GM earnings: ‘It’s a boy that cried wolf,’ analyst says

Wedbush Managing Director & Senior Equity Analyst Dan Ives joins Yahoo Finance Live to discuss the state of Big Tech stocks, the GM chip shortage, supply chain woes, recessionary risks, and the outlook for earnings growth.

Video transcript

- First off, I want to get you to react not sort of to everything that we were just discussing. We've got GM coming out and saying it doesn't have enough chips to come out with complete cars. You got Micron talking about falling demand. You got a lot of different companies now talking about falling demand. How are you thinking about all of this?

DAN IVES: I think it's tip of the iceberg in what's going to be an ugly Q2 earnings season for tech. I think you're going to see a lot of these companies clear the deck on guidance. But, ultimately, I believe that is ultimately what needs to happen for a lot of these stocks to move higher. But I think it's the have and the have nots.

Even when you look at, say, in technology, I think software, cybersecurity is going to be a lot more resilient in terms of the business models and guidance versus chip, and especially the consumer-focused names. You look at GM. I mean, these have been just category five Storm that Mary and the team have dealt with. But you look at names even like Tesla and others, and they've been able to navigate it better than a GM. And I think that's really what stands out here relative to, really, missing by a country mile.

- What type of earnings warnings should investors be bracing for? Is it more warnings like Micron, where they're significant?

DAN IVES: I think you have to separate the supply chain, the zero COVID issues, versus demand. And that's very important what's going to happen in terms of-- I think a lot of my conversations with investors, are we seeing demand softening? Or are we seeing supply chain issues, shortages? I think when you look at Micron and others just Julie is talking about in terms of late stages, I don't think you can paint them all with the same brush, the AMD's, the Nvidia's, and others.

I do think it's all about really demand. Are we going to start to see any sort of demand softening? I think you'll see a lot of these management teams conservative. But at least as of now, specifically names like Apple, Microsoft, I think the cloud storage of Google, Amazon, and others in cybersecurity, we're not seeing-- when we stress test, you'll see numbers come down 5%, 7% maybe. But we're not seeing what's baked into these stocks, double digit types of cuts. And I think that's important.

- OK. And so if we see demand softening, and then on top of that, we're also looking across pricing power that these companies had that they might have to kind of revise to really get a sense of where the consumer is comfortable paying for that value, does that also impact the cash burn rate, and to what extent for these companies to continue to produce, both on the electric vehicle side, or even in Apple's case, just continue to put product handsets out there as well.

DAN IVES: Well, I think the strong get stronger. And, ultimately, they flex their muscles. Apple has come out with 68 new products even despite supply chain issues. So I think what you're going to start to really see is that some are at the front of the line. And others are waiting in the back of the line. So I think that's going to be further separated out that we're going to see across the supply chain, across chips, and across technology.

But also, what's baked into these stocks? I think right now, we're starting to see investors already bake in significant from a whisper perspective where numbers go. And I think once the band-aid's ripped off, I believe second half I think you'll see a lot of these tech stocks move higher because right now that's why investors can't own them because they feel like until the numbers cuts happen, you can't really own some of these names.

- I'm going to do a vintage double analyst question here in one sentence. First, the General Motors warning this morning, do you believe the guidance that they have reaffirmed? And then secondarily, if GM's warning here this morning about component shortages, what does that say about Tesla?

- And GM is open again now. And the shares are down about 2 and 1/2%.

DAN IVES: OK. GM it's a boy that cried wolf. In other words, the issue is is that they continue to miss-- and the issue is that you feel like they don't have their arms around the supply chain issues, relative to Farley and Ford, which I think have done a much better job relative to GM. That's an important thing. The 313 area code, it's a lot separate in terms of what you're seeing Ford and GM.

Now, in terms of Tesla, we've talked about-- I think whisper numbers-- deliveries probably come out this weekend. Whisper numbers are probably 250k to 255k in terms of for the quarter. If I think about what China did, that probably took about 70,000 units out because essentially April and May were shut down. Investors are going to start to sort of run rate what the month of June is second half numbers. But I don't believe you could paint a GM and a Tesla with this same sort of brush, just given what we've seen play out.

- So I'm always curious about this. Break this down for me. Like what is Mary Barra doing differently than Jim Farley than Elon Musk in terms of supply chain? Why is there this differential? They're all big. They all have that clout. So what's going on with the sourcing?

DAN IVES: Well, GM, 7 and 1/2 million cars are selling a year. So the point is when you're dealing with that type volume and the electrification strategy, it's easy to put on a PowerPoint, it's a lot different to actually get enacted and actually produce.

- But Ford has a similar challenge, right?

DAN IVES: And I do think Farley-- if you look at Farley and Ford, so far, had the golden touch. Now, there's definitely quality issues that they need to contend with. F-150 I think coming out is going to be a grand slam. I think for GM, they've laid the groundwork to what I believe is going to be a successful strategy. It's so far, it's in the penalty box because every quarter, just like Brian asked, it's just another sort of excuse in terms of the supply chain. Next thing they'll blame the wind or the Sun.

- Probably will.

- OK. So with all of what companies have had to blame and had to navigate through in the first half of the year, second half of the year, what are you going to be looking for?

DAN IVES: Well, I think it's a bifurcation of tech. That's why when you look at software, cloud-driven names, cybersecurity names like Palo Alto, Zscaler, CyberArk, among others, I think software, that's really going to be the shining star in terms of what's a significant outperformer. But then in terms of chips, it also comes down to it. You see management teams will clear the decks. Then all of a sudden, you start to look at second half numbers that seem conservative.

You've got great easy comps going into next year. What's already baked in? We believe you already have a modest recession baked into stocks. If you have a black swan event, much more significant, of course, names could go lower, multiples can continue to go lower. But I think you have to separate it out. And I think that's what we're going to see in terms of tech this quarter.

- Dan, I spoke to Salesforce. Co-CEO Bret Taylor, of course, is the chair of Twitter. He told me the deal is going to close. He thinks the deal is going to close despite no date has been announced for a shareholder vote. OK. Let's say the deal does close. As an analyst, do you want to see Elon Musk even sidetrack trying to turn around or save Twitter?

DAN IVES: Well, there's a better chance of me playing for the Yankees than 5420 happening. Let's just say that. And the stock's telling you that. Now, Brett is going to say what he needs to say in terms of from a fiduciary perspective. I believe it's a renegotiation that ultimately happens because the bot fake account issue. And then, ultimately, if that renegotiation does not happen, I think Musk tries to walk away and fights Twitter--

- Does it hurt Tesla?

DAN IVES: Well, right now, this has been $150 per share overhang in Tesla because of Musk, because of the stock, because of right now investors feel like it's almost a leverage play to Twitter. And I think it's one, right now, it's become a circus show. But now, if you look what the stock's telling you, stock's telling you 5420 is not happening. It's a renegotiation likely 42 to 45 if it happens. We still think 50/50 at this point.

- Is that why he's not tweeting, because they're negotiating?

DAN IVES: Look, I just think it comes down to-- and, look, Twitter board perspective, without Musk, the stock has a two in front of it.

- Just quickly, I got to ask you about Meta because there was this leaked memo that Reuters reported on where Chris Cox, the product chief, really giving some dire warnings internally that they're going to cut back on spending, that they're facing big headwinds. What do you think here? Do you think it's the same kind of clearing the decks thing?

DAN IVES: Well, but the difference there is that because of the Apple iOS privacy issues, that's been the gut punch. That continues to be a cut every quarter. When you cut by 1,000 cuts, that's the issue in Meta. But I still think that's one multiples compressed significantly. But there's some pain ahead there. And especially right now, Zuckerberg and team, you could rename the company the Meta. Metaverse is still not until three to five years out in terms of revenue perspective. And I think this is really bracing for a tornado-like quarter.