Power Lunch - A Good Start, The Future of Music? 3/28/24

Episode Date: March 28, 2024

The S&P 500 is on pace to close out its best quarter in nearly 5 years. We’ll look at some of this quarter’s winners, and ask the all-important question: can the gains continue into Q2?Plus, if you can’t beat ‘em, join ‘em! Recording artists and labels are embracing AI tools for productions. So we decided to try some of them out for ourselves in a live demonstration. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch, everybody, alongside Julia Borseton. I'm Tyler Matheson. Glad you could join us on this Thursday. Final trading day of the week and of the first quarter, the S&P 500, up 10%. It's best first quarter in five years, and we're going to look at some of this quarter's winners and ask the all-important question. Can the gains keep going into Q2? Plus, if you can't beat him, join them. Musical artists are embracing AI tools. We tried it out. Wait until you hear Demi Lovato singing about the S&P 500. We'll play that. for you coming up. But first, let's get a check on the markets. We see the Dow is up just fractionally just about 32 points, S&P 500, up just a hair, four points. Nasdaq down 24 points, just a hair. And here are the Q1 numbers for the major averages with only about two hours left of the trading hours left in the quarter. But Tyler, let's get over to what's going on with the markets. We've had a crazy strong first quarter. Absolutely. I can't read those numbers. They're so small, but they're good. Nevertheless, they're very good. The markets have made a strong first quarter.

At the end of last year, several firms, including Wells Fargo, Oppenheimer, and Raymond James made Invidia their top pick. That worked out. The stock is up 80% in the first quarter. That's a good decade for some stocks. GE, a top pick by Deutsche Bank, is up 40% so far this year. However, Boeing was also a top pick on the street by Citigroup, Bank of America, RBC, and Deutsche Bank. Boeing down about 26% so far this year. Let's bring in Stephanie Link. She is chief investment strategist and portfolio manager at Hightower and a CNBC contributor. She owns both GE and Boeing, one good, one not so good. Stephanie, it's been that kind of quarter, I suppose.

I mean, generally the market is higher, but there have been pockets of disappointment, as there always are. And that speaks to you always want to have a diversify. portfolio because not everything at the same time is going to work or not work, right? So I think the encouraging thing this past quarter was that we grew more than expected in the economy. We just learned we grew 3.4% in the fourth quarter. Inflation is coming down. So you have decent top line numbers, decent margin numbers, even margin expansion in some cases. And that led to 10% earnings growth. And I think that's probably likely to continue for some time. I think you could

do about 8, 10% earnings growth for the full year. But the most encouraging thing underneath the surface, and I know a lot of people are talking about it, but it's encouraging to see is this broadening out, not only in sectors, but also style. So February 9th, the Russell 1000 growth was outperforming the Russell 1,000 value by 8.7%. That was huge. But fast forward to today, Russell 1,000 growth is still leading value. However, that narrow, that gap narrowed to 3.7%. So that's encouraging. So it's telling you that people aren't just chasing the growth names. They are looking for value. And oh, by the way, the XLE, the XLF, the XLI, all value sectors are actually beating technology year to date in terms of performance. And so I'm not saying abandoned tech. I think you want to have some tech. I've been adding to some actually on the weakness. But I do think there are other areas in the in the markets that are getting more attention. And I think that's just healthier, Tyler. And Stephanie, before we talk specific names, you're overweight in energy, industrial, financials, and discreet. and housing is your favorite subcategory. Explain why your focus on these specific areas. Yeah, so housing, first and foremost, I think the consumer is a lot stronger than people give

them credit. A lot of that has to do with jobs and wages as well. Confidence is high. Savings is about 4%. We have $6 trillion on the sidelines in money market funds. People feel good getting about 5% just to, you know, park money and cash. So I think the consumer is, doing well, and I think that is translating into housing. Housing had their recession last year, and so we are starting to see a recovery. We got great housing starts numbers this week, up 10% sequentially. We had single-family permits on a year-over-year basis. We're up almost 30% year-over-year, and permits are a leading indicator. We're 5 million homes short in the country. We have 5 million millennials that are first-time buyers. And if you talk to any of the home builders,

they're telling you that they haven't overproduced. They're actually underproducing. the last 14 years. So the supply demand dynamics are pretty attractive to me. And the home builders are super cheap. Walk us through your thinking on Boeing. Now let's go right to the loser. I think it's going to, I think we're buying time, honestly. It's disappointing, clearly. But I think the management changes that were announced this week are very encouraging. We're going to have to wait until we figure out who they hire. I think they're going to go outside. My personal favorite would be Dave Cody, the former Honeywell CEO. I'm not sure he's ever even interested.

But I do think they're going to go outside to find someone, and I think that will be great. But I do think stepping back, looking longer term, this company is in a duopoly with Airbus. They have 13,000 planes in their backlog. Boeing has nine years worth of backlog. So it's not that there's not demand. Obviously, they've got to control the safety part and the quality, and I think eventually they will. And by the way, they already lowered guidance for free cash flow for the first quarter, negative four, four and a half billion dollars.

I think you're probably going to see that actually creep higher as you go through the year and they can start to produce more planes. Now, Stephanie, you just explained your perspective on Boeing, but also why you're not so bullish on the tech sector and looking at all these other areas. Yet you say that you own Snowflake and also added to it earlier this week. How do you see it different in terms of valuation? Yeah, no, it's really, it's a high flyer, Julia. It's a high flyer, so you have to right size it.

It was always a small position for me about a little bit ahead of the quarter. And I just added to it after the kind of, I feel like the dust has settled from the disappointment. And it wasn't the quarter that disappointed. In fact, they actually did 32% revenue growth, 33% product revenue growth. Margins expanded, free cash flow beat. So it wasn't that. It was really, A, the CEO is actually now going to be the chairman, and they made a new CEO announcement, who I like very much.

But people don't know him. He's not as popular or well known. And also, they were very conservative with guidance. Anytime a new CEO comes into play, I want them actually to set the bar low. Remember last year, this company had to lower guidance twice. So I think that the numbers are conservative. The stock is down 32% from its high. 18 times price to sales is not cheap.

I'm not going to try and sell you that. However, it's down from 35 times where it has traded in the last four years. So I think data is really critical for AI. And that's why I want to own this one. Stephanie, always good to see you. Have a great weekend. You too, Tyler. Thank you very much. Stephanie, Link.

And though markets are closed tomorrow, we will get a key piece of economic data. Let's go over to Rick Santell in Chicago for a look at how the bond market is doing ahead of that key number we're expecting tomorrow. Yeah, no. Going into it, well, maybe things couldn't be in a way more confusing. Let's harken back to this morning, shall we? At 10 o'clock Eastern this morning, we saw a university? final read for March. All three metrics, the headline, current conditions, expectations. They were all the highest levels since July of 21. Right there, you see the headline number at 79.4.

Well, for tomorrow, we're all going to be looking at personal income and spending and all the metrics for inflation that are built into that series of data points. And yes, I will be here with Steve Leasman. We will discuss it even though the markets are closed. go to CNBC.com, but maybe the most important thing I will be looking at is PCE year-over-year core. Our last look was 2.8, really it was 2.85. And what's notable there is, and that's a 10-year chart, it's the lowest level of inflation on that metric in three years, exactly three years. But it's still well above 2%. And therein lies the rub. Now, we've now learned that we don't need to be there to necessarily lower rates.

Well, tomorrow we're going to see exactly where it is and we'll redo all the metrics for the three and six month outlook. But at this point in time, 10 years where they currently sit are well above 388 where they close and a bit below 432, the high close for 24. Julia, back to you. Thanks so much, Rick. Well, tomorrow morning, watch CNBC.com for the key data of the day, PCE personal consumption expenditures. It is a key measure of inflation. We will be online with full coverage starting at 8.15 a.m. Eastern Rick will join Morgan Brennan and Steve Leesman to bring you the numbers, the news, and the analysis.

Again, that's 8.15 a.m. tomorrow on CNBC.com. I was going to sleep in until you told me that. You can now. You got to watch. I'm going to be awake, setting the alarm for that one. All right, let's get over today's breaking to today's breaking news. And that is that FTX founder, Sam Bankman-Fried, has been sentenced now to 20, 25 years in prison. Kate Rooney is live outside the courthouse with the story. Hi, Kate. Hey there, Tyler. Sam Begwood-Fried. It was sentenced to 25 years in prison. That's the big headline for

what U.S. prosecutors argue was one of the biggest financial frauds in U.S. history. It caps off the fall of the one-time crypto billionaire less than two years ago. He was living in a $30 million penthouse in the Bahamas and was really the face of the crypto industry. Today, he took a stand in a prison jumpsuit pleading for the judge's leniency. Much more contrite, apologetic tone than some of the defiance and evasion, really. We heard from him on the stand when he was cross-examined in the fall in his criminal trial. He said today his actions haunt him every day and said, I'm sorry. The judge today asking Bankman Free to forfeit $11 billion as part of that sentencing

and admonished. The 32-year-old pointed to the, quote, enormous harm he did, the brazenness of his actions and his exceptional flexibility with the truth, as well as his apparent lack of any real remorse. Also said he obstructed justice and committed perjury at least three times on the witness stand. He did say Sam Beckman-Fried was at risk of committing crimes in the future and said,

it's not a trivial risk at all, as the judge put at Judge Kaplan. Also talked about Sam Beckman-Fried's risk appetite. He said his fraud was another example of his pension for gambling, as he described it. He was found guilty Bankman-Fried was in November on the, seven counts of fraud and conspiracy his family today saying, quote, we are heartbroken and

will continue to fight for our son. His defense team plans to appeal, guys. Back to you. So, Kate, I know there's still a pending appeal or the expectation of an appeal, but put this in context here, forfeiting $11 billion, 25 years. How does that compare with other similar or similar trials and similar outcomes? And how much of that 25 years would he be expected to serve? Yeah, so, Julia, the big comparison has been Bernie Madoff, who was sentenced to 150 years. I'm told that was largely symbolic. He was 70 years old at the time. 25 years really was within the ballpark that legal experts expected.

I spoke to Mark Litt, who was prosecutor in the Madoff case and said that is pretty much in line. It's much lower than the sentencing guidelines, which had a maximum sentence of more than 100 years. So this was sort of the expectation. He is significantly younger than Bernie Madoff, 32 years old. And that was something the defense talked about today. He's still in the prime of his life.

In a lot of ways, it's a very intelligent, promising young individual who committed massive fraud. And they said, there's a chance for him to do good in the world. The judge saw it differently and said there's also the chance for him to commit another massive fraud, which he said really was a real risk. Elizabeth Holmes would be another parallel. She got 11 years. That, I'm told, was really the floor. Most people did not think he would get anything less than a decade or 11 years.

How to back to Julius' question, how much time is he likely to serve and where is he likely to serve it? So in California, potentially, his family is in the Bay Area. So they said that they will likely choose a prison around San Francisco. And it depends. You know, good behavior, parole is something to take into consideration. But it's about 85% of the sentence is typically what happens in these federal crimes. But they serve the majority. So he is expected to serve most of that sentence.

And then there's an additional three years where he's sort of under surveillance. But it will be the bulk of that. So, yeah, he'll be potentially 50 or so when he is eventually released. But there's some possibility for parole and things like that. But it's a little bit different in federal guidelines. But we'll see. Quite a long time, not necessarily a life sentence. Did I hear you correctly that he's been asked to return some $11 billion as part of this?

11B billion. billion does he have it that was my big question tyler we're still going to parse him through this but you know he has said that he's first of all his legal bills have got to amount to millions he's spending on that there's also a separate lawsuit from the bankruptcy case and the current ftx john ray who was in charge of the end run bankruptcy is running that and has sued his parents for clawbacks and there's other lawsuits going on so it's unclear where he's going to get that $11 billion. Those are the thoughts that, you know, he could have moved money offshore. But that is an eye-poppy number for somebody who claims that they probably don't have it.

All right. Kate, thanks very much. Kate Rooney reporting from the courthouse. Thanks, time. And coming up, we're going to do some bargain hunting in retail, but no, not the clothes. Dana Telsey will share some cheap stocks to buy. Plus, TikTok buying ads on the platform it helped disrupt traditional TV, all to prevent a potential TikTok ban. And we'll take a look at the growing uses of AI and the music industry, all of this, when Power Lunch returns. Welcome back to Power Lunch. Consumer sentiment hitting its highest level in nearly two and a half years. But with inflation still high, our next guest says she's seeing the consumer trade down. She's out with the list of six retail stocks that look like bargains. Here to reveal those names

and give us a read on retail overall is Dana Telsey, Chief Research Officer and CEO of the Tulsi Advisory Group. So we were just talking during the commercial break and you said, right now the consumer is squishy. What do you mean by that? What I mean by that is every day it's different. One day it's strong, one day it's weak. Macro news is flooding the landscape lately. And I'm seeing companies have lean inventories. And the consumer with inflation still high, interest rates first yet to come down, they're very, you can call it discerning, choiceful about how they spend. So each week and each day, weather good, weather bad, they're very choiceful on how they spend from all income levels. So tell us some of the names.

that you think are really benefiting from the trade down? I think you have the off-pricers that are benefiting the most from the trade-down. The TjXs, the Rosses, and also Burlington. You also have the discounters that are benefiting along with some of the dollar stores. And the interesting thing, particularly about the off-pricers, they typically generate a 3% same-store sales increase. Lately, it's been above 3, 5 and even 7%. What that means is they're getting the benefit of more consumers who are shopping their stores.

I am very curious, and you mentioned the off-price stores. The stores I'm going to mention are anything but off-price. It's the big classic department stores, the Macy's, the J.W. Nordstrom. I wonder what you think the future of those stores is, and specifically, talk to me about what you think's going to happen with Nordstrom, which may or may not go private. We're having a lot of change going on in the department store sector. They're catching up to, frankly, what retail needs to be today. You take a look at what Tony Spring is doing at Macy's, who's spent. over 30 years of Bloomingdale's and enhancing the assortment.

Look at those store closings that they're doing. If, let's just say around 150 stores generate 50% of Macy's sales and there are 500 doors, closing 150 stores is the right thing to do because you want to optimize the stores that you have. That are making the money. Exactly. They're contributing. Concentrate on those, get rid of the rest of it. Right. You take a look also at what these stores are doing with merchandising.

Certainly at Nordstrom, you're seeing more. unique brands that are coming in there, things that are unique to them. At Macy's, take a look at what just launched. They just launched G3's Donna Karen label that has been reinvented, and frankly to very good fanfare. So how are they going to be new and different to drive traffic? I think it's traffic and then conversion in AUR, and that's average unit retail selling price. I think you're in the beginning of it, but in the meantime, these off-pricers have the goods, they have the brands, and they're very compelled. Will Nordstrom go private?

Can they afford to go private? Are they going to be able to pay off some of the debt with that, something that remains to be seen? The rack business has been stronger than the full-line business for Nordstrom. Northrum. And I think it's being explored. On the other end of the equation, I want you to give us some more insight into the luxury business,

because you say that despite these tough comparisons, luxury goods sales are actually above 2019 levels. So among the luxury retailers, are some of them better position than others? Are there names which you actually think might be undervalued in this market? So when you look at luxury goods, the king of luxury goods is LVMH with over 75 brands and frankly in all different categories, from hospitality to Sephora and of course their key brands like Christian Dior and Louis Vuitton. They're one of the ones.

They're going to get the benefit of the first pickup out there. When the Chinese begin to travel, when they begin to spend more on some of the accessories, they'll be a beneficiary and their unique creativity drives that. When you look at other names out there, you take a look at tapestry and I just spent, time with the management there. The coach brand is delivering higher average unit retail selling prices and frankly gaining share. The tapestry capriacquisition, still on the come, but the confidence level in them being able to integrate Michael Coors, integrate the other brands, and deliver profitability is higher today than it was when they announced the acquisition. Give us three

stocks that are on your sort of A list. I'm not asking you to choose your favorite children, but I kind of am. If you had to, you've mentioned some of them, I can anticipate, but go ahead. I think Bath and Body Works with some of the new categories that they're introducing, the shift to off mall, I think the valuation's compelling, and they have 40 million people in their loyalty program. Take a look at Ralph Lauren, expanding the purview of their customer base, focusing on other categories like outerware, like accessories, like home, that's a real driver for them. And I take a look at businesses, for example, like Ulta. When you think about Ulta with their cosmetics range, mass and prestige, it's a driver. And let's not forget TJX, who when

you think about off price, they dominate and they're continuing to dominate. Well, certainly a good note to end on there with TGX, a discount retailer. So thank you for giving us some insight into the retail bargain stock. Thank you. I want to go spend a day with you someday. Let's go shopping. Let's go shopping. I would like to do this. Just go and hang with you and go see what you see what you like and don't like in various stores. We'll go to several. Get on your comfortable shoes and let's go walking. Go to a mall.

Yeah, we'll go to a mall. Garden State's not far away. I know. It's my like that. I want to rivers at my favorite malls. Thanks. Thank you. Thank you.

All right, still to come, Home Depot moving past simple home improvement and betting big on professional contractors. We have the details of that switch. Next. Well, as mortgage rates have shot higher over the past couple of years,

it's caused a slowdown in the housing market, with fewer homes being sold, you've got fewer people fixing up their homes to sell them or renovating homes after they buy them. That's creating a problem for Home Depot. A decline in the number of do-it-yourself projects is forcing Home Depot now to go after the contractor market, which it is doing with its biggest acquisition ever. Melissa Repcoe joins us now with more. Melissa. So today Home Depot announced that it's buying SRS distribution. And this is a company that specializes in selling to suppliers that do projects like installing pools, doing landscaping,

redoing roofs. And it's worth noting that pros are already a big chunk of Home Depot's business. About half of its sales come from pros. But these are pros that are bigger. And they really want pros to come to them for top-to-bottom supplies, not just for running in, like treating Home Depot, like a convenience store in the past. They want to get a bigger chunk of business. And so how does this play into the trends we've seen in Hope Depot sales over the the past couple of years. Is this an obvious solution to challenges they've had? It's really the latest puzzle piece in Home Depot's strategy. So, of course, it's a tougher housing market, and there's been a dramatic pullback in the spending on DIY after the pandemic. But also, Home Depot sees the

opportunity here. It's really an untapped market where it can get more sales from pros, which are just more reliable. A lot of us may not complete the project we started our home. These are pros that their career depends on it. And so they're placing just a more lucrative order and it could really move the needle at a time when the forecast for Home Depot is pretty tepid. And what about further different differentiation between Home Depot and Lowe's? Is this a piece of that? Yes. With Lowe's actually the pro business is pretty small. It's only 20 to 25 percent versus Home Depot, which is about half. I spoke to CEO Ted Baker today for Home Depot and he was saying that this will be meaningful in shifting that 50% to 55%

and it could even get more significant over time. That being said, Ted Decker told me he still wants to go after DIY customers. So they're not giving that up. They're just trying to be strategic about taking advantage of both pools of customers and obviously these pros, like I said, they're more reliable because they're not as likely to not do a project because of the weather or other factors like that. And they're going to keep coming back. the DIY person might do their project and be done for the next five years.

The contractor is going to be coming back because that's their business over and over again. Exactly. Let me ask you this question. You mentioned this acquisition, which certainly is one way that Home Depot can expand in the contractor market. But how do you do that? I take your point because when I go to Home Depot, you see people who are clearly professionals. But they're not there buying for the full job. They're there because they're short a few pieces of lumber.

or maybe they need some drywall spackle or whatever. Exactly. So how do you take that person and lure them away from the classic building supply company that they've been doing business with for years? It's a whole new muscle for Home Depot to learn. And actually, that was one of the things that Ted Decker, the CEO. He said, look, they're not just gaining a book of business from SRS. They're also gaining some expertise because this company they're acquiring has 4,000 delivery trucks.

They can get lumber and other things like that to a job site. And he also said they just know how to run a business and they have the relationships with specialty pros that Home Depot may not have. This is their biggest acquisition by far. Are there any concerns about integration or the fact that this might be a big and hefty and perhaps distracting project to merge these two companies? That's a good question. I mean, we know we are in a time where regulators are scrutinizing deals more closely than they were before. and Home Depot's leadership, Ted Decker, said that, you know, he does feel confident the deal will go through because it is a very different kind of business than Home Depot's been in. So it's not the same base of customers.

It's not really the same thing. So he feels confident that they can close the deal by the end of the fiscal year, which would be by late January. Fascinating stuff. Melissa Repco, thank you so much for joining us. Thank you. Now let's get over to Kate Rogers for a CNBC News Update. Julia, the United Nations top court today directed Israel to take measures to allow more humanitarian aid into Gaza. The International Criminal Court of Justice unanimously ordered the Israelis to take all necessary steps to ensure basic food supplies are delivered without delay. The order was requested by South Africa as part of its case accusing Israel of genocide. A 22-year-old man charged today with first-degree murder in a stabbing rampage that killed four people and injured seven-and-year-old. others in Northern Illinois yesterday. Police say the attacks happened with in 20 minutes of each other

and the victims included a 15-year-old girl and a postal worker. Police say the motive at this point is still unclear. And New York Mayor Eric Adams announced today that the city is opening permit applications to test autonomous cars, but there are some conditions. Companies need prior experience testing in urban environments to get approval, and there must be a safety driver in the car at all times. Julia, back over to you. Thanks so much. Meanwhile, TikTok launching a $2.1 million ad campaign with one goal to block its ban. That story's coming up next. Welcome back. TikTok fighting back against the potential ban of its platform, launching a $2.1

million advertising campaign. CNBC.com political finance reporter Brian Schwartz is here to discuss that story. Brian, explain to us the argument that TikTok is making with these ads and how important TikTok is for its five million businesses who use it. Well, that's exactly actually the argument that they're making, the importance of TikTok for their users, really, in part of least connecting that message to the impact, TikTok has, at least in the company's view, on small businesses. And you have to understand, you know, many of these TV ads are airing in states where there are five, at least five Democratic lawmakers up for reelection right now. And so these are, these are ads airing nationally and on local

TV, you know, areas. And this is, this is really key in terms of the tactics of how they're going to be lobbying as this bill is being reviewed in the Senate. You know, Chuck Schumer has said that it's going to be reviewed. And the question now is, you know, is this thing really going to move forward to the point of what the House bill had created and passed? Remember, the House bill in its form was that if it was actually signed it a law, it has to get to the Senate to do that. You know, bite dance would have about six months to divest this thing. And if they didn't, you know, TikTok wouldn't be allowed on U.S. phones and it wouldn't be allowed to be downloaded going forward. So, you know, the message is very clear. It's to be, you know, pitch this concept that

TikTok is for everybody can be used by small businesses. And also pitching that it's great for the economy and local businesses. My question, though, is what's the call to action here? Is TikTok imploring people to call up their senators and say don't vote for this bill? Is it that clear? I don't think they're saying it that way, but they are, you know, using, you know, I think that the call to arms here is to basically have users speak out more and more on the importance of TikTok in order to, you know, in a way, push lawmakers not to go ahead with supporting this bill. None of these ads at least that I've seen have said, you know, call your lawmaker or do anything of that sort.

But beyond the TV ads, let's keep this in mind. You know, what the company told us that there is going to be a digital ad component to this, there's going to be a billboard component to this where at bus stations and train stations, you are going to see this concept of the importance of TikTok. And that's all part of this over $2 million advertisement buy. So let's talk about the bill itself. It passed with a large bipartisan majority in the House. You suggested earlier that some of these ads are targeting states where Democratic incumbents are up for re-election

and may find themselves in tough fights. Why would they be targeting the Democrats? Is it because they think the Democrats are more persuadable than the GOP members? I think that's possible. I think we know when you look at it from a political standpoint and connecting it back to this policy, frankly, the idea could be that these people who are up for re-election, these Democrats, they could be more persuadable just because they're up for your election right now. I mean, some of the ads are airing in Ohio. Sherrod Brown, the very powerful senator from Ohio, is up for re-election this year. So these are some key players in the Senate within the Democratic Party that represent these states. So the theory could be if they keep airing these ads and these. these states, these senators represent those areas, that maybe they can kind of turn against the bill a little bit. Maybe they'll just dissuade them enough where, you know, this bill may not even get to the floor. Remember, we're not even at that point yet. They're still, you know, apparently reviewing this state. What has, what has Schumer said about that? Well, that's it. I mean,

so far from what I've, what I've seen is that it's this idea of reviewing it that they may have, may have a public hearing about TikTok. I read somewhere that the senators have had, you know, briefings about this, but we are not at the point yet where, you know, anyone's calling for this to be brought to a full Senate vote. So I think this could take a matter of months. And for TikTok, you know, that's an opportunity to run these ads. Well, 2.1 million dollars now, but my question is, what's next? Will we see them ramp up and spend tens of million dollars on this issue? It's clearly high stakes for them. Well, they're telling me that it's more than the $2.1 million that have been tracked through ad impact so far. So there is going to be more spending here. That's what the

company is saying. And the idea here is that I just think they're going to keep hitting these points over the next few weeks through April. And look, as we get closer and closer to November, I don't care what the policy is. They're talking about TikTok or something else. Lawmakers are going to start focusing on the reelection effort. So if they can drag this out the company and keep pushing back and delaying this, then maybe there's a chance to just keep running, running this back and holding on to it for a while. What is the small business use of TikTok? How do small businesses use it. They advertise and then you click through to their business. Is that it? That's what I've seen at least. That's right. And these, again, the ads, when you, when you look

through the spots, they're apparently bringing on people who have small businesses that use TikTok in the exact way you just mentioned it. And listen, it could be a compelling message for a lawmaker from, let's say, Montana, right? That's one of the states that's these ads are airing in. And so, you know, this is something that we really had to keep an eye on because if the senators start to waver a little bit, that could be a win for TikTok. Yeah, we're seeing the ad just run on our air, and the hashtag, keep TikTok. They're trying to get the message out there. Brian Schwartz, thanks so much for joining us.

Thank you. All righty, coming up, facing the music, recording artists are now leaning into AI tools for productions, and we wanted in on the farm, so we figured we'd try them out too. We'll play you a special tune when Power Lunch returns. Welcome back. More than two decades after piracy upended the music industry, a new challenge has emerged, artificial intelligence. As part of our ongoing series, AI Impact, we're examining how the music industry is grappling with how AI is going to impact its future and trying to get out

in front of AI disruption. This may sound like Demi Lovato, but it's not. It's an AI-generated song, created by YouTube's Dream Track tool, part of Google's latest experiments in Generative AI. The company is partnering with record labels, including Universal Music Group, to create guardrails to protect artists' voices from being exploited and to enable them to profit from custom AI-created music. Dreamtrak, which is being tested as an integration into YouTube's TikTok rival, YouTube shorts, allows creators to make AI-generated songs with the voices of famous artists. Nine big name artists are participating and being paid for their participation by YouTube, from John Legend to Demi Levato and Tea Payne.

Drink a tequila hanging with my friend. Yeah, AI's crazy, bro. I got that thousand people watching me. Bro, I ain't made a song like this in years. We were the first TV journalist to demo the new tool alongside Melanie Wilking, a YouTube creator who's part of the initial test. And we asked Dreamtrak to create us a song about the stock market. Two decades after music piracy threatened the music industry, it's facing another reckoning.

As music labels and artists decide whether to embrace the new tech or risk being left behind. We have to figure out how to effectively partner to drive innovation, to be able to adapt to new technology. I think you'll see that we've worked to try to understand where the opportunity is and to get out in front of it. YouTube wasn't the first to experiment with AI-generated music. Last year, the artist Grimes invited her fans to use Gen A.I. to create songs in her voice. If the songs are hit, she says she'll split royalties with them. As to when YouTube's Dream Track tool will be widely available, the company's still working on it. We know that there are challenges and a lot of work that we need to do to get to the place where we will be able to fully scale a product.

In other words, it might take some time before you have the ability to make your own song. In the meantime, 100 of YouTube's creators and their millions of fans are getting a window into what the future of custom AI music will look like. One thing that was really surprising about this dream track demo was how quick it was. It was almost instantaneous for this generative AI tool to create the music. So, Tyler, it's amazing to think about what's going to happen when these tools are widely available at scale. And instead of just having a custom playlist, you might have a custom playlist full of all custom music. So it writes the lyrics. It composes the music.

It merges them. And in this experiment, it is using the licensed voices of artists like John Lennon, Demi Lovato, and more. John Legend, yeah, Demi Lovato. John Lennon, John Legend. Yeah. I date myself. And it really sounded like them. I mean, it sounded like they were singing a song, but I've never before heard a song that includes lyrics about the NASDAQ and S&P 500.

And NASDAQ, NASDAQ, you're so hot. Yeah. But so what happens if these things become a hit? If one of these songs becomes a hit. If they then... Well, the Universal Music Group, the record label, is part of this experiment. Right now, YouTube is paying to make sure that the artists are compensated for the use of their IP. But down the road, remember that YouTube is a massive business.

You'd be able to benefit from advertising. You might have a subscription fee involved as well. So the idea is to really monetize these AI voices and make sure that these artists are participating in the profits around their success and not just having their voices stolen. Did you, the content creator there, did you think any of the songs that you heard that were created this way were any good? Well, they were definitely catchy, right?

They were? Yeah, there was a caches and a beat. And to me, I was just shocked how quickly they were generated. And also, if you didn't like one, you can make another one pretty much instantaneously. Really interesting stuff. Wow, the world is changing. Julia, thank you very much.

All right, coming up, best in class, our trader will give us her take on some of the top market form, so far this year as the first quarter of trading comes to a close. It's been a good one. Power lunch is back in two. Welcome back, everybody. Time now for three-stock lunch. We are going to look at some of the best performers of the first quarter. Here with our trades is our friend Eva Otto, CIO of ER shares up first. Meta platforms, Eva. Barclay's reiterating its overweight on meta. The stock is up about 37% this year. That's a good year, not just a good quarter. What's your trade here?

It is a good year and I still have it as a buy. It has been a long-term hold for us. We've been in it since the beginning. And we like it because actually it's one of our favorite magnificent seven because of their huge moat they have. We need to remember 77% of online users are at least on one meta platform. That accounts for 3.6 billion people. They have the top net income margin in their area, which is 29% compared to negative one for their peers.

And they have among the best EBDA margins that's, 46% compared to 4%. Fundamentals look great on a relative valuation again. It looks great that their enterprise value to EBIT is 20% below its peers. It's a clear buy and it's a long-term hold for us too. And up next, Disney shares have been rallying on analyst optimism. Disney having its best first quarter since 2000, up about 1% today and up about 35% so far this year. And of course, we have that big shareholder meeting next week. Eva, what's your trade on Disney? Well, it's on the news because of the Desantis and Disney settlement. There's no more any legal overhang that's very good news.

And I think investors are excited about this. But we need to remember, they're a long, long way since pre-COVID numbers. They used to make $12.5 billion in profit. Now they make $3 billion. So there's a big drop in their profits. On a relative valuation, they don't look that good. Their P.E. is 74. That's 74.

That's extremely high. It's double their peers. And most importantly, they're making much less money on much higher revenues. Their margins are 50% below where they used to be. And their revenue is actually the highest it has been. So things are not running as efficiently as they used to. It's a hold. All right.

Let's move on to the last one. Eli Lilly, this one also a top performer in the first quarter. The company having a banner year so far, the weight loss drug Zep Bound, expected to become one of the best-selling drugs ever. Shares are up about 35% just so far this year. Are you overweight on this weight-loss drug or not? Not overweight at all. I have it as a hold in the best-case scenario, if not a sell.

It is traditionally a slow-moving area, right? These are big companies. There's no high-revenue growth traditionally. But now we see high-revenue growth just because of their obesity drugs. They're growing by 20%. 20%, their average of the category is 2%. So their revenue growth is great. It's not as high as Novel Nordisk, which we like more.

But they stock, most importantly, in the last three years, has come up four times. If you compare it to the revenue growth, which has come up 50% in the last three years, there is a big inconsistency, inconsistency, see on how the revenue is coming up compared to the stock price. So as a result, their valuation is very elevated. P.E. is 134. That's four times their peers. And their net income is not as good either. So if you could get into Nova Nordics, which is not trading in the U.S. we would sell and get into Novo. If not, it's a hold. But, like, eventually we would sell.

Very interesting. Eva Ados, thank you very much. Great as always to see you. Have a good weekend. Happy Easter. And coming up, we'll power through as many more headlines as we can in closing time. That's next. All right. Just two minutes left in the program. We've got several more stories we want to tell you. Let's get right to it. Let's talk about rent. Prices for one and two-bedroom apartments grew in March for the first time in six months. This is according to Zumper. The average monthly rent on a one-bedroom apartment rose to nearly $1,500 on average nationwide, while a two-bedroom rose to more than 1,800. The only state statewide to see rents drop across the board was Arizona. Not sure what is unique there, but all the major areas assessed statewide. level the median price there declined to $1,311 in April. I wonder how this relates to the conversation we were having earlier this week about housing. And tight inventories, the fact that mortgage rates are still fairly high, starting to go down, but not down enough.

That's based some interplay there. All right. Meanwhile, CNBC make it highlighting how GenX folks in their 50s are woefully behind in retirement savings, despite nearing retirement age, according to Fidelity. The median 401K balance for American 50-somethings is just 60,000. $1,000. Now, Fidelity blames this on a lack of investment options and participation when many Gen Xers entered the workforce. Now, an interesting thing here is that younger people are actually saving more because of auto enrollment and auto escalation. That's a big thing. When you're automatically, the default is that you're going to put money away. You do it. And you don't notice

that you don't have that, which is really the way to go. All right, let's move on to a sports deal to tell you about. Alex Rodriguez will apparently not be taking over the Minnesota Timberwolves. The team's current owner, Glenn Taylor, says the deal is off and the team is no longer for sale. Arod and his partner, Mark Lorry, still own a minority stake in the team, 40 percent, I believe I read. Sticking with the sports business theme, the Washington, D.C. area, has struck a deal to keep the Wizards in the nation's capital, in the district, scotching a deal that would have had them move over across the way into Alexandria. That's it. Thanks for Washington. It's been great having you here.

It's been great to be here. Closing bells starts right now. Thanks so much, Tyler.