Power Lunch - Google Integrates AI into Hardware, Recession Fears & Fed Rate Cuts 8/13/24

Episode Date: August 13, 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 afternoon, everyone, and welcome to Power Lunch alongside Kelly Evans. I'm Tyler Matheson. We've got a big show coming up, including New Jersey Governor Phil Murphy. Right now, stocks are higher across the board as the producer price index. Inflation measure there came in a little lighter than expected, signs of slowing inflation. That's good news. And we will get the CPI, the consumer breeding tomorrow. Nasdaq up more than 2% right now, Kelly. And the big corporate story of the day is the shakeup over at Starbucks. The CEO is at replaced by Chipotle's Brian Nickel. You can see the huge reaction in Starbucks shares having their best day in years of 21% while Chipotle going the other way.

Off the lows, though, down 7% no on his departure. Nickel seems to be worth about $20 billion in market cap. Let's bring in Kate Rogers now for more on the challenges he will face at his new job. Kate. Hey, Kelly and Tyler. Nickel is a proven leader with great track records at both Chipotle and Young Brands before it. Investor is clearly thrilled today with the news. He turned what was a major crisis around food safety at Chipotle and to what amounted to be a blip on the radar.

It essentially never happened again after he took over in 2018. He also wisely launched its rewards program and grew out digital and drive-through to great success. At Taco Bell, he helped capture younger consumers and launched breakfast along with launching key new menu items at Chipotle, creating viral value in this environment. And most importantly, as I mentioned last hour, he talks about delighting the customer often, meaning it's worth it for them to come and spend at Chipotle in this environment. Its premium does not discount, and it is growing traffic right now, which is an industry rarity. The stock has stored almost 800% under his leadership. Now, the challenges at Starbucks will be similar in some ways, but different. First, its footprint, much larger and more global with more than 39,000 locations around the world,

company owned and licensed. Chipotle was on track to hit about 7,000 in the next few years. At Starbucks, the China and U.S. businesses are under immense pressure from consumers who are fed up, quite frankly, with higher prices, speed of service challenges, and quality issues. But it is a premium, well-loved and respected brand with a public perception issue. It's working to correct with new training for baristas, discounting, and more. So we will see what Nickel does there. Definitely looking forward to kind of seeing the Nickel Playbook at Starbucks, guys.

What didn't work under the current CEO, Nara Simmons? There were a lot of challenges, Tyler, and I can't necessarily point to one thing, but I would say broadly under the umbrella, public perception, is the value worth it? Is it there? Is it worth it for you to go spend your time and your money at Starbucks? You know, if orders were taking too long to come in, if products were out of stock. And also in some markets, particularly China, it was facing a lot of steep discounting, and deep discounting rather, from Luckin, a major competitor there that was undercutting it.

I mentioned a few times today that Starbucks is a premium brand that has to also offer value in this environment. That's a really challenging dance to kind of walk. He was able to do it at Chipotle. As I said, they don't discount and they're growing traffic. You don't see that. So I think it remains to be seen how he can kind of mirror that playbook on a much larger scale at Starbucks. And, you know, the turnaround plan is already underway, but there will certainly be other changes to come, guys. All right, Kate Rogers.

Thank you very much. For more now on the Starbucks, Chipotle CEO, Shakeups. Let's bring in Jeffrey Sondonfeld, Yale School of Management, Senior Associate Dean for Leadership Studies, also a CNBC contributor. Jeff, welcome. Good to see you. I think Kate kind of nailed it there. people are willing to pay a premium price for a premium experience. They seem to feel they're getting that at Chipotle under nickel.

They didn't seem to feel it quite the same way under Naras Chemin at Starbucks. I think Tyler, Niley, she nailed it, you nailed it with your question to her. That was a tough, you know, friendly but hardball question you gave her at the close, and she knocked it out of the park. She's exactly right. There's confusion in their image is as a premier brand. But Lachman, Narasimann came in going for value and trying to come out with ways of coming up with lower cost bundles, coming out with products that didn't match their image. These summer refresher berry drinks weren't the way to go. Protein drinks that were not the right size, these, you know, gallon-sized, you know, vante drinks that people maybe would like smaller doses.

But the big thing, as Kate said, was if you put a wrap-around, there was communications, is he's a very good guy, and he's used to the world of consumer products, much slower moving than the fast pace of fast food, of casual dining. And he set expectations about turnarounds that were happening on a slower, creakier schedule. He was moving into mobile, but his mobile was just for the people that are part of their frequent diner program, you know, the rewards program. And it wasn't for everybody yet. He just was rolling that mobile option out more widely.

And things were just, unfortunately, moving too slowly there. It's more than that, Jeff. Listen, there's also the, as he came from Pepsi, which is a culture where, you know, when you're not moving product, you discount it. Traditionally, you had coupons. You use more. And he seems to have brought some of that ethos to Starbucks. And that's not an ethos that is successful for the Starbucks clientele that wants to feel more like that Chippole experience. They're walking in.

they're going to get a great product. They're going to get a really nice experience. The service is going to be excellent. It's going to be quick. I mean, this was a, he did not seem to bring what Starbucks need to be successful. And this idea of discounting and using promos to drive traffic is very at odds with the, you know, the culture there. No, that's exactly right. And Kelly, I think that you covered a very important angle is that this discounting,

not only was it not consistent with the branding, it wasn't driving traffic. And that was, again, a part of the problem. The employees weren't moving fast. He still had some union issues. He, I think, accomplished great headway with the unions, but there still was some some frustrations there and some awkward positioning relative to the Mideast. Brian Nichols comes in as somebody who knows the fast food business. It's not only, as Kate pointed out, did he experience the problems that Chipotle had, of course, and food safety.

But at Young Brands, his boss, back then, the head of Young Brands, was minimizing the food safety issue. They had E. coli and seminella problems at Taco Bell. What Brian did, he went in and fixed it instead of what his boss was doing, and he wrote a book about it, his boss called the accidental CEO, and he bragged about stoneballing the media. What Brian said, let's fix the supply chain, and he did the same thing, of course. So let me interrupt it, and I want to get, and I'll tell you mine, if you tell me yours, What is your single piece of advice for Brian Nicol as he begins this job?

What does he have to concentrate on and get right? Well, he's got him not over promise. I think right now the scale of this business is a lot smaller than what he had. You know, if you had 40,000 restaurants roughly for Starbucks around the world, here we have 3,500 mainly in the U.S., and only 100 international. As he wants to ramp up international, he has to ramp up international. He has some experience there, but some of that experience was selling Yom off to China to de-risk China. Are they going to do the same thing here?

They're not really in. So the challenges with Starbucks now in scale is he's huge. That's huge. It's a lot bigger than where he was in Chipotle. So that'll be a challenge both in scale and on international. His premium product making that the integrity of the food, the fresh ingredients, he made a marketing planner. around that. His employee morale is soaring. You wonder how much higher can he go? He's approaching 70 percent that this is a fantastic place to work. That's quite a different that others in American

general, let alone in casual dining. So these are some issues, but he's been very good at training, very good with operations. And we shouldn't close without talking about what he's done in technology and innovation. At our last CEO summit, he actually showcased this incredible chipping the robot that creates a, uh, uh, uh, the robot that creates, uh, uh, uh, the robot, uh, these taco chips and also carves out the avocados and the work that a lot of the employees didn't want to do. It's expensive and they didn't enjoy it. He standardizes the product and that helps them scale a lot. Kelly and I want Chippy the robot in our homes. I'm going to give you my two theories. And one is something you touched on earlier. I think they've got to get the product

mix better aligned with what their consumer wants. And I'm not sure it's berry oriented energy drinks, number one. I think people are looking for coffee drinks and comfort and hot chocolates and so on and so forth. But I would say if I had one thing to say, concentrate on the store experience. The stores have to get cleaner, more efficient, faster, more welcoming, brighter, better.

That's where he's got to concentrate. That's where Jim Kramer hit his predecessors so hard on a surprisingly direct exchange on the show. is you're exactly right. I think the speed and what was happening in the stores is really, really quite critical. It is a reminder as we step back a little bit that Tyler and Kelly, we've seen this, the three of us before, that a single individual can make a huge difference in this world of empowered work teams and self-directed work groups and all the rest, and group leadership is wonderful. But the role symbolically and substantively,

or inexorably intertwined of a single individual can have this huge an impact. But he's got to watch out for one other thing to watch out for Tyler is who's lurking in the background is Howard Schultz, of course, this is the fourth time now that he's weighed in. This, Howard Schultz met with Nichols last week. So this is not a surprise to somebody off the board that this was happening. He's a massive shareholder. And of course, he really built the brand, obviously, and Howard Schultz is a genius. But having somebody, as he's done to Orrin Smith, as he did to Jim Donald, as he did to Kevin Johnson, as he did just did to Lexman, is having somebody who takes their complaints public into either tweets or LinkedIn messaging is really not

helpful. So he's got to get Howard on the same page with him. So it's a great board, but some of the governance is coming from outside. And surprisingly, not the activists who I was all set to complain about. They had nothing to really do with this other than raise legitimate issue. Jeff, got to leave it there. As always, thank you very much for your. your insights. We appreciate it. Thank you. And we'll see what happens to Chipotle now. Yeah,

no, it leaves a big hole at Chipotle that they have to fill. Indeed. Indeed. Still to come, two power players, starting with New Jersey Governor Phil Murphy weighing in on the upcoming election, and the CEO of Valley Bank, Ira Robbins, joins us to discuss the interest rate environment. All of this when Power Lunch returns, stay with us. Welcome back to Power Lunch. Democratic nominee Kamala Harris and former President Donald Trump We'll be back on the campaign trail this week. Today also marks the start of a battleground state tour for Harris's running mate of Minnesota, Governor Tim Walts. And the Democratic National Convention in Chicago is less than a week away.

Here to weigh in on the election, the economy, and more New Jersey Governor Phil Murphy. He's endorsed Harris for president. He applauds the Walt's pick. Governor, but let's hear it from you directly. The first time that we are hearing from you amidst this really crazy election season, what do they need to do right in order to solidify the gains that they've made in the weeks? that are to come where we have the debate. It will get more policy driven, I imagine.

We'll everyone will be pressing for more details on what exactly they would do in office. What do you think? Good to be with it, Kelly. First of all, more of the same. They've had an extraordinary several weeks here, and they show no signs of letting up. You've got a convention next week in Chicago,

which if all goes well, and I anticipate it will. We'll leave Chicago next Thursday. the night with a lot of wind in our sales. But they'll also have to remember this is a marathon. You know, three or four weeks does not make a general election campaign. They'll have about 70 plus or minus days between Chicago and election day, and they're going to have to earn it every day.

The good news is I know them both, and they are as qualified, a duo as I could possibly imagine, everything from their political instincts to their life stories, to their policy, chops. So whether it's a debate, whether it's a rally, whether it's holding up your life resume to scrutiny, we could not have a better duo leading our ticket. You're a governor, Democratic governor. Mr. Walls is a Democratic governor. What can you tell us about him personally, maybe, that we might not already know? Hey, Tyler, good to see you as well. Yeah, he's a very close friend. He succeeded me as chair of the Democratic Governors Association.

He is the genuine. People say this about other folks all the time, but he's almost in a category by himself as being one of the most genuine individuals I've ever been around. His life story, his demeanor, his ability to lead, his family story,

his sense of humor, his commitment to our country. At every level, this guy is the real deal. Kamala Harris could not have made. She had a number of great choices. She could not have made a better pick than Tim Wals. And quite a few of them were governors, as you surely know.

Let me pivot a little bit to a decision that I know you have to make in the next week or so, and that is a replacement for Senator Bob Menendez, who was convicted and has elected to resign. Where are you in that process? When should we expect an announcement? I'm available, by the way, if you want to talk. Me too. Kelly's available. I love both of you.

You've just been added to the list. This is sooner than later. Senator Menendez has said he's going to step down next Tuesday, the 20th. So I've got no news to make today, but this is only a matter of days at this point. And I promise, folks, if nothing else, that whoever it is is going to represent Jersey values and do everything they can for that period that they're in Washington representing our great state. but no news as it relates to names, but stay tuned. So I don't know if this would be considered separate, related, what have you.

Really probably more falls under the governor's jurisdiction. We're seeing more and more states and school systems look to ban or minimize cell phone usage during school hours. And with all of us and back-to-school mentality over here, would you ever consider doing the same kind of thing in New Jersey? Kelly, I'd be open-minded. We are the ultimate home rule. state, as you likely know. So we have over 600 school districts. I was at an elementary school in Newark, New Jersey this morning is a great example of that. We already have districts making those decisions. And we're in a position right now. We'll re-respect the local district decisions.

We get a lot of input, especially not just educators and staff, but from parents and kids themselves. but we sort of right now are taking this on a case-by-case basis. And it depends on a number of things, including how old the kid is, as they say, input from parents and educators. So am I open-minded to that? Yes, I am, but so far we're sort of navigating it on a district-by-district basis.

Yeah, I know some parents actually want their kids to have the devices in, God, forbid, in case of emergency or something, but I know many, many others are hoping that we kind of find, And I know Jonathan Haidt has done a lot to popularize this issue and kind of talk about getting technology out of classrooms, which is ironic because a lot of the investments have been made in getting technology in the classrooms. I don't know if they ever go so far as to kind of about face on Chromebooks or if that ship is sailed. Yeah, listen, you make a very fair point. This is folks are trying to make this into a black and white reality.

I would argue, and I think you are as well. This is much more nuanced. So we'll see. Again, open-minded. We know mental health challenges. were already significant before the pandemic. It's now far more acute. I was the chair of the National Governors Association

and tackled mental health and strengthening it among our youth. Certainly, devices are a part of that. And I think we have to accept that reality and figure out what the best solution is. Let's turn back quickly, if we might, governor, to local presidential politics. New Jersey has been a blue state reliably

in national elections, but obviously some of the governor's races have been quite close. in recent years. Do you think that New Jersey is a safe state for the Harris Wall's ticket? I do. That does not mean that they should not take it seriously, as I know they are, but I do. I feel quite comfortable in that assessment.

Again, that's different than putting your feet up and check in the box. But if they do the work they need to do, and I know they will, because they're both, among other things, really hard work. workers and they've surrounded themselves with great teams. This is going to go Harris Walls in November. New Jersey historically, and I suspect it will continue to be a big fundraising state. My wife, Tammy and I, in fact, hosted what I believe was the last fundraiser that the Biden's did in this cycle.

And we have raised our hand. And I know lots of our colleagues in the state will join us in doing everything we can to make sure this campaign is properly funded as well. Governor, if you were his financial planner, Tim Walls, you know, what would you tell? You know everyone's, when's the last time we had a public official who didn't own any stocks, didn't have a 401K, you know, that's one of the more fun twists of learning about his background. Yeah. Very cool.

But back in my banking days, I have a screaming buy on Tim Walz. I love the guy, and on Kamala Harris, I might add. It's just a great ticket, and there are two great individuals who love our country. The other thing I think people have to remember, particularly in a context of a network like CNBC, this is a stark contrast between who wants volatility at the kitchen table? Who wants volatility at the boardroom table? Nobody does. You want to feel like the world's complicated enough already.

You want to put the country into safe hands, hands that will respect institutions. I take your point, but when I see what's going on geopolitically now, too, I mean, there's at least three different wars, Islam. Like, everywhere you turn, the volatility is also what's threatening this country's very existence. And I think that has to be acknowledged as sort of who has the most experience and the best pair of hands to deal with that. It could end up being another presidency that wants to be defined by internal, you know, leadership.

It is going to be defined by how it responds to external events. Yeah, you're making the point for me. The world is incredibly volatile. Let's not add to that volatility by electing people who would make it even more uncertain. Let's put this country into safe pairs of hands. Governor Murphy, as always, we appreciate your time. Thank you for stopping by. Thank you for having me. Take care. You bet. And still to come, navigating the markets after the last week's big drop and subsequent rebound, our trader gives her take on what to do, are not due right now. The market navigator, Magellan, DeSoto, Columbus, they're next. Welcome back to Power Lunch, and today's Market Navigator. We have stocks rallying after the first

of two monthly inflation gauges this week come in cooler than expected, and that brings us right to a key technical level. Let's welcome in Jessica Inskip, Director of Investor Research at Stockbrokers.com. Jessica, great to have you here. I know I said this before, and I love the haircut. Anyway, be that at a... Thank you, Kelly. Market, I'm trying to make a haircut reference. What's the key level that you are watching here and why? Yeah, there's actually a couple. So I like to start taking a step back, looking at more of a two to three year chart with the SPX weekly view. So I'm looking at the 13, 26, and 40 weekly moving averages. That represents one, two, and three quarters worth of prices. That 40 weekly moving average, that third quarter worth of prices at 5100 was actually our support that we maintained last week. That's really great. This week, it's all about the one quarter worth of prices, that 13 weekly moving average, around 54, 23, which we're testing. right this moment. That's two days of data. I need to see that on Friday, though, in order to make that consistent. So I want to close above 5423, the level I'm watching. You want to close

above 5423 kind of as we move throughout the week on a weekly basis. What if we don't? Yeah, well, then we run into an issue. So that's where I like to switch to the daily view. We can narrow it down. Really, there's a gap down that happened, and that's the next major area of resistance. But now it's support. We've overcome that today. So in the daily view, that's a short-term momentum that we'll see. It's a bullish momentum that would signal. So that gap down is about 53-83 to 54-10. We are above that. If that's not maintained, then we're going to have a downturn. And my downturn is really carrying about thinking about the whole macro picture of we're in this cycle where we're talking about inflation, so on and so forth. The really big levels

that I'm watching are the major high trends before we started into this Fed rate-hike cycle. is the big, big concern. So meaning, if those aren't supported, then we go to the next levels. We'll go to the 26-weekly. We'll go to the 40-weekly. And if we don't stay above that higher high, then that could be a major, major issue for a downturn going forward. So lots of catalysts, certainly ahead. Final question, as we kind of brace for what could happen to the downside, what if stocks have no problem with this? And it's all in the past and we go skipping off two, you know, nice continued gains here. Absolutely. So then we're expecting those higher highs. Now, I definitely want to be cognizant of the NASDAQ 100.

That one also has a much more room to go to get to that 13-weekly moving average. That one's around 19 to 75. So there's some momentum that needs to be there. And I don't see a rally without the NASDAQ 100 or those mega caps actually participating. However, the equal weight is really the gemstone that I'm seeing here. The equal weight is actually leading rather than NASDAQ 100, which is what we haven't seen before. So it's now about those other 493 securities. The equal weight is actually finding support above that 13 weekly moving average, whereas

that is resistance for the mega cap or the market cap weighted S&P 500. So that's good. As long as that's maintained, that's great. But in order to see higher highs on the market cap weighted S&P 500, I have to see higher highs on the equal weight. I want to see broader participation. I want to see that breadth. It's there.

It just needs to be maintained. All right. And like you said, big tech has to be part of it. It doesn't have to be the leadership, but it's got to be part of that. Really interesting. Jessica, thanks. Really good to see you. Oh, there she goes.

Jessica in Skip. Coming up, regional banks seem to always be a point of worry for investors, whether it's the impact from commercial real estate, rates, the overall economy. Still the KRA, the regional bank ETF is holding strong down a bit over the past month, but up 12% in the past six, and we'll check in with the CEO of Valley Bank when we've returned. Welcome back to Power Lunch. Stocks are higher right now. yields are slightly lower. 385 on the 10 year, the two year at 394 or so. All this after this

morning's PPI data came in a little bit softer than expected, showing an increase of only a 10th on the headline. And the core was flat. Tomorrow we get the data on consumer prices to see if this downtraft continues. All righty, shares of New York Community Bank continuing their comeback from a sharp drop earlier this year. Today, the stock is higher. Six months, it is down 25 percent, but today higher by 9 percent. Three investors exchanged their preferred stock for common. Meantime, shares of Valley National Bank have lost a quarter of their value this year, but have bounced back from lows earlier this summer.

So what's ahead for regional banks as the economy may slow? And we expect to be heading into a lower interest rate environment. Let's bring in Valley Bank CEO Ira Robbins for one of his periodic visits. Ira, good as always to see you. The stock market seems not to be in love right now, but that's the stock market's problem. maybe more than it is yours. Walk me through the net interest income and margin numbers. Why don't I just begin by nerding out and letting you do that?

Yeah, it's a great way to start. Right? From a banking industry, it's obviously the driver of all of our revenue. At an organization like Valley, approximately 87% of our revenue comes from the net interest income. So really, it's effectively what we charge on our loans and then we pay back to our depositors. And when we're in an inverted curve, we just saw the update before we were at at a 10 basis point negative spread.

That's a real challenge for the banking industry. At Valley, we saw a significant decline in our net interest income and net interest margin throughout the inversion. But we've actually seen an inflection point for the last two quarters. The margins actually begun to move up an increase, which is a real positive for us. I think not just for Valley, but for the entire industry. And if interest rates go lower, as many people expect they will starting in September or maybe already have,

How much will that be helpful to you? I think it's a huge tailwind for the entire industry, specifically for Valley. When rates began to move, it wasn't just the inversion that created the pressure. We saw a lot of our depositors actually move money from non-interest-bearing accounts into interest-bearing accounts as well as into the Treasury products. And when the short end finally does begin to come down, some of that pressure that we've seen where the depositors have moved into some of these interest-bearing accounts dissipates, and the margin then expands based on that as well.

Although I'm one of those people who has moved funds to something more interest-bearing, I'm not going to move it back, right? You know, I'll still take upper fours or threes. I'd probably even take twos over zero. It's sort of like we all just woke up and said, all right, I'll shift things around, and I don't know if that's unwinding. Yes, I don't think that's going to unwind to the massive degree, but it's the change and the shift that's going to slow down, right?

Up until this last quarter, we really continue to see a lot of people moving from non-interest-bearing. into some of these higher yielding accounts. That's really stabilized now, and that really has stopped. So just the fact that that's not moving anymore and create a downward pressure on the margin is a big tailwind just in itself. Tell us a little bit about where you are growing your loan business and where your loan business may be contracting.

Well, we're not going commercial real estate. That's probably evident from most from an industry perspective. But we see strong growth in the CNI. We've been focused on building our C&I business at Valley for many years now. Now we've seen a compound of annual growth of over 10% the last two to three years just in the C&I business. And this last quarter, we grew 16% in the C&I business. So our belief is that some of the CRED portfolio really begins to contract, it's going to be offset by some of the C&I growth that we've seen.

C&I meaning what, commercial and industrial? Exactly. Okay. And which of those two is growing faster? The C or the I? The C is really growing a bit more for us. which is a positive. And I think they come with deposits as well. So from a relationship perspective, it's a more valued asset. That said, historically, C&I does have a higher loss rate than what commercial

real estate is. And I think that goes back to maybe some of the unknowns when we think about the commercial real estate. There's this perspective out there that every single commercial real estate loan is exactly the same. It performs equally across geography, across asset class. And we've known from being in the business for almost 100 years that that's not the case. You know, office loans are obviously performing poorly today. But you look at other asset classes, whether it be industrial, warehouse, retail, and those are still doing really, really well. We look at different geographies. We look at rent-stabilized in New York City, and that's a little challenge.

But you look at multifamily and many other geographies, and they're really doing well. So we really need to not look at the asset class in totality and say everything performs the exact same and really break it down into the individual buckets. All right, Ira, thank you very much. As always, we appreciate your periodic visits and look forward to the next one. Ira Robbins. Thank you. Let's get to Contessa Brewer now for the news update. Contessa.

Kelly, hi. State Department officials are insisting the U.S. did not engage in any part of Ukraine's surprise incursion into Russian territory last week. A spokesperson says the U.S. is focused on supporting Ukraine's mission in defending itself. Ukraine claims its forces are holding the nearly 400 square miles of territory in the Kursk border. region. Tropical storm Ernesto is expected to strengthen into a hurricane in the Atlantic by Thursday, according to the National Hurricane Center. The storm is currently about 175 miles from Puerto Rico and expected to strengthen as it turns northward toward Bermuda. Ernesto is the fifth named storm of what's expected to be a busy Atlantic hurricane season. And former representative George Santos' trial

on fraud charges is moving forward with jury selection scheduled to begin September 9th. That should last about a week, according to the judge presiding over the case. Santos was expelled from Congress last year following an ethics investigation. He's charged with conspiracy to commit offenses against the United States, wire fraud, and aggravated identity theft. He's pled not guilty. Kelly, I'll send it back to you. Thank you very much.

Still to come, we'll get the trade on two key headline movers of the day. With Starbucks up 22 percent and Chipotle down seven, details when we return. Time for today's three stock lunch. Three big movers to talk about today. Here you're up for the challenge. Will McGuff is Director of Investments at Prime Capital Investment Advisors. Will, thanks for joining us. Let's start with Home Depot, which reported earnings, warned of sales and profit decline on weaker consumer spending.

But the shares are positive. They had initially dropped after the results, but higher as well after that softer PPI data, up nearly 2%. Is the worst behind us for Home Depot? Are you a buyer here? Hey, Kelly. Hey, Tyler, thanks for having me on. I would actually be holding Home Depot here. And I think you just nailed it. The PPI data came out with their cautious and very tepid outlook on guidance. And I think they're kind of a Fed trade here. So we're looking to see where rates go. If rates go down, mortgage rates go down, maybe a boom towards housing. People may start spending more on renovations and investments in their house. So I think Home Depot is just a good proxy for a rate trade here. Well, let's move on a little bit to a stock we haven't mentioned at all this hour, and that would be Starbucks. Shares continuing to climb like a caffeinated ant this hour.

It's a company announcing it has replaced its CEO with Brian Nickel, effective immediately. Shares are up more than 20 percent today. Your take here? Yeah, you've got to be under Iraq today in the financial world to have not heard about this news. $25 billion cap swing between Chipporte and Starbucks on the United. the management team news. It just goes to show you the value of people or what the market perceives the value of a good management team to be. I'm actually a seller here. Starbucks has been kind of dead money for the past five years. A big range. It's traded in. I'm going to kind of wait

and see how nickel does. If we get to the top of that range, which is the 21, 22 highs for Starbucks, becomes a little bit more interesting. But to me, the range for the last five years is synonymous of the bloat of the company, massive company, loyal fan base, lots of stores, and just take a wait and see a approach here. But I sell the news today and wait for a better opportunity to get in. All right. Very interesting indeed.

That brings us to Chipotle, the news of the CEO shakeup causing those shares to tumble, down 9% losing nickel. What do you do here? Yeah, so I don't know if you could guess or not. I'm going to take the other side of this trade from what's going on today and actually be a buyer. I think Chapporte is a good opportunity here.

You have to think that the management team has learned from Nickel and is going to be equally as good. So I'm going to give them the benefit of the doubt. It's been in a cyclical bull market for the last couple of years. It's about 30% off the highs, rallying back. So it looks very interesting to me here. The only concern I have is are we at the peak burrito boom? Not really many competitors. You have Kava, small cap stock in the space, which we talked about a few months ago in here.

So until, you know, you start to see some change at the long-term trend, I would be accumulating shares and taking advantage of the dip here as an opportunity to accumulate even more. All right, he's loading up. Like a caffeinated ant was the phrase of that whole segment. Will, thank you very much. We appreciate it. All right. For the past year, following the emergence of AI software has been the key focus for companies like Google. but what is their hardware strategy as they look to implement this new technology?

We will find out next in a very important interview. We'll be right back. Google shares are hired today for the fourth time in five sessions following the tech carnage we saw last week. Today, the company holding a hardware event to show off how AI will be integrated into its devices. Deerbosa is in Mountain View, California, at the company's made by Google event, along with the company's senior VP for hardware. Dee, it's all yours. Tyler, thank you, and that's right. Rick Osterlo, thank you so much,

straight from the stage to our little studio here on Google Campus. Tell me, what should we take away from this? What do we get today in terms of Gemini and Google AI applications that we just haven't seen before? Yeah, you bet. Thanks for having me, dear Dre. So this announcement was two really big things.

First, we talked all about Gemini and how we're trying to get it across our whole mobile ecosystem, try to get it to every and to every and, Android device where there's just billions of people that could take advantage of the power of AI and the helpfulness. And then the other part of it was around announcing our new pixel lineup of phones. Right. And so leaving pixels aside, right, you said at the top of the keynote, it's all about AI.

That's right. What do we get that was different? How is it different than what we saw a few months ago was, say, Project Astra. How should we think about these different AI offerings? Yeah, I think, well, at I.O., we announced Project Astra in a number of new technologies and research items we're working on. Today we were focused on things we're about to ship that are shipping in the next few weeks, which is really exciting.

So we gave live demos of a lot of capabilities. We showed Gemini Live with real conversations with people on stage. And it's amazing. I mean, it's a new capability that allows you to have a true conversation with AI. It's awesome if you wanna brainstorm something, if you wanna learn something new,

and have someone you can talk with. It's just like a great capability. People love it. First to market, I think, is an important point. And to have it on device. You guys are going to be ahead of Apple in terms of that. Let's talk about pixels, though, because you did talk a lot about that.

You have a new lineup. Pixel devices, though, they make up less than 5% of the smartphone market globally. Where does that need to be two years, five years for now to justify its existence? Yeah, I mean, I think if you look at the global market, there's so many billions of phones out there and so many sold every year.

But if you narrow into the focus where pixels shipping and the market segment that we primarily operate in, in which is premium, it's actually much bigger than it appears. So if you look at markets like Japan or UK or other places where we've been for a while, we're usually the number two or three player in those markets in terms of premium smartphone market share. So do the rising CAPEX costs, we talk a lot about this on CNBC for AI, has that changed the calculus for Pixel? I know that you may be the number two or number three, but globally still a small percentage of the market.

Yeah, we're certainly pixel small and we have a huge reach with our Android ecosystem. So we go to market with all of our capabilities to billions of people that are using Android every day. And so that's why we're investing so much in our AI infrastructure. We, of course, have to serve all the people using our apps and services. And there's billions of those folks. We have over six products that have two billion or more monthly users. And then on the Android side, of course, we have phones everywhere. And we want to make sure our AI capabilities through Gemini are brought to all those users. So you say these features are going to be available now. Some of them are available to subscribing users in many cases.

Does this ultimately roll out to all Android users to all the different models in that universe? Some of the advanced capabilities we showed, like Gemini Live and the forthcoming research capabilities, those will be available for people that are on the advanced AI premium subscription. And everything else is being available for anyone that uses Android. And in the coming weeks, right?

That's the timeline. Rick, thank you so much for being with us today. You're welcome. Thanks for having me, dear Dara. Back over to you guys in the studio. And thank you both for joining us as we continue to tiptoe into this new world blessed by these AI inventions. Remember, you can always hear Power Lunch on our podcast. If you miss any of the show on TV, follow and listen on any platform you use. And we'll be right back.

Oh, what a day it is in the markets. Look at the Dow up 370 points. That's about 9 tenths of 1%. NASDAQ is up more than 2%. It is up 388 points. at 17,171171. Invidia, up more than 6% today, continuing its snapback. It's now up more than 10% this weekend.

Well, it's only Tuesday. Other hard-hit chips, including Super Micro and Intel, are also moving higher. Energy, the only sector lower today. Oil peaked above $80 a barrel, West Texas, I believe earlier today or yesterday, and has dipped back a little bit. There you can see the energy sector down as well. A couple of minutes left in the show. I want to bring you a few more stories before you go.

Starting with Elon Musk's controversial interview with Donald Trump, didn't go off without a hitch. They had problems. It took, what was an hour plus, ultimately, to get going? Musk said the technical issues were the result of cyber attacks. The interview did attract, despite all of that, more than 1.3 million listeners. Now, the two are facing some backlash today

after applauding the practice of firing employees who threatened to strike, the UAW filing federal labor charges against both Musk and Trump. Of course, we've seen that, I think it was the Teamsters who were at the RNC, so Labor, it's finding itself in a rather awkward place here. A little bit divided on that one. All right, Universal Music announcing an expanded agreement with meta platforms. The agreement covers all of meta's major platforms, Facebook, Instagram, Messenger, and for the first time, WhatsApp. The company, what's up with that? The company recently renewed its license with TikTok as well.

That's Universal did. But remember, last month, UMG's stock took a 23-3. percent decline in a single day after reporting weak streaming revenue. Very big deal this one, and they really highlighted the WhatsApp aspect of it. So what's up with that? It seems to be, and I'm curious about this, that they feel more comfortable with private messaging usage of some of this as opposed to kind of repurposing it in a much more public way. But to your point, it does cover all the major platforms.

So meanwhile, McDonald's is throwing its weight in local elections. They have increased spending to lobby local and state officials to boost fast food wages for those efforts that they're undertaking, I should say. Since the beginning of 2023, the fast food chain has given around $2 million to candidates' political campaigns in California earlier this year. McDonald's operators helped form the California Alliance of Family Own Businesses PAC, which plans to spend a million and a half on local political contest this year. I have no idea what the effect is going to be or what the likelihood is going to be of this proposal that originated with former President Trump to not tax tips.

and Kamala Harris has apparently bought into that idea. Will workers at McDonald's now say, hey, we'd rather get tip money than wage money? I mean, of course, you respond to incentives that way. There's also two aspects of it. There's the payroll tax and then the income tax. So presumably a lot of this income in the past was not reported anyway, might have skipped it that way.

Could there be something on the payroll tax front that they could do, for instance, to try and really incentivize that? Yeah. Yeah, what kind of hole does it blow in the payroll? tax or what kind of hole might it blow into the budget? Although a lot of workers, I think, in those industries where there's tipping restaurants make so little annual income that they wouldn't qualify for a lot of those. Got to leave it there.

Thanks for watching Power Lunch. Closing bell starts right now. Tip well.