Power Lunch - Earnings & the Economy, Off The Grid 10/18/23

Episode Date: October 18, 2023

The two ‘E’s’ impacting stocks most today are earnings & the economy. The Fed is releasing its Beige Book on economic activity, while Tesla & Netflix have earnings on deck. We’ll get you set for both reports. Plus, the Biden administration just announced $3.5 billion in funding for various projects to shore up our energy grid. We’ll talk to Energy Secretary Jennifer Granholm about that and much more. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Hey, everybody. Welcome to Power Lunch for a, what is it, Wednesday. Alongside Kelly Evans, I'm Tyler Mathes. Coming up, the two E's impacting stocks, that would be earnings, that would be the economy, the Fed, just releasing the beige book on economic activity. We will have the details shortly. Steve is studying it right now. Tesla and Netflix reporting results after the bell, those are big numbers and we'll get you set for both of those reports. Plus, the Biden administration announcing $3.5 billion for various projects to shore up the energy grid. This follows a $7 billion investment in hydrogen. And we'll talk to the energy secretary, Jennifer Granholm, about that and much more. Kelly. Indeed, we will.

Let's get a check on the markets first, which have seen some big fluctuations in the past hour. We're off session lows. The Dow's down 178. We hit those session lows right around 1 p.m. improved a little bit after the better 20-year Treasury. auction then started sliding before we stabilize. The S&P is down 35 and the NASDAQ is down 1% right now. The NASDAQ and Russell's remain the underperformers. And bond yields have been moving higher, of course, until that auction. InVIDIA shares down again today, down nearly 10% in a week now.

That's $100 billion in market cap wiped out. Both City and Morgan Stanley cutting their price targets on the stock today following concerns that Invidia will be hurt by those U.S. government curbs on chip sales to China. Ty? All right. We start today with the markets. stocks falling as higher rates, higher rates, way on the, higher weights, why not, way on those markets, the 10-year yield getting above 4.9% earlier today, and that is happening as earning season cooks up. Let's bring in Jim Tierney, Alliance Bernstein Chief Investment Officer, concentrated U.S. growth. Can concentrated U.S. growth continue to grow if interest rates continue to rise? Absolutely. We're looking for companies that have real great secular growth drivers,

as opposed to cyclical growth drivers. So our entire purpose is to get through tougher environments. So we're not worried about what's coming, given what we own today. And where are you finding those opportunities now? Well, Abbott's a great example. And Abbott reported really strong earnings this morning. The fear around the stock had been GLP1 drugs and their freestyle Libre business.

We think that's an opportunity, not a risk. and you look at the rest of their base business continues to be incredibly strong, growing double digits. So Abbott's an example. I think ADP is another example, ADP in terms of what they do with payroll processing, and if rates are higher for longer, that means great things for their float income, which will drive more and more profit to the bottom line. So those are two great examples.

Jim, yesterday, where there was a sense that bond yields were rising for the good kind of reasons. You know, the data was better than expected. I think it was retail sales, industrial production. Today, I'm not so sure. Is this the bad kind of rise? Is it driven by, you tell me? And so how important are figuring out these moves to the direction of the stock market into the rest of the year?

It sure feels to me like we're at a relative peak on rates. The economy, even though the Atlanta Fed GDP now number is very strong, it doesn't feel, and you saw the beige book, doesn't feel like things are accelerating here by any means. and if anything, we're seeing some signs of weakness out there. So I think rates are topish here. When I look at equity multiples where they are in the high teens to around 20, that doesn't feel overextended.

But again, it all comes back to earnings. And if you can find earnings growth, those stocks are going to do just fine from here on out. Forgive me for asking a question I've asked a couple of times earlier this weekend. It is this. If I had told you a year or 18 months ago that bond yields on the tenure were going to be 4.9, almost 5%, would you have suspected that stocks on the S&P would be where they are today? I don't think you would have thought that as a whole, for sure, but I think you have to disaggregate the magnificent 7 and their impact on the performance

versus the broader market. And the reality is the broader market or the average stock is flat this year after being down a lot last year. So I don't think that the average stock has done nearly as well as the indices. So then how healthy is the stock market overall? I think the stock market is fine in terms of when you look at where earnings are and particularly a number of companies that can do well here. I'm not worried about the select secular growers. I think the risks using companies that are going to have disappointments. And I think the broader market might have some disappointments here. So you really do have to be selective in terms of what you own here. That wasn't a landline, was it, Jim? I believe it was.

That's a throwback. The old school, man. Indeed. Jim, thanks for your time today. We appreciate it. Thank you. Jim Tierney. Steve Leasman has been pouring over the Fed Bejibook.

Let's get to him now for the details. Steve, but what are we learning? More like speed reading, Kelly, rather than pouring over it. Little to no change in economic activity in the Bayebook, the collection of economic anecdotes from the 12 Federal Reserve Bank District's consumer spending set to be mixed. Tourism improved, but some districts reporting a slowing in consumer travel and yet an uptick in business travel in a few districts.

There was a modest decline in loan demand at banks. Delinquency rates were still set to be historically low, yet they were also set to be slightly increasing at this point. Multiple districts report improving outlook in the manufacturing sector. And I'll just pause here to say that these economic anecdotes may take on more added importance because it seems like more and more Fed officials are relying on anecdotes rather than the data.

The data has been so strong, but it seems like the anecdotes, as witnessed in this page book, seem to be a bit weaker than the strong data. The outlook for the economy is generally stable or slightly weaker. Holiday shopping outlook was said to be mixed. On to the important sectors of labor and prices, first labor. The labor market continues to ease with improvements in hiring and retention. That's good news.

Less pushback from candidates on wage offers. But employers continue to have to modify those contracts to offset higher labor costs, including offering things like work at home and lower signing bonuses. Prices increased at a modest pace. The input costs increase at. have slowed or stabilized. Again, good inflation news. Input costs are still rising, however, for services, something the Fed has been watching carefully. And sales prices are increasing at a slower rate than input prices. That's a margin compression story right there. Businesses are

struggling to pass those costs along, as you can see. Now, firms expect price increases to slow or to come into a slow rate in the next several quarters. Kelly, I'll leave it there. We just want to emphasize you guys like Barkin, even Waller out there talking like, you know what, the data seems strong, but our outlook is really for the economy to slow down, and that's a lot based on the anecdotes they've been talking, they've been hearing from different business context of theirs. All right. So Steve, just net this out for us. Any change you would glean from this or officials might glean as they try to figure out whether we need, for instance, another rate hike maybe in the next couple weeks or maybe just before the end of the year. No, it's like,

you know, you got the white, the whites in the washing machine. Now let's throw the, the, the, the, the, uh, the, the, uh, the, the, the stripes into the, just put it into the hopper there as another piece of data that's out there. And remember, I think the operative phrase, I think what we're going to hear tomorrow from Powell is a message of patience. So this goes in there. And now we wait to see, does the data begin to reflect the slowdown that we seem to be hearing in the anecdotes? Because as you know, we've done nothing but mark up the third quarter and even a little bit the fourth quarter because of that strong retail sales report we had. No, and it's been my experience. You know, I talked about this the other day, but experience around town as well. There's weakness showing up, you know, kind of in front of me, but not in the data yet.

So who knows? Steve, for now. Thanks very much. We appreciate it. Steve Leasman. Let's switch gears and talk earnings with Tesla set to announce their third quarter results in just a couple of hours. Investors muted. Shares are down about 4% this session.

It's one of the top losers on the NASDAQ 100 today. Earlier this month, Tesla said its deliveries dropped 7% quarter on quarter, but that they still aim to keep annual target delivery. of 1.8 million vehicles for the full year. Here with us on set is Tom Narayan. He's Global Autos Analyst for RBC. Thanks for taking it. I know it's a busy time in your space right now between everything going on with the Big Three

and now Tesla. What's your feeling going into the yearnings this afternoon? Yeah, obviously expectations are pretty bad, pretty low. They lowered the delivery number. A lot of that had to do with some production cuts that happened, and they did telegraph that. I do think consensus numbers may be a little too high at 17.7%.

automotive growth profit margin. So they probably could miss that number. But really, ultimately, I think the focus really should be on the 4Q number. And whether or not they can hit this $1.8 million number for the full year. It's a stretch goal, right? Yeah, that would mean they hit $470 plus $1,000 for the fourth quarter. They maintain the target. I do think a lot of investors question when they can do it.

Have they ever done that before? Have they ever hit $470? No, they haven't. 460 was the closest two quarters ago. Interesting. So they need to hit that 470 number to justify the current price? No, just to hit the $1.8 million that they've targeted for the year. But I actually think a lot of investors are kind of missing the plot. I think they're focused too much on the car business.

You know, this is really a company, I think, that's pivoting to become a tier one supplier. And then ultimately a winner in autonomy. Elon says that on the conference calls, past two calls. You know, ultimately that's the goal. Well, before we talk about the kind of big picture autonomy goal, the supplier part is really interesting. Just explain that for a second. What role do you think they could end up playing in the auto market in the next couple of years? Absolutely.

So we all know about the charging infrastructure Wednesday 1. Incidentally, today, BMW announced that they're joining it. Wow. They were a loud vocal player saying they would never join it. So it seems like you have to join it, right? It's almost like a prisoner's dilemma. And now after that, there's batteries. They're doing 200 gigawatt hours of expanding.

that's 3 million batteries a year, all IRA subsidized by themselves. And then they do- For other automakers as well? Exactly. I think, well, I initially be for their own production, but 3 million incremental cars on top of what they're selling. We'll see if they hit that. Probably, I think, what they'll do is sell those to other car makers. They also do power electronics, that's inverters and e-motors. Is that a good business?

You know, I find this angle fascinating because they have such a head start. They have the capacity. and the rest of the industry now desperately needs these products, especially made in America. What would that mean for the business model compared with what they've done over the past decade, though? Yeah, I mean, it's not the most profitable business, but I don't think that's the goal here.

The goal is, for lack of better word, Trojan horsing into these OEMs, right? You did it with charging infrastructure. Now you can do with batteries and e-motors. Once you get in the door, and some of that is software, now you can get in with what you really want, which is licensing FSD, which is the real moneymaker. and which will expand the entire auto industry by... FSD, meaning what, for those who don't know?

Well, their term is full self-driving. Okay, full self-driving. Okay, full self-ta. Not appropriately named, but it's really a level two-plus product where you drive where your eyes have to be on the road, but your hands off the wheel, but it is an incredible product. It only probably has around a 5% take rate of Tesla's. We think they're going to lower that price, get an increased take rate,

and everybody's going to see how profoundly amazing this product is. Right now, it's what about, $16,000 or something like that if you go with the full service drive. It was 15 and they dropped it to 12,000, but they're going to drop it even further. That's about $200 a month. So let me ask you about on the charging point where so many people are switching over or accepting the Tesla standard. What does that do to the other suppliers in that area, the charge points and others,

easy go or EB go or whatever? Yeah, it's a good question. If I'm one of them, I'm getting out of the way. I mean, it is probably optically negative, but let's not forget, we've seen a slowdown in EV demand lately, and a lot of the reasons that consumers have pointed to is a lack of adequate public charging. So, honestly, this is a rising tide lifts all boats. There's a lot of charging infrastructure that needs to be built in this country, and we think there's probably space for everybody.

Interesting. All right. Fantastic. I'm so tempted to ask you about, I mean, the latest on the strike front? Any comment there? We're talking so much about Tesla. They report after the bell, and it just comes at this time. The big three are on their back foot.

Yeah, it is interesting. I mean, it's a lot of news. I mean, the incremental thing actually was, it's interesting. Stalantis actually postponed their appearance or canceled their appearance to CES, which I found interesting, talking about UAW.

That's in January. Right. And then GM canceled at CMD, which was supposed to be on November 16th. So, like, that would suggest maybe this is going to be. longer than people expected, but I don't think that's happening. And both sides have moved closer to each other. The one in 2019 was six weeks. We're already in week four of this one.

Besides moving closer, I feel like it will be resolved. Maybe it goes beyond six weeks. But to go to November and January, I just don't see that happening. All right. Tom, thanks so much. It's good to have you here today. Tom, Narayan. All righty, coming up, three power players. First, we'll hear from a prominent Israeli tech entrepreneur and the founder of the GPS app ways about the situation in Gaza and Israel. Then we will hear from the CEO of Dropbox about the role of AI in the future of the cloud business. And finally, we'll talk about the state of the oil market and America's energy grid with Secretary Jennifer Grantholm. All this, when power lunch, Richard. All right, welcome back, everybody. Yes, fighting continues between Israel

and Hamas. President Biden visited Tel Aviv. Biden saying civilian lives must be protected and also said Israel, has agreed to let humanitarian aid from Egypt to enter Gaza. As the war drags on, what does it mean for businesses and entrepreneurs in the region? Joining us to discuss is Uri Levine, a co-founder of Waze, the MAPS unicorn, acquired by Google, back in 2013. He lives in Tel Aviv, but joins us today from Madrid, Spain. Uri, welcome. Good to have you with us.

What are you hearing from the people you know in your businesses, or in the country of Israel right now about what things are like there. So thank you and appreciate the opportunity. Let me start by saying that this is terrible event, right? The terror attack, when you try to compare the order of magnitude relative to the population of Israel, this is like 10 times bigger than 9-11. And this was really cruel.

That was amazingly barbaric attack. They killed women and children. They kill elderly. they murdered like everyone that they met. And for a second, I would say, what would you do if that would have happened to you? Because this is exactly what Israel should be doing. Israel should be eliminating the Hamas and at the end of the day, making sure that there are no more terror attacks on Israel. But in general, if you look at the situation in the startup scene in Israel, let me say that the following, right?

So hard time creates strong people. Strong people later on create good times. Unfortunately, good time will create weak people, and weak people will create hard time again. It's hard time for Israel. That will create the people in Israel, which is the secret sauce. The strongest part of Israel is the people,

and they will make them stronger. In the ecosystem, the startup ecosystem, is going to become way better than before because what we are seeing today is that Many of the startups, you know, they are helping. Their people are being withdrawn to the reserve. Some of the people are volunteering to help all the people that actually need help. And this is the spirit of Israel.

This is going to prevail at the end of the day and will make the ecosystem way stronger. So you raised a very interesting point that I was going to ask about, and that is how do businesses function? or is it kind of a suspended function when 300,000 plus individuals are called up to do their patriotic duty and serve in the reserves, those people are coming out of the general economy, I suppose, for the most part. How does business function under these circumstances, or is it not able to? So I think that one of the strongest point of the Israeli ecosystem is they, commitment and the loyalty of the people. Everyone realized this is now our time, and many employees are being, you know,

withdrawn into the, doing their, you know, military duty. And everyone else is taking care of pretty much everything. So other people are working as hard as, way harder than before in order to make sure that the business partners and the customers of many of the, Israeli startups are not being affected. Now, is that going to be 100% bulletproof? Probably not. But later, it's going to be way stronger.

Tell us about what you are hearing when you have conversations with either family members. You're in Madrid right now. What you're hearing in the conversations you have with fellow business people, family members, customers and the like of your various ventures. What are they saying? So obviously there is a concern, but most of them realize that, you know, the war is not going to last forever. It's going to be for a limited time. And after that, everything is going to be way stronger and way better than before. So this is what I'm hearing from customers or investors. From my CEOs on the 10 different startups that I currently have, what I'm

hearing is that everyone is on the same page. We are going to fight Hamas like there is no other business and we are going to continue our business like there is no Hamas. Uri, thank you for your time today. My wife, by the way, has a saying as we drive around in ways we trust. She uses it all the time. Uri Levine, thank you. Thank you. I appreciate that. Appreciate it. And further ahead, building the dream stream. Netflix is set to report after the bell once the king of streaming, but is it now just another player in this game of clones? Which platform has the best library and the best opportunities for investors? We'll lay it all out next.

Welcome back to Power Lunch. I'm Christina Parts Nubles, and here's your CNBC News Update at this hour. New details this afternoon into the death of Natalie Holloway. The longtime suspect in the Alabama team's 2005 death in Aruba admitted today he bludgeoned Holloway to death with a cinder block on a beach after she turned down his sexual advances. Geron van der Sloot said he then took her body into the ocean. He revealed the details as part of a plea deal related to extortion and fraud. Donald Trump was told to keep his voice down by the judge after he grew animated at his civil fraud trial in New York today.

The directive came as a witness testified against the former president and he threw up his hands in frustration and spoke loudly to his lawyers, according to the Associated Press. And Lionel Messi is by far the highest earning major league soccer player. The MLS Association shared today the Argentinian soccer star earns $20.4 million a year on the Inter Miami Squad. That's more than the entire payroll of all but three other MLS teams. And it's $5 million higher than the next highest paid player. Chump change, right, Tyler?

He's worth every... What he has brought to the league is worth a multiple of that. Oh, I am. Can't put a price point on that. No, you can't put a point. Talent, right? Christina, thanks. A head on power lunch, headwinds are mounting for offshore wind, inflation, interest rates, supply chain hurdles.

But one project is moving forward with a federal funding boost. CNBC going inside Dominion's offshore wind project. We will take you inside as we trace the money trail next. The federal government pouring money into alternative energy project, projects, including a big wind farm, planned off the coast of Virginia. The project from Dominion is getting a boost from government incentives. And we set Pippa Stevens to Virginia Beach to get a firsthand look there. Hi, Pippa. Hey, Tyler, I'm still getting used to being back on dry land. We spent all day yesterday on a boat touring the company's offshore wind farm, just 27 miles

directly behind me out to sea. Now, right now, there are just two turbines in the water, but eventually there will be more than 170, each over 800 feet tall, supplying power for some 660,000 homes. Now, this project takes highly specialized equipment and manpower, all of which is expensive. The total cost of the project is $10 billion, but the Inflation Reduction Act provides about $3 billion in tax credits. The next phase of construction begins soon. The monopiles or the foundation that supports the turbines are on their way. from Germany as we speak. Dominion relies on European suppliers right now because domestic supply chains for offshore wind simply don't exist today. But Dominion's COO, Diane Leopold, said the project

has the potential to change that. These suppliers have been looking in the United States to expand their facilities. So take those existing designs and let's start building them in the United States. So it has to start somewhere, and this project is one of the key projects that they're looking at. An EEW, which makes Dominion's monopiles, has already broken ground on a New Jersey factory. But Kelly and Tyler, I got to tell you, being out on the water and seeing this project up close really gave me a new appreciation for the massive CAPEX, massive infrastructure that these require. So you said that these towers are some 800 feet tall. Does that include the portion that is below the surface of the water? Because to be honest, that does not look like it's 800 feet tall.

So the one you're looking at, it can be deceptive because there's nothing around it. That one is 600 feet. That's more than two Statue of Liberties. The new ones are going to be 836 feet tall. That's almost as tall as the Eiffel Tower. And no, that does not include the portion underwater. You've got to remember, the sea out there is about 85 feet deep, and that monopile is drilled into the seabed.

So once you get, once you add that in, we're talking even taller. It is hard to gain perspective, but take it from me, they are huge. And let me ask you one other quick question, and that is, how does the electricity that is generated by those wind turbines transferred back to the land where it can be used and distributed? So out offshore, 176 turbines are out there. They'll be grouped into smaller groups. And then the cables will run to a central substation. There'll be a few of those out in the water. And then a cable will be laid all the way down back here to Virginia Beach by Prismian.

They are a European-based company. They lay the cable, run into a substation, and then it goes out to the power grid. Pippa, we're full of question. Can you see the wind, the turbines from shore? If you squint from high up, you can see them in certain lights at dawn and dusk. You can see them. Earlier today, our cameraman Van Afflegate, very skilled. he's now zooming in. You can almost see them. But they're really not disruptive here during the day. Also,

the sound they make is really not loud. It's a very subtle whoosh as the three blades turn around. It's really not disruptive. I could barely hear them when I was only slightly away from from them on the boat. Fascinating. Pippa, thank you so much. Our Pippa Stevens, we really appreciate it. From wind farms to grid strength, big projects are moving forward to help power America and its energy transition. Earlier this afternoon, the Biden administration announced they'll invest $3.5 billion for 58 projects across 44 states to strengthen electric grid resilience and reliability across the country. For more, we're now joined by the Secretary of Energy, Jennifer Granholm. Mr. Secretary, welcome. Thank you. Glad to be on.

And you're down in Georgia today. Explain the significance of that and these investments that you're making. Is this a national security concern or is this because the load on the grid is changing so much amid the transition to renewal? Well, it's all of the above, really. We want to make sure. I mean, the grid, so much of it was built in the last century or, you know, long ago, I'll just say that. And it is not reliable in many cases. So there's a question of reliability, of old transmission and distribution lines, of old poles, of old substations. Then there's also a question of how the grid is going to withstand extreme weather events, which are increasing. So we want to make sure that it is not vulnerable to that. How do we make sure the grid? is not vulnerable to wildfire, to wildfires. So all of that has to happen. And then, how do we make sure their grid is big enough to be able to encompass all of the energy that's being added as we electrify our transportation system, for example? Right. So all of that, it's got to be bigger, it's got to be stronger, it's got to be smarter. That said, the main complaint we typically hear is about red tape. And I don't know if this project addresses that we've heard in some

cases it could take eight to 10 years to build out new power lines for instance and that just getting through the regulatory process is possibly the biggest headache or roadblock to further investment. Yeah, every one of these 58 projects has a community benefits agreement, meaning that their community had to be engaged and we're taking down the cost for people so that power is delivered in a more affordable way. So there's huge buy-in to the projects that we have. These are not all projects. This is actually just one third of the money. This is the largest investment, single investment, that the United States has ever made in the electric grid. It's $3.5 billion of public money, but it incentivizes another $4.5 billion, so $8 billion total in this one announcement. But this is only the first step. We will be doing this again, another round of grid enhancing grants that will be awarded and open for competition, because these are all competitive.

grants before the end of the year. The competition ensures that the bids that are selected, the projects that are selected, have that community support and have the buy-in. Madam Secretary, forgive me for asking what I'm sure is a naive question, but in reading the announcement today, just on page one, there are four references to the phrase good-paying union jobs. That doesn't even include references to labor union partnerships or the IBEW. I wonder why you feel or the administration feels it is so important that these jobs be union jobs as opposed to other kinds of jobs and why you feel it's so important to mention good-paying union jobs so frequently even just on page one of the announcement.

Well, as you know, the president is the most pro-union president that the nation has ever had And he strongly believes that the unions built the middle class and the middle class built America. So making sure that labor is a partner in these. Plus, labor has the expertise. The IBEW, the International Brotherhood of electrical workers, know what they're doing when it comes to the electric grid. And that's why 75% of the grants that are awarded today have IBEW participation. 84% have labor partnerships. So that's, I mean, really, that's the Biden administration.

very eager to promote high paying, family sustaining, long-lasting jobs. Secretary Granholm want to circle back to what our reporter Pippa Stevens just showed us with the offshore wind farms. Wind power has actually stalled out not just here, but globally amid higher costs. Even Dominion is asking for cost increases to help cover the cost of that project. So at a time when consumers are really sensitive about having to pay anything more out of pocket than they already are. What effort can be made to either bring down the cost of wind power or maybe acknowledge that it won't be able to fill the gap

without some inflationary problems? Well, there definitely is inflationary problems in these projects that we have seen, and that's why the Atlantic Seaboard in particular has been particularly sensitive to it. At the Department of Energy, we are focused on reducing the cost of offshore wind. In fact, we have what is known as an energy earthshot, which means that we are trying to reduce by 80% the cost of offshore wind, particularly floating offshore wind platforms. But nonetheless, the Inflation Reduction Act also has a 30% tax credit for building out offshore wind.

And that is one way to help reduce the cost. You have to take this technology. It's the first time we've done this as a nation. Europe has done it. They rely a lot on offshore wind. But we haven't. And to the reporter's point, we also want to build out the infrastructure for the supply chain here in the United States because that's a huge manufacturing opportunity and job opportunity.

But you have to bring down those initial costs and you have to take them to scale. And that's what the Inflation Reduction Act is attempting to do. We want to make sure these projects are built, though. The President has a goal of getting 30 gigawatts of offshore wind in the United States by 2030, and that's what we're striving to do. The administration also has goals about the use or sales of electric vehicles. Are we going to have enough power in this country to power all those electric vehicles and all of the devices that we have and all of the lines?

lights that we use and all of the TVs that we have. Is there going to be enough capacity? Yeah. Well, that's why we are here in Georgia today to talk about expanding the grid and investing in the expansion and the resiliency of that grid. Clearly, the grid has to be bigger if we are going to be able to. It's not just electric vehicles. It's data centers. It's all sorts of growth in the economy. But we want to make sure we've got enough power. And that's why all of the effort to be able to build out clean energy, whether it is nuclear or renew. or hydroelectric or geothermal or solar or wind. We want to add those clean electrons to the grid.

And we want to grow that grid. We want to grow the transmission as well as we electrify. So we're doing everything, everywhere, all it wants to make sure we have a clean, reliable grid. Secretary Granholm, thank you for your time today and for joining us. We really appreciate it. You bet. Thanks so much. All right.

Coming up, thinking outside the box, drop box was among the first companies to lean into remote work during the pandemic. And now it's hoping to make waves in AI. We'll hear from the CEO when Power Lunch return. InVitya shares down 10% in the past week. The stock has been, of course, an AI darling and is still up nearly 200% this year. But is the AI frenzy starting to fade just a bit? Let's get to Deiderboza, live at the Goldman Sachs Builders and Innovators Summit in California. Hi, Dee.

Hey, Tyler, I've got the perfect person to ask. Joining me now at the Goldman Sachs Builders and Innovators Summit, Drew Houston, CEO of Dropbox. Thanks for being here. Thanks for having me. That was great to chat with you. So as Tyler mentioned, some of the AI halo, at least in public markets, has been starting to fade. You've participated in a bit of that halo as well. Dropbox is actually outperforming the broader cloud ETF. You guys have been releasing AI tools to your paying subscribers this year. What's been the uptake? What are they using them for? To solve new problems. So last week, we launched a new product from Dropbox called Dropbox Dash. that does AI-powered universal search, and we launched into open beta. And what we're finding is that in the cloud world, people have issues just accessing and finding their stuff.

And Dropbox dash goes beyond syncing your files to organize all your cloud stuff, so you can search your Google Docs and your email and your Slack and your Salesforce, all from the place. So we see a lot of excitement around that. And when Dropbox sort of began, it began more as a consumer-facing company, but over time you've pulled in more enterprises.

Have your AI tools allowed you to broaden your reach in the enterprise space? Yeah, because of the enterprise, well, companies of all sizes are figuring out, okay, how do we make AI useful? How do we deploy it securely, preserving privacy, and a lot of the basic considerations. And then we find that everyone has a need, the tools like ChatGPT are powerful, but there's a lot of questions that ChatGPT can answer because it's not personalized. It's not connected to your stuff. So we see a big opportunity for Dropbox to provide that for Enterprises. to make their data useful to be able to engage with it conversationally. Things like Dropbox Dash enable that.

At the same time, some of the mega caps that are well capitalized and already have this large consumer base of customers like Microsoft, like Amazon, like Google, they're building similar products. What's the Dropbox proposition enterprise to use your platform versus Microsoft? Yeah, that we cover everything. We're platform agnostic. So it's certainly true. There's a lot of different AI functionality being built in all these places,

but it's typically silos. So then, you know, you end up with, like, a lot of different agents, and no one's, none of them can really access the bigger picture. And so that's what Dropbox has done since the beginning. We've helped organize everything across all platforms, across all devices. Agnostic. Is it the key. Is the key. I know that it's still early days, but what are you seeing so far in terms of IT spend?

Companies that are using your AI tools, is that on top of IT spend that they're already doing? Or is it in addition? Because Gartner had some estimates that says, that we're actually not going to see overall spend on IT grow. It's just going to shift. Yeah, I think there's two things going on at the same time. I mean, first, companies are finding ways to do more or less and being more efficient with spend in all kinds of ways.

And so that's something that's been happening, certainly, over the last year. And then secondly, companies recognize there's a lot of potential to unlock with AI, and it can make their team a lot more productive. And it's a lot more efficient or a lot cheaper to give people new superpowers of these apps or with software. software is a lot cheaper than growing your team. So I think both things are happening, but yeah, it'll take a while for AI to really pick up

or show up in the P&L. Right, well, we look forward to checking in with you again in a few months. Drew, thanks so much for chatting with us today. Thank you. I'll send it back to you guys in the studio. All right, Deirdre, thank you, and our thanks to Drew Houston as well.

Hollywood is short on fresh content, thanks to the actor's strike. That means lots of reruns of old shows. So which of the streamers has the best library to fall back on during these hard times? We'll debate when Power Lunch returns. All right, welcome back, everybody. Netflix kicks off media earnings after the bell today.

And as the actor strike rolls on, we will see which streamers and their libraries are best positioned to keep viewers watching. Who is best in shows? We're joined by our show watcher, Sean McNulty, creator of the wake-up newsletter at the Ancler. And our stock watcher is Michael Morris, an analyst at Guggenheim Securities.

And Sean, let's start with Net. which you say has the best cash of content. What makes it the stand out here? I mean, certainly the volume. I just did it counts through, say, the first week of October. Netflix has dropped over 120 series, movies, and new documentaries and specials this year just in the first nine months. So in a volume point of view, no one is even clear, clearly near that.

They top every chart, the Netflix chart every week. Sorry, the Nielsen chart that comes out every week. They're always at the top, whether it's Night Agent and Beef and the second quarter to things like One Piece and Virgin River here back in Q3. The movies this summer were big, the mother and extraction two. So they consistently delivered the biggest numbers in streaming. Biggest numbers in streaming. So, Michael, does this translate to the biggest numbers for investors?

It does over the long term. Absolutely. We continue to be bullish on the long-term prospects for Netflix. And really at the core is, as you describe, it's best in-class. content. This is a company that sources the most content for streaming. It's a company that sources the most global content for streaming. So they really bring a very broad perspective and a broad selection. And one other thing I would point out about the way people use Netflix, some of the biggest hits on their platform aren't even Netflix shows. There are shows that have

aired on other platforms that never did as well. And once they arrived on Netflix, consumers really engaged with them. We would use the example of suits from this summer. So Netflix has both the content and the platform that people enjoy, and that's the reason that we're bullish on it for the long term. So I hear you saying, Michael, and Sean, also you, that Netflix is the go-to in this category. Michael, what are the telltales on the stock very quickly? What do I need to watch there? Well, in the near term, there is definitely concern about the growth of both members and the growth of profitability. Now, we, as I said before, we believe in the long-term potential for this company and we're buyers of the stock. However, there have been a couple of initiatives that the company

has undertaken over the last year to two years, one being initiating an advertising tier, the other being a crackdown on password sharing, both of which were big, important parts of the near-term bull case that have been slower to develop than people anticipated. All right. Before we get to Paramount where there's more of a split as to how you guys view, its fortunes. Let's talk Disney, which controls Disney Plus and Hulu. And you both actually seem pretty optimistic here. Mike, you're a buyer. Is that right? I am. I have a buy on the stock. Similarly, we really believe in the long-term potential. A little different from Netflix, Disney has some things they need to work through with respect to what the platform is and what it

looks like. Nobody denies the power of the Disney brand and the Disney content and what that can do for a platform like Disney Plus. But Hulu, the ownership there is more fragmented, right? Disney is working through a consolidating complete ownership of that asset. And I think that's slowed the development a bit of that business and maybe hindered the potential of what it ultimately can be. So I think first we need to see clarity on the ownership structure. And then we can start to really see if Hulu can achieve its goals that really would be

to be able to compete with Netflix in our mind. Sean, you also think Disney Plus could turn things around? Yeah, they've just enacted this month some price hikes up from a financial point of view. They're riding the ship. It's not pretty right now. They had a huge amount of write-offs in the first half of this year. Iger has dialed down the content, fire hose, if you will. So they're still releasing new content, but the amount of Marvel series we're seeing per year in Star Wars series per year are far lower than we've had in the past, which lowers your costs,

which again helps their financial situation. So there, you know, then Iger has said they'll be reaching a profit by this time next year. So they are probably on track to do that from the price hikes alone. And if they can lower those costs of content to a more reasonable level, you can see how that comes together at a better picture. Quick thought, Michael, because I want to leave room for the next one. And that is, would you view a spinoff of ABC, the stations, the network as a stock positive? And what about ESPN? It's a very complicated question.

so I'll try to be very straightforward. We first and foremost believe in the power of the Disney brand, and that includes everything from the Disney films and television product through their streaming service and the parks. That asset we are 100% believers in. When we look at general entertainment, okay, and that can include Hulu, ABC, but it is very intertwined, okay? And that makes it a complicated question.

We do think the company needs to take a hard look of why they want to be in that general entertainment business and how much they need to invest. but talking specifics about separating asset X or Y gets a lot trickier because some of that content is intertwined and that makes it difficult to parse each piece out. Very interesting to learn how you think about it. All right, let's move on finally to Paramount, Sean. You say worst in terms of content library. Tell me why.

Well, it's the Taylor Sheridan universe unless, you know, he's producing most of their content right now. There isn't a plethora of things from a new content point of view, especially compared to the two companies we just talked about. So they had a special ops line as with Nicole Kidman this summer, which did pretty well. Their Greece show came and went

and did not do well at all. They have another Taylor Sheridan show coming up in November. So, you know, they're about one a quarter for a series, which is fine. But against the competition here, they're also heavily relying upon CBS,

which is now having, of course, a very strike-affected fall. So they're not having those news shows come in. So they don't have a lot of original content to offer, which in this day and age, kind of needs help to stand out. Let's bring in, Michael. We've got about 40 seconds, Michael. Your thoughts on Paramount. I think Paramount has potential. That's where I'm going to put it. Paramount has a tremendous amount of assets in its content library, and they own some pretty powerful sports rights in the form of the NFL contract,

Champions League Soccer, and March Madness. But they are still losing money on their streaming service. They need to pull these things together, right-size the content, supercharged that top line through pricing and more penetration. And then we can see investors get excited about this idea again. Love that conversation there. Yeah, I've forgotten that they have the Champions League as well as March Madness. They're sort of the anchor there in that deal. Gentlemen, thank you very much. A fascinating conversation.

Sean McNulty, Michael Morris. We'll have you back soon. And you know what? We're going to have all these viewers back soon. We hope so. Tomorrow. But first we have to see what Netflix does after the bell and Tesla. So a couple of interesting stocks to watch there.

Thanks for watching Power Lunch everybody.