SOTS 2nd Hour: Stocks Under Pressure, Lilly’s Next Big Bet, & Oracle CEO Safra Katz 2/20/25

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Carl Quintanilla (1:08)

Good Thursday morning, welcome to another hour of Squawk on the Street. I'm Carl Quintanilla with Michael Santoli here at Post 9 of the New York Stock Exchange. Sara Eisen has the morning off, and we're gonna see David Faber later on this hour, interviewing Oracle software cats in Miami. Meantime, backing further off of those all-time highs yesterday, Dow's down 330 We've lost 6,100. Walmart is a big story today as they do guide below. And as the pre-market was on pace for one of the worst sessions since COVID.

Michael Santoli (1:34)

For sure, we are 30 minutes into the trading session. Here are three big movers. We are watching Palantir under pressure alongside other defense names. The Washington Post reporting that Defense Secretary Pete Hegseth has told top Pentagon brass to prepare to cut the US defense budget by 8% each year for the next five years. That shares down 13% after actually selling off also late yesterday. Alibaba shares higher, posting a revenue beat thanks to strong growth in its cloud and e-commerce segments. Stock up 12.5%.

And Walmart in the red, despite a top and bottom line beat, the retailer saying its profit growth will slow in the current fiscal year. CFO John David Rainey said Walmart wouldn't be immune from looming tariffs on Mexico and Canada, even though the majority of its goods are sourced in the US. Stacked down about almost 7%.

Carl Quintanilla (2:24)

There's a look at Walmart, Mike, as you've been mentioning. I think Bespoke this morning said it's only gapped down 5% or more on earnings a few times since the early 2000s.

Michael Santoli (2:35)

It's kind of been in rare airspace. I think before this, many people mentioning it has been this kind of consensus momentum trade well extended above, let's say it's 50 day average, which is only in the 95s. So keep in mind, yeah, it looks like a stiff pullback, but it was kind of in this can't disappoint on any front type of zone. And that's what's going on in this market today. A lot of the big leaders, the Palantir's, Walmart all week, it's been Robin Hood down, Applovin, and so you're starting to see some of the starts come out of really a lot of the kind of go-go parts of this market. Now, one hallmark of this tape has been very elegant rotation, just harmonious, passing the baton, and we have some slippage here today, as you have a little bit, I think, of a sense out there that we're sensitive to any sign that the economy might just decelerate somewhere.

Carl Quintanilla (3:29)

Right. It's either that or, I mean, it's not out of the question to draw some geopolitical news from the tape. There's multiple wires now saying that a news conference between Zelensky and the president's Ukraine envoy has now been canceled at the United States request. That's according to a Kiev official. Certainly, this was part of the dynamic yesterday.

Michael Santoli (3:50)

Yes, and it's been this very kind of high noise environment on the news front. Markets struggling to figure out what it needs to try and discount what it doesn't. And what it does mean is that there's plenty of ready excuses to just take risks and down.

If you feel like you need to do that because we have had this decent run and we'll see how it does play from there. Let's get to the street reaction to Walmart's latest results in commentary. Joining us is Michael Lasser from UBS. He has a buy rating on Walmart with $113 share price target. Michael, it's good to see you. Fill in the blanks versus what we've said already in terms of what you saw on the quarter and how you're thinking about Walmart's guidance from here.

Michael Lasser (4:34)

Thanks, Mike. Good to see you. How we're thinking about Walmart's quarter is really, if you look below the headlines, it provided a lot of evidence to support the bull case. It's 4.6% same-store sales increase in the US, while slightly below the whisper expectation of greater than five was still very good and will look best in class as we get through the heart of retail reporting season. Second, it generated $500 million, half a billion dollars of incremental operating income in the quarter. Half of that was from these alternative revenue streams like advertising, membership fee incomes, one were still very much in the early innings of harvesting those benefits and experiencing a transformation in its model as a result. Third, I think you are absolutely right, the guidance did look a little bit below the street. With that being said, I think it just simply sets it up for consistent outperformance over the course of the year. If I'm sitting at home, I'm looking at this pullback as an opportunity to get involved with a really multi-generational story that is compelling here.