Power Lunch - Big Tech’s Big Spend, Countdown To The Fed 7/30/24

Episode Date: July 30, 2024

The pressure’s on for the ‘Magnificent 7’ cloud giants when they report results this week. They’ll have to prove that all of the money they’re spending to build out AI will eventually pay off. We’ll discuss. Plus, we’re just 24 hours way from the Federal Reserve’s latest decision on interest rates. We’ll reveal what our mock Fed panel says they should do here. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody, and welcome to Power Lunch alongside Kelly Evans. I'm Tyler Mathes. I'm glad you could join us. We are 24 hours away now from the Fed's decision on interest rates and 24 and a half hours away from Jay Powell's news conference. We're checking our watches here. We'll hear what our mock Fed says the Fed should do and what they would do if they were on the Fed's Open Market Committee. Looking forward to that. Before we do that, let's take a quick glance at the markets. The NASDAQ, the worst performer again, down 1.3%. The Dow is actually higher, Now, despite being weighed down by Mark and Practor and Gamble, both falling after earnings, as you can see there, down 5 and 10%. Goldman, though, and United Health are helping to counter the balance and impact the Dow positively. Microsoft weighing on all three major averages ahead of its results due out after the bell today. We talked a lot about consumer spending so far during the earnings season for Microsoft. It's about corporate spending on AI. Will it continue?

Will it lead to profits? Steve Kovac joins us now with more in today's tech check. Those are all the big questions. Eyes are on Microsoft. There's nothing else to say. No, look, the pressure, Tyler, is on for the Magnificent Sevens cloud giants when they report earnings this week to show all the money they're spending to build on AI is eventually going to pay off. And like you said, it's going to start today with Microsoft. The challenge here for Microsoft not to fall into the same trap alphabet did last week and ease investor worries that all those AI capital expenditures are going to be worth it.

CapEx has been increasing for the last year with Microsoft spending $14 billion in the March quarter, But when it comes to the payoff of all that investment, things are a little less clear. Two main ways Microsoft is making money from AI, though, selling AI services on its Azure Cloud and co-pilot to consumers and large businesses. So far, Microsoft's Azure Cloud unit is getting the most AI action with a few percentage points of Azure growth coming from AI in recent quarters. But we don't know what that comes out to in actual dollars. As for co-pilot, also not seeing much momentum there while Microsoft touts things

like increased engagement and some big customer wins, among customers, that is, there are very few signs companies are adopting it broadly. Last week, Morgan Stanley Research put out a report quoting a major farmer, CIO, who said co-pilot is just too expensive and there are too many concerns, sensitive data will leak out. And I've heard similar feedback from several IT pros throughout this year. Lots of testing going on in small groups of employees, but ultimately they decide not to deploy it to everyone. But investors have been, OK with that so far, as long as Azure cloud growth continues, it's resurgence.

The question tonight, though, how they react to CAPX, guys. Yeah, well, and that major question, we've got some data points to maybe begin to figure that out, but earnings will say a lot. Stick around and see because MegaCAP tech is in the red today ahead of Microsoft's earnings. Take a look at these declines because they're starting to get more significant. Microsoft down almost 2%. And investors are on edge after last week's disappointing results from Alphabet and Tesla putting a drag on the sector.

four other names in the Mag 7 are reporting this week. Joining us now to discuss is Rob Sanderson, senior internet analyst at Loop Capital. He covers Amazon and meta. Also on set with us is Daniel Ives, senior equity analyst at Wed Bush. He covers Microsoft, Apple, and Amazon. And it's great to have you here.

Great to be here. First of all, just want to set the scene. Talk to us a little bit about the peak to trough declines. Now we've seen in Nvidia, 15%, it's down 6% today. The rest of Big Cap Tech is down, I think, a trillion dollars in market cap the past couple of weeks. What's going on here? It's the white knuckles that started last week.

Steve talked about in terms of Tesla alphabet on CapEx. But in my opinion, this is the week. When we end the week, we're going to look back and say the AI revolution, the monization started. So I believe if I look at all of our checks, what we're seeing from Microsoft, from Amazon, across software, service now, Palantir, and others, this is the Prove Me movement for Big Tech. And that's why I expect gold medal performance from Big Tech playing out. this week. And if you look at the last 18 months, this whole bull market, skepticism, haters have hated, as we've gone up, this is just another speed bump on what I view is a tech bull market that continues for the next few years. And this will be, I think, a pivotal

historical week for big tech, starting tonight with Redmond and Nandela. Talk to us about Microsoft, which is a stock you follow. And then we'll turn to you, Rob, in just a moment. What are you expecting there and what would be the red flag moment? Sure. I think we're going to see upside on Azure from a cloud perspective, intelligent cloud. That's really the source of the upside. PCs and a lot of those are there. I think that's really background noise here.

I would actually expect not conservatism, but actually pretty positive sort of outlook going into next year about uptick from a co-pilot perspective, what we're seeing in demand. Then you talk about red flag, well, CapEx is going to continue to expand. To me, that is the right strategy. We are in an AI arms race. That's what Microsoft, that's what Alphabet needs to do. If there was a red flag, they see something about,

is there some sort of pause or hesitation in customers going toward copilot in AI? All of our checks, and around the world, we do not see that. I think this is a validation moment. And I think it sends the bears back into hibernation mood. Rob, that's the perfect place to pick up on this. I do think that's the big question. If it's all just about spend and ultimately kind of the supply side cost of things, okay, fine. If there's any sign that demand is weak because, for instance, co-pilot, well, it's just not delivering as much for CIOs as they might like.

That's a much different story. Anything you can add there? Yeah, well, I can't speak to the Microsoft side of it on co-pilot, but I would say that, you know, the monetization gains from AI at meta, as for instance, have been ongoing. Like, this is, you know, they've been doing some really important work on. their core AI. It's been driving monetization. They've been able to run much bigger algorithms because of the transition to GPU compute. It's leading to much better content matching, better ad targeting. It's also helping them with campaign automation through things like Advantage Plus. So it's this strategic gen AI portion of their spend, which is still up in the air,

and probably several quarters at a minimum away from any sides of monetization on that. But I would you know, sort of echo some of the comments that Dan is making on monetization for at least for social media and meta and ad tech, it's already happening with pretty large degree. I mean, this is the cause of the major revaluation and acceleration in meta over the past year to half. I suppose of all these stocks, you could say that meta, Apple, Amazon, these are consumer stocks. And Rob, I want to turn to you and Dan to you as well because you both follow Amazon. But Rob, let me start with you and talk about the consumer side of Amazon's business. And we're beginning to see some sort of incipient signs that the consumer is getting a little less,

has a little less propensity to spend. Are you seeing that? And how might that play out in the numbers that we see from an Amazon? Yeah, we are seeing the same signs that everybody's watching. And there is definitely some instances and anecdotes of softening, at least around the edges. The question is how systemic and how deep? If we go back to some of the data that we track on retail spending and e-commerce, e-commerce sales, according to the U.S. Census, came in about 8% for the June quarter.

It was 9% growth in the March quarter. And this is completely in line with expectations. It's a softish environment for retail spending. I think everyone understands that and appreciates it. The month of June deceleration from the previous run rate is an asterisk that bears watching. But the quarter overall is about in line with what expectations are. For Amazon specifically, their story in retail is about margin improvement and getting their cost to serve back in line. You've got a buy rating on Amazon and a target of 225.

It's now at 181. How about you, Dan? Talk to us about Amazon and then why don't you pivot a little bit to Apple, which is clearly a consumer stock, if ever it was one. I think the story for Amazon in terms of what's going to drive the stock, it's AWS. I mean, it's about cloud, the perception, Microsoft, Google, way ahead, them showing upside on AWS and really the AI story. You're talking about the biggest cloud player in the world. How could they monetize AI? That's huge to the sum of the parts.

And I think even a pivot into Apple, the AI revolution. to date. It's been godfather of AI Jensen, Nvidia, Microsoft, and really that's about it. Now the second, third, fourth derivative play out, but the consumer AI revolution goes through the walls of Cooper Tina. If you look where it cook, you have 270 million iPhones in a window of an upgrade opportunity, iPhone 16, will be an AI-driven super cycle, and it speaks to my view,

despite the white knuckles we're seeing, it is 9 p.m. in the AI party that goes to 4 a.m. I can't stay up that late. So let me just throw one thing in there. These numbers on Apple are looking backwards. They're looking backwards from March through to June. Correct. This quarter, June through September.

This is not the upgrade quarter. It is like the last couple of weeks will be because they usually they usually announce it earlyish September and by the last week, week and a half of September. But it's that next quarter. It's the October quarter. That's the first quarter that you're going to be. you get of the iPhone sales. I want to go back to CapEx a quick while we're talking about Apple

because we learned something really interesting about Apple yesterday. They're not out there buying boatloads of Nvidia chips. We heard Mark Zuckerberg and Jensen Wong yesterday had this love fest that, of course, Jensen loves them, because Mark Zuckerberg is spending gazillions of dollars on these Nvidia chips. That's not the case at Apple. Apple, actually, we found out yesterday,

they disclosed in a paper. They're using Google-made chips. They were renting chips from Google for about $2 an hour, times gazillion chips, to train their AI models. So they didn't even need Nvidia. So it's a different strategy a little bit than what we've been seeing from some of these other guys. They're training on these Google chips, and then they're doing what's called the inferencing on their own chips, on their own servers, which means they don't have to spend as much

on CAPEX. They're using the same chips when you ask Syria a question in this new Apple Intelligence. It's the same chip that's in your MacBook right now answering that question for you in the cloud. And I'd say this, you have 2.2 billion iOS devices. Right. So Apple has a unique advantage and no other, and you've talked about it, no other company has. Is there any reason to question whether its output will be as good as, you know, using the best chips? I don't want to say that they're not the best chips, but is there any...

We don't know yet. It just released to developers yesterday. Is that why NVIDIA shares it out of 6% today? That could be, explain a little bit of it, but, I mean, again, this is backwards looking. They've already trained him. I mean, presumably they're training more sophisticated models. But, yeah, that could be part of the thing hitting Nvidia today, but it's unclear. And to that point, this is not right now, they're the only game in town.

But in terms of chip, you will continue to see this play out. This AI arms race starts, and I think today is just good news and validation. Rob, let's tie it off here. We've heard from Google last week. We've got meta coming up, Amazon coming up. Those are the three stocks that you follow. Which of those three would be your main? most investable choice today?

I prefer Amazon over the other two. You know, I think that they have, as Dan mentioned, you know, we're kind of in that inflection upward on EWS. The Gen AI contribution is still building and has, I think, a lot in front of it. And they're kind of coming up around peak margins. So there's a lot of earnings contribution there. Look, the recovery in the retail unit economics, I think the street is just getting this, you very wrong. There's a meaningful amount of incremental earnings power, bringing the fulfillment network

back to where it once was. So I think you've got both reasons to own the stock on both core pieces of the business, AWS and on the retail business. All right. There's a strong call for Amazon. Thanks very much. Rob Sanderson, Dan Ives, always great to see him. Great to be here. And Steve Kovac. Thank you as well. We are less than 24 hours away from the Federal Reserve's latest decision on interest rates or next decision on interest rates. We're going to hear from one of our mock Fed members. about what he thinks should happen with rates right now. And what, if he were a member of that committee, he would say and do.

Power Lunch is back in two. All right, welcome back to Power Lunch, everybody. Ahead of tomorrow's Fed meeting, it is time to check in with our own mock Fed. Our panel voted to keep rates steady this time, but just barely. Split verdict here, four votes in favor of cutting three on the hold side. Have I got that right? Yes. Claudia Sam and Julia Coronado now joining Don Peoples in the cut camp,

excuse me, it's four holds and three cuts. We're joined now by one of the members of our panel who voted to keep rates on change this time around, Bill Lee of the Milken Institute. Bill, always good to see you. So if you were on the Fed today or tomorrow, you would be voting to hold rates where they are. Why do you say that? I think we're making too big a deal. out of the rise in unemployment rate. After all, four to four and a half percent is within the

bounds of most people's estimate of where the natural rate is supposed to be. So for me, the risk of a slowdown is really coming from consumers. And what we're seeing is that more and more households are having to get second jobs in order to make ends meet. We see that because the survey in the employment numbers show that households are not growing employment very much, but payrolls are. That means more and more people need that second job to make ends meet. And there we see the risk of a slowdown. And for me, the consumers are still going to be confident that they're still going to be spending so long as we don't see layoffs. And right now, we don't see any layoffs accounting for the rise in the unemployment rate. So that really makes the case that we don't need

to rush and accelerate any kind of rate cuts. And we need to make sure that inflation truly is on a downward trend. It takes three to five data points in order to make that trend convincing. And so that's it. Let's finish your thought. I'm sorry. Well, the case is really not so much when to cut, but how much to cut. And I think the real discussion is going to be where will target neutral rate be. And I think it's going to be much higher than where most people think. And that means that given the rise in the federal debt and the competition for investment funds, we may see some crowding out down the line.

But that is yet to be priced in by the markets. So for me, the key issue is hold now because the downside risks are not there, but the upside risk for inflation still remain. So where are you on a cut at the next meeting, which comes in late September? Are you anticipating that you will go from the hold camp to the cut camp then? And what would it be that would in that intervening period, what would it be that would change your mind? Or am I wrong?

And you're just saying, hey, let's just hold them here for as long as the eye can see. and when we start to see a difference in data, then I'll start to think about cutting. Definitely not stay where we are. I think we're ready to move, but I think one or two more data points will really make the case. We need to see the labor market continue to be where it is

and not get much, much worse, much more quickly. And we want to make sure that we don't see layoffs as the reason why unemployment rate is rising. The second thing I want to see would be a couple more data points. inflation and evidence that we are really on that downward trend. I think September is going to be in, if the things continue as the way they are now, September is a good time to start. To start cutting. So you're just a holdout for now, Bill, but there's nothing that would

keep you of a different mindset than what it sounds like the Fed is planning to do here with that September cut. As I said, the key to the unemployment rate rise is whether it's accounted for by a rise in the labor force or layoffs. And right now it's the labor force that's doing the the increase, and that is a whole host of factors that have nothing to do with the weakening the need for the weakened monetary policy. I guess a final question on this is, do you think that the Fed can message rate cuts with an economy that's still growing and inflation that while disinflating is still high and still has a lot of consumers, you know, angsty?

I'm not a big believer in forward guidance because I think the credibility of the Fed has really been trashed over the years. But if there's a time to start putting in forward guidance, this is it. And the markets need some verification for whether the Fed will be ready to cut in September or November or December. And that messaging has to be put in place at the next press conference. Otherwise, the uncertainty in the market is going to rattle everybody and make the recent volatility that we've seen nothing. All right. Bill, thank you for now. We appreciate it. Billy with the Milken Institute. Bond yields, as you just saw there, are falling along with stocks today ahead of that decision.

Let's get to Rick Santelli in Chicago for more detail. Some are citing mid-east, you know, what's happening over in Israel as well. Rick, I don't know what you're hearing. You know, there's a lot of reasons to see interest rates moving down. What's going on in Middle East and geopolitics, of course, is one. We all know that the Fed, at least at this point, certainly seems to be flagging a rate cut. next meeting, not the one tomorrow, or the first day today, finishes up tomorrow. And if you look at an intraday of tens, what's interesting is, you know, we're down three

basis points. We're pacing right now for a four and a half month low yield close. Tews are pacing for nearly a six-month low-yield close. What's really interesting today is the momentum trade, whether it's geopolitical or central bank driven. We now see all treasury yields open that two-day, a 10-year-up to a two-day chart, All treasury yields now, two, three,s, five, sevens, tens, 20s, 30s are trading below yesterday's low yields or have traded below yesterday's low yields. And that really makes a big difference. We see that there's still this urgency for investors to jump into many of these funds that are,

of course, fixed income, looking at the rally that's going to, in their minds, continue as the Fed moves towards a more sustained easing cycle next year. Now, if you look at a four and a half month chart, tens are on pace, as I said. And what's really interesting here is that many of us, including me, didn't think we'd test 4% again. Now, granted, we're not quite there yet. But this really has been an unusual rally insofar as the yield curve is still deinverting. So whether a bull or a beard deinversion, that is a significant development. And finally, we see that the onshore and offshore wand have weakened against.

the dollar. Now look at the strength the yen has. That's a dollar versus the yen. Right now, the dollar is at basically a three-month low as not only our central bank meets tomorrow, but at the end of the week, the Bank of Japan meets, and there's a good handicapping going on as to whether they're going to raise or not. We'll have to wait and see, but the currency is certainly reflecting the fact that they're going to see higher rates in Japan. Kelly, back to you. Interesting. We've got to tie it all in when you're talking rates, all these global developments, Rick Santelli. Still ahead. President Biden helps champion the inflation reduction act, and yet the bulk of the money is going to projects in red states. We will follow those dollars when Power Lunch returns.

Welcome back to Power Lunch. Tenable Holdings on the move this afternoon. Steve Kovac is back with that story. Steve, what's happening? Yeah, Kelly, shares are up about 9% here after Bloomberg reported. Tendable is basically putting itself up for sale, taking interest from potential. whether that's a strategic investor or private equity and the like. This is a cybersecurity company, which is kind of the hot button issue right now, of course, because of the crowd strike outage a couple weeks ago. And then that failed Wids deal for $23 billion that Google wanted to buy them for. That also fell through.

So kind of a hot area of M&A right now. You can see shares up just shy of 9%, Kelly. It is interesting timing in the wake of what happened with CloudStrike, Steve. Thanks. Meantime, if former President Trump becomes future, President Trump, could the Inflation Reduction Act be repealed or at least cut back in a significant way? And if it is, it might have some unintended consequences for his party. Pippa Stevens is following the money for us.

Well, Kelly, Democrats have touted the IRA as the largest investment in clean energy and climate on record, while Republicans have consistently tried to repeal it since it was signed into law. But complicating matters come November is that Republican districts have been the biggest beneficiary. More than half of the announced projects are in GOP-held areas. attracting 85% of total investments, according to data from E2. The IRA has also created nearly 74,000 jobs in Republican areas, according to the firm, compared to roughly 27,000 jobs in blue districts. Part of that is thanks to rural and semi-rural districts.

They tend to skew Republican offering more land to build factories, access to relatively cheaper labor, as well as proximity to prior manufacturing hubs. Now, while experts say a total repeal is unlikely, parts of the IRA could be struck down. Mona Dejani, Global Co-Chair of the Global of the Energy Group at Baker-Bots, said there could be stricter qualifications for the $7,500 EV credit, adding areas where guidance has yet to be clarified, notably hydrogen could also be at risk.

An E2 executive director Bob Keefe told me that the saber-rattling and the rhetoric around the law is already casting a shadow on projects. These are very capital-intensive, and lenders and developers want to see certainty, so if there's any question, we probably will see a pause on new. projects until the election. So one of the things that you mentioned there that could be subject to change is a $7,500 credit on electronic electric vehicles. A president Trump had been sort of critical of electric vehicles. Now he is less critical because Elon Musk has become favorably inclined to President Trump. I mean, that could play a part, but I think it's one of the

lowest hanging fruits. It's one of the easier things to strike down. It's also much newer. If you think about things like the ITC, that's been in place going back to 2006 and has really become part of the renewable story and has gained bipartisan support. So it's kind of the newer things that are on the chopping block. Also, if you think about that credit is on the demand side. And then if you're talking about Republicans and reshoring and wanting national security, that's more on the domestic manufacturing side. So things like the PTC, that's safer. It's more, you know, what can we take away that won't impact national security? What's more consumer-friendly? So that's why that credit is often cited as one that could be on the chopping block.

Very interesting. Pippa, thank you. Let's get to Kate Rogers now for a CNBC news update. Kate. Hi, Tyler. Israel says it carried out a retaliatory strike in a southern suburb of Beirut today. Israeli defense force officials say the attack targeted a senior Hezbollah commander who directed a weekend strike that killed 12 children in the Israeli-controlled Golan Heights. It comes as the White House says Israel has a right to respond, but that it's working to avoid an all-out escalation of violence in the region.

Another wildfire is leading to evacuations in California. The newly ignited Nixon fire has already burned more than 3,700 acres in Riverside County near San Diego. In northern California, the massive park fire has already burned 380,000 acres and is only 14% contained. And federal regulators said today Amazon can be held responsible for defective goods sold by third-party merchants on its marketplace. The Consumer Product Safety Commission today rejected the online retailers argument. It is only an intermediary between consumers and sellers, saying the company will bear responsibility for product recalls. Amazon did not immediately respond to a request for comment. Tyler, back over to you.

All right. Thanks very much. Kate Rogers reporting. Regional bank stocks continue to rally the KRE of 19% in July. We'll discuss some catalyst for the sector's next move higher when we return. It's time for today's three-stock lunch here with our trades. Victoria Green, CIO of G-squared Private Wealth. She's also a C-NBC contributor. Victoria, it's great to see a lot of stories to get to. So let's start with Mark taking a tumble.

In fact, having its worst drop in years, despite an earnings beat, the shares are down almost 10%. Do you pick it up here? I do. I love this stock. A lot of the sell-off was due to two different things. Number one, their expenses trended a little bit higher, lowering their guidance, which that has been the kiss of death for stocks, right? lower your guidance. Nobody loves that. But there's a lot due to one-time impairments and one-time

charges from a lot of the M&A activity. So number one, some of that has to be taken with a grain of salt. Number two, their Garda-cell HPV vaccination numbers in China, really bad, even though Garda-cell still grew 1% overall. And they're saying they're having to look into it, likely maybe an inventory shift in their earnings presentation. They talk about there's still over 120 million women in China, and the opportunity set is still there. So it's yet to be seen if this was more a one-time slowdown in China or if it's going to be lasting. I think the sell the off is overdone, and I'm buying the stock. It's got a great pipeline, been very active in M&A. It is something I think is a little bit overdone today. All right, let's move on to PayPal

higher on second quarter earnings than an upbeat outlook. Also raised guidance. Victoria, your thoughts on PayPal down 13% in a year? Well, I mean, can I be a little cheesy and say pay wow, right? PayPal turned it around a little bit. You know, they've come through. Venmo's looking strong. I really love some of their growth catalysts, especially the Fast Lane, which is their one-step checkout, making it a lot easier for people to spend their money. I don't necessarily need a lot of help, making it easier to spend my money online. But they are. They're moving beyond just PayPal and Venmo. I think that. They're looking at their enterprise payments platform. And so I think it's a good sign. And I see a lot of growth going forward. I think their catalysts

are intact. And fastling could be a huge catalyst for them. And especially as they continue to fend off other FinTech, PayPal has been full. phenomenal at keeping their market share, keeping their transaction values up, and keeping their transaction value of numbers growing. Sorry about that. So I look at PayPal and I say, I like it and I like where it's going. Yeah, a hat tip to Dan Dole of yesterday, who was very bullish on it, thinks there's a lot cooking there. All right, along to JetBlue then, whose shares are surging, thanks to a surprise profit in the second quarter. And they're saying they will defer another $3 billion in aircraft spending through 2029. The shares are up almost 12 percent. Some analysts calling it

a self-help story that is bearing some fruit. What do you say? No, no, no, no. JetBlue is Jet Boo from me. I'm a seller here. Take your $7. It's not even at seven anymore. It was at seven when I looked at it earlier. Look, they're trading. They're robbing Peter to pay Paul. We're going to defer this. We're deferring 44 airlines from from Airbus. They're trying to cut costs. They're exiting. I think they exited 15 more cities, 50 routes. They're downsizing. They're trying to sell a premium product. But guess what? That's not unique. Southwest pivoted to that now that they're not going to have open seating. Spirit today just announced that they're going to have a premium product. Spirit is going to have a premium airline product.

So JetBlue is targeting customers that they're still going to be a lot of competition for. I love the optimism in here, but they even acknowledge they're going to have higher costs in the second half. They have fuel costs potentially higher. We know wages that airlines have been growing. I just look at this. Number one airlines is not my favorite sector right now. But number two, I think JetBlue is just not in position to pick up the revenue and the margins that the market thinks they're going to. to pick up. I think this turnaround plan that they have is just going to end up getting a little bit grounded. Go Premium was the advice earlier this week from our guest as well. Interesting. Victoria, thank you very much. We appreciate your time today, Victoria Green. And we'll see how

Ms. Garrity responds to those comments because on a quick programming note, don't miss a CNBC exclusive with JetBlue's CEO Joanna Garrity coming up on closing bell overtime at 4.30 p.m. Eastern. All right. And speaking of air travel coming up, we will hear from the CEO of Airbus when we return right after this. Welcome back to Power Lunch, everybody. Airbus stock is higher today following its results. Profit did fall. Revenue, however, was higher, but the company previously warned about results given supply chain issues. Joining us now is Guillom Fari. He's Airbus's CEO, along with our own Phil Leboe. Phil. Tyler, thank you very much. Guillome, thank you for joining us fresh from the analyst call. I'm curious, during the call, I'm listening to it, and there

a number of questions from analysts about the target you have for production aircraft deliveries this year and whether or not you can hit them given the challenges in the supply chain. How do you convince investors that you will be able to hit this target that you previously brought down your guidance for several weeks ago? So first looking at the track record of what we did last year. Last year, we had a guidance for 720 planes. We ended up with 735, in spite of the backloading that we had by the end of this year, of last year. Now, this year we're facing some short-term challenges with a number of suppliers that was

unexpected in Q1. Unfortunately, they're impacting the final assembly line quite late because it's engines, its landing gears, it sits, so we have a short-term challenge that we need to overcome. And the guidance that we have changed, that we have modified, going from 800 planes by the end of this year to 770 is something that reflects the best estimate of what we think we can do. And we are with our suppliers working to secure their deliveries. We'll see what July delivers, but I think it's an encouraging performance that puts us well on trajectory for this revised guidance. Guillaume, what's the biggest issue for your suppliers right now?

Is it manpower? Is it skilled knowledge? that they need in order to increase their production? What's the issue? Well, actually, it's a diversity of situations. We have the engine makers. They are struggling with metal issues, with, I mean, with out-section parts. So it's availability of parts on time and with the right quantity and the right quality. So that's really a ramp-up challenge in their own supply chain. And for both A320 engine manufacturers. When it comes to seat, that's the diversity and the quantity of configurations that they have to manage, facing indeed some labor issues, some labor challenges.

So it's recovery from the COVID-19, where there was a very low level of activity in this part of the supply chain, going now to post-COVID-19 with a lot of demand and a lot of diversity on the configuration. And on the landing gears, again, that's another. situation. So I would say diverse situation, case by case, and that's what we need to manage, in the aftermath of a situation that was two or three years ago with supply chain issues coming from availability of raw material, from logistic challenges around the world, labor issues, inflation, and those kind of issues that compounded with each other. Guillaume, it's Kelly here. And if plane making were an Olympic sport, it's clear that you guys would

have the gold medal. outpaced Boeing for five straight years, if I'm not mistaken, on orders. That was even before their latest woes. So it grates me as an American to see what's been taking place. And I know it's graded you as well because you think it's given a black eye to some extent to the industry. What would you do to fix Boeing's problems if you were its CEO? And do you think kind of taking some of its suppliers back in-house and that sort of thing is the right thing to do here? Thanks for the question. And you know, we see ourselves as well as a U.S. company. We're procuring a lot in the US.

We are also assembling, producing in the US. We have final assembly lines for the 220, for the 320, for the 320, for satellites, for helicopters in the US. So we have thousands of employees and 100 of thousands indirectly. So I would not put it this way, and I will not comment for the challenges that we see at Boeing. We have also our own difficulties to overcome, and that's good enough for me. Phil, any quick comment there as we go? No comment on the Boeing thing. One quick answer, if I could, real quick from you, Guillaume.

A321XLR, commercial service this year? Of course, of course. We've just got the certification for the CFM variant, and the first delivery, the end in to service will be later in this summer. So we will see the first aircraft flying in the air in operational service by the end of this year, before the end of this year. That's great news because that's a very important product for us. We've been hearing about the middle of the market for now one or two decades,

and at Airbus we did it in five years, and this is a great product. You're making me feel worse. No, no, congratulations. Guillaume Ferry. Thanks for joining us. Philibault. We really appreciate you bringing that interview to us. Our Philibault.

We'll be right back. Welcome back. The Dow is hanging on to gains here, but the NASDAQ is still in the red, as losses continue across tech, Nvidia, Qualcomm, Super Micro, in particular are being weighed down today. In video, there you see it down about 6%. Crowd strike down another 10% as well. 40% so far in July, Ty.

A lot of people saying its problems are still lingering for the whole market. Yeah, it has been a rough, rough past couple of weeks for technology. Glad I was away for most of it. Thanks for watching Power Lunch, everybody. Congratulations. Swimmer Tori Husky, 100-meter gold medalist.

Went to my high school in Arlington, Virginia. Oh, congrats to her. And the women's gymnastics team. They just won. Spoiler alert. Closing bell starts right now. See in a bit.