Power Lunch - Fueling Power-Hungry AI 6/26/24

Episode Date: June 26, 2024

CNBC’s Tyler Mathisen and Kelly Evans take you through the heart of the business day bringing you the latest developments and instant analysis on the stocks and stories driving the day’s agenda. “Power Lunch” delves into the economy, markets, politics, real estate, media, technology and more. The show sits at the intersection of power and money. “Power Lunch” gives viewers a full plate of CNBC’s award-winning business news coverage, plus a healthy dose of personality from the show’s anchors and the network’s top-notch roster of reporters and digital journalists. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good day, everyone, and welcome to Power Lunch. Alongside Kelly Evans, I'm Tyler Mathis. I'm glad you could join us in video holding its shareholder meeting this afternoon. We'll break down everything we hear from Jensen Wong and company, and look forward to micron earnings after the bell as chips remain a key sector of the market. Plus trouble at home, new home sales down more than 11% in May. A day after a big drop in housing-related stocks like Lowe's in Home Depot. We'll talk to an analyst who's upgrading Home Depot today about the weakness in this space.

But first let's get a check on the markets where you see the Dow hanging on to a gain of 29 points, little off session highs, S&P negative by 2, NASDAQ positive despite Nvidia being lower, and shares of riveter soaring after reaching a deal with Volkswagen. Although despite today's gain, it's still down 38% this year. While Amazon is hitting a new all-time high and crossing the $2 trillion market cap level for the first time, it's the fifth company to ever do so following Apple, Microsoft, Google, and Nvidia. And joining us for the entire hour today is Sir Robert. SETI, DCLA's managing partner and a CNBC contributor.

Sarat, it's great to have you on board. Welcome. Let's start this hour with what we've heard from NVIDIA just this afternoon at their meeting. Sima Modi covering that for us. Kelly, there's been plenty of news from NVIDIA over the past three months. So at today's shareholder meeting, CEO Jensen Wong really recapped all the different initiatives NVIDIA as working on and drummed up excitement around Blackwell platforms saying it will, quote, likely be the most successful product in our history. Huang also reiterated the role its generative AI products are playing in different industries from pharmaceuticals, telecom, and the automotive sector, which he says has been in the early innings.

The Blackwell platform will be adopted by every major cloud service provider, server maker, and leading AI companies, including Amazon, Google, Meta, Microsoft, OpenAI, Tesla, and XAI. He's been able to get the software they needed quickly and easily. All right, so just sort of spanning the different companies in his universe. NVIDIA will continue to invest in AI quantum computing. And keep in mind, the company is expected to generate around $270 billion in cash over the course of the next three years. That's according to Milius. And analysts there say there's only so much Nvidia can spend on research and development and acquisitions due to regulatory headwinds. And therefore, a good amount will likely come back to shareholders.

That's why they're raising their price target to $160. The stock, and we've been watching it today, trading at around $123 in change, still down about 9.5% from its recent high. And it's been interesting to see the number of Wall Street analysts over the last couple of days coming out to defend their bullish targets, both Cantor, Fitzgerald and City, upping their price targets today, Cantor writing that Nvidia has created a flywheel effect with developers and customers, naturally creating a challenge for competitors to break into, which has been a part, Tyler, of the bull thesis.

All right, Seema, thanks very much. And our next guest says a brief sell-off in NVIDIA's shares. Does not derail the company's growth trajectory. It is still and will remain the undisputed leader in the GPU space, a market that he only sees growing from here. He's Daniel Newman, CEO of the Futurum Group. Daniel, welcome. Good to have you with us.

Is there anything intrinsically worrisome about a company that basically triples its market value at such a high scale to begin with from $1 trillion to $3 trillion in such a short, period of time. What does it suggest, if anything, about the future trajectory of the stock? Yeah, you have to look at the trajectory of AI as a whole. You know, when the stock was trading at about one-tenth of value, I said, this is the company to look out for. It had this secular tailwinds that AI is going to deliver to the market. And it was not just selling GPUs, but it's

selling the full compute and software stack. And that's so important for people to understand how when you gain a market advantage, and now they have 96, 97 percent of this GPU space, you heard Jensen on that soundbite talking about having Google and having Amazon and having, you know, every major OEM using its hardware, that this entire trend line, and it's going to flow out to Salesforce, it's going to flow to Microsoft and all its software, and then eventually to the industries, that's what Jensen is saying. That's what investors are betting on. And it's going to be hard for competition. There is no native predator in the wild right now. There's companies trying, but no one can really compete right now with what Nvidia is doing.

That's the obvious question. When you have 96, 97% of a market area as important and as fundamental to what seems to be happening in the world of computing, alone commuting, you start to ask, well, where is the competition going to come from? You just don't see it mounting anytime soon. Yeah, there is competition, and I've said this for some time. You see companies like AWS, Microsoft, they're building their own silicon. AMD, Lisa Sue has shown a compelling forecast and been able to deliver several billion dollars in GPU sales at their MI series.

But Nvidia has such a distinct advantage. Out of the gate early, you've heard, Jensen's been on basically the stage of every major OEM, every major software provider over the last year plus, and they're all building around just last week at HPE. They're building their whole AI solution around Nvidia. So when you look at how this is going to proliferate, I think if you're looking for the risk, it's all about that second network effect. Do people start consuming this?

Are people going to pay more for their service now subscriptions and Salesforce? Are the Google users that are getting searched going to depend on an Nvidia trained model, or will they prefer something trained by Google? If any of these other companies can show the same capabilities as Nvidia, there might be an opportunity for some competition. But I think the market grows, competition comes into. into play, but not at a big cost to NVIDIA. That's why I see the growth continuing.

What about one of the risks of double ordering? Because everybody's trying to get a chip. And we've seen this in the past when it's happened to other semiconductor companies. And, hey, everything is great. Now, all of a sudden, we get a little bit of a slowdown in the economy. Google's advertising revenues come down or Apple, et cetera. And then all of a sudden, hey, we stop. So where is that kind of in your projections?

Yeah, the sell-in and sell-out are interesting data points to look at. You know, we see TSMC's 3-Nanameter and their cow is sold out for over the next year, almost two years now. So that demand is very clear. You see the HBM memory from Micron, which I'm sure you're going to be talking about on this show, growing. And that's all in effect of the amount of demand that these hyperscalers and, of course, these largest enterprises have for Nvidia hardware.

I, like you, have this one concern, and this one concern is that consumption. layer. Who is buying and using and getting productivity and value out of all of this AI? Where are these enterprise use cases that Jensen talked about? And can we start to talk about them at scale and how they're delivering value to pharmaceutical companies, to retailers, home builders? Because I think we're seeing the sell into the hyperscalers and there's not a lot of risk there. But the sell out into the market, the consumption layer is where I'm watching very closely. That's very interesting because it seems like what you're saying is that here is a product, these GPU chips, here is a product that has immense potential. But the question is, do the consumers of the product really know how to use it

and more importantly how to monetize it either through efficiencies or growth? Am I understanding correctly? Yeah, I'm looking at use cases, both in the enterprise and the consumer. So this killer app that we've had is the LLMs. We're using perplexity or Google or Open AI. And then, of course, you see enterprises. I've mentioned ServiceNow or I've mentioned Salesforce and how are you helping sell more to your customers because generative AI helps you speed up your communications. I've heard from companies like IBM consulting that talk about how they are deploying AI to these enterprises and getting solid proof of concepts, Accenture, the same thing. But are these proof of concepts turning into big productivity gains that we believe AI can generate, because that's going

to create the constant upgrade cycle. Jensen wants you to upgrade every year to the next architecture. That's how they keep these numbers growing. That's how they grow into this valuation. It's still very early. Proof of concepts need to be massive deployments across enterprises. Daniel, thank you very much for your insights today. We appreciate we'll have you back soon. Daniel Newman, we thank you. What do you think here, Sarat? I know we've talked in Vida. Yeah, I can't remember whether you still have it or you got rid of it or what. No, it's our largest holding. And I've been cutting it back for two years.

Yeah, that's what I remember was. You've been trimming, but you can't stay ahead of it. I mean, you can't stay ahead of it. I mean, some of these fears are really founded. Some of the issues that we kind of think about internally is to say, what if the usage is not there, right? And if it is, do you need the fastest computing chip from Nvidia? You know, it's back to the PC, right?

Do you need the faster chip on your PC, or can you just use what was a year old? two years old. Who needs the cutting edge? Do you need the fastest chip when you're doing customer service or maybe you just, you know, use something different? And when that comes up and maybe AMD comes with a chip or Google or somebody else, right? Because right now, it's kind of go back to the Qualcomm story. Remember years ago, everybody was like, wow, we got to pay Qualcomm a royalty? And then all of a sudden it was kind of like, hey, we've got other chips coming out there. So at some point, this party will slow down. And then what happens to the momentum investors in here? Because it's not just everybody's kind of the long-term investor.

You've got the retail investors. You've got momentum investors. You've got an index investors. I mean, the thing is 6% of the S&P now. You put a dollar in the SB. You're buying 6% in the video. You're buying 6% or 7% now of Microsoft. So own it, but be careful as to your size position

because this thing, as you know, two days ago or three days ago, is down 10%. When will you, you've mentioned trimming? But for those who might similar to be, hey, I'm in the stock. When do I know? that I want to jump out. So I look at it as position size. So if it's, for us, anything's over 5%, we take it back. We make it down.

It's just a diversification. It's our way of saying, look, too good of something, then it kind of comes back. You could have 50 other really good stocks, but if one stock is driving the up and down, it doesn't really matter whether you own anything else. So you just have to be careful. Now, that's the risk as a fiduciary that I'm trying to manage.

There are individuals and other people out there say, hey, I don't mind riding the roller coaster because, you know, I'm going to get to the same place in three years, but maybe or maybe not. It's just enforcing a cell discipline, which says if you get above 5%, that's a place where we get a little uncomfortable for portfolio concentration point of view. For that, volatility, and also there are other opportunities in the market, too, right? It's kind of like a guard. There are? There are. There are plenty of other opportunities. It's just that we focus on five or six stocks continually, but I still think there is.

Well, we'll get to some of those other opportunities a little bit later. Surat, thank you. Kel? As we head to break, let's get a quick power check on the positive side today, FedEx. The shipping logistics company that topped revenue and earnings estimates that said they're reviewing the operations of the freight business. The shares are rising nearly 15% today. Active is our downside today. The auto parts supplier downgraded to underweight from neutral at Piper Sandler after news of the Rivian Volkswagen Partnership.

That's your power check. We're back right after this. Welcome back to Power Lodge. As we near the end of a booming first half of the year for stocks, our next guest is highlighting some unexpected impacts from the election coming this fall. Oh, the tone is shifting. Let's bring in Michael Vogelsang. He's chief investment officer with CapTrust here with our guest host, Surat SETI to join the discussion. You know each other very well. We should add. You're very collegial. So I don't know if we want to jump right into the political aspect here before you just offer a top level thought about the market. Yeah, it's top level is that, you know, look, everyone knows that during a election. electioneers with an incumbent, we get really good results, right? The average is 17% or something like that.

And I was saying earlier, you know, we're on the auto bond. We've got the green light. The problem is we have a five or six month brick wall in front of us called the election, and no one knows, including the market, how this is going to play out. And as a result, you know, there's lots of negative outcomes that could happen. And what's puzzling to us is why that isn't getting discounted a bit. Is it not? Do you see any signs that it? that Wall Street is not discounting a Trump win here or a Biden win here? It's not much. There's, you know, there's some... We may know more tomorrow.

There's some stock, yeah, right. There's some stock baskets that you can track and follow. And, you know, you can also argue that the rest of the market actually isn't as up as much as the technology names. Right. Because to your point, if you look at equal weighted indexes, they haven't performed, especially in the last six weeks. Right. Right. I mean, the equal weighted is five, six hundred behind now just in.

in a matter of weeks. So the market's still focused on the momentum plays, but are we now discounting some of that? Because if you look below, you know, where are we going to go? And then the other question, to your point is, you know, where does the House and Senate go to, right? So that politically, and one of the things we always say, and I love to get your view on this,

is we're always like, look, earnings drive the stock market, the economy, right? But you're getting to a point now, things could change a little bit. At least you get the bump of the auto bond. I would argue that earnings drive the long-term nature and an arc of the stock market, but emotions drive the shorter-term stuff. And what's odd about this is that you have this big, hairy thing coming at us so fast,

and yet the market's sailing along like nothing's wrong. And then, of course, you have 2025. We took a look at inauguration years. Yeah, what happens then? What happens after? With an incumbent in an inauguration year, you get sort of middling, but a really wide outcome, right? There's some really positive years. Think of right after the crash in 2008 and 2009, right?

Same thing after COVID. You had a big year because of that. So there's some outliers that have changed. So it's not as much of a pattern in our duration years, but average is about 6 or 7 percent. So much lower on the long term. But again, with wide, with a wide sort of. 2017 was a pretty good year for stocks. 2021 was a pretty good year for stock, followed by a bad year in 22.

Correct. Right, right. So the point is that it's, again, investors are just, you know, super optimistic. If you look at all the sentiment indicators, right? They're super, super optimistic, and yet we've got this really big, unknowable thing coming down the road at us very quickly. So what does that cause you to do as a money manager? I think we hedge, right? We hedge a little bit.

So, you know, some of the names we talk about in a few minutes, you're really about smaller and value. One of the things that happened at 16 when Trump won is one of the great memes of all time, in my opinion, was the baseball cap that said right after Trump won and value stock started running, it said, you know, Trump, make value great again. Right. And it was terrific. And it was, you know, three or four months of really strong value stocks. And I think we might see that again because the tariffs might hurt the bigger guys, that helped the smaller companies. So you might get this rotation.

So that's what we're doing. We're actively looking for that kind of stain. What sectors are you focused on? Because, you know, you and I share this value bias. And, of course, you know, people come out of. Says the guy who's in Vidia is his biggest. Well, it was a value. stuff. I know. So, you know, weren't they all? We bought it in 2016 when it was a gaming stock.

Yeah. And it was trading in single digit multiples. It would not fall into our screen at this point. So, but. Right. The sector is probably things like finance and energy because those are the, those are the antithesis of all things AI. And they've done so poorly.

So we'll see. I mean, you know, it's, but finance, particularly when you're dealing with the small cap index, when you're thinking about small cap value, it's dominates. dominated by the financials. So clearly you want to have some of that because they've done so poorly. Again, it's really talking about ballast. If we get a significant rotation, it's likely to be violent given the incredible move in the tech space. Let me just quickly mention a couple of the names that are, these are certainly off.

Well, IBM's not off the radar, but Cord Energy Group, a new energy company. You're saying, Pure Play in the Bakken. Farmer Mac. Yeah. We talk about Freddie. We talk about Fannie, Ginny, Sally. Farmer Mac, federal agriculture, another idea there. So you're looking at some really idiosyncratic place.

We are. But they're not so idiosyncratic. They just don't dominate the headlines like Nvidia and Microsoft and all the rest, right? So Farmer Mac, AGM, is just this wonderful little company that's sponsored by the Senate? And they are really designed to create credit and liquidity in the agricultural market. But is it growing 84% year-on-year earnings? Because that's what investors who are in the Big Five-Wone. Okay.

They don't want Farmer. All right, all right. You're right. It's only growing its dividend 14% a year. 14% of the last five years it's grown its dividend 14% a year, right? So it's doubled in five years, 94% or something like that, right? And the stock trades at 10 times earnings. And it's a money machine, right? You're not going to get rich tomorrow. You're not, and it's not going to triple or quadruple like Nvidia has or some of these, you know, Qualcomm doubling in the last four months or whatever. And Congress is not going to pull out the rug on farmers. It's not. Exactly right. That's an implicit guarantee. Politically, it's a good thing to have. happen. So anyway, we like the name. We've been accumulating. It's small, right? It's not a big name.

Court is an interesting name, just from a, just from a Bakken Shale perspective. It's getting bigger, and as a result, bigger energy names get bigger multiples. It's involved in the M&A business, right? A very interesting strategy there. And, you know, we like IBM as sort of the counterbalance in the large-cap tech name. You're getting slight earnings on revenue acceleration, which is important. You know, IBM's been a dog for decades, and we think there's a little bit of movement up in their organic revenue business. Red Hat's doing some good things for them. Watson X gives you sort of optionality in the AI stuff. It's only 15 or 16 times earnings. It's a nice way to counterbalance some of that risk that you see. For your retirees. But the irony is

your retirees are in Invidia. They're not even, they don't even want the IBM. They don't want Farmer Mac. It's too boring. Touching me here for IBM. Try selling that. Right. Exactly right. Mike, thanks very much. We appreciate it. Mike, Mogle, saying, Sirot, please stick around. We'll see more of you this hour. And further ahead, nuclear energy securing a quiet, albeit impactful victory in Congress, one that could lead to fast approvals, lower fees, and more incentives. Power Lunch will be right back. We'll talk news after this. Welcome back to Power Lunch, where we now have green across the board as the S&P has joined the Dow in the NASDAQ in positive territory, albeit by a point. And all of this, while bond yields are moving higher, 430 was last check on the 10-year, Rick Santelli in Chicago with the

details. Rick? Yes, and Kelly, we're at 431 now, up a half a dozen basis points as you look at that chart of 10-year note yields. And even though all maturities have now moved higher almost symmetrically over the last several hours, it was the longer maturities like 10s, 20s, and 30s that really led the way. Ten year now on pace for the highest yield close in two weeks, which isn't a long time, but quite a reversal from the low 420s, not that many sessions ago. Maybe the big news today, foreign exchange. Look at the dollar index.

It's on pace for a two month high close. And keep some things in mind. The dollar index breakdown, the number one currency that affects it to the tune of 57.6% is the euro. In second place is the yen at 13.6%. And here's why I brought that up. Look at a chart of the dollar yen. It is screaming against the dollar to the downside,

meaning the dollar is moving higher, the yen is moving lower. And if you look at where it's trading today, let's open the chart up. Believe it or not, this is going to be the first time. In 38 years since the end of 1986, that the dollar yen is going to close above 160. We had some intraday violation one time, April 28th, just recently where it traded up and then came down with rumors of an intervention. Don't see any interventions today, and this really is something to pay close attention to, especially with the yen at weak levels and the Japanese, of course, an export economy,

getting ready to potentially raise interest rates. Tyler, back to you. Very interesting developments there. Rick Santelli, as you point out. Thanks very much, Rick Santelli. Let's go now to Contessa Brewer. CNBC News Update, Contessa. Hello, Tyler.

The Supreme Court may be ready to grant abortions in Idaho from, medical emergencies, according to Bloomberg Law, which reported the opinion was posted in error and then quickly removed from the court's website this morning. The posted language indicates hospitals in Idaho would be permitted to perform emergency abortions to protect the health of the mother. The court acknowledged the document was posted, but we don't know whether this was a draft decision, whether it was the actual decision, or neither one at all. The former president of Honduras sentenced today in a New York federal court to 45 years in prison. Juan Orlando Hernandez was convicted in March on charges. He let drug traffickers use the military and national police force to get

tons of cocaine into the United States. And more than 21 million miniverse toy sets from MGA entertainment are being recalled because of potentially hazardous resins. The Consumer Product Safety Commission says that when in the liquid form, the make-it mini-sets can cause Skin, eye, and respiratory irritation. Kelly? When in liquid form, okay. Contessa, thank you. Contessa, Brewer.

After the break, D.A. Davidson is betting big on a lower interest rate environment. And so they've upgraded Home Depot to buy based largely on that thesis. But the name is taking a hit this week following bearish commentary on rates and the economy from home-related names like Pool Corp. We'll speak to the analyst behind the HD call. HD call next. Welcome back to Power Lunch, everybody. Check out shares of Whirlpool jumping today on a report that the German engineering company Bosch is considering making a bid for the company. But other home-related stocks have been struggling, including Home Depot, which fell 4% yesterday on worries about consumer spending on housing.

This morning's weak new home sales number adding to the negative sentiment. But today, D.A. Davis is an upgrading Home Depot and giving five specific reasons, including the potential for a lower interest rate environment. Michael Baker is the analyst behind the call. Sarat Sethi also with us. Michael, welcome. Good to have you with us. Explain the argument for Home Depot, which already sells at a premium

to its main competitor in the space lows. Sure. It does sell at a premium, but it always has. And part of the call here is that the weakness both this week but also year-to-date and really over the last two and a half years gives us an opportunity to own the stock on some weakness. Part of the call is macro-related.

part of it is company specific. But the macro call is that we think of six months from now, a year from now, rates are going to be coming down. And if it's not by the end of this year, again, it'll be early next year. And historically, Home Depot just works well in an environment when rates are coming down. In fact, the underperformance really started when the Fed started raising rates two and a half years ago. And we've seen this play out through history. So part of this is a don't fight the Fed call. In terms of the macro environment, you did cite new home sales being weak.

We look at home price appreciation. that historically has been a bigger driver than turnover. What we saw last week in the existing home sales is that home price appreciation is up year every year. It has been down towards the end of 2023 and early part of 2024. Now it's been up five or six months in a row at an accelerating pace. In fact, at an absolute basis, home prices are now at a record high. So we think that can help support some improving demand.

Again, maybe not this quarter, but within six months, we think we'll see better comps for Home Depot. Where do you see the E on the PE going up? Because at 22 times earnings pretty rich stock, so I'm guessing you think the earnings expansion is going to be there. Is it through margining expansion? Is it cost cutting, kind of given, you know, higher levels of onshore and costs as well? So where does that fit into kind of the thesis? Sure. It's a little bit of both. And so the valuation is based on 2025. At 42025, we do have a higher same sort of sales number than we have this year and actually total sales

as well just because we're layering in that SRS distribution acquisition, which closed last week. We also think that margins have bottomed and on a core basis will be up a little bit. They are dragged down a little bit by SRS, but still no longer getting worse and maybe even getting better. And part of that, particularly as COMS get better, part of that is because of cost cutting. They've articulated a $500 million cost cutting program, both in terms of gross margin drivers as well as SG&A, and that should start to layer through. So we do have earnings higher in 2025 than consensus. That's where we think the beat comes.

On valuation, sure, not a cheap stock, but relative to where the market is, it's actually trading right in line with the market valuation right now. So 100% relative P.E. Historically, it trades at a premium. So on a relative P.E. basis, Home Depot is trading below its five-and-ten-year averages. Let's talk a little bit about something you mentioned a moment ago, and I'd love to, just because I don't understand and I'd love to. you said that there is a correlate, or historically there's been a correlation between rising house prices and the price of this stock.

Why are prices a correlate? I get it if it's home building activity, but what is the connection between rising prices and a higher home deeper? Yeah, simply put, in the U.S., most consumers' biggest asset is their home. If they feel like their home is worth more, they're just that much more willing to invest in it, do an upgrade product. project or something along those lines and possibly get it ready for sale or even if they're holding on to it, if it's an appreciating asset, they just invest more. So we show in our report historically. Turnover is certainly important, but turnover affects four or five million homes a year and on a year-over-year change basis. It's a couple hundred thousand more or less this year

versus last year. But the home price appreciation impacts, you know, the 80 million other homes that aren't being turned over. I get it. So if home prices are going up, people, home owners are more inclined to invest in their house, therefore to buy wood and lumber and drywall and whatever else you need from Home Depot. You mentioned interest rates and that they have traditionally been highly correlated with this company's stock price. How important, let me ask it this way. I'm fumbling here. Can Home Depot go higher if interest rate cuts are very modest and delayed? It is harder. You know, you're sort of swimming upstream in that case.

Now it can, though, we have seen over the last few years, Lowe's has actually been a better stock that has been Home Depot, and part of that is company specific as lows as the margin gap versus Home Depot. But we think that as large as played out, you may have not recall. We downgraded lows earlier this year after outperforming Home Depot for six plus years. Now we think it's home depots turn to take the leadership, again, particularly in a lower-rate environment. It's easier for these names when rates come down. And we think if rates do start to come down, the stocks will move higher even before the fundamentals really turn

as investors will anticipate that. All right, Michael, thank you very much. Michael Baker, we appreciate it. D.A. Davidson. Serrat, you are a Lowe's owner, right? We are. They downgraded Lowe's. I think Lowe's has better room for a margin expansion. It's trades at 17 times earnings. I'm not a believer in owning, you know, my value bias. So it's market rate. Firstly, the overall market is moved by the big stocks, right? So if you take out the big stocks, it's really not trading it 22 times earnings. It's trading it below. And I just don't feel Home Depot has a better earnings growth than the market right now, given where we are. I think you've got some more headwinds. And as a macro player, as a value investor, I don't bet

on interest rates moving my stocks. That could be the icing on the case. that could be a great, that's an option value, but I wouldn't be buying stocks in ahead of that, given where we are right now. It's just hard pressed to say interest rates coming down in the next six months. And if they come down, is it for the right reason? That's the big part, right? Is it coming down because inflation is beaten, or is it coming down because the economy is slowing? Right.

In our view, inflation's not slowing. I mean, it's maybe flatlining, but the economy is slowing, and you're seeing it at the lower consumer end. So that would worry me. And then, you know, I don't think the last thing people are going to say is let me go spend more money in my home. Because if you're not going to go spending money at McDonald's or Starbucks or other things. So I think you can wait a little bit. It's a very high quality company. So don't get me wrong.

This is a very high quality company. I think at the right price you can get into it. And that's kind of the little difference that I have. Interesting. All right, Sarat. Thank you. Coming up, EVs, AI. All this new technology requires more power than ever.

and Congress is rushing to allow new advanced nuclear plants to bridge the gap. Details next. Welcome back to power launch. Two inescapable truths of our AI future. We are going to need chips for those computers. They're going to need electricity to power the computers. While Nvidia is the clear winner so far in the chips race, many are still searching for the power players. Pippa Stevens joins us.

Now, Pippa. Hey, Tyler, well, just how much power we're going to need remains to be seen, but it's clear there's going to be a whole lot of spending to upgrade the grid, and that's stoking interest in utilities. Active managers exposure to utilities is at a 14-year high, according to the latest survey from By Bank of America. And for hedge funds specifically, relative exposure is at a record. And across all 11 sectors, hedge funds now have the highest relative exposure to utilities.

Now, two AI beneficiaries are independent power producers, constellation energy, and Vistra, both of which have seen an uptick in hedge fund ownership, according to B of A, which said more than 20,000. 20% of large cap funds own at least one of the two names. Now, both stocks are down sharply in the last month, but still up more than 80% on the year, thanks to AI enthusiasm. The broader utility sector also pulling back from its recent high, but Matt Maley from Miller-Tabach, noting the XLE was at a key level where old resistance could become new support,

and if it holds, the sector could move higher. The key level to watch there is 6850. So how do these utilities, how does the, fact that utilities are so tightly regulated play into the investment prospects of them? So a couple of things to note here. So utilities during COVID were actually trading at premiums, right, because they were interest rates substitutions. So once the Fed started raising rates, money moved away from utilities to say, hey, we can go buy bonds. And the valuation of the utilities actually became below market multiples. Now you've got the tailwind of, to your point, demand.

And what they do is, so the independent power producers are not regulated. So they can actually earn as much as they can because they can sell it out to the grid at whatever price there is. The regulated utilities have to keep on going back for the rate case. They can also make more money over time by selling it outside of the regulation. So that's where investors are focused on and kind of saying, why do I want this? Now, we like some of the utilities too. We like AES and Edison. What you're getting there is 6 to 7 percent earnings growth and a 3 to 4 percent dividend.

yield. I will take 10 to 11% earnings growth at a cheaper valuation than the market because you get that. So that at least is kind of your more, I would say, less volatile earnings in your portfolio. That's why I'm surprised, Pippa, that the valuations, because our guest last hour also likes energies and notes they're kind of undervalued, historically speaking. And I am a little surprised at that with all of the hype around AI that hasn't translated in the utility sector trading, at least above or at historical averages. Yeah, but I mean, they were under pressure. As Sarat said there was a rotation out of the group, and in both 2022 and 23, they underperformed, and they were in the negative, and that was the first time in more than two decades when both

had negative returns. And so I think there has been so much enthusiasm recently, but it also petered out in about May, mid-May or so we've seen about, I think, an 8% decline since then. And I think that there's just, I mean, the reason why we've seen such mixed performance across the space, why Constellation and Vistra are up so much more is because they are IPPs. So as Sarat said, their upside is limitless. versus a regulated utility where they have to operate within the regulator and they have to bring their rate cases in order to get higher returns.

Very quickly. How much capital spending do these companies have to do? I mean, like it's to the sky basically. Yeah. I mean, it's a lot, a lot. To keep up, well, the way it works is transmission lines, distribution lines, so it gets a little complicated in there. But they go back to the regulators for that. So just like you would think they could raise, they can't raise as much as they think they can. But then they can't really, if demand was low, if you remember a couple years ago, during COVID and all the industries weren't producing and some of the utilities were losing money, that's when they could still guarantee a certain amount, right?

True, to a floor. So you get capped, I mean, and that's why I... But their argument is even if their profits are capped, their number of customers or the usage is expanding so much that you kind of get that delta. Yes, and that's where, by the way, so what other unintended consequences come out of this? So as you know, I've always talked about copper, right? What do these companies doing? building more, you need more copper for data centers. You need other things that are going to

increase the demand for production and to make all the equipment. And remember, all of the spending was required even before AI and data centers blew up. That's really a theme of this year. Even last year, the last couple years, we've been talking about all these grid upgrades, all the hardening of the grid that has to happen thanks to all of these record storms we're seeing and also load growth from EVs and EVs, data centers, the whole thing. It's a conflation. All right, PIPA, thank you very much. Kel. Congress is starting to realize the importance of increased power generation.

They're coming together on a bill to pave the way for more nuclear power. Emily Wilkins joining us with that side of the story. Emily? Hey, Kelly. Well, yeah, as you guys were just discussing, there is this need for more energy. And as soon to be law, it's one presidential signature away from making it easier for advanced nuclear companies to build facilities in the U.S. And provide a bump in electricity needed to power AI to power electric vehicles, crypto and more. Now, that's a bipartisan bill, and it would basically help look to streamline the

environmental reviews and processes. It would look to reduce fees, and it could save companies potentially months of time and tens of million dollars in getting these advanced nuclear projects off the ground. About two dozen nuclear projects are currently being planned or considered in the U.S., according to the Nuclear Energy Institute, but only about two are actually under construction. One of them is Bill Gates's Terra Power, broke ground earlier this month on a nuclear power plant in Wyoming that plans to eventually create a smaller, cheaper reactor that can be sold across the country. Terra Power president and CEO Chris Lavex said governors are becoming worried that their states won't have enough electricity. We should be concerned about the electricity supply because, you know, we've been a little complacent in the last 30 years.

The computing sector is now telling us, hey, AI is going to require a lot more electricity than we thought even, you know, a year or two ago. That's raising totally new concerns, very valid ones, about how are we going to power these data centers? Electricity demand could increase as much as three quarters by 2025, according to the U.S. Energy Information Administration. And, guys, I would not expect this to be the last bit of advanced nuclear legislation that we wind up. seen in Congress. All right, Emily, thank you very much. We appreciate the reporting. Up next, we'll get you a little technical support, but first as we head to break, CNBC celebrates Pride Month throughout June, and here is Lule de Misse, a Toro, U.S. CEO. One of the ways that I think we can combat anti-gay sentiment is first to understand what it means to be gay, for me at least. It has

been a transformative identity because it has taught me how to love people who might not love me, which is sometimes our family. And so out of that core, what I have learned to do is how to turn poison into medicine, to not burn down those bridges and tunnels. Dow has erased its earlier losses for a gain of 57 now as all three major averages are higher, although the gains are small, the NASDAQ showing the biggest gain, in fact, of just about a quarter of a percent. As Amazon hits an all-time high today, up more than 4 percent to pass the two trillion mark for the first time. And remember, you can always hear us on our podcast. Be sure to follow and listen. to power lunch wherever you go.

That's not a question. That's a directive. We'll be right back. About three and a half minutes left in the program. We've got a couple more stories we'd love to share with you. Volkswagen slipping on worries over the implications of its deal with Rivian. But on the Rivian side, it has seen as good news. The stock hired by 20 percent provides the company with the funds to compete with Tesla.

What do you think of this? I mean, this is lifeline, right? This is Rivian. This is phone a friend. Yeah, this is basically how much. more CAPEX can we spend, how are we going to work together, maybe we share our technologies. At the same time, you've got Tesla, you've got the Chinese EVs and the hybrids, and you've got GM and Ford. That space is getting so competitive. It's just, I don't know, the return of capital

is going to be even harder. The Rivian trucks look like trucks. Have you seen the Tesla trucks? The Tesla trucks. I have footage. A couple around my town. You slowly starting to come out. They look military to me. They look like a spaceship coming out. Real quickly on the Volkswagen. inside of this which I find fascinating. That company is really struggling. They have to figure out how to do this at scale. They keep trying to try. Remember, they're the ones who hosted Elon Musk for a big, you know, talk, you know, many years ago.

Those shares are down. I forget the number 20% over the past year or something. Is this the right move for them? I think this is just trying to buy technology or I wouldn't even say to partner with somebody who's ahead, but maybe get the scale. I just see the profitability now, given where we are. It's going to be really tough. They used to say Rivian lost how much on every car it made. Right. And the production issues that Rivian had. So what is the JV going to have on both sides is going to be interesting. But as an investor, it's just going to be more kind of, hey, we're pushing, kicking the can down the road.

All right. Let's quickly mention the Biden administration wanting to lower costs for 64 drugs through inflation penalties on drug makers. This law would require drug makers to pay rebates to Medicare if they raise the price of the drug faster, literally, than the inflation rate. I mean, we're just talking about politics right now, right? Totally. Look at the timing of this, given where we are on a Wednesday. What do we have tomorrow? Yep. It's already the administration. Again, I'm not being political here,

but if you think about what's happening with the PBMs and what's happening with United Health and CVS, so the administration is making a statement and a stronger statement that, hey, we are trying to get costs down for health care. Fascinating story in the Times on Sunday about the PBMs. Very, very, very, it's a recommended read, folks. All right, Tesla, recalling 11,000 of those cyber trucks we just mentioned over trunk and wiper issues.

Tesla told the N-H-T-S-A that a trim attached to the trunk bed of certain 2024 cyber trucks could fall off, creating a road hazard. Also, the motor for the front windshield wiper could fail, excuse me, and reduce visibility. Well, yes, if the windshield wiper fails, it does reduce visibility. Indeed, it does. And there's a cottage industry of people following the cyber trucks around. I've got some footage myself of one on the road. It's not doing anything that exciting as having pieces fall off. It's mostly just sitting at it because I wanted to be at a red light to take.

This is me. Entrepid. This is you. They look, and my favorite part of watching these go around town, that was when other Tesla drivers go by. They always honk the horn and wave. They do look. Sci-fi, the key question, though, is the story will be if they can literally stay intact enough to stay together.

Well, something doesn't fall off and the droid comes out or just, you know, watch what's in there. You know, they wanted to get rid of some of the side mirrors in order to increase the ability for it, you know, be even more range in things. and so on and so forth, couldn't get approval to do so. So, Rod, thank you very much for being with us. Always good to have you here. Thank you for having it.

You have a lot every time. No, it's a lot of fun. Really enjoy it. And thank you all for being here as well. Thanks for watching, Power Lund. Closing bell starts right now.