Closing Bell - Closing Bell Overtime: Apple Unveils Its AI Strategy; Former United CEO On What’s Next For Southwest & Elliott 6/10/24

Episode Date: June 10, 2024

Apple showed off its long-awaited AI integration—dubbed Apple Intelligence—at the WWDC today in Cupertino. We break down all the angles you need to know. Plus, Dr. Scott Gottlieb on Eli Lilly’s Alzheimer’s drug getting FDA recommended and former United Airlines CEO on the road ahead for the Southwest CEO after Elliott Management revealed a stake in the airliner. Janus Henderson portfolio manager Jeremiah Buckley on how the next leg of the bull market could unfold.

The S&P 500 closing at a record after stocks climbed out of an early hole as a pivotal week for the market gets underway. That is a scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. Well, Apple just unveiling its long-awaited deeper push into AI called Apple Intelligence, along with a partnership with OpenAI. We have a great lineup of experts and shareholders to weigh in on all of today's announcements. Plus, an FDA advisory panel meeting this afternoon to discuss the safety and efficacy of Eli Lilly's Alzheimer drug. We're going to talk to a former FDA commissioner, Scott Gottlieb, about the drug and the panel's recommendations.

And later, we will talk to a portfolio manager who says there is one factor that will be the next propeller of this bull market. But first, the stock story we've been watching all day. Apple and its developer conference with us to break down the key moments from the event. Apple shareholder Victoria Green, founding partner and CIO of G-Squared Private Wealth and a CNBC contributor, as well as Scott Kessler, global sector lead for tech at Third Bridge. The biggest news today, Apple filling in its AI strategy with Apple Intelligence.

It's a new personalized intelligence system. The software can rewrite text, generate images and emojis, and take actions across multiple apps. The demo had it answering questions like, when should I leave to pick up my mom at the airport by scanning text messages and emails for flight numbers and status. Apple intelligence will be powered by in-house chips and be available on the highest end iPhones, the 15 Pro and Pro Max, as well as iPads and Macs with Apple's in-house chips, the M series. So I see three questions investors need to think about here.

Will AI drive a more aggressive iPhone upgrade cycle? Will it get more iPhone users to buy Macs and iPads? And will the developer tools, maybe most important, make Apple the platform of choice for third-party AI the way the App Store made Apple the king of mobile? Victoria, what do you think based on what you saw here today? Granted, we haven't gotten a chance to try it yet. Well, look, I was 50-50 heading into this. You know, are they going to really impress after this own up? And I think we walked away saying, nah,

they didn't impress me all that much. But in the same regards, I think they're laying the groundwork to continue to build out and develop their AI tools. So was anything here groundbreaking? No. It basically met expectations of what the industry wanted. I think that's why you saw the stock drop today. There was nothing released that really excited us. Can it drive this next super cycle? Absolutely, especially considering they only have one or two models right now that can really operate iOS 18 to the fullest.

But I have to say, in the first half, the thing that got the largest applause was the calculator app for the iPad, and that is a very bad sign. Like, it just really seemed to underwhelm me. I think, again, they're laying groundwork. There are some good things out there. You know, we're excited about the new emojis, but for actual things,

I think it's going to be second half or next year, which makes me a little worried that Apple could be hitting this resistance. We saw it stall out twice in the last 12 months around this 190, 200 range, and it really couldn't get above it. And it may leave it to some short-term downtrend here, just because if you're looking at the charts, it looks like it's bouncing off a pretty strong resistance level here as well. Yeah. And finishing the day down 2%. It was the worst performer in the Dow,

but we do know the expectations were pretty high going into the Scott. So we know what Victoria thinks. What do you think about all of the announcements we got today, including this one that in some ways it's more interesting that so much of this AI capability is being built in-house. OpenAI almost feels like an addendum to it. So the short answer is I think this was more kind of evolutionary than revolutionary. I think you're going to hear refrains like that over the next couple of hours and days. It's funny that Victoria mentioned kind of a calculator functionality. I was particularly noting the ability to be able to schedule iMessage texts. these are things that I think

get people's attention but they're not going to move the needle very much. If you look at street expectations- for the out years people are looking at six to seven percent revenue growth- I'm not so sure. That given what

we heard earlier. That we're going to see the level of- adoption and monetization. That people might have been looking forward to and I think those are big topics that Apple is going to need to emphasize. There's no question that- what

they're doing here is a move in the right direction- I think people want to be able- to embrace and- to engage with AI tools. Across Apple hardware software and services. But how that's going to improve Apple's performance from an operational and financial perspective, that's an open question, especially since it's fair to say a lot of development has been going into this,

and they're going to have to license, one would think, access to ChatGPT. I got to go out on a limb and disagree with both of you guys on the potential. I think this is potentially revolutionary. Here's why. I think there's a thousand dollar entry point right now for AI. Apple is setting it saying if you buy a thousand dollar phone from us and maybe the iPhone 15 gets a little cheaper once we get the new phones in September, or a $1,000 Mac with the entry Air, then you can get access to this. And we're at a point where you're not going to get a guaranteed AI-capable hardware base from anywhere else clearly, right? Yeah, you can get a Samsung phone or a Google Pixel phone,

but then what's the laptop that you're going to get connected to that? Apple has an interesting opportunity here if the usability is high enough on AI to take this to a different level. I think, Victoria, I mean, I could be wrong, maybe they don't execute right, but I think we're in a unique moment here. It could be a unique moment.

I think it's just gonna be a little bit of a simmer moment, not a just everybody celebrate and buy a new phone moment. I didn't see anything in there that made me want to go out and buy a new phone, which isn't even available yet. So this isn't going to help Q2 numbers. It's a second half or a 2025 half, again, laying some fantastic groundwork. But what on there really was revolutionary, they needed to upgrade Siri. Siri was so far behind Alexa and Google. A lot of this was taking a subpar product and making it industry standard by allowing to get it into better AI answers. And I think also there's a lot of questions

of how clunky is this going to be as they roll it out? A lot of what they touted about with like the image modification and things like that, they were very vague about what modules they're using and what technology they're deploying. And the AI is only going to be as good as number one, the chips, number two, the iOS, and then the ability to continue to learn. They talked a lot about privacy. I think that's one

section I do want to applaud them on. They're building AI with privacy in mind, and that could be a huge tailwind for people as we learn more and more about how AI might be using our data without our consent. Apple is putting that, I think that's trying to be their selling point of we're going to be AI that's a private AI as much as possible. I talked about working on their device versus in the cloud. And if it's going to the cloud, it's going to be a very secure private cloud. And you get to say what data is being transferred. That could be a selling point.

But again, it doesn't move the needle anywhere near term. For me, this is going to be a second half, if not potentially more 2025 uptick. It's going to be on them. The pressure's on them for a great iPhone 16 release in the fall. And they're going to have to have it where it's not just just a clunky window dressing AI. Yeah, Scott, I mean, we have seen Apple for years now basically continue to draw that line in the sand around privacy between itself and some of the other mega cap tech names where data is concerned. So so that was notable. But there were other even in addition to all the AI news we got today, there were other announcements as well. You had Vision Pro, some stuff with

Vision Pro, some new customization features with the new iOS. To me, particularly noteworthy, text to be sent via satellite. We know they have that partnership with Global Star, for example, and then tap to cash, which actually put shares of PayPal under pressure earlier in the session, too. So if we just step back and look at all of the news we got today, your thoughts on the bigger picture and just as importantly, do you buy Apple here? Yeah, look, I mean, there was a lot in that presentation, one of the longer ones I can remember over the last decade or so. But a lot of interesting things

don't necessarily equate to the excitement that I think a lot of people remember around Apple announcements, product releases, and yes, WWDC keynotes. I think for Apple in particular, look, the proof is in the pudding. We've been talking about this for the last few minutes already

that these things seem interesting. Are people going to go out and buy phones specifically for this functionality? And what exactly is that functionality going to consist of? I think it's going to be more of a slow burn over the next number of quarters rather than everyone rushing out and buying these phones as soon as they're available. We'll see how that plays out but I think that sentiment- kind of reflected itself in the context of. The stock movement that we saw the stock was down. A two percent

as I think throughout the day- you and others have been talking about. You know in disease and stocks- at or above- all time highs right so I think we need to examine why there is that disparity and I think one

of the reasons. Is because the perception I think Victoria alluded to this. Is that. Apple has been so far behind when it comes to AI. They're just kind of- gaining ground. But they still have a lot of work to do. To get this in the marketplace,

see how it works, what people are asking for and using, of course. Okay. Scott Kessler and Victoria Green, thanks for kicking off the hour with us. And of course, this is just part one of a very busy week of news announcements. We also got Oracle and Broadcom and Adobe earnings this week. We've got CPI tomorrow, FOMC on Wednesday, just to name a few. We have a news alert on DXC technology meantime. And Seema Modi has the story. Seema. Morgan, Apollo Global and Kindrel Holdings are in discussions about a joint bid for DXC technology that is, according to Reuters quoting sources, $22 to $25 a share are the numbers being quoted for Contax DXC trading at $18 to $19. It's an IT

services company that is also simultaneously trying to sell its insurance software business for more than $2 billion. Shares of DXC traded higher by as much as 11.5% in today's trade and is now higher by around 4% in overtime, Morgan. All right, Seema Modi, thank you. Let's bring in CNBC's Senior Markets Commentator Mike Santoli for more on what else? Apple. Yeah, Morgan, kind of a big picture look at how the market has been valuing Apple because the narrative, as we've been hitting on here, has been that their expectations are relatively low for Apple in the big picture or it's perceived to be behind or maybe they really have a lot to do to justify, you know, kind of being in the same conversation as Alphabet, Meta and the rest and Microsoft. Well, the premium that Apple shares

have on a P.E. basis has been maintained relative to the Nasdaq 100 and the S&P 500. So that implies to me that the market is essentially saying, look, longer term, Apple's financial condition, its shareholder friendly capital management and just in general, the optionality they have with their install base to get it right or at least get a relatively smooth upgrade cycle. And then, of course, the higher multiple you place on the services revenue has been enough. What it's really been contending with is the fact that for two and a half years, Apple shares have done very little. It crossed above 180 in December of 2021. We're talking at 193 right now.

Guess why? Look how expensive it got there through the pandemic. It's been working off this premium valuation, and it's a good reminder that for most of the 2010s, this chart goes back to the day Tim Cook took over as CEO. It was a huge discount to the market. It was a value stock because people weren't willing to believe that each new success of iPhone cycle was going to be because people weren't willing to believe that each new

success of iPhone cycle was going to be good enough, was going to live up to the prior one, and was reliable enough to put a heavy multiple on. So to me, we can say, oh, everyone's disappointed. But in general, the market is giving Apple the benefit of the doubt on a business level. It's really interesting to look at this chart because, A, it raises the question, what is it going to take to have another breakout now? Do you have to see top line growth in a bigger, more meaningful way, which we know has not really existed for at least the last couple of quarters for Apple? And, B, has it now lost its crown? We used to talk about this.

For years, we talked about this. As goes Apple, so goes the market. Has NVIDIA taken over that position? Well, two things. One is absolutely a return to growth, actual growth, not just buying back a lot of stocks so that earnings per share look better. And that's something that I do think the market assumes is going to kick back in relatively soon through a combination of pricing and overall market growth and an upgrade cycle. In terms of Apple's bell weather status, I've never believed it. It was always something that went its own way. I mean, there were a year and a half

periods where Apple did nothing and the market soared and vice versa. So NVIDIA right now is the absolute biggest swing factor because it's bigger than Apple in the S&P 500 right now by weight. And it's also that much more volatile. So on a given day, NVIDIA moves 2%, 3% for no reason whatsoever except for excitement. And that means it does matter more on the day-to-day for the index. All right. Yeah. Apple not getting much of a mega cap premium, though. So relative to the overall NASDAQ 100, but it's about a two multiple point premium. But yeah, it's cheaper than Microsoft and some of the others. Of course course mike santoli has the answer it is interesting now we're talking about developers conferences you could argue the crown has shifted to nvidia

with its developers conference and all the hype there too we're going to keep digging into all this through the hour mike santoli we'll see you a little bit later this hour up next former fda commissioner scott gottlieb dr got Gottlieb, Dr. Gottlieb, joins us to talk about a pivotal vote that just concluded over the future of Eli Lilly's Alzheimer's drug. And later, Southwest getting some love today on news that activist Elliott Management has taken a nearly $2 billion stake in the airline. We're going to talk to former United CEO Oscar Munoz, who faced an activist battle of his own when he was in the C-suite. Overtime's back in two.

Welcome back to Overtime. Shares of Eli Lilly popping in the last hour after a panel of advisors to the Food and Drug Administration voted unanimously that Eli Lilly's Alzheimer's drug is effective and that they support broad use of the drug in early stages of the disease. Also, that the risks are outweighed by the benefits. The panel also voting unanimously on that scenario. FDA approval of Lilly's drug would make it the second drug on the market to treat Alzheimer's, part of this new class of drugs. Joining us now to discuss is former FDA commissioner Dr. Scott Gottlieb. Dr. Gottlieb, it's great to have you on the show. And I want to start right there.

I mean, it's not an approval because the FDA still has to weigh in itself. But we also know when this panel of outside advisors makes decisions such as this, it tends to be very telling for the next steps for said drug. How much of a breakthrough is it to see these drugs, in the case of Lilly potentially, come to market right now? Look, I think this is an important development for patients. This drug does have certain advantages over the other drug that's on the market, the similar drug from Biogen, Lekembe. It can be dosed once a month as opposed to Biogen's drug, which needs to be dosed twice a month.

It does appear potentially to be more efficacious as well. But I think we're still in the early innings when it comes to treating Alzheimer's. These are significant breakthroughs that are certainly going to benefit certain patients. But there's other drugs in development right now that look to be potentially even more effective, including follow-on formulations of these drugs. Biogen's working on a subcutaneous formulation of its drug. Lilly's also working on a second generation drug that also looks like it could be delivered subcutaneously. We're going to have data on both of those in 2025. And so if you can move these drugs out of this setting, out of a hospitalized setting where they need to be given under medical supervision, into a home-based setting where they can be delivered subcutaneously,

that's going to probably broaden utilization. And then there's other drugs in development, including drugs that target other modalities believed to be implicated in Alzheimer's disease, such as tau protein formation. And we're going to have data from phase two studies on those drugs in 2025. So we're in a very exciting period right now where a disease that's long eluded our ability to target it effectively with drugs is finally coming into focus. What's so significant to me is the fact that to the point you just made, Alzheimer's has been typically treated very not well. And usually when the disease is already in later stages for the

people that are affected by it, what does this enable, what needs to happen to see earlier treatment that could actually prevent or even stall the disease more formidably? Yeah, historically, we've seen drugs for Alzheimer's, but they treated the symptoms. They treated some of the effects of the cognitive decline that we saw in patients, but they didn't treat the underlying cause of the disease. And what we're seeing right now with this drug and others that are in development is the ability to target the underlying biology of the disease and prevent progression of the disease. I think ultimately we need to find ways to try to move these drugs earlier, and that's

going to require different approval mechanisms at the FDA, because by the time that patients have the late stage manifestations of the disease and they register declines on the cognitive tests they use as clinical trial endpoints for these drugs, a lot of the damage has been done. It's hard to reverse those effects. You can slow those effects. These drugs show some benefit in reversing the effects, but a lot of the damage has been done. Patients have had a lot of functional decline, so you want to treat them earlier. That's going to require us to come up with better measures of disease activity, such as PET imaging or biomarkers that you can measure in the blood, where you can diagnose patients earlier before they've had that

cognitive decline and intervene to prevent that from happening. We put out a guidance in 2018 when I was at FDA that opened up a pathway for doing that, that opened up a path for approving these drugs under accelerated approval after they demonstrated benefits against surrogate measures of disease activity, like changes on PET imaging or biomarkers like amyloid plaque formation. I think you're going to see more companies start to make use of that pathway and try to move these drugs earlier in this setting of disease. Dr. Gopalib, of course, the health implications are most important, but I got to ask a business and financial question.

You point out that the category of Alzheimer's drugs isn't that big. Biogen's drug is doing about $30 to $40 million a quarter. Lilly right now has close to a trillion dollar market cap based on bigger hopes for other products. So I wonder, historically, is there an innovation brand halo that companies get from having something innovative like this? Am I more likely, you think, to buy GLP-1s that are Lilly branded because they've shown themselves to be innovative, perhaps, in Alzheimer's drugs? Yeah, perhaps.

And if you look at the pipelines, these companies have other things in development. I don't think that we should confuse what's happening with this particular category of drugs with the overall potential of drugs that treat Alzheimer's disease. If you look at the drugs that J&J has in development targeting tau proteins, they're going to have phase two data in 2025 again. They said that could be upwards of a $5 billion a year drug. Biogen has referred to their similar drug that also targets tau through a different mechanism as the crown jewel of the organization.

So I think companies do recognize that this could be a very big category. We're going to ultimately need better therapeutics that could be delivered more easily that don't have some of the side effects of these drugs. And remember, Medicare waged a pretty broad campaign to deny coverage for these drugs that target amyloid plaque formation back in 2021. And I think that really cast a cloud over the entire category and soured some physicians. And I think the drugs have had a hard time coming out from under that cloud. So they're still living that legacy. All right. The best perspective on this latest news, Dr. Scott Gottlieb. Thank you. Thanks a lot.

Up next, former United Airlines CEO Oscar Munoz on the new activist battle taking place between Elliott Management and Southwest Airlines that sent shares of Southwest sharply higher today. And Janice Henderson out with a new note saying there is one thing that could propel the next leg of the bull market and ease inflation. The portfolio manager who wrote that report will join us to explain. Overtime. Shares of Southwest taking off today after Elliott Management acquired a nearly $2 billion stake in the company. The activist is calling to replace CEO Bob Jordan and Chairman Gary Kelly. Joining us now is former United Airlines CEO Oscar Munoz. He was at United during an

activist battle with Altimeter Capital and Parr Capital Management. He's also a CNBC contributor. Oscar, good to see you. So give us the perspective from the CEO seat. Travel is hot. Do we have Oscar? He wasn't looking at the camera, so he might not be hearing me. Morgan, this is such an interesting conversation to have because Munoz not only went through that United battle, but also when he was in the railroad business, as I believe his CFO went through a battle as well. I'm curious how this changes, and you've seen it up close recently with Norfolk Southern, how this changes the C-suites positioning and messaging when they're dealing with all the challenges of running the business, but now they've also got to make this pitch to shareholders that their vision is right. Yeah, he went through one of the proxy battles

that we saw play out at CSX because there have been multiple at CSX and across the rail industry over the years. To your point, though, it is going to be very interesting to see what happens here, because part of the woes for Southwest involve what we've seen with Boeing and its production issues around jets. And obviously a lot of focus and a lot of scrutiny on the ultra low cost carriers like Southwest and what they look like in this new world as you have some of the other players like a United, for example, diversifying their offerings and their price points. So it'll be interesting to hear what he has to say. Let's see if we can get him back. Yeah. In the meantime, investors win either way. Investors win with stock up. After the break, T. Rowe Price, tech portfolio manager,

Tony Wong gives us his first take on Apple intelligence. And if he thinks it will spur a new iPhone upgrade cycle. Welcome back. It's time now for a CNBC News update with Eamon Javers. Eamon. Hey there, Morgan. Hunter Biden's fate is now in the hands of a Delaware jury. Both sides wrapped up closing arguments this afternoon, and the jury got the case just before 4 o'clock Eastern time. The president's son faces three felony charges over his purchase of a gun back in 2018 and whether he lied on the gun purchase form about being a drug addict.

The U.N. Security Council this afternoon passed a resolution in support of the proposal by President Biden for a full and immediate ceasefire between Hamas and Israel that would see the release of hostages. The vote was 14 to 0, with Russia abstaining from the vote. According to Reuters, Hamas welcomed the vote, saying it's ready to cooperate. And Pennsylvania Senator John Fetterman and his wife Giselle were in a car accident on Sunday morning in Maryland. A spokesperson tells NBC News this afternoon that the two were evaluated at a local hospital and the senator was treated for a bruised shoulder and released that same afternoon. Fetterman's office says he plans to be in D.C. this week for votes. John, back over to you.

All right, Eamon, thank you. We mentioned earlier the new stake from Elliott Management in Southwest Airlines that sent Southwest higher today with us now is former United Airlines CEO Oscar Munoz. Oscar, good to see you. So tell us from the CEO seat how this would look. I mean, travel and experiences are hot right now, but also airline systems, specifically Southwest, haven't proven the most reliable. How does this affect the way you communicate the decisions you make if an activist shows up like this? It's an interesting question. Good afternoon, gentlemen. Nice to see you both.

The situation is interesting, right? I mean, I think this one caught everyone by surprise, including probably Southwest. I do believe that Southwest is slowly beginning to understand the new world. They've taken some steps to, for lack of a better term, become more contemporary and modernized. They're taking their flights on Google Flights, which is what we call an online travel agency concept, which they hadn't done before. But there's so many more changes to make. And to your question, this is a very difficult task because someone like of Elliott's stature in this marketplace is going to have a huge following and an even bigger one after today. And what I would tell both sides is, and having been through this

a couple of times before, change is going to happen one way or the other. For everyone's best interest, what that change is, how it's made over the time period that it's made, honestly, without too much emotion and too much commotion and expense on both sides, is better for the airline industry, better for the employees, and better for all of us as customers. But unfortunately, these things take a life of their own, as we all know. It'll become emotional and heated. There'll be opposing sides.

And, you know, everyone is right and everyone is wrong. I don't know that all of these changes that they want made at one time, but the promised prospect, promised proof, and just by the end of the year are that realistic. But nevertheless, people are going to believe one side or the other. Oscar, outline for us the way you see it. I mean, you've watched this industry and run a major company in it. What is the operational challenge of the next five to ten years for airlines? I mean, we know the era that Southwest was so successful in, the regional

strategy, you know, the casual way that people could sort of board and all of that, the culture. But what's the operational challenge that they're really going to have to adjust to over the next decade? You know, it's you've got 40 plus years of culture. A lot of the people that started are still there. This concept of changing all that overnight with new leadership and a new board. That's the part that's a little bit unrealistic. Are there strategic and operational changes that have to be made? Yes. Are they difficult? Yes. Are they expensive? Yes. One thing itself was definitely us is a very, very strong balance sheet and has had for many years. What it's going to require, though, is a picking and choosing a very carefully thought out strategy with the right leadership and board support. And unfortunately, these kind of situations, people like Elliot and others come in and have all of his wonderful ideas. But Elliot's not in the business of running an airline. And they don't want to. They just want change.

How, again, I'm just providing advice. It's like to fight it on both sides to a point of death is not the way. There are things to be changed. Things will change one way or the other. What those changes are, when they're made and by whom is something to be worked out over the course of time. And I hope they meaningfully engage on both sides in a productive way, because just replacing people and bringing in a strategic review of things, implementing, back to your point, executing on original challenges, you just don't do that overnight, especially with the kind of culture and experience that United, that airline, the Southwest has had.

I mean, there's another key piece to this, Oscar, it seems to me. And you can talk about changes to the board, changes to the strategy, changes to leadership. But how much can you actually change when this is a company that is very levered to Boeing and Boeing aircraft? And we know the challenges, the safety and production challenges that the aerospace manufacturer is going through right now. Well, you know, and again, thanks for intervening. My next point was going to be the direct question. So besides all of those difficult things to be done, the other thing from a business strategy perspective is that they don't have the airplanes to go where they need to go. And they're not going to get them anytime soon. So all of this change, all of this initiatives, all of that stuff will always be unfortunately burdened or hampered by

the fact that you're not going to have the aircraft, the modernizing of the air flight or the expansion that they were looking for. And that is a huge limiter. And you're seeing that across the board with other airlines who are beginning to sort of, you know, move down on their expectations of growth because of the Boeing issue. So it is a very, very significant piece of concern for this whole entire strategy. So this is not an easy one on either side, period. Oscar Munoz, great to get your take on this today. Thank you for joining us. Up next, Mike Santoli is going to come back and break down the latest economic surprise index and what it could mean for the market and the economy ahead of this week's CPI report. And we have much more still ahead on Apple.

T. Rowe Price Portfolio Manager Tony Wong tells us why today's announcements could create a boom in AI innovation. Welcome back to Overtime. Apple announcing a wide range of updates at its developers conference earlier today, including deep AI integration into Siri, along with confirming its partnership with OpenAI. Well, Elon Musk just writing on X, quote, if Apple integrates OpenAI at the OS level, then Apple devices will be banned at my companies. That is an unacceptable security violation. And saying in a second post, quote, and visitors will have to check their Apple devices at the door where they will be stored in a Faraday cage.

That's a weird thing to tweet because Apple did not integrate OpenAI at the OS level. They simply had it as an option for people to send their queries out. They had a whole presentation about privacy. So I wonder why Elon tweeted that. I guess it's a shot across the bow in terms of how far to take it from his standpoint. Well, joining us now is T. Rowe Price, portfolio manager at Tony Wong. Apple is the top holding in the science and technology fund. Tony, good to have you on.

Where do we start here? I mean, we had our first panel of the hour talking about how what we heard from Apple today was more evolutionary than revolutionary. Want to get your thoughts on that. And perhaps just as importantly, what this partnership with OpenAI and what Musk just tweeted, whether we should make some hay with that. Yeah, absolutely. Well, I think it's actually a really big upgrade and I think generative AI is really changing the way we interact with technology and gone are the days where you'd have to go through and click a bunch of buttons to get something done. Instead, you can talk to your phone, kind of have like an AI smart assistant or chat bot

to be able to go through those really repetitive and cumbersome steps. And so for me, I think it's a big upgrade for the iOS. It's exciting that they're choosing the best large language model with ChatGPT. And I think they're going to rotate depending on what the use case is with ChatGPT or their own large language model. But overall, I think it's a to rotate depending on what the use case is with ChatGPT or their own large language model. But overall, I think it's a really exciting upgrade where it does give consumers something new to look forward to with their iPhone and also developers something pretty substantial to develop on. And so I think we're going to see a lot of innovation in the App Store that's going to be on the Apple platform. It's interesting to hear you talk about innovation in the app store. Do you think the biggest beneficiary of this is Apple, especially if

it propels an upgrade cycle? Or is it some of those companies that are going to develop offerings on the system? I think it's going to be both. You know, in terms of Apple, the iPhone is really the remote control to your life. And I think it continued to be that with generative AI infused in it. And I think that Apple also, it's really a kind of virtual cycle where Apple's got a great platform, developers develop on it, and then Apple can take kind of their revenue share of those profits. And so I think it's both. And we're going to have a lot of innovation that we can't predict today.

Like we didn't know that Uber would be developed 10 years ago and what it's become, for example. And so a lot to kind of look forward to. And I think it's going to be beneficial for both Apple and developers. Tony, I think what some might be missing here, and, you know, if I can say that, this is a massive user interface problem and opportunity that Apple is tackling here. On the scale of the original graphical user interface, the mouse that Apple picked up with the Mac, and then the touchscreen that Apple also innovated on with the original iPhone, except here,

you're talking to something, and how easy is it going to be? If they crack this and crack it for the whole platform, there's a potential to make a huge amount of money and create the first mover ecosystem in AI, isn't there? Absolutely. I totally agree. And I think that Apple's kind of earned the trust to do that with your data. And they have a suite of hardware products and the ecosystem of developers to do so. And so, you know, when I think about what

Siri could become and their demos of Siri, I thought that was pretty impressive being able to talk to your phone and have something kind of automated or done in a way that isn't really elegant, I think is a game changer. And so if they do get this right, Siri does become

what I think people need it to become. I think there's a big opportunity here for Apple. All right. Thank you, Tony. Tony Wong. Now let's get back to Mike Santoli with a look at current economic data trends ahead of this week's CPI report. Hey, Mike. Hey, John. Yeah, this is the City U.S. Economic Surprise Index. So this is just how the economic numbers have been coming in relative to forecast. You see, it did dip negative quite similar to the way it did in early 2023. But we bounced off of that. The ISM services indicator last week, as well as, of course, Friday's payroll number helping this. I do think another feature here is, though, you're seeing a deceleration relative to expectation. So that is the economy kind of maturing into some version of a late cycle, but staying not too far from that zero line, which, of course, would be exactly as expected numbers. It helps explain to me the range bound Treasury yields, the generally static outlook on what the Fed is likely to do, and also the fact

that index level volatility for stocks has been really so low here. So it seems as if right now we're sort of waiting for something that swings it in a different direction. We'll see if CPI does that, guys. All right. Mike Santoli, thank you. We sure will. Up next, the top portfolio manager tells us what he thinks will be the next catalyst in this bull market and where he sees the biggest buying opportunities. Stay with us. Welcome back to Overtime. New report out today from Janice Henderson says there's more room to run in this bull market propelled by rising productivity fueled by AI and automation. Joining us now with where he sees the biggest opportunities for investors is Janice Henderson,

equities portfolio manager, Jeremiah Buckley. Jeremiah, good to have you with us. Is it really something that we're seeing now, AI-driven productivity gains? Are they yet to come? And perhaps from the largest companies, where are we likely to see it measurably first? Yeah. Hi, John. Thanks for having me on. I really appreciate the opportunity. So the good news is I think that we haven't yet seen all the benefits from AI. What I'm optimistic about, though, is that we've had really good non-farm labor productivity over the last couple of quarters, which I think has been good for both markets as well as company operating margins over the last couple of quarters. And I think the good news is that as we see a lot of these technologies develop, that's going to drive productivity over the next number of years that we think can continue this strength in earnings growth which will drive equity markets going forward. And how do you think that the overall

tightness of the labor market still affects that? Do you think the the productivity levels that you expect to increase sort of countermand it? Yeah so it's a good sign for the tightness in the labor market, because I think a great example is we recently had unit labor costs reported for first quarter, and they were only up 0.9 percent. And that was because we had 2.9 percent labor productivity offsetting 3.8 percent wage growth. And so with continued productivity advancements, we can enable that growth in wage growth. And that helps us continue to increase consumer spending. And so that also alleviates, as we get that labor productivity, it alleviates supply issues, especially in the labor market.

And that will allow us to continue to increase output and keep the economy growing. Which, of course, raises the question, what do you buy to play this right now, especially when you have, as Milius put it with their Adobe downgrade today, AI eating software, which we know has been the case, at least in terms of investor flows here in recent weeks? Yeah, so there are two areas. So one, we first, we think that the infrastructure providers continue to be an attractive opportunity. So yes, they've done really well so far this year, but companies like Microsoft, NVIDIA, Lam Research, they continue to lead with the infrastructure. And we think the infrastructure investment is going to continue to have strong growth over the next couple of years. So that's the first part. But for this to continue over the next couple of years, we need the benefits of AI to spread out across other industries in the economy, whether that be healthcare, financial services, or even

consumer. And so with that, we're looking to companies that have the scale and the technological knowledge to invest in this new technology to make their businesses better. So a couple of examples of that would include UnitedHealthcare, such a large player within the healthcare space. They're using AI to improve the costs for the overall healthcare system and make it more efficient. Booking Holdings, using it to improve their travel services, making it more convenient for customers, but also lowering costs. MasterCard using it for their fraud scoring product that they offer to merchants, which is

helping lower costs for merchants, but also increasing their ability to capture revenues. So I think it's both. We need to continue to invest in the infrastructure, which are benefiting today, but also the companies that have the scale and the investment wherewithal to continue to invest in this exciting technology. So if we're in a disinflationary environment that is further sustained by the adoption of AI and what that's doing to productivity, does that mean that from a stock picking standpoint, what you need to be focused on is the earnings per share, the bottom line, the profitability, even if you see top line under pressure because of disinflation?

Yeah, so we always believe that equity markets follow earnings growth. And so we are certainly focused on earnings per share growth. But we think the excitement about generative AI is that it can impact both the revenue as well as the cost side. So we think it drives efficiency for companies, it allows them to leverage their existing labor base, but it also offers the potential to increase revenue growth. So the examples that I cited, you know, for MasterCard and booking, we believe that that can enable them to increase their ability to capture revenues going forward and accelerate revenue growth because it allows

them to do more things that they haven't been able to do in the past. I think another great example comes in the pharmaceutical and biotech industry where AI is going to help improve the overall research, the effectiveness and the success rate of a lot of the research that we're doing in biotech. And so that's an area where we think we can see an acceleration in revenue growth. And I think, I know you were just talking about Apple and the Worldwide Developers Conference today. And we think that the initiatives that they're launching, allowing customers to be more productive,

will allow them to capture more revenues, both through the app store, as well as through hardware sales. And so we think AI is going to drive both revenue growth as well as earnings growth. Great. Jeremiah Buckley of Janus Henderson, thanks for joining us. Thanks for having me on.

I love when people have names to name. Up next, the key economic data and earnings reports that could move the market tomorrow. And never forget, you can catch us on the go by following the Closing Bell Overtime podcast on your favorite podcast app. We'll be right back. Well, tomorrow will be a big day on the economic and earnings fronts. The Fed kicks off a two-day meeting in Washington, as Wall Street anxiously awaits any clues about potential rate cuts. Also on the economic calendar, the May NFIB Small Business Optimism Index.

And after the bell, we're going to get earnings from Oracle as well as the first report from Rubrik since its IPO about a month and a half ago. Wednesday, don't miss an exclusive interview with Rubrik chairman and CEO Bipul Sinha right here on those results. Also on tap tomorrow, a rare and exclusive interview with MasterCard's CEO Michael Meebok on the state of consumer spending. And perhaps we'll even talk about AI, given the conversation we did just have with our investor guest a few moments ago. Wonderful segue. Well, we have some news crossing. Check out shares of Dutch Bros taking a leg lower right now. The company announcing a secondary offering of 8.76 million shares of Class A common stock. This follows another secondary that the company

announced back in March. The stock is off the lows. It's down about three and a half percent right now, but it's still up around 20% on the year. And, of course, we had Christine Barone, the CEO of Dutch Bros, on here not that long ago to talk about how they're able to continue to gain market share and expand, even at a time where we know Starbucks is dealing with challenges. Indeed, and ending where we began, the story of the day was Apple. Some disagreement here on just how significant these AI announcements were. I think they got potential on margins and revenue. We'll see.

We will see. Meantime, shares did finish the day down 2%. They dragged the Dow lower, even as we saw the S&P at a record high. That does it for us at Overtime. Fast Money starts now.