Closing Bell - Closing Bell Overtime: Legendary Filmmaker James Cameron On AI In Hollywood; Exclusive Interview With Commerce Secretary Raimondo 9/24/24

Episode Date: September 24, 2024

Oscar-winning director James Cameron is joining the board of Stability AI and he joins to discuss what AI means for the future of moviemaking. Morgan sits down for an exclusive interview with Commerce Secretary Gina Raimondo to discuss new proposals to ban some Chinese and Russian components from connected cars starting in 2027, plus the future of Intel. Earnings and analysis on KB Home, plus key investor takeaways from today's weight-loss drug pricing hearing on Capitol Hill. 

Well, that's the end of regulation. Citizens Financial Group bringing the closing bell to New York Stock Exchange. Microsoft's Hispanic and Latinx Employee Research Group doing the honors at the NASDAQ. Well, the Dow and S&P 500 setting record closes today. Even as soft consumer confidence data weighs on the minds of investors, the NASDAQ outperforming getting a boost from NVIDIA. That is the scorecard on Wall Street. But the action is just getting started. Welcome to Closing Bell Overtime.

I'm Morgan Brennan, along with John Fort, who joins us from Washington. on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan, along with John Fort, who joins us from Washington. Yeah, coming up on today's show, Stability AI getting a Titanic addition to its board today. Oscar-winning filmmaker James Cameron, he will join us along with Stability's CEO to talk about AI's role in the future of moviemaking. Plus, a can't-miss interview with Commerce Secretary Gina Raimondo on big news surrounding the Chips Act today and the government's latest crackdown on Chinese tech. And we will get a key read on the health of homebuilders

when KB Home reports earnings in just moments. But first, let's bring in our market panel, Tony Roth of Wilmington Trust and Kevin Mon of Henion and Walsh Asset Management. We have you both on set here with me. So welcome. Kevin, I'll start with you. S&P 500, 41st all-time high for the S&P so far this year. Where do we go from here?

How much higher can it go, Morgan? We also saw the consumer confidence dip to a three-year low earlier today as well. And I think consumers are starting to get more and more concerned with the pace of this economic slowdown. They see that the Federal Reserve's first interest rate cut was 50 basis points, not 25 basis points. We also know that they plan on cutting by another 50 basis points this year and yet another 100 basis points next year. If, in fact, they're so focused on getting inflation back to their 2 percent target and they don't forecast that to the end of 2026, why are they cutting rates so aggressively? I think the Federal Reserve is concerned with the strength of the labor market.

They're concerned with the pace of this economic slowdown. And consumers and investors are starting to pick up on that as well. And certainly we have had some Fed speak this week that has talked about the onus that is now on the labor market. Even just some of the data we got today, a few different components across a few different readings showing some weakening in the labor market as well. One of the things that propels the market today, though, was the stimulus actions we saw in China, which actually caused materials in the S&P to be the best performing sector. Is China investable or do you steer clear? We steer clear for the most part. We have a market weight to emerging markets, but we let our active managers decide where to allocate within that space. It's very hard to

keep up with the volatility within emerging markets. What I will say is that with respect to the China situation, China has some deep problems. They have the decoupling that's occurring across the supply chain, which is only going to accelerate with whichever administration takes over in all likelihood, greatly accelerate if we have another Trump administration. Then we have the lack of confidence internally from a domestic consumption standpoint. And we have a very significant youth unemployment situation. And then we have the overbuilt real estate sector and infrastructure sector.

None of that is going to get fixed through one round of stimulus. This is a multi-year healing process for China from an economic standpoint. And so take your gains if you've had a nice day in China, but it's not a long-term investment thesis. Tony, we just heard Powell talking about how the Fed is shifting the balance of its focus from inflation toward jobs. So where would you look in the macro data if you're concerned about the stability of the jobs picture to see if that's staying stable or perhaps getting weaker? Yeah, John, I mean, it's a great question. And I and I agree with Kevin. He made a great point. And you made the point as well about the confidence report today. And I think that it's absolutely great question, and I agree with Kevin. He made a great point, and you made the point as well, about the confidence report today. And I think that it's absolutely going to get the attention of the Fed.

This is a Fed that's been very focused on consumer confidence, particularly around inflation expectations. And today's report was very focused on not just inflation, which is not a year-over-year phenomenon for consumers. It's a multi-year phenomenon. You go in and you buy, in my case, a cheeseburger and it's $25 instead of $15, even though maybe last year it was $23. It hurts. And then on top of that, of course, you have the concern around the labor market that consumers are feeling. And so, John, to answer your question, I think that when you look at the labor market, there's a mix of data. But when you look at jobless claims, we're at all-time lows relative to the size of the job market. Real wages are high. They're positive. And they're actually increasing. So the second derivative of real wages is going up. And so there are mixed signals in the job

market, which is consistent with an equalizing job market, not necessarily a meltdown in the job market. And that's what we see. We see a soft landing into a better balanced labor market, not a labor market falling off a cliff. Okay, Tony, Kevin, stay with us. Let's turn to Visa. By far the worst performer on the Dow today, down 5.5% on news of a Department of Justice antitrust lawsuit against the company. Eamon Javers is here in Washington with the latest. Eamon. Hey there, John. Arguing that Visa's alleged illegal conduct affects not just the price of one thing, but the price of nearly everything. Attorney General Merrick Garland today explained why the Justice Department has filed the civil antitrust lawsuit

today. Visa is a monopolist in the debit transaction markets that is violating federal antitrust law and inflicting often hidden but significant harm on American consumers and businesses. Now, the complaint alleges that Visa maintains its monopoly position by blocking the growth of existing competitors and preventing other firms from innovating new solutions. The government says that more than 60 percent of debit transactions in the U.S. run on Visa's network, which allows the company to charge more than $7 billion in processing fees every year. Visa's general counsel, Julie Rottenberg, reacting this afternoon with a statement of her own, saying in part, when businesses and consumers choose Visa, it is because of our secure and reliable network, world-class fraud protection, and the value we provide. We are proud of the payments network we have built, the innovation we advance, and the economic opportunity we enable. This lawsuit is meritless, and we will defend ourselves vigorously.

Garland declined to speculate today about possible remedies or fixes for the alleged illegal behavior. That question, guys, really won't come up until a much later stage in this lawsuit. Back over to you. All right, Eamon, thanks. Kevin, this is an interesting situation where it's a brand that pretty much every consumer is somewhat familiar with, but not in the way that the Justice Department

is going after this. So I wonder if you think that benefits Visa in this situation? How concerned do investors need to be, do you think, about Visa in this situation, how concerned do investors need to be? Do you think about Visa's exposure here? I think we need to put into perspective, John, the U.S. debit card business for Visa represents less than 10 percent of their overall revenues. So it's significant, but not overly significant. What I'm going to question at this point in time, does it actually benefit their primary competitor, that being MasterCard?

Or is MasterCard ultimately going to get into the regulatory crosshairs as well? So I think you have to look at this as an opportunity, perhaps, to look past this current regulatory action and see what the outlook is for the credit card business going forward. We know that right now there's over $1.2 trillion of credit card debt outstanding in our country, the highest on record. Who are the primary benefactors of that? Visa and MasterCard. So while the debit card business is going to slow them down and bring them into the headlines, the credit card business is going to keep chugging. It's just a question of how much of a distraction is this and will there ultimately be a penal penalty? That's actually the wait. Okay. We're going to leave the conversation there.

Kevin Maughan and Tony Roth, thanks for joining me here on set. My pleasure. Thank you. With all-time highs for the Dow and the S&P. We've got some breaking news on the sentencing of Carolyn Ellison. And Mackenzie Sigalos has the details. Mackenzie. Hey, Morgan.

So we just heard from the judge in the case with Carolyn Ellison. She's been sentenced to 24 months in prison, three years of supervised release after that, also an $11 billion forfeiture. Now, this is beyond what we thought we were going to get here. The probation department had suggested three years of supervised release, no jail time, because Caroline has spent almost two years now cooperating with the government, federal regulators, and the FTX bankruptcy estate, helping them to piece back together what they can. But Judge Kaplan said that despite the fact that she was a huge help to the prosecution, it wasn't enough to get to give her a get out of jail free card here. So he said that 24 months is what they needed to show her instrumental role as being a part of this fraud. So, Mackenzie, I'm just curious. I mean, we've seen a number of sentencings already. Where are we within this process now? Was this sort of the same seven charges. And we had another executive, Ryan Salem, who got a seven and a half year sentence, which was beyond the scope of what

even the prosecution was asking for. There are two more big names that we're waiting to hear from. Their sentencings are at the end of October and then in November. That's Gary Wong, the co-founder of FTX, and then Nishad Singh. They both were cooperators with the government. But the fact that Caroline, who's really the star witness, who helped to put Sam Bankman-Fried behind bars, the fact that she got two years of jail time, we'll likely see that when Nashad and Gary are sentenced at the end of this month and in November. Wow. Mackenzie Segalos, outside the courthouse for us.

We appreciate it. Well, coming up, the high cost of weight loss. Novo Nordisk's CEO facing tough questions from senators over the pricing of weight loss drugs. We'll talk about what lower prices could mean for the company's stock next. Plus, Oscar winner James Cameron joining the board of AI startup Stability today. He will join us along with Stability's CEO to talk about how AI could push the boundaries of filmmaking over time back in two. The outrageously high cost of Ozempic, Wegovy, and other prescription drugs is directly related

to the broken, dysfunctional, and cruel healthcare system in our country. While the current system makes huge profits for large drug companies like Novo Nordisk, huge profits for insurance companies and huge profits for PBMs. That's Senator Bernie Sanders earlier today in a hearing with Novo Nordisk's CEO about the cost of the company's weight loss drug Wegovi and diabetes treatment Ozempic. Sanders saying he had commitments from pharmacy benefit managers to expand coverage of those drugs if Notivo Nordisk would lower prices. Let's bring in BMO Capital Market Senior Analyst Evan Seegerman to discuss. Evan, you know, the other side of this

is, you know, the industry would argue 80 percent of folks out there are paying 25 bucks a month or less for access to these drugs. But did that come through here? I don't know if that fully came through here. What did come through to me was the disconnect and the issues around the PBMs. It's pretty clear that Lars was frustrated in kind of the comparisons we were getting from list price to the gross price that they realized. And it's really clear to me, and I am biased as a pharmaceutical analyst, that the PBMs are one of the key drivers of these high costs. Remember, they get that bit of the rebate and the discounts which drives their profits. But at the bottom line, is this going to turn into a semiconductor type situation of undersupply and then oversupply? I mean,

it seems like all these different companies out here have these weight loss drugs that are coming to market. Eventually, is there going to be a supply demand imbalance driving prices way down? I don't think so, necessarily. I think we, over time, we assume prices do come down. But for the foreseeable future, it's literally a no-ho. I mean, they have the products that are on the market. You know, you have some smaller players that are coming. Sorry. Yeah. Sorry. Got to interrupt you. Got some breaking news. Got to get to KB Home. Earnings, they are out. Steve Kovac has the numbers. Hey there, John. Yeah, that's right. And shares are falling here on some mixed result down about nearly six percent. Let me give you

the EPS, which was a miss. Two2.04. Street wanted $2.06. Revenue was a slight beat here, though, $1.75 billion versus the $1.73 billion expected. And just some other little nuggets here. Homes deliveries are up 8% to a little over $3,600. And the average selling price of those homes, up 3% from the year-ago quarter to a little over $480,000. We see shares down about 5% now. Morgan, I'll send it back over to you. All right, Steve Kovach, thank you.

We will go back to our guest, Evan, to finish your thoughts, and then we'll pick it up from there. Sounds good. So we were talking about oversupply of the market. Lilly and Nova are going to be the leaders for the foreseeable future. Nova, Lilly has an oral version coming, data coming next year. So that could help alleviate some of the supply. But in reality, it's a lot of money.

It's a lot of investment to get these manufacturing plants off the ground to supply the increasing demand. And I note that, you know, as you see more patients on these products, more people are going to want these products. So I think for the foreseeable future, demand is going to remain high, higher than supply. So I do want to just dig a little bit deeper into the profitability piece of this. And yes, I realize pricing is basically a black box with the way health care in the U.S. is constructed. PBMs might be making a lot of money on this, but I mean, look no further than the share prices of Novo Nordisk and Lilly to know that these have been blockbuster drugs for these companies as well. So what does that profitability picture look like? And I guess as they do start

to take price cuts here, how does that level out? There are a few things here. One, we assume price cuts every year going forward until the 2030s. So that's in our models supporting our price targets for Novo at the ADRs at 160, Lilly at about 1,100. Number two, in terms of profitability and the pricing, they price these at the value that they bring for society. I think in the hearing, there was some note that these drugs could save Medicare $100 billion when it comes to the other issues associated with obesity, kidney disease, heart disease, and the like. So we think that these are a good value. I know that's what Lars is trying to communicate. It is a complex system. And we are in a capitalist society. These drug companies

should be able to make money for bringing innovations to the system and working within the system that we've established. All of that said, Evan, is it going to be Eli Lilly's turn eventually to come under the microscope here? TBD. I was surprised that they didn't bring the hometown hero, Dave Ricks, in front of Congress. I'm sure he would love to talk about his view of the PBMs and how they've impacted his business, but we do not know if he has been invited or is going to be up for a hearing like that. Okay. Evan Seegerman, thanks for joining us. Thank you. Well, after the break, an exclusive interview with Commerce Secretary Gina Raimondo on a

milestone day for Chips Act funding and a big move to ban Chinese tech from self-driving cars. And later, we will talk more about KB Home's results and this big rally this quarter for the homebuilders with an analyst who had an outperform rating on the stock heading into earnings. You can see those shares are down more than 6% right now. Stay with us. Welcome back to Overtime. The Commerce Department has proposed a rule to ban Chinese and Russian software and hardware from connected vehicles driving on American roads.

It's a policy that would effectively ban Chinese vehicles from the U.S. market. Now, I sat down exclusively with Commerce Secretary Gina Raimondo earlier, and I asked why this was necessary. Cars aren't steel on wheels anymore. It's like a computer on wheels. Your car is connected to your phone, it's connected to your life, and you don't want it connected to the PRC. And so if you think about the risks that could be posed to Americans if we had millions of

Chinese connected cars on the road, it gets pretty scary pretty fast. With the flip of a switch, they could have a malfunction in every car. There's a huge amount of data. They just think about it, where you go, where your kids go, where your house is, where your doctors are, all of that data being sent back to the PRC or the Chinese military. It's just a risk that we decided we couldn't handle. I've been thinking about this for a long time, actually, Morgan. And earlier this year, we collected a lot of data on this. We did a request for information. And quite frankly, the more you learn, the worse it looks. And so it's my job to

be proactive and make sure that the American people are protected from the national security risk posed by advanced technology like connected vehicles and software. Have there been examples of malfeasance that have helped to contribute to this policy? I would say what has really helped to contribute to this policy is the experience of Europe, a cautionary tale, where they went from where Chinese cars had like 0% of market share to 10 plus percent of market share overnight. And so that had me worried because you realize since China subsidizes and uses anti-competitive practices, you can go from no cars to millions of cars quickly. And then when you start to study the risks of that, as I said, that's the threat. The threat is having all this connectivity, all of this data quickly. And that's

why we decided to be proactive and get ahead of it. So just how far is this going to extend into or does this extend, this dynamic extend into the auto supply chain? And I guess just as crucially, how will you determine those boundaries? Ford, for example, has this deal with China's CATL to license its EV battery technology for its plant in Michigan. You've got China apparently's BYD is the biggest electric bus maker now in the U.S. You've got a number of Chinese companies that have gotten state regulatory approvals to begin testing their autonomous vehicles on U.S. roads already. Does all that now need to change? I would say yes and no. You know, this isn't about battery technology. It's not about hard equipment per se. It's about the connectivity.

It's about anything that, you know, the software or the connectivity that would allow China to, like I said, be able to control the flip of a switch, the cars on the road remotely, or anything that collects data on U.S. drivers and consumers. Also, it's not anything retroactive. That's an important point I should have made. So for example, you mentioned Ford or GM. This won't affect their cars until the 2027 model. So it's proactive.

We're giving them time to adjust. Also the announcement today, it's a 30-day comment period. So we hope that industry will come forward in the next 30 days and tell us, you know, give us advice on how to implement it. I want to be crystal clear about this. This isn't about disrupting commerce. This isn't about trade. This is not a trade remedy against China. This is about national security. Does this now provide a policy template for other connected machines or devices? Possibly. You know, we're looking at drones, you know, drones that have Chinese and Russian equipment, chips and software in them. But you could imagine, you know, other infrastructure,

critical infrastructure, for example, that might have Chinese and Russian connectivity software or chips in them. So, you know, it's as we become a more connected world, we have to modernize the way we think of national security. Now, I also asked the secretary about the news today that Polar Semiconductor is getting $123 million in Chips Act funding to double its U.S. production capacity of power and sensor chips. While not one of the larger dollar amounts doled out through the CHIPS Act, it does mark, quote, the next chapter, according to Secretary Raimondo, as it is the first grant in the program to actually be finalized by the department. Now, funds will be distributed based on certain project milestones, and Commerce expects to hand out more of the money it has already allocated to companies in the coming weeks. But I also asked about Intel, since it's poised to receive nearly $12 billion in government funding,

much of that from Commerce through the CHIPS Act, plus tax incentives, access to financing, and what a potential acquisition by Qualcomm, or even somebody else, could mean for that government relationship. Obviously, I'm not going to comment on rumors. You can call the company about whatever deals may or may not be happening. From our perspective, it's still the same. Intel's an important American company. We need them to be successful successful and we want to support them and especially their foundry business so that they can make chips on American soil. That's the whole point of this initiative and we're committed to it. Have you factored in the

possibility of M&A or deal making among the industry as you have allocated funding to some of these different companies? We do. We talk to these companies truly every single day. The team I've assembled here of more than 150 people are literally some of the best people in the industry. And so they certainly have their own analysis of if and how the industry might consolidate. But again, our mission is crystal clear and we're not wavering from it. By the end of this, we will be producing 20% of the world's leading edge chips in the United States of America on our soil. We're not backing away from that. It's a cyclical industry.

It's an industry that has always had M&A. We're supporting Intel. We're supporting other companies. We're going to get the job done. Now, we also talk tariffs and AI. You can watch the full interview, my full exclusive interview with Secretary Raimondo right now on CNBC.com.

And John, I'll leave it with this. Here's an interesting chart. Since the passage of the CHIPS Act, there have been more investments in electronics manufacturing in the U.S. than in the prior 26 years. Now, presumably a big piece of this could be Intel. You've obviously covered what they're doing so closely as they break ground on some of these fab projects. It'll be interesting to see how that translates to actual manufacturing activity and economic impact here over the coming years. Right. And I take it that's announced spend, not necessarily

transactions already completed. Now, I got to go back to this issue that we talked about yesterday and you talked with the secretary about and this Chinese software in cars. I mean, I still I'm not saying the Chinese wouldn't do some stuff, but I'm saying if it's about software and tracking location and things like that, what about TikTok? What about you mentioned a drone? She mentioned drones. I mean, yeah, well, there's a lot of it out there already. Well, look at what's happening with the legislation around TikTok. Right. I mean, you're already seeing those actions happen around that specific company with ByteDance either being forced to basically hand over the algorithmic data, you know, reins to TikTok or basically divest. And then in the case of drones, she was pretty clear there in that interview that, you know, drones and some of these other

connected devices are on the table now and being reviewed, which, by the way, I think U.S. drone makers would like to see happen, too. And we've heard it about cranes, for example, at ports. That's been an area of focus and debate this year. To kind of keep on going down the list here and the espionage, the spying implications of this, the national security implications of this, data implications and also cybersecurity risks are really why this is even a conversation right now, not the economic, although that's part of this, the national security implications of this, data implications, and also cybersecurity risks are really why this is even a conversation right now, not the economic, although that's part of it too, let's be honest. Yes, of course that is part of it too. But software, yeah, comes in a lot of stuff. Great stuff. Well, time for a CNBC News Update with Kate Rooney. Kate. Hi there, John. Former Trump lawyer Rudy Giuliani owes $300,000 to a forensic accounting firm that worked on the bankruptcy case he dropped over the summer.

The bankruptcy court judge in New York giving the firm nearly all of the fees that it sought, saying that Giuliani's lack of financial transparency led to the need for that firm's work. Giuliani argued that the firm's fees should be reduced. Nebraska's Republican governor, meanwhile, will not call a special session to change the state's electoral votes to a winner-take-all system ahead of the November election. Governor Jim Pillen said that the GOP did not have the 33 votes needed to overcome a filibuster, noting a key Republican state lawmaker's Monday decision to oppose that change. Currently the state awards votes by congressional districts. And finally, Johnny Cash now stands among the most famous politicians, trailblazers, and activists

in American history as the first professional musician to be honored with a statue in the U.S. Capitol. Congressional leaders and members of the Cash family were in attendance as that statue was unveiled earlier today. Guys, back over to you. Well, that's great. That doesn't hurt at all. Kate, thanks. Up next, analysts' reaction to KB home earnings and a big drop for the stock in overtime. Plus, you can't spell aliens without AI. Legendary director James Cameron just joined the Board of Stability AI, and he will talk to us about how the technology could revolutionize the movie industry. Be right back.

Take a look at KB home. Those shares are falling on the back of its third quarter results, which missed on the bottom line. Joining us now is Jesse Lederman, uh, uh, associate direct Letterman, sorry, associate director at Zellman and associates. Jesse, you, uh, reiterated your underperform on this stock just before earnings, and it seems to be playing out, as you expected, down about 5.5%. What did you note in these results? Hey, thanks for having me. Yeah, EPS is roughly in line with our expectations and consensus, but the shortfall was that the orders were flat from a

year ago versus the street expecting up 9%. And this was driven by choppiness in demand during the quarter and just not as much incentivizing as peers. So, you know, positively commentary suggested that activity improved toward the end of the quarter, which is consistent with our channel checks. But, you know, our view is that the stock was getting at a 10% premium to peers, and we think the shortfall in orders will lead to some modest downside pressure in the stock. Now, if things seem to improve toward the end, and we did just get this interest rate cut, does that perhaps take the pressure off of the KB if it was already intending to offer fewer incentives? Or does the competition just going to keep their pedal to the gas with rates coming down? And do they still risk

underperforming? Great question, John. We had our summit, our 17th annual housing summit two weeks ago. We had over 500 investors, management teams from housing companies across the country. And the key message that we heard was that homebuilders will continue to drive sales volume, even as inventory rises, even as rates fall modestly. So we think we're going to continue to see rate buy-downs be prevalent, incentives remain elevated. In fact, KB was offering a mortgage incentive on 60 percent of its orders each of the last few quarters. So it'll be interesting to hear where that number shakes out on their conference call in a bit. So on a day where we got more home

price data, and I realize it's dated by a couple of months here when we're talking about something like Case-Shiller, but we're still seeing home prices tick higher. So now when you factor in rate cuts into the equation, what does that do to home prices and thus for homebuilders moving forward? Great question. So, you know, as you mentioned, the good news is rates have pulled back almost 100 basis points from the highs in June. And, you know, a lot of that was in anticipation of the Fed cutting, which, of course, it did. And while mortgage rates may continue to move gradually lower, we're not expecting a huge decline because a lot of that's already priced in to the bond market. And so as we think about the remainder of the year, we are in a seasonally slower time of year

for the housing market. Plus, there's still some hesitation from buyers for two main reasons. You have uncertainty surrounding the election and some policies that may be housing related that could be keeping buyers on the sidelines. And from our channel checks, as well as from Lenar, what we heard on Friday at their earnings call was that buyers are still hesitant to pull the trigger in some instances, even with lower rates. You know, they want to wait and see if rates will decline even further before pulling the trigger. So if KB Home was trading at a premium to peers before this print, do you buy now on the dip or do you focus on other homebuilders as an investor?

You know, right now our valuation and estimates are under review. But, you know, one stock that we are excited about is Lenar. We did upgrade the stock yesterday following its earnings release. And we're excited about the spinoff of their owned land. We think that will make them a more efficient home builder, lead to multiple expansion. It remains to be seen. We'd love to hear some of the commentary on KB from their conference call before making our judgment on what we think the next move is to that stock. Okay. Jesse Letterman, thanks for joining us. Shares of KB under pressure right now. Well, Oscar-winning filmmaker James Cameron warned about artificial intelligence in The Terminator, and now he's teaming up with AI. He joins us next to discuss why he is joining the board at Stability AI and how that technology will change the future

of movies. And Uber, one of the big winners in the S&P 500 today. Raymond James resuming coverage of the ride share company with a strong buy and a $90 price target, citing bullishness over its autonomous driving strategy. Stay with us. Welcome back. James Cameron, the acclaimed director behind major box office hits like Titanic, Aliens and Avatar, has joined the board of AI company Stability AI, which develops generative AI models for image, video and audio. This comes nearly one year after the end of the SAG-AFTRA strike, which sparked fears over AI's impact on Hollywood jobs. Well, Julia Boorstin joins us now, along with James Cameron and Stability AI CEO Prem Akaraju, who took the job in June after joining a funding round. Julia, take it away. Morgan, thanks so much. And James and Prem, thank you both so much for joining us here today on the heels of this news. James, I want to start with you. Why does it make sense for you to join the

board of this company when there are so many other generative AI and visual effects companies out there right now? Well, there's certainly an explosion in that market. It's just that I've known Prem and Sean Parker, who are the two principals and the leadership of this new entity. And I've known them for years now because they were part owners of, or are part owners of Weta Effects, which is the big VFX company that I work with down here in New Zealand. That's where I am right now working on finishing Avatar 3. I know them well, and I think that we have a mutual respect for, you know, I certainly respect their intellect and vision. I get along with them very well, and I trust their leadership. And we've talked about these ideas for literally years now

of what can be accomplished in this space. And the interesting thing is we sit at a unique nexus, you know, between big tech and Gen AI on the one hand, and on the CGI-based workflows associated with movie and television visual effects, that's a unique trade space to be in. Because we all think that the next big leap forward is going to be to find a commonality, a common platform between those two fields, which are very, very different. You know, the way in which we have generated images for Avatar, let's say, and for all the other big visual effects films that I've been involved with has iterated forward from, for 36 years

now, I've been involved in computer graphics and CG imagery. It's iterated forward. It's now a highly mature art form. And Gen AI image creation, especially, you know, text to text to image, it works in an entirely different way. And right now there is not much of an intersection set between those two worlds. That's where we want to be. That's our that's our pressure point. Now, Prem, James just mentioned your vision. You know, he also mentioned that you came in as a new CEO to this company in June, along with Sean Parker, who joined as chairman, and a number of high-profile new investors coming into this company.

In effect, to overhaul what it's doing, what is your vision for this company? Are you focused on the enterprise market, on consumers? Where does it go from here? It's a really great question. And we did have amazing investors that came in with us in this round. KOTU, Lightspeed, Greycroft, Eric Schmidt, and Sean Parker. It's really a testament of what the technology is at the company and the team that's there today. Our strategy is really twofold.

It really is enterprise. On one side, there's many companies that are paying us right now to license our enterprise software in a commercial setting. But it's really what Jim was talking about, which is building pipelines and application layers into visual media and transforming visual media going forward. I think that the next five years is going to be incredibly exciting. Our difference is that we're a multi-modality company. We have image, video, 3D, and audio. And I really think the combination of those multi-modality is really where, you know, solutions are going to come from for artists to really use this on the rails.

Now, we just saw some images that were created by your company. And I'm curious, given that the writer strikes and actor strikes were so concerned and focused on the potential negative impact of AI on jobs here in Hollywood, which is where I am. James, are you concerned about those new rules and restrictions effectively governing the entertainment industry, limiting the potential of a company like Stability? And how do you plan to think about where the opportunity is given that? Look, I think it's right to be concerned. I think the points that have been raised are valid points. I think it's absolutely critical that we proceed with safety and ethics on the one hand, in parallel with innovation on the other hand, and that we strike a balance. Certainly at Stability AI, we're going to be working in a space that empowers artists, in parallel with innovation on the other hand and that we we strike a balance we certainly at

at stability ai we're going to be working in a space that empowers artists it's all about it being artist-centric i'm an artist myself not just as a filmmaker but i i paint i draw i imagine i design i do creature design and so on it's what i love i love love working with the artists. I work all day every day with CG artists, visual effects artists. We want to put tools in their hands that empower their creativity. I'm not about replacing actors. I love actors. The Avatar films are about preserving what the actor creates and imbuing that into a CG character to really kind of expand our visual palette, it's almost really more taking the place of makeup and certainly not taking the place of acting.

I love writing. I love writing for actors. I love storytelling. They're my partners in creating these stories. But we also feel like because the film industry is contracting, the kinds of movies that I love to make that are big, spectacular, world-building type films are going to get priced out of being possible to be made. So we need to make more efficient workflows that take out a lot of the kind of mind-numbingly

dredge work, needlepoint type work that goes into VFX and free the artist to be artist, to be creative all day long. And also to speed up the cadence with which we can make these films. It takes me four years to make an Avatar film. Nobody wants to work on a film for four years. We'd love to speed up the cadence. I'll work with the same artist. I don't think we're going to lose one job. We'll make jobs. Every time new tools come into the marketplace, it sort of democratizes

the ability to make films. It was digital cameras. It was readily available software for nonlinear editing and things like that, that created this huge influx of filmmakers and creatives into the entertainment business over the last 20 years. This is just the next technological evolution. It's like going from silent to sound. It's like going from black and white to color. And now, you know, it's taking CG and elevating that and making it more user friendly for for the artists

uh it's great to have you both here this is morgan back in studio and i'm going to pick up right where you left off james um because that was my question for you as you are on site shooting avatar 3 right now a are you folding some of these ai capabilities into the film you're making right now and b how is this ultimately going to affect production schedules and release dates and things like budgets? I think it can bring budgets down. I think it can make more opportunities for more films to be made. You know, because of the pandemic, the entire theatrical film business contracted by 25 or 30 percent and it has not rebounded. You know, and streaming can't afford. at first they were throwing stupid money at it and of course they could afford some big science fiction and fantasy series but now that's sort of pulling back as well as as people are struggling

for market share in that space so the kind of films and the kind of stories that that i like to tell need to be continued to be made possible through making the workflows and the kind of stories that that i like to tell need to be continued to be made possible through making the workflows and the pipelines more efficient to answer your first question the avatar films have never used generative ai it's really interesting i think people think that oh the computer just makes that movie well no it's literally thousands of people thousands of of you know human eyes and minds and and you know artistic sensibilities that make these films. Can we make our output faster and cheaper by incorporating a lot of these new generative AI tools? Absolutely. Absolutely. We just don't quite know how to do it yet, which is why I sit at that tectonic interface between the CG world that I've lived in for the last three and a half decades and the new generative AI world, which promises wonders. it's not iterable enough. It condenses images out of vast data sets

in a way that seems quite magical until you get under the hood and you look at the algorithms and the models required. And I always believe that the best way to learn a language is to immerse. And this will also be my learning curve of how these new tools work. Prim, finally, I saw Alien Romulus a few weeks ago, and they used some AI to bring

Ian Holm back. I thought it was a fail. I enjoyed the film, but found myself wishing they hadn't done it. Made me think that just because you can do some things doesn't mean you should. How do you view the line on the use of some of these technologies versus live actors? Look, it's going to be market-driven if you didn't like that aspect of the film. I'm sorry, Prem, were you going to jump on that? No, no, go for it. You go in that aisle. If people don't like the results, then, you know, I think that film did pretty well,

but I personally wasn't satisfied with that outcome. That's not how we do our digital characters on an Avatar film. We use a very, very different methodology and I'm skeptical about that part of it. However, I think it's an interesting use case because they did go to the estate of Ian Holm and they did negotiate for permission to use his likeness. So from an ethical standpoint, setting aside the aesthetic end result, from an ethical standpoint, they did it right. And there's certainly, you know, Assembly Bill, I can't remember which one it is, 1836, that deals with that issue of deceased actors and their likenesses and so on.

So people are definitely getting into this, and they're definitely putting guardrails on this. And I think that's a very healthy space to be in right now. Frame, it was big of you to yield your time to James there. Unfortunately, now we are out of it. Thank you both. And thank you to Julia Borsten for bringing us a great interview. Well, up next, why shares of NVIDIA are among the big winners on Wall Street today as a major insider completes a big stock sale. Be right back. Welcome back to Overtime. Check out shares of Nvidia up 4% today. Big part of the Nasdaq's outperformance, the top stock in the tech sector. Part of it could be a headline from

Barron's noting that CEO Jensen Huang has finished his pre-scheduled sale of 6 million shares. Barron's notes that he grossed around $700 million in proceeds. The chipmaker finished the day again higher, nearly 4%. And speaking of chipmakers, up next, what's at stake for Micron when the company reports earnings tomorrow? Welcome back to Overtime. Micron is the big name on tomorrow's earnings calendar. Sintes and Jeffries are also set to report on the economic front. We will get the latest readings on the health of the housing market

with the new home sales and mortgage applications reports. John, Micron, latest tests on AI and this move we've seen in chips. A lot happening in chips. And Morgan, I'm just glad to hear that James Cormoran felt the same way I did about AI and Romulus. We got record highs for the S&P and the Dow. Hurry home.

I will indeed.