture we've been saying to people, although a positive longer term, is that covid will still be an issue po is still going to be an issue with a problem, mostly because there's continued uncertainty about what the levels will be each year. i guarantee after this season people are going to say, well, where is covid next year. thankfully moderna and some of the others have other pipeline programs, whether it be rsv which is also obviously in the headlines, which could be a good thing with moderna because they're on file with the fda, as well as the cancer vaccine and some other things. year to date the stocks have been down huge. i think they are due a bit for a short-term recovery, longer term, though, to get the stocks back up, we do need a lot more

than just beyond the covid stuff. >> part of the reason those stocks were up so significantly during covid wasn't just that everybody was looking for a covid vaccine, but also that governments were willing to pay for them. is that still the case? >> what's interesting this year and we'll see it here in the united states specifically because it's happening right now is the vaccine distribution in the united states for pfizer and moderna has gone to the commercial outlets. this will be through your private pay and your local pharmacies where the government has actually not paid at all for these vaccines. obviously, if you have medicare coverage, there will be medicare coverage for that. but broadly speaking, it is through the commercial and traditional payer system. the vaccines i think would be good to know, roughly $100 per injection, again, covered by insurance. this is the first time where the government is not generally

paying for it here, and we are the only country in the world that is going through that system. that said, that's why it's going to be a few billion dollars this year in the united states, and will be a market for elderly people, but getting back to where they were to be meaningful, particularly given the spend for moderna, it's going to be a lot more than just covid to get these stocks back up. again, the number of sales, versus where the expense structures are going for these companies, to get back to ex-ftremie profitability, it hao be more than just covid. >> thank you, michael ye. when we come back, key takeaways from this morning's earnings results. you're watching "squawk box" on cnbc. communities home, and we do too. pnc bank.

macy's second quarter results coming in better than analysts expected. joining us fresh from the company's call, oliver chen, senior equity research analyst and retail professor at columbia business school. i guess it's kind of the outlook, and even macro, i think, oliver. macy's said people have got

problems with trying to buy other stuff and discretionary spending is tough, consumer great et doesn't seem great. >> joe, those are key factors. what may see's is seeing on the cautious side is delinquencies have come up. that's yielded higher bad debt expense. that's been a key driver. on the offset, sales and margins were better than expected as the environment was slightly less professional. they're also encouraged for back to cool. we like the stock because the valuation is quite low at five times. a few bright spots. beauty continues to be very strong. that's the reason why we really like ulta this week. >> we're looking at the intraday chart, oliver. it was up. was there something specific on the call which you think turned it around. it's down almost 8.5% now. what do you think that is? >> execution has been very strong in terms of inventories

being down 10%. as we look to third quarter, the credit card revenue will be less than expected. also in fourth quarter we're expecting better asset sale gains. numbers may ned to come down for third quarter, go up for fourth quarter. full-year guidance is reiterated. that's something to watch. the consumer is being choiceful, cautious. guidance previously and currently incorporates that as well. lots of cross-currents on the consumer. we were cautious coming into this week for department stores at large given that we've seen this across the sector as well. >> well, i guess that during the call, if you say fourth quarter will be okay, but near term third quarter might not be as good, but we're reiterating the guidance for the year, i guess people sell the stock and they'll make a determination later. but the near-term quarter is not going -- is going to be affected

by these delinquencies? >> yeah. that being said, sales and margins have been solid in this execution of inventory. there are are growth vectors ahead including private label brand innovation as well as the marketplace model as well as small format stores. joe, they're also adding nike and under armour. this is a better place to shop, a more digital loyalty program. those are mixed. the stock had been up about 9% since last quarter. keep in mind there's a small rally in terms of into this print as well. >> yeah, can't really see it on that chart, oliver. it just looks miserable. sales down 8%. none of this sounds -- it just doesn't sound that flush. you can't have a parade in front of these new stores, right? is that the new concept for macy's? >> the real story, joe, is going

off a small format and people don't want to parade in front of stores anymore. bringing people the stores is a lot tougher. more curation, less stuff. less can be more. better visuals, better navigation, more service, being omni. that's part of the whole story. also, as we think about digital, joe, it's about digital advertising, the marketplace model. macy's has a loyal customer, a very large footprint and extremely high awareness as well as an improving loyalty program. inventory management will be better, too. getting the right stuff at the right place at the right time, that's key to retail. underscoring all this is valuation. so having a low pe at five times, we see that as a long-term opportunity. >> okay. oliver chen, thanks. it's good to see you. thankfully we're out of time. i didn't get to ask him about shrinkage which we've been talking about today.

>> a subject you probably know a lot about. >> no, it depends -- i keep my pool at 85. it's not a "can't stand you" problem. >> it's a huge problem in the industry overall, but everybody uses it to varying degrees. >> it's a real thing, though. i wonder if it really was a real thing, worse than other places. >> we'll find out more. >> absolutely. talk about shrinking, the share prices. make sure you join us tomorrow. "squawk on the street" is next. ♪ good tuesday morning. welcome to "squawk on the street." i'm carl quintanilla with jim cramer and david faber. tesla and nvidia up another 2 to 4%. big morning. retail earnings, another bank downgrade and more. our roadmap will begin with th