Power Lunch - All About AI, and Mortgage Rates on the Rise 5/25/23

Episode Date: May 25, 2023

Nvidia is soaring after its AI-driven results, dragging any potential AI beneficiary up along with it. We’ll dig into the numbers, and also ask if AI is being overhyped.Plus, mortgage rates are now above 7%. And now hardly anyone is willing to move and give up their low interest rate. We’ll talk about what that’s doing to the housing market. 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. Glad to have you with us. Alongside Kelly Evans, I'm Tyler Matheson coming up all about AI. Invitya soaring after its AI-driven results dragging any potential AI beneficiary along with it. We're going to dig into those numbers, but also ask if AI is getting maybe a little overhyped. Plus mortgage rates now soaring to 7%. Hardly anyone wants to move and give up their low rates. Who'd trade a 3% or for a 7? We'll talk about what that is doing to this. the housing market. Kelly. Tyler, thanks. Hi, everybody. Before all that, let's get a check on the markets. We're looking pretty good. Almost at session highs right now. The Dow's up, actually, definitely at session highs right now. Now that the Dow has turned positive, it's up 48,

while the, I'm sorry, look how close this is. The Dow is up about 52 points, but so is the S&P. Pretty remarkable. That's a 1.2% move now to 41.63 for the S&P 500, while the NASDAQ is up nearly 2% today. Invigia, obviously, the big story. That euphoria is dragging everything higher. Here's where NVIDIA stands right now, up about 26% up 164% so far this year after losing exactly half

its value in 2022. We're watching the market cap getting close to a trillion $9.54 at last count. Pretty shocking. It could be the first semi-name up there. For more, let's bring in Christina Parts in Evelas watching the action over at the NASDAQ, Christina. Well, Kelly, the street was waiting for NVIDIA's quarter and guidance

to gauge pretty much the magnitude and the reality of this AI story. The company, The company's $11 billion in revenue for Q2 guidance, almost 4 billion overestimates is pretty much dispelling that bubble narrative right now and driving that stock 26% higher. Much of the beat, though, was driven by data center revenues when competitors like Intel and AMD actually saw a decline during the same time frame in Q1. And the company expects data center revenue to almost double in this current quarter. Of course, we also had double-digit growth in gaming, too, that helped.

I did catch up with the NVIDIA CEO, Jensen Wong, a post-earnings call last night about why he thinks he can grow so quickly in such a short amount of time. He told me not only have they been working on this for 15 years, but the nature of the data center will be very heavily accelerated. So instead of millions of CPU central processing units, you have a lot of fewer CPUs, but they'll be connected to millions of GPUs, which NVIDIA makes. In other words, customers currently are cutting back on buying those traditional servers that power our, computers that Intel and AMD have come to dominate just over the last decade, and instead buy graphics chips and the surrounding infrastructure, imperative AI. So think of all of the bits and bobs that go with it. Lastly, Nvidia's strong guidance should drive a significant upward revision of AI stocks

and attract inflows into other plays. Arista networks doesn't get a lot of play, but that's a big AI name, Micron for Memory, Microsoft because of its AI platform and TSM that makes all of these chips. And it's incredible that most of all, the computing stack ecosystem I just talked about is what's driving that stickiness and higher margins. And maybe why investors will be willing to pay consistently high valuations for NVIDIA. Christina, thanks. Christina Pardsoneverless. Here to discuss NVIDIA surge is Matt Bryson. He's senior vice president of equity research and hardware at Wedbush Securities.

He just upgraded the stock to outperform from neutral and raises price target to $490 from $290. If you're going to throw in the towel, Matt, you just got to whip it. just like you did. So tell us more about where you see the prospects now. Yeah, so I think it was pretty clear that there was demand on the AI side for Individus data center products. I just didn't think that it was going to be quite this explosive in Q2, particularly given the lead times required to get new chips from TSM, for instance. And so now, I mean, I look at my numbers, data center, revenue, roughly doubled.

Earnings have nearly doubled. And so, yeah, my price target goes up, even without having to revisit my multiple. And the valuation, I mean, normally I don't like when people say, well, but if you look two years out, it's value. But seriously, with NVIDIA, if you look about two years out now,

it's P.E. falls to, I don't know, 30. Give me the numbers. So for me, it's actually 40 off my numbers. I mean, having said that, depending upon how you, look at their data center revenues a couple of years from now. Certainly I could get more aggressive with my model. The thing with NVIDIA is you step back two years to the last cycle,

and they were roughly trading at 40 times. They're out of your number. So it is very consistent with where the stock is traded in the past. What do they do at NVIDIA that is better than their competitors? In other words, is it a question of they're always in the right place at the right time or they skate to where the puck is going? What is it? It's a little bit of that. I mean, you look at Nvidia there, Genesis was a gaming company. It's pretty amazing that they've been able to transition that to an AI company, and then you

look forward and they have a goal to also be the leader in things like autonomous driving. So certainly they're moving to the right place, but I think with AI, what they've done a great job of it's not just building a chip, and it's done some gaming as well, but building a software ecosystem around that chip. And so you build that software ecosystem and all the intelligence surrounding your silicon, and it gets very, very hard to this place. You obviously think they can sustain it. You've put a price target that's about $100 more than where the stock is today. Yeah, no, again, they've built a moat around their AI chips, And then added to that, they supply a lot of the infrastructure that you need to build around their GPUs.

So they supply the networking now. They got that through Melanox. Now they're building their own CPU. So managing the traffic that moves in and out of that graphics processor. So effectively building these adjacencies that will also allow them to grow that data center revenue in addition to selling more GPUs. All right, Matt. Thank you very much. we appreciate your time today. Matt Bryson, very timely guest today. Thank you for your insights.

Well, the AI boom that is sweeping the market, is it an overhyped bubble or a huge opportunity for companies, not just tech companies, to improve their businesses and make more money. Let's bring in Jim Tierney. He's CIO of U.S. concentrated growth and alliance Bernstein. Jim, welcome. Good to have you with us. Great to be on. Thank you. What do you say here? Let's get to the key question, and that is whether we are in the, the middle of a kind of bubble or mania where anything that touches AI or can plausibly make a case that they are AI related is sort of definitionally going to do well? We're certainly seeing that today. Tech is ripping. Data Center REITs are ripping. Communication services with meta and

alphabet. They're all up big. And the whole rest of the market's doing virtually nothing. I think the question is, will there be a benefit? And for Microsoft and Alphabet to spend billions and billions of dollars, they have the expectation that they're going to be able to sell something. And whoever's buying that has the expectation that they're going to get productivity out of it. And that productivity probably means fewer employees and cost savings. So if that becomes the ultimate outcome, which I think it has to be given the market reaction, there are going to be much more, many more beneficiaries other than just a few directly AI-related stocks.

Let's talk about that then, because that's a very interesting. and sort of curious part of this. Let's talk about some of the derivative industries and companies that could benefit from this push into AI that aren't just the easy ones that we could pick out a name in chips and networking and so on and so forth. Where else, who else is going to be a beneficiary here? Sure. We've talked about Schwab before and Schwab has lots of really big call centers. If you can automate some of that for your customer, you can reduce. heads. Look at restaurants and drive-thrus and the number of people taking orders. Again, if you can

use AI to take an order, get it right all the time. You're reducing head count. Even engineering talent or lawyers, if you can get 80 or 90% of the way there with AI and then you add and correct and edit and so forth, big cost savings across the entire labor ecosystem. Jim, how much does using Nvidia cost, though? I mean, the flip side of how well that stock is doing is that it's expensive to use their chips, or it might be expensive to, as a company, try to deploy tons of new AI technology, having to try different vendors, train your teams on them, decide if you're going to kind of jettison a workforce you've already trained on, you know, if you ever had to turn around and then pick them back up.

In the long run, great. But in the short run, is that really going to be as cost effective as we think? When you look at their revenue forecast for next quarter, it's $11 billion. When you look at that spread across all the big tech companies, it's not that huge of an investment, number one. True. But I think equally important is you have to be there. And if you're not there and your competitor gets a leg up on you, to a degree, it's also defensive spending. So you talked a little bit about Schwab and how it could be a beneficiary in the idea that maybe they can automate call centers.

I notice maybe you mentioned it. If it didn't went by me and I apologize, eaten. is another potential winner. So Eaton's an interesting one in as much as data centers represent about 14% of their sales in terms of all the electrical equipment that is being used in a data center. So really a backdoor play that most people wouldn't think about. Any others? I think when you look at the cadence as an example, in terms of software design and software

testing, the more chips that are out there, the more uses, the more software subscriptions, a cadence is going to sell. So many beneficiaries, and today we're seeing the direct AI beneficiaries, I think there's a much broader application, and that's probably where the market goes over the weeks and months to come. Then a quick final question slash observation, Jim, obviously the last couple times you've been on, we've talked about Schwab. You know, on the one hand, AI, and that is kind of making everybody, Bullets again, markets are acting better. On the other hand, high rates are still pressuring the banks and still kind of dragging us down in some other areas. So how does that tug of war shake out in the next four to eight weeks?

do you think? The most important thing for Schwab is that cash sorting keeps on coming down. And that's what we've seen year to date in terms of the highs in January, significantly lower in April and what we've seen so far in May. You also have Raymond James report after the close yesterday, talk about cash sorting being very moderate. I think that's the short-term driver for Schwab, and certainly the indication is that we're headed in the right direction there, even with rates at 5% or more. All right. Jim, thank you. We appreciate it today. Jim Tierney with Alliance Bernstein.

And before the break, speaking of AI, a quick programming note. We have a special edition of Power Lunch tomorrow at 2 p.m. The Power of AI. We'll take a deep dive across the industry, highlighting all the risks and opportunities, the fears and hopes of a revolutionary technology. That's tomorrow, 2 p.m. Up next, when companies say they expect consumers to cut back, many assume discretionary services like cybersecurity could be cut. Hello Alto ended last year down 24%.

But so far this year, it's of 46%. And it just reported a huge feat and large customer growth. What's driving this? One reason, cyber threats growing and specifically from China. Plus there's the AI of it all. How will it transform the industry? We'll discuss next. And as we do head to break, a quick power check beyond Nvidia, which is obviously a huge

power boost. On the positive side today, monolithic power systems of 17%. A chip-related circuit maker getting a boost by or from Vinty. On the negative side, a dollar tree down 9%. Cutting profit guidance, citing retail's hot new headwin, and that would be elevated shrink. That's another word for theft. We'll be right back. Welcome back. A warning from the U.S. government and Microsoft.

Chinese hackers have been working to infiltrate U.S. communication systems for some time in the Taiwan-adjacent military bases in Guam. According to the report, the hackers are not trying to disrupt things yet, but maintain access and conduct espionage for as long as possible without being detected. The warning comes at a time when spending on cybersecurity has continued to hold up, despite all the macro headwinds companies are facing. Names like Palo Alto, CrowdStrike, Fortnite, all of more than 30% this year. Palo Alto up 10% this week alone after that strong earnings report. Joining us now, Chris Ruland is CEO of Phosphorus Security and the former CTO of IBM's X unit. Chris, it's great to have you here today. What is the significance of this announcement from the U.S. government and Microsoft about the Chinese hacking?

Well, certainly an indication of compromise beginning in Guam is very interesting and unique and could be indicative of the interest or ability to disrupt communications in the South China Sea in the event of conflict. It's also very interesting to the types of devices and their methods in compromising these networks. How so? Well, a lot of times when we think about cybercrime or cybersecurity, the end game is a financial game or a mode of a ransomware. In this case, the adversary is infiltrating networks and implementing what we call a pivot or the ability to move around the networks. Also, as opposed to compromising computers, these attackers are compromising devices that you might see on a network, which are typically ignored in most cybersecurity doctrines and need to be evaluated. So there's a difference, isn't there, between a state actor performing espionage in their hacking and performing disruptive activities, in other words, really trying to interfere with operations.

What is this? And why would disruptive actions be so much more devastating, critical to this infrastructure that is being attacked? Well, we're so dependent on internet communications and computer networks. communications, the ability to disrupt our computer communications during a conflict could be significant, our systems just wouldn't work. And it's a much different approach than a traditional attack. You would see where someone is actually trying to gain financially from the outcome. These attackers are trying to gain intelligence about what we're doing, how we're doing it, and they like to have the option to be able to disrupt those communications at some point in the future. And that feels to me as an ignorant layman like the kind of testing that a hostile state actor would do before they would make some military move against Taiwan.

In other words, if they're testing our sort of infrastructure this way, wouldn't it suggest to you that they're doing it with motive? Well, the code can't tell us that, but the people can. But what's interesting is the timing, the national security agencies advised that this attack, Volt Typhoon, began at the end of January, early February, at the same time, the Chinese spy balloon traversed the country. So the timing could be linked. They could be multiple campaigns, but it's definitely very interesting. How would you describe, Chris, the U.S. versus China when it comes to kind of cybersecurity?

You know, who has the better systems, the technology? When we hear about these incursions, are we expected that we are up to the challenge? The United States government and the U.S. has great cybersecurity posture. We have great capabilities. However, we are under constant attack, and they are constantly probing for every weakness. It's really less about the technology and how they play by the rules. And in our case, the Chinese will hack into anything they can get into, whether it's to advance their own intellectual property for commercial gains or government footing.

In this case, communications are perhaps military advantage. Our government does not use our cyber capabilities to advance industry. And this is not a level playing field. How much should we be worried about this incursion? Well, this truly happens all the time. What's the most interesting thing about this to me is it started in Guam. And that seems like it might be a linkage to the relation of Guam in the South China Sea and makes it very interesting and very concerning and perhaps about what might happen in the future.

large military installations, U.S. military installations in Guam, that could certainly be compromised or affected or potentially degraded, I guess. Yes, Guam's a really key military location for us. It's very key in security in the South Pacific. And those communications are absolutely necessary. And once they're inside, they're not limited to Guam. They can traverse that network inside at will because many of these devices, once you're inside the network, they're very, very, very weak. We refer to computer networks sometimes as a hard candy shell with a soft, chewy center. And once you're inside, they can really have their way with us. All right. Chris, Ruland, thank you very much. Very insightful. We thank you. All right. Further ahead, cruise stocks higher for the year, occupancy on the rise. Wall Street,

out with a bullish call on one of the key players, plus some big moves in energy. We'll bring you the numbers next. Power launch will be right back. Welcome back, everybody, to Power Lunch. Right now, the Dow lower by just a little tiny. Well, look at that. Three, what, one-thousandth of a percent? All right, basically flat. But tech names leading to gains in the S&P 500,

especially the NASDAQ composite bond yields rising on debt ceiling worries. Let's go now to Rick Santelli in Chicago for more. Rick. Yes, there's a lot of volatility in treasuries, but many of the traders still believe that the long-term, issues are going to be few and far between when it comes to the debt ceiling. Will they be right? Time will tell. Look at an short intro of two-year note yields. And notice right after the release of the 830 data initial continuing claims how yields made their highs of the day, and that was for good

reason. 229,000 on initial claims with a huge revision from 242 to 225,000 on last week. And continuing claims now remain under 1.8 million of very psychological level. And if you open that up, you can see the two-year continues to be on pace for fresh, high-yield closes almost day after day, comping to mid, now early March. And many are talking about how generally short-term securities are having effect on Fed Fund futures. Of course they are. They have in the past, and they are now even more aggressively. Look at a one-year of a one-month generic bill versus Fed Fund futures for January of 24. And you can see the indirect relationship.

and let's get to it even more directly on this relationship. Look at a year to date of that same one-month bill on top of the dollar index. That's the reason the dollar index seems to be doing so well. The issue is what happens after debt supply? Debt issue is fixed. Well, many think you're going to see much more short-term supply-like T bills, so we'll have to continue to monitor all of those relationships. Kelly, back to you.

Thank you, Rick. Appreciate it. Let's turn to oil, which is dropping 3%. today on Renew, I don't know, Pippa Stevens. Why is it? Well, it seems to be a lot from these comments from Deputy Prime Minister of Russia, Alexander Novak, who was kind of pouring cold water on the idea that OPEC might take further production cuts at its meeting in just about a week and a half. He said to a Russian newspaper that he doesn't think they have to take any new steps. And that is in a direct opposition to

Saudi Arabia's energy minister who earlier this week said that short sellers will be outching and he said to watch out. And actually speaking of those short sellers, short positioning is now at its highest since prior to the pandemic, according to data from standard chartered. Wow. And then the last four weeks, that's really been increasing at the fastest rate in five years. At the same time, long positioning is down. So there just really is not much optimism in this market. But one thing to note, European natural gas now falling below the 30 euro per megawatt hour.

It's now at its lowest level since June of 2021. So prior to the invasion, remember last year, it was at $340 per megawatt hour. at 2550. So that has really been a dramatic decline. Is there a China angle in any of this? Well, so China, the LNG was subdued in the fall because they had their lockdowns for COVID, so that meant that more LNG was then going to Europe.

And then, of course, they got saved by the weather. But there are still a lot of concerns here because, you know, what if they have another drought this summer like they did last year? That impacts their hydro reservoirs. That impacts nuclear power. So out of the woods for now, but on a little bit of a shaky footing.

It's an interesting point because, you wonder if part of the decline in that gas has been all this talk about El Nino, you know, how we're supposed to have a really warm kind of global event for the next 12 months or whatever, but that could actually exacerbate some of China's energy problems and then in a way be bullish and not bearish. I don't know. And it seems we would have been, we would have moved beyond weather events and kind of these extreme changes and temperatures. And yet that's really is predominantly what's driving these markets a lot of the time. Still very hard to forecast.

True. Pippa, thank you. Pippa Stevens. Let's get to see Mamadie for the CNBC News Update. Kelly, here's the update in what's happening at this hour. The most conservative members of the Republican Party are telling House Speaker Kevin McCarthy to take a tougher stance in debt-sealing negotiations. 35 members of the House Freedom Caucus wrote today to urge McCarthy to hold out

for a deal with many of Republicans' top priorities. Now, this comes, as McCarthy says, the sides are coming closer to a deal ahead of the projected June 1st deadline. The White House releasing a comprehensive plan to counter anti-Semitism across the U.S. U.S. as reports of hate crimes have increased significantly in recent years. Doug Amoff, the husband of Vice President Kamala Harris and the first Jewish spouse of a vice president, said that anti-Semitism has divided American society and threatens democracy. And a new study from the National Institute of Health is looking to understand the effects of long COVID. It is some of the first research from the billion-dollar recover program and

define some of the most common long COVID symptoms. Still, many in the medical, community are calling for more research that offers solutions and treatments for some of the more unexplained symptoms like brain fog. Tyler, back to you. Right, Seema, thank you very much. Let's see here. Ahead on Power Lunch, the higher rates not matter. Most expected higher rates to cause a major slowdown, yet on the housing front, Toll Brothers CEO Doug Yearly says he is surprised by the level of housing activity given the environment. And the same goes for the auto industry where sales are growing, even with higher prices and higher rates. We'll discuss both of those critical industries when Power Lump's returns. Welcome back. After dropping in March, pending home sales

remained fixed in April. Affordability holds back signings, and that lacking inventory is keeping prices high. This is all happening as the 30-year fixed mortgage rate has jumped another nine basis points to over 7%. Let's get to Diana Oleg with more. Diana. Well, Kelly, there was no movement in home sales in April month to month, but pending sales were down 20% compared with April of last year. These numbers are based on contract signing, so people out shopping in April and making deals. Mortgage rates then were mixed. The average on the 30-year fixed dropped sharply in the first week of April, but then bounced back up and hovered about 6.5% for the rest of the month.

Fast forward to today. And that rate, which has been rising all week, just jumped another nine basis points today to 7.12%, according to Mortgage News Daily. So if you're taking out a $400,000 mortgage on a 30-year fix, your monthly payment has jumped by $168 in just the past two weeks. So affordability has gotten worse and supply has not improved at all. That, of course, is benefiting the home builders. Luxury Builder Toll Brothers beat expectations and CEO Doug Yearly said the share of home sales to builders has gone from historically about 10 to 15 percent to now 35 percent. But in a note this morning, analyst Peter Bufar said, Toll Brothers can do just fine, as I'm sure many of their customers pay in cash and Toll can help buy down that mortgage.

But that doesn't reflect a broad, healthy housing market. It's just their own dynamics. So, again, luxury builder kind of setting themselves apart from the rest of the market. Back to you guys. All right, Diana, thank you very much. Early on Squawk on the street, the Toll Brothers CEO, Doug Yearly, said he was not expecting results to be as strong as they were, given that jump in more. mortgage rates that Diana just talked about, and here's what he said about demand. So I'm really surprised that in the 6 to 7 percent range, we have as much activity as we do.

So, boy, you bring it down into the fives, and you're going to have more people that say, I don't need to hang on to this three and a half. For more on rising rates in the state of housing, let's bring in Bill Pulte, CEO of Pulte Capital Partners, private equity firm focused exclusively on building products. Bill, welcome. Good to have you with us. How do you react to what Mr. Yearly just said, and that is, boy, if rates were to come down, we would see activity spike? I think he's right. And I think a lot of people are thinking, well, interest rates have gone up so much.

That has to be bad for home builders. And I think what's interesting, Tyler, is you've actually seen the opposite of that. Meaning the biggest competitor to home builders is existing home sales. In other words, old homes. So new homes compete with old homes. And when the old homes, Tyler, have these low, more mortgage rates of 2, 3, 4%, you know, people do not want to sell their homes. And so what do they have to buy? You have to buy a new home. And that's really what's happening, Tyler, I think, in terms of why the builders are so strong right now. You see the market in a kind of, I mean, when one of those existing homes or pre-owned homes comes on the market, in the neighborhoods that I'm familiar with in this metro, they are going very, very fast. Just

despite those higher rates in the sixes. Correct. And frankly, it's because in some cases, those homes cost less money. And so if it was a competitive environment and you had a lot of those homes on the market, these new home builders wouldn't be selling a lot of homes. But with such tight supply,

just as a function of people not wanting to get out of their homes. And then you have the zoning problem, too, Tyler, where the builders are kind of restricted on what they can build. So it's kind of a double whammy, and it's created a really, really good environment for the home building stocks. And Bill, you guys focus a lot on kind of building products and what goes into the whole suite. So we've seen this split where those involved in some new home construction, some of the stocks are

doing okay this year, others where it's more about just housing a turnover more broadly are struggling in Home Depot, I think, might still be in the red. Where do you see the best opportunities right now? Frankly, I think that the home builders are the best opportunity. And I know it might sound biased because our family founded Pulte Group and I'm a former director of Pulte Group, but I'm no longer with the business. But I'll tell you, you know, the dynamic that's being set up right now, Kelly, where the big competitor to home builders is the existing home sale market.

The Federal Reserve, Kelly, has basically allowed the home builders now to have no competition with the existing, with the old housing stock. And that really creates a great runway for homebuilders. So I think you're going to see a little bit of deterioration and earnings on a year-over-year basis, but you're looking at a pretty strong housing market. When you get rates up at 7% on the 30-year fix, what does that do? And at what point does do the buyers basically just sort of say, uncle, I give in, I'm tapped out? It's a great question. I think a lot of people in home building are trying to figure that out right now.

I think basically the consensus is if you start to see job claims tick up, that's when you're probably going to see, Tyler. These interest rates really matter. But for right now, again, because so many people are locked in these homes that the Federal Reserve basically created at these low interest rates, people have to buy these homes, and right now there's only so many of them. Yeah, that's right. Bill Pulte, thank you very much. Appreciate your insights today. Thank you. Thank you.

Still ahead, sky high prices and rising interest rates have to be hurting car sales, right? Not so fast. We'll explore what keeps powering auto sales higher when Power Lunch comes back after this. Welcome back to Power Lunch. Analysts at City are growing more bullish on the cruise lines, upgrading Carnival from neutral to buy and upping their price target from 10 to 40, As analysts there say they're seeing continued positive momentum in bookings with no signs of abating, which they add is a stark contrast to what we're starting to see in other parts of the travel world, Carnival, Royal, and Norwegian, revealing this earning season that average occupancy has rebounded sharply in some cases to 100% or higher after years of loading up debt. City also points out that Carnival's balance sheet is at a turning point with the opportunity to become less of.

ugly in the coming months and years, Kelly, which of course has been a big concern. Back to you. That's a pretty big deal, Seema. Do we give them credit for this turnaround when people were concerned this debt could be an overhang for years? It certainly is a credit to how the cruise lines now are taking advantage of the uptick in revenue. We're now using some of that cash to pay down their debt. The question is, can they continue to do that? Does the pending recession potentially impact the booking's question? That is really going to be the central question over the coming months. All right, Seema, thank you very much, Sima Modi.

Now, as automakers and dealers get ready to kick off their three biggest months for sales, concerns about the business plateauing due to high prices and rising interest rates have given way to a new reality that sales just keep rising anyway, which checks out on the stock side, the S&P auto subsector, up nearly 40% for the year. Let's bring in Phil LeBoe to discuss, Phil, and how much of that S&P auto performance is the parts dealers like O'Reilly and AutoZone, and how much is the manufacturers? It's less the manufacturers. Take a look at shares of Ford, GM. Stalances is a little bit better, Toyota. I mean, those guys really haven't been doing much over the last year. Certainly Ford and GM haven't. And what you're looking at here is, yeah, the aftermarket parts retailers like the AutoZones, O'Reilly, as well as some supplier stocks, those that are focused on the next generation of vehicles. All of those are part of that higher move for the S&P Auto Index. But the thing that people are going to be focused on, Kelly, is, You and I and our neighbors, if we're interested in buying a car this summer, yes, you are going to find slightly better deals in terms of incentives and slightly lower prices.

But you're still seeing a very strong market in terms of demand. In fact, LMC automotive out this morning revising upwards its expectation that we will see auto sales top 15 million this year. That would be the strongest since 2019. That is not what people were expecting just a couple of months ago. We talk about incentives. This is something that the auto dealers and manufacturers have not had to do for several years. How big, how widespread will these incentives be and on what kinds of vehicles? Well, obviously, the older, less desirable vehicles get the biggest incentives. That's always been the case. And right now, the average is about $1,700. Now, you might sit and say yourself, wow, that's a lot compared to a year ago when it was only $1,100.

But you have to take the percentage of the average price paid, Tyler. This tells the story. It's going to be about 3.6% of the average price paid, which is just over 47,000. You know what it was pre-pandemic? About 10%. So the automakers, while they have raised the incentive, they're nowhere close to where they were pre-pandemic. So they've got some money to still spend and still put on the hood in terms of enticing people to come in and to buy a new vehicle. So how many cars, trucks are still selling at above MSRP, above sticker? The percentage is hard to know for sure. Overall, the average is that it's slightly below the MSRP right now. But look, if you look at certain pickup trucks, Tyler, the popular ones, you're going to pay above sticker. That's just the way it is

because there is that much demand that is there. Now, we are seeing greater production and greater inventory, but there's a lot more demand out there than I think people appreciated. That said, Phil, are we in a situation where we're seeing inventories finally grow, prices start to come down or rationalize on the EV side. I don't know about for everybody else, but use car prices are falling. So even though we're finally seeing sales pick up back towards more historical normal levels, like you said, you know, is it not quite the sort of cash cow that manufacturers might be hoping for? It depends on the type of vehicle that you're talking about, Kelly. And I know that seems

sort of like a cryptic answer. And in terms of the used vehicle prices coming down, while we still see strong demand for new vehicles. That's because the automakers can do a lot more in terms of incentives and can say to people, you want to go out and you want to get yourself a used auto loan at this particular interest rate. How about if you buy a new one? And we've got captive financing arms that maybe the interest rate won't be a ton lower, but they can put their thumb on the scale, so to speak, so that it looks a little more enticing to buy a new model versus a used model. And that's why we see a little bit of that depression on the used prices relative to what we're seeing with new vehicles. Let's talk quickly about EV pricing. We know Tesla has been cutting prices

this year. How much pressure has that put on other EV manufacturers? Are they following suit? It depends on which model you're talking about. Look at the Mustang Mach-E, Ford had to cut those prices. Why? Because it goes right up against the Model Y. And so it's a direct competitor. And it's easy for people to say, well, I'll go out and buy a Model Y instead of a Mach-E. On the flip side, Ford doesn't have any competition right now in the full-size pickup truck when it comes to electric versions. So it's raised prices on the lightning. When we talk to the Rivian CEO, R.J. Scouringe, he's raised prices. They've seen higher prices paid for their R1T because the demand is out there. You really need to see the entire market stretch out a little bit before you start to see some changes.

And one other thing, because of the way the IRA Act is written, some of the foreign models, electric models, it's not applicable if you buy an EV, but it is applicable if you lease an EV. So that's what you're starting to see those companies do. So the Audi's, the BMWs, the Mercedes, those EVs, you might be able to lease and get some of the benefits. You'll see a lot more EV leasing. That's going to be a lot more popular over the next year or so. Very interesting. Phil LeBow, thank you, sir. All right, and InVIDIA's overnight surge has the chipmaker nearing a trillion-dollar market cap. That is an exclusive club and also helping Charlotte Flair take the lead in this year's stock draft picked by Team Wu. First overall, Invidia, up more than 40% since draft day

about a month ago. And coming up, we'll trade some other big movers of the day, including one of Nvidia's biggest competitors in a fresh free stock lunch. We'll be right back. Time now for three stock lunch. We're going to trade some of the big movers of the day. AMD, up almost 10% moving in sympathy or together with InVIDIA, which hardly need sympathy for NVIDIA today. That's not really the right word. It posted Blockbuster earnings yesterday. Earlier this week, Bank of America said AMD is on the verge of taking away market share from its rivals here with our trades today. Delano Soporo, he's his founder of New Street Advisors. He's a CNBC contributor. What would you do with AMD, Delano?

out. Hey, Tyler. With AMD, I think, you know, it is trading kind of, you know, looking at the run-up recently, especially, I think it is in sympathy and with Nvidia and what's going on with the AI space. So right now, I think if you look at year-to-date up, you know, roughly 83 percent, for those folks that are near, you know, doubling their money from the beginning of the year, I think there's opportunity for people to take money out the table, to take profits, because I think you'll see that. I think you'll see the stock take a breather at some point. The run-up has been kind of crazy. So if you're a long-term investor, I would be cautiously buying on any dips. And I think if you look at the numbers, you know, AMD, their sales are a little bit down. If you look at the

specific areas in the business where it is, it's obviously on the client side and also in the computing and the gaming side as well. So down 6% quarter over quarter in the gaming side. I think the big thing here is demand the rest of the year. The AI infactuation is going to continue, but, you know, how much of that is actually that AI infactuation as well as, you know, what the business is doing and the actual demand for computers and servers going forward when you look at the valuation kind of stretched. All right. Let's turn to Best Buy.

Delano shares up 2%. Had an earnings beat this morning, but the CEO did warn she sees weaker spending ahead, partly inflation kind of hitting consumers' wallets. Do you like the stock here? No, I don't hear. And I think, as you mentioned, a couple of the reasons. One, inflation's still a concern. And there's also a bigger concern for me.

A concern that's becoming a lot more prevalent is, is sure. shrink and that's something that's going to consistently to persist in her retailers going forward. I do think that consumers, you know, when you look at Best Buy, a lot of the high ticket electronics, those are things that are consumers are staying away from in this current time. And that's going to ultimately be a headwind for Best Buy going forward. But at some point, that will bottom. So right now I'm staying away. Margins are also contracting.

If you look at them, you know, doing promotions and doing other things to incentivize demand that's fading, it will be a near-term problem. So for right now, I think it's one you would want to stay away from. Let's move on to one that is down almost 10% after earnings missed estimates this morning. That would be Dollar Tree, also slashed its profit outlook for the year. What do you say about Dollar Tree? Yeah, this is a tough one. And one that, you know, I still would be buying here. And in my case for that is it's having the same issues that are plaguing other retailers. You have inflation, consumers shifting the way they spend. But if you look at, you know, Dollar Tree, some of their products and some of what they provide are, you know, higher margin and

lower margin consumables, and those consumables are still being purchased, even though their high-ticket items for Dollar Tree are as well as not as much. So if you look at, you know, the investment they made in Family Dollar, I think that pays off the long run. Also, you'll see, you know, lower cost for them, especially when it comes to freight in the back half of the year. So I think that is a positive to potentially boost profits for them. down the line. So those are the reasons why I like it. It's what I've been holding for a while, and I'm sticking with it. All right. Buy low, and today, it's lower than it was yesterday. Delano, thank you, man. Appreciate it. Thank you. Delano Soporo.

Still to come, why Gen Z loves cash, and a risky bet from Nike pays off. That and more when Power Lunch returns. Welcome back, everybody. Just over three minutes left in the show and a bunch more stories to get to. So let's get right to it. Starting with the highly anticipated Ron DeSantis presidential campaign launch via Twitter spaces last night, co-starring Elon Musk, hit some technical problems, as you probably now know. Many people experienced the service crashing, which was blamed on the high turnout. The number of viewers reportedly peaked around 400,000. And, yeah, this was supposed to be kind of like a fun, whimsical way, both to...

How do you turn this into a win? I guess you say, well... You say it broke the Internet. It broke the Internet. There was so much interest there that it crashed it. I might add that we are still talking about it. So even though it's supposedly, you know, the kind of the worst case scenario for DeSantis, on the other hand, it's hard to get a lot of buzz for a presidential launch.

And there's been buzz going into this event, the fact that it didn't work out, tons of Twitter commentary about it. So it might have more long-term effect in a positive way than is expected. You needed to find an escalator to ride down. That's the thing. Sometimes these, I don't know what you call it, these memorable starts can be auspicious. All right, writing personal checks might say. seem like the simplest way to pay for things in the digital age, but it might be the riskiest,

too. New data show that banks filed 680,000 check fraud reports in 2022. That's nearly double the amount filed in 2021. Security experts say the majority of scammers target public mailboxes to steal and alter checks. They recommend limiting the number of checks you write and to always watch for unusual bank activity. How often do you write checks anymore? Often enough that we've actually had a check fraud issue. Oh, really? You wonder in this day and age to display the account and the routing number seems like a major security risk, and is there any way that we could move past that with technology now to

not expose that information? Interesting. And I try and wrap my check by mailing a check, wrap it in another piece of paper so people can't see that it's actually a check there. Speaking of payments, apparently Gen Z is opting for cash. A survey from credit karma found nearly 70% of Gen Z uses cash more now than they did a year ago compared to less than half of Gen X and 37% of baby boomers who would say that. I find that in, I went to a place yesterday and I pay, I was a restaurant and I paid with cash.

They hardly knew what to do with it. They had to go to another register to find change. I mean, it was just like, where's your credit card? Where's your Venmo? Whatever. You know, I read like in London, like 50% of the payments are digital and they're actually having issues with the unbanked, you know, with some of it, trying to keep these people involved in the payments that now grace society. Yeah, yeah. Who knows? All right.

It's coming back. TikTok is testing a chat bot powered by generative artificial intelligence. It's designed to help its users find content and get recommendations for more. The bot will answer questions and have conversations with users, according to watchful technologies, a Tel Aviv-based competitive intelligence company that uncovered what TikTok was trying before its announcement. TikTok has a good history of innovating. Snap, it didn't go so well.

Nike this morning released a sneaker, by the way, from Memphis Grizzly Guard, We know his colorful history, but they sold out in 20 minutes. Yikes, we shall see. Thanks for watching Power Lunch, everybody.