Power Lunch - Growing Pains, and Tipping The Scales 6/26/23

Episode Date: June 26, 2023

Alphabet shares are falling today after a downgrade at UBS. The stock – and many others – have made big gains this year on hopes for the future of AI.We’ll talk to the analyst behind the call, who says the transition to AI search will definitely have some growing pains.Plus, we’ve got new developments in the battle over weight loss drugs, including promise for Eli Lilly and a setback for Pfizer. We’ll tell you all you need to know.             Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch alongside Kelly Evans. I'm Dominic Chu. Coming up, we've got Google shares falling today after a downgrade. The stock and many others have gained big this year on the hoax for artificial intelligence. But we'll talk to the analyst who says the transition to AI and search will have some growing pains. Plus, new developments in the battle over weight loss drugs, promise for Eli Lilly and a setback for Pfizer. We've got both those stories. Kelly. Can't wait for that dumb. Hi, everybody.

Let's first get a check on the market. The stocks turned lower mid-morning. You can see the NASDA, the underperformer, down 116 points with some big declines from the likes of Tesla, Nvidia today. The Dow is still up, but only by three, as it might turn negative. The S&P down 11 to 43-36. On Tesla, the analyst downgrading it to hold from buy over at Goldman today. It did raise their price target to 245, but that's where we are now. This is a valuation move similar to what Morgan Stanley's Adam Jonas said in his downgrade last week. The shares, as I mentioned, are down four and a half. percent today. The stock has still doubled this year. And Dom mentioned the weight loss drugs. Pfizer shares lower after a setback for its oral candidate, Eli Lilly, no, for its candidate more broadly, I should say. That's a 4% drop. While Eli Lilly shares are also down 1% despite optimism over a potential pill compared to the injections currently on the market, we will dive into this whole area coming up. And check out this big biotech mover, Moon Lake immunotherapeutic, soaring 67% on positive results for a drug that could treat a skin condition. while fibrogen, on the other hand, down 82% as its main drug for lung disease performed poorly in a trial. Turning now to the situation in Russia following a weekend of chaos, an attempted coup led by Putin's former ally ending in a failure, but even a failed coup can have a major impact. Here with more on what's next for Putin and Russia and the impact across the world is Michael McFauln, the former U.S. ambassador to Russia and an NBC News and MSNBC International Affairs analyst. It's great to see you, Ambassador, and just your thoughts this afternoon as we continue to watch these events play out.

Well, I think Putin had one of his worst weekends ever, probably his worst weekend ever as president. This is the first direct challenge to his authority since 2011 when there were mass uprisings, but from a democratic, peaceful demonstrations, this was from a thug that he himself created that wanted to not replace Putin himself, but replace his military, and mobilized thousands of soldiers to march to Moscow. And eventually they resolve the conflict. Eventually, both sides, they played a game of chicken, and they both back down. But it makes Putin look weak among his people, among his commanders, around the world. This has been a tough week for it.

This has been a tough couple of days for him. How does he react? What happens next? Well, I think what would be interesting to watch is what were really the contours of the deal that he did with Mr. Progosian, the leader of this. mutiny. Allegedly, he's going to go to Belarus and he's going to retire there, and allegedly, his fighting mercenaries are going to sign contracts and join the Russian armed forces. But I'm skeptical about both of those things. I'm not sure Putin can afford to allow this guy who's become

very popular all of a sudden to sit in Belarus and just remain quiet. I suspect there'll be something more that will be done with Mr. Progoshan. But I also am not optimistic that these mercenaries will join the Russian armed forces. Progogian criticized the top generals saying they're not fighting the war the right way in Ukraine. They would deceive the population for why they needed this war. And what I'm really wondering about is what is the morale among those Russian soldiers right now deployed in Ukraine? If you're there fighting for your life, fighting for your country, and you look back home and you see your commanders fighting amongst each other, that's not got to be good for morale in the trenches inside Ukraine.

Ambassador, it's Dom. One of the other ripple effects that we're trying to follow through, you mentioned some of them closer to Ukraine. I wonder what this situation does for Russia and its allies. We heard China make some public comments that this is an internal issue for Russia. They're trying to kind of distance themselves from it.

How does this tilt or upset the balance for the hegemony in the region for Russia? And how exactly does this make Putin look in terms of where his future goes with those allies? I think publicly you're going to see statements of support, as you already saw, from China, from Iran. Other places will do that formally. But I think privately what's going on is doubt about whether Putin is the strong leader

that they thought he was to be. In particular, I think Xi Jinping's got to really wonder, was it such a strategic bet to become so close to this guy who now is strong. struggling to stay in power. And remember, the Chinese going all the way back to the collapse of the Soviet Union in 1991, the number one thing they want is stability in Russia. Right now, it's an unstable time. And I suspect that's creating doubts about whether this was such a good idea. It doesn't mean they're going to throw Putin under the bus, but maybe they'll put a little more pressure on Putin to get out of Ukraine because after all, this crisis was created by the war in Ukraine.

And the longer that war goes on, the more likelihood that there will be other destabilizing, de-stabilizing events inside Russia. Should Ukraine press its advantage? Because it seems as though all of this is taking a hawkish term within Russia, if Progoshan is pressing for a much more, you know, successful war on Ukraine. And it seems that that must be pushing Putin to try and bring this to more of a victory or something that looks like it for Russia. Well, I have no doubt in my mind that Putin would love to bring it to victory.

I just don't see any means that he has available to do that. There's so much talk about he's going to escalate, he's going to escalate, he's a rat in the corner, he's going to double down. Number one, I've never seen any evidence that he has the ability to escalate. But number two, think about what we just witnessed over the weekend. Putin had the chance to double down and escalate against somebody that he declared on national TV was a traitor. But when push came to shove, he didn't escalate. escalate, he negotiated with that trader because he was worried about the fight, the more dire

consequences of escalating. And I think that may be an important lesson for all of us to understand as we think about what Putin might do if he begins to lose in Ukraine. Everybody assumes he's going to fight to the end. I'm not so sure that that's true. All right, we'll leave it there. I don't want to call it a hopeful note, but certainly one that gives us a glimpse of a potential way out of this. Michael McFaul. Thanks for your time today. We really appreciate it. Thanks for having me. All right, well, despite the potentially dire outcomes of the situation in Russia,

markets seem to be shaking it off. Stocks are lower, but the losses are relatively small by comparison. So let's bring in Stephanie Link, the chief investment strategist and portfolio manager over at High Tower, as well as the CNBC contributor. Stephanie, the ambassador comments were rather telling. I think that this is very much a situation that still has another chapter or two or three. why are the markets so calm, if I can use that word, about the geopolitical issues happening with nuclear powers?

Well, I mean, I think that what do you think could happen for sure, Dom, right? But for now, it looks like it is a non-event in the short term. And so what are we as investors to do? Well, we go back to focusing on fundamentals. And while everybody is obsessed about the recession that's about to come and the inverted yield curve, the economy actually has hung in there pretty well. The last couple of weeks worth of data, it suggests that you're running at about a GDP level at about 2%. That's not recession, not now, for sure, anyway. And it's led by the consumer. And the consumer is 70% of the economy

of GDP. And they're being helped by what we've been talking about for a couple of years now, better jobs. And now real income is actually starting to go higher because inflation is coming down. Right? So you've seen a better than expected retail sales number a couple of weeks ago. Housing is absolutely on the mend. The best new home sales in over a year. Autos has also picked up in services. We got the PMI services numbers last week that were comfortably above 50. So that's a big part of the economy. And it's an important part. And manufacturing, well, that's not the great part of the economy. But if you talk to companies and not look at kind of the big government data that comes out, you actually hear a lot of momentum on the on insuring side of the equation. And so you've got to pick your spots within manufacturing, but it's not all dire. Add it all up, as I mentioned, GDP's hanging in there. I think earnings are going to hang in there. They may not be great, but I think that they will do better than expected. And I think that's what people are focusing on at this point. How do you reconcile the data in the market? You reeled off a lot of bullish or more relatively bullish economic data that seems to

support this idea that things are okay. At the same time, parts of the interest rate complex and certainly certainly the commodity markets are showing signs that recessions are something to be feared. So where do then investors position themselves between those two forces on either side? I mean, I think if you look at, look, within the manufacturing part of the economy and you look at the commodities, it certainly is mixed. I'm not painting a really rosy picture. But if you look at the PMIs on the manufacturing side, I mean, they've been down below 50 for the last six months. So we kind of know that things have slowed down. That being said, some of the regional manufacturing series are actually getting a little bit better.

They're still not great, Dom, but they're getting a little bit better. So my suggestion is perhaps we're getting close to the trough in the PMIs. And again, if you listen to what companies have to say, there are certain pockets within the industrials and energy and commodities complex that are doing just fine. There's no doubt the commodities are pricing in or concerned about a recession and a global recession. That's why I really pay attention to a lot of the various different data points. And we're not off to the races, but we're certainly, at least right now, we're not in a recession. And so I'm looking for fundamentals, good companies doing great things.

And especially what's interesting today, Dom, is just all the laggards year to date are actually outperforming versus the leaders, which we know has been technology. Absolutely. And Steph, I have to begrudgingly acknowledge that things like the leading indicators have been so bad. It's almost getting worrisome because usually, I think we've been down 14 straight months year on year. usually we're in recession by month 12. We're not there. So you're right, it might be so bad that it starts to get better.

I just wanted to dwell briefly on this deal this morning. You're highlighting it IBM for AppDio. Why do you think this is important? Yeah. Well, so IBM has lagged year to date after being one of the best technology companies last year, right? I think a lot of that has to do with the growth versus value outperformance year to date in the sector and in general in the markets. But I do think it's a big deal, Kelly, because the company is transition. And a transition takes a really long time away from the legacy businesses.

And he's focusing on, this is Arvin Krishnott, the CEO, and he's focusing on growth. He's focusing on cloud, services, recurring revenue. And he has made year-to-date very quietly. He's made six acquisitions. This one is the biggest since they did the Red Hat a few years back, which was $34 billion. So this is $5 billion. It's a lot less. But it's big and it's material.

And it will help their cloud business, their hybrid cloud business, substantially and also increase recurring revenue, which is really important, and that's a big part of his strategy. So I think at 14 times earnings with a 5% yield, they had $18 billion in cash on hand, and they just paid cash for this deal. They're actually doing a lot of good things, and I'm just trying to find some value here, especially in technology, because it's kind of tough. Yeah, and we, you know, we beat up on IBM for a long time, but Intel's taking that role now as IBM turns itself around. Stephanie, thanks for joining us today. Appreciate it. Thanks, Kelly.

Coming up, UBS boosting its meta targets, saying the firm will likely get a boost when it integrates generative AI into the metaverse, huh? We'll explain. Plus a quick power check as we had to break. On the negative side, carnivals only down 9.5% right now after announcing strong cruise demand losses of narrowing, but analysts want to know when profits will return. They have a high debt load. On the plus side, though, Boston's properties, the real estate investment firm, up nearly 8%. Best day since 2020, along with the rest of the space, specifically S.L. Green, popping. We'll have more on that later. Power Lunch will be right back. Welcome back to Power Lunch.

Time now for Tech Check. UBS today, downgrading Alphabet shares to neutral from a prior buy, saying the stock has limited upside and monetizing AI will be difficult in the near term. So let's bring in Lloyd Walmsley, the analyst making that call. Lloyd, Alphabet shares have been a powerhouse. They've been kind of generally helping the old communication services sector do that thing that it does so well in growth times. This is as much evaluation call, right? I mean, there's not much left in the tank, but it's not a bad stock. Yeah, I think that's fair characterization. The stock hit our target. We look through our model. We've been doing lots of work on this space. We found, you know, we think there's upside to 132, 7% upside. It's not enough to sustain the buy. And when we look at

other stocks we cover, Amazon being one, meta being another, we think they have more clean plays on generative AI that are clearly positive, whereas with Alphabet, there's still some things that could move the other way against them related to this trend, at least in the near term. So we wanted to step to the sidelines and instead focus our bullish energy on meta and Amazon. Okay, so we're going to get to that in just a moment here. The fact that you're, you even bring up meta and Amazon in the context of alphabet when it comes to things like generative AI suggests almost points directly to a competition element. And that is probably one of the center points of your thesis about this kind of move to the sidelines. Take us through that

competitive dynamic and what sticks out to you the most with regard to alphabet versus meta versus Amazon. Yeah, it's a it's a great question. And I think when this first, this theme first came about, most people were worried about chat GPT and then Bing taking query share from Google. And I think after Google's I.O. Conference keynote, people felt a lot better that, you know, we saw the product coming out of Google. It looked very good. They integrated a lot of their other assets into it. But what's interesting that has started to give us a little bit of concern is looking at what SNAP has rolled out in terms. of an AI chat bot and then hearing about what meta's planning to roll out, you actually could

see that as kind of a new risk on the radar competitively. And again, I don't think this is something people are really talking about yet, but I think it's going to become more problematic as part of the narrative around alphabet over the next few months. And so while I think a lot of people priced in limited competitive risk from this point. We don't think they're totally out of the woods yet. Lloyd, it's Kelly. Can you just explain to me how generative AI helps meta in the metaverse specifically, which I don't want to go so far as to say doesn't exist yet, but you know. Yeah, I don't think it's that interesting for the stock anytime soon as it relates to the metaverse. What the company has talked about is it will be easier to go from, to build out new

universes using generative AI in the Metaverse. So there are some interesting applications, but not ones that we think of as needle moving for the stock for meta anytime soon. Now, when it comes to this, you know, as a layperson, when I think of like the artificial intelligence, generative AI stuff that we've been talking about, the first thing that came to mind, and it was years ago, was voice assistance, right? We had Siri for Apple. We had Alexa. Every time I think of generative AI, I think of Alexa, because I ask Alexa for everything. right now, just like I say, okay, or hello Siri or okay, Google. Is it now a race for these megas to solidify what that next chapter of generative AI is supposed to be, but beyond just

a chatbot or a voice assistant? I mean, Microsoft had Cortana. We don't really hear about her anymore. Yeah, it's interesting. I think a lot of those technologies ended up being disappointing. I mean, my young kids love their electas. I don't really use it. for a lot. But I think when you start to use the new Bing, chat GPT, some of these technologies, even Snapchat's MyAI, they're actually pretty helpful. And I think there will be a lot of people using these. There already are a lot of people using these. And what I think is likely to happen is there will be verticalization of these. You know, you'll have different chatbots for different use cases. And that's one of the, one of the risks for Google.

I think they've done a good job with vertical search, kind of not letting that get away from them, but I think it may be harder here given the players involved, the players who are developing technology here. But more than anything, it's just we just don't know yet. And that I think has to, you have to factor that into the multiple. All right. Lloyd Walms at UBS with the downgrade of Alphabet to neutral from by. Thank you very much. We'll see you soon.

Thanks for having me. Coming up, pushing pills, weight loss drugs are surging in popularity. Now the race is on to develop oral injections, versions, I should say, of those popular injections. But as Pfizer is learning, it's no easy feat. It shares down off the lows about 3.5% today, all those details when Power Lunch returns. Welcome back, Quack, Quack. Welcome back to Power Lunch. Let's take a quick check on oil prices, which everyone might have thought would be spiking after the events in Russia.

They're slightly higher today, only up about half a percent. Still below $70 a barrel. Pippa Stevens joining us with more. Yeah, not really much of a reaction here, which clearly means that the market does not think there's going to be some sort of big disruption to Russian supply. But it does, for the first time, introduced the idea that there could be chaos within Russia itself,

which prior to this past weekend, I don't really think the market had anticipated that ever coming. You know, still, the move today, or really the lack thereof, Rebecca Babin over at CBCC private wealth, told me it does speak to this mentality shift we've seen in the oil market over the past year in terms of how traders approach geopolitical risk, whereby now they're not factoring in potential supply disruptions until they actually happen because, of course, that's been a really big time losing trade if you factor that in ahead of time. Of course, everyone thought that Russian exports

were going to be disrupted after the invasion, and that just did not come to fruition. So those that were pricing in a huge, long-lasting spike were really kind of killed on the other end. So now the markets being a little bit more cautious when it comes to these geopolitical headlines. A couple other things to watch today, Nat gas at the highest in more than three months on those scorching temperatures down in Texas. It is now up more than 20% for the month, though, so is it looking a little bit extended? We'll have to see. Also, wheat prices earlier today that hit the highest in four months. They since turned lower, still at more than 20% on the month. I don't know if we can zoom out and show a little bit of context here, but wheat, you know, these are going to be

the areas to watch probably for the biggest consumer and global pain point coming out of food prices in the UK and Europe in particular have been really high. Their central banks are much more hawkish now. And if we see another round of upward pressure, it would be really unfortunate. Yeah, and I know Addam has talked about the spike in weed prices. And it's also just based on the weather, based on the Black Sea deal, and whether or not that's revoked. And, you know, weed is a global commodity that feeds billions of people. And so food prices have been one of the very stickiest parts of inflation.

And if that ascends more, prices are going up. And as you can see, we're off the 2022 spike. but we are well above where we were kind of previous decades. I mean, we're watching corn because corn is so centric to U.S. markets as well. Indeed. And U.S. growing conditions are certainly at play for that one as well. 100%. Pippa thanks. Pippa Stevens.

Let's get to Julia Borsden now for the CNBC News Update. Julia? Well, Kelly, the shooter who opened fire inside of a gay nightclub in Colorado last year has been sentenced to life in prison without the possibility of parole. Anthony Aldrich killed five people during the rampage last November. Aldrich pleaded guilty to five counts of first-degree murder and 46 counts of attempted murder as part of a plea deal earlier today. Publishers Clearinghouse will have to refund $18.5 million to its customers. The company reached a settlement with the Federal Trade Commission today over accusations of using deceptive consumer practices.

The settlement also requires the company to make changes to his online business practices. A company spokesperson says PCHD, disagrees with the FTC's findings and admitted no wrongdoing. Anthony Fauci, Dr. Anthony Fauci became a household name during the COVID-19 pandemic, and now he's taking his expertise to Georgetown University. Starting in July, Dr. Fauci will serve as a distinguished university professor in the Infectious Diseases Division at Georgetown's Medical School. Before the pandemic, Fauci advised the nation's leaders on threats such as HIV and AIDS,

the West Nile virus and Ebola. Dom, back over to you. Julia Borson with the news update, thank you very much. Still to come on the show, Domino's doubling down on delivery. Probably saying that five times fast. The company launching a new pinpoint system deliver food anywhere, even off the beaten path. We will speak to Domino's CEO coming up next. Keep it right in.

Welcome back to Power Lunch. We are focusing on shares of Domino's pizza today. The chain is rolling out a service called Pinpoint Delivery. The new feature lets customers drop their location to a driver without an exact address to reach beaches or parks or any other location that could be difficult to find. That stock is down almost 10% in the last six months, as you can see. So could doubling down on a new form of delivery be a boost for the company? For that and more about the state of the consumer. Domino CEO Russell Weiner joins us now along with our very own senior restaurant correspondent Kate Rogers.

Kate, I'll send it over to you. Don, thanks so much. And Russell, thanks for joining us. Great to have you with us. Thanks for having me. So let's talk a little bit about pinpoint delivery. And why will this be a differentiator for Domino's in this post-pandemic delivery environment? Well, there's no restaurant in the United States that's doing this today. And so you know, you may be home, let's say one day want to have pizza delivered to your house. But let's say you're out watching a Lidley game or you're at the beach, there's no address there.

And so with the pinpoint delivery, what you can do is you go, on our app, you drop a pin, that tells us where you are. We bring the pizza to you wherever you are. That's something that no other restaurants do it today. And how challenging might that be for drivers to make happen for people who are, as you said, dropping a pin where there might not be a typical delivery address? Yeah, our job is to make this easy for customers and for drivers. And so all the driver does is get a latitude, longitude address as if it's a regular address and the GPS takes them to whatever that pinpoint is. It's almost like there is an address, even though it's virtual. We kind of call it hyper-local, is that another way to say it?

And beyond just pinpoint, Domino's has long had this amazing technology pipeline. I'm curious how you're looking ahead at artificial intelligence and its potential uses at the company, whether it's easing labor shortages or streamlining orders. I think, you know, as folks talk about artificial intelligence, it's not, it's, it's, it's important to not just look at the latest PR gimmick or things folks are talking about. It's important to look at history. I think the great thing at Domino's Pizza is we've been doing artificial intelligence work throughout our consumer experience or operational experience online. We've doing it for over a decade. And we probably have about 20 different AI or machine learning

experiences up there now, and we'll continue to do that into the future. So we've got a history of showing that we could leverage this technology all the way back. And I know you've got the DOM in the studio with you. We have a DOM voice ordering that we launched in 2014, which is day I. I cannot wait, Russell, to hear this because it's Dom, it's Dom, Russell. Okay, so as we talk about pinpoint delivery and we talk about ways to differentiate the Domino's product, can you speak to us about the competitive dynamic as you see it right now? If you look towards other chains like a Little Caesars or like a Papa Johns. What exactly is the next stage for you guys beyond pinpoint delivery? And how exactly do you make your brand stick out for consumers like me

who get takeout or delivery pizza? I'll admit quite a bit. Well, you know, today is a great example. Pinpoint delivery is a great example. Innovation is what customers are looking for. And when I say innovation, it's not just what's the product of the month. If customers don't think and don't see that we're excited, and we're trying to reinvent the experience every day for them and make it better, then all it is is another delivery, no matter how good the product tastes or no matter what the price point is. So as long as we've got the right value in there, if we're innovating around product, around service, around technology, around all of these areas, all it does is reinforce that we're doing everything we can to make it a great consumer experience. We've done that for the last decade, and that's why we're the number one pizza company,

in the United States and around the world. It's been an incredible run, Russell, for sure. On behalf of pizza producers in New York City, where, I don't know, they might have to get rid of their coal-fired ovens. Could you share some outrage, or do you think this is a good move? I'm sorry? You broke up. We don't have a great connection.

I apologize. I know, and I'm sorry that people can't see the cool pizza innovation lab that you guys had behind you today as well. You know, I was just wondering New York City says they're going to crack down on, I think, coal-fired pizzas in particular, because of their carbon emissions. Just curious if you had a response to that. Well, that's not the kind of loving that we use in any of our 20,000 stores around the world.

So folks who want to order pizza from Domino's in New York, you know, that's where I'm from as well. Feel free to order from Domino's pizza. I understand. Can you leave us as well with a little bit of a snapshot of your consumer right now at a time when we've heard of, you know, people with high-income shopping at dollar stores and, you know, Where do you see the strength or weakness in your customer base? You know, it's interesting. We've got two types of businesses.

We're a pizza company, but we sell pizza via carryout and pizza via delivery. Now, the carryout pizza customer, that business is truly on fire. It's up 30% over the last three years. Delivery, and it's not just a domino's thing, is a little pressured because of category pressure. And so we're still growing share, but delivery, there's a little pressure. there, and it's because of delivery fees and tips, makes the product a little bit more expensive. So now, at Domino's, we're not losing customers because of that, but we may lose occasion here or there, and it's not to another restaurant. Actually, what people do is they eat at home.

And so what's going to be super important for us is prices continue to rise in this inflationary environment. We took our pricing last year. I think that's all we're going to need to do for a while, and we'll just continue to grow into being the value player that we've always been. while at the same time delivering innovations like this. So it's an interesting time. I'm excited that we've got a diverse business and we think delivery's about to make a comeback. And Russell, Kate, one quick last question here.

What is the carryout opportunity for the back half of the year as we are facing inflation and as consumers may be a little more conscious about how they're spending their money? I think you said it's about a 30% part of your business now. Do you see an opportunity to grow? Yeah, it's actually carryout 50% of our orders, about 40% of our sales. sales. And it's probably the most price-sensitive customer, but at the same time, Kate, there's the least amount of additional prices there. So there's not a delivery fee. You know, there's no tip required. And so in that place, for the carry-a-custom, we see a lot of inflow where people trade down maybe for more expensive restaurants and don't carry out there. They'll carry-out from Domino. So it's been a net positive for us on the carry-out side.

We will leave it there, Russell. Thanks so much for joining us. We appreciate your time. and your insights on the space. Thanks so much for having me. Yeah, that was great granularity about carryout versus delivery. You know, I will say this. I'd probably say 80% of my pizzas are me going to carry out, as opposed to delivery. And they made this pivot. It's lower cost.

You know, they saw the pressures on the delivery business. And now what did he say the carryout percentage was? 50% carry out 40% of revenues, he said. That's big. That's a big shift. Coming up, talk about money down the drain. A new report finds billions of dollars in infrastructure. structure spending could be wasted thanks to outdated rainfall models. We'll highlight one project very much at risk.

And as we had to break, Juna's Pride Month and CNBC is sharing stories of corporate leaders. Here is Maeve-Duvalli Principal at Glass Sheen and Co. For me, Pride Month is truly a celebration of the uniqueness of our community, but it's also an opportunity for the LGBTQ-plus community to come together in solidarity because there's strength in numbers. And particularly this year, when there's a lot of hate and tolerance against certain parts of our community. Solidarity is crucial. For those of us who are comfortable being visible, who are comfortable speaking out, we need to come together and do that to fight this hate and intolerance. Billions of dollars in infrastructure spending could be wasted because projects are using

outdated government rainfall models. A timely one today. As the northeast is drenched, Diana Oleg joins us to explain in her continuing series on the rising risks from climate change. Diana? Well, Kelly, the government model that predicts rainfall doesn't factor in the effects of global warming, and that's the model being used by state highway and bridge projects with funding from the Infrastructure Act. All this according to a new report from First Street, a climate risk firm. All that money that's going into the infrastructure is being built to the wrong flood

standard, meaning those roads will flood, those bridges will flood, and it is a big weight of money when it's a one in a generational spend that we're actually using right now. Currently, the only authoritative government source for precipitation data is from the National Oceanic and Atmospheric Administration, or NOAA. It's a model called Atlas 14. This information is leveraged by communities and stakeholders all over the country to inform the engineering design of transportation infrastructure and other infrastructure all over the country. But it has a major flaw. It does not include any climate change information and that's why we are looking to modernize it with NOAA Atlas 15.

But the updated model won't be done until 2026 after many of these infrastructure projects are underway or even done. For example, New Jersey's Route 18 rehabilitation, which received over $86 million in funding from the infrastructure law, is using the old Atlas 14 as a flood guide. Where I'm standing right now, the believed one in 10 year event is actually a one in four year event, and over the next 30 years, we'll go down all the way to a one-and-two-year event, meaning every other year we would expect extreme precipitation to flood this location. We're already seeing much heavier rain, snow, and flooding due to global warming, because when the atmosphere is warmer, it holds more water.

If you were building a road right now and you had to make sure that it wasn't going to flood, would you want to use Atlas 14? I can't speak to how some of those engineering decisions are made. We contacted the New Jersey Department of Transportation, which confirmed using Atlas 14 as required by current standards, adding in part that they reviewed updated data as well from proposed stormwater management regulations. But that data, according to First Street, uses the same historical method as Atlas 14, not factoring in the future effects of climate change. Back to you guys. So do they not have, could they pay for better models or do they have to use the government's rainfall model? Well, in some states, it's actually mandated, as was in New Jersey, and it's because the government model is what exists and what is there for them to use. Could they pay for it? Sure. I mean, we've done tons of stories on climate risk firms that offer this kind of data. First Street, however, told us that if the government wanted to use their data as a stopgap until Atlas 15 was done, they could have it for free.

I mean, at some point, I would hope. Diana, thank you very much. Diana Oleg reporting. All right, still ahead on the show. A tough pill to swallow. For Pfizer, those shares are lower on news. It is discontinuing development of an experimental weight loss drug. That story coming up, our rival Novo Nordisk, meanwhile, could soon deliver its popular weight loss injectables, OZempic, and Wigobi, in a cheaper and easier pill to swallow form. We'll discuss when Power Lunch returns after this break.

Welcome back to Power Lunch. More big news over the weekend in the exploding weight loss drug industry. Researchers with Novo Nordisk planning to ask the FDA for approval to distribute their highly successful weight loss injection, Wegovi. They wanted to distribute it as a pill, which was shown in a study to be as effective as those injections. U.S. drug maker Eli Lilly, also working on a pill form of its drug. Pfizer, though, facing a setback in its quest for its weight loss drug, discontinuing development after a disappointing phase one data. Let's bring in Dr. Kavita Patel, NBC News medical contributor. Dr. Patel, it's great to have you here today.

I guess maybe we'll start with this setback for Pfizer, which, you know, after everything it did on the COVID front, now really needs kind of to be involved with the next big thing. Yeah, Kelly, this next big thing absolutely would be appropriate for obesity, but it's not all bad news for Pfizer. The setback was really in its once-a-day dosing for their oral obesity drug, which had some liver safety signals. They still announced that they're going to proceed forward with a twice-a-day oral drug. So some oral drug might be better than none, twice a day is harder, especially. if we have competitors such as Nevonordisk and Lilly, which will have oral competitors much earlier. So certainly still a lot in this market to be had, and it'll wait to see the data to see what Pfizer shows. But definitely a setback for today.

Would Pfizer's two-a-day pill be as effective as everybody else's injectable? And as everybody else's maybe I guess would be once a day pill also as effective as they're injectable? Yeah, that was the big news coming out of the weekend in some abstracts and articles that were presented over the weekend to the diabetes and Medicrin societies, Novo Nordisk showed incredible data for the oral version of its very popular drug known as Ozempic. Now, keep in mind, Haley, there is an oral version of this drug available called Ribusus, but that is a 14 milligram dose. The data that came out over the weekend was that you needed a higher daily once-a-day dose of either 25 or 50 milligrams, and this is compared to a weekly injectable of 2.4 milligrams of a similar drug, but that that higher dose of that drug achieved essential

similar effects to what we would see with a weekly injectable. Wasn't a head-to-head comparison of the oral versus the injectable, but an incredibly robust trial with a placebo and randomized trial, and it all points to signals that once it's approved, this will be a popular choice, especially for patients like mine, who may not want to do an injection every week. Keep in mind, this is for obesity, and it also showed effect against diabetes. Dr. It's Dom here.

This is very much about the addressable, market. This is a massive demographic that you're hitting in a population that is dealing more and more with obesity right now. I'm a middle-aged guy, but I remember back in the late 80s, 90s, 2000s, a series of different weight loss drugs that were all very front and center at the time, that all, by the way, ended up having some crazy or bad side effect or being shelved or put off the market. Weight loss is something that Americans have been chasing for decades. What exactly is it that separates this latest leg versus all of the other legs that we've seen since the 1950s. And Dom, I'm right there with you. And I remember those early days of the drugs that caused

incredible GI side effects that we're talking, you know, telling patients, listen, be prepared to have all sorts of horrible side effects just to lose Dom maybe five to 10 pounds. Here's the game changer with what we're seeing in this class of drugs. They're the GLP1, FGL2 inhibitors And these GLP-1-type drugs, what we're talking about with those Zempegalygly like peptide proteins, they basically tell the body they kind of do two things now. They quiet kind of that food noise. We now know enough research to know that obesity is really the product of complex factors, including your relationship with food and what can be triggered in your mind.

So number one, we're seeing this effect on kind of decreasing that craving, that sense of just wanting, especially bad foods for you that cause weight gain. The second thing is really just this true effect in diabetics where it helps you to release more of the insulin to actually control some of that glucose so that you don't have these incredible highs and lows, especially in people who are insulin resistant, which we know is the significant contributor to obesity. So one, I think we're just getting smarter about understanding the chemical nature of obesity and how complex it is. And two, what we saw with these diabetes trials is that side effect of quieting that food noise, as you hear it described. And Dom, I use this a lot in my diabetic patients and in non-diabetic obese patients. It's real. The key here is sustained behavior change.

Unlike those earlier drugs, you really had to use them. We know that with patients now we need to continue to use these drugs. Having an oral drug that you can take safely once a day can be a game changer when you tell someone they need to take this, potentially the rest of their lives. But everything comes with side effects. I just want to note that these higher oral doses, Nevonoridis reported, that they saw a significant increase in GI side effects, things like nausea and some of the other things we see with their injectable drugs. So again, nothing comes without some sort of risk and balance around having a discussion with your physician. And this isn't the weight loss for five pounds. This is something

again for obese people that have significant weight to lose. Still with a big price tag, although the more competition you have to imagine that comes down. Medicare, obviously, once that gets approved, you know, although that's where the money is these days anyway. It's the over 65. government money. Dr. Patel, thank you for your time today. We appreciate it very much. Thanks. All right. Well, still ahead. Coal fired up. Kelly alluded to it before. The new crackdown in New York City that has some pizza lovers up in arms. We've got that and much more when power lunch returns after this. Welcome back, everybody. Just about two and a half minutes left in the show and a lot more stories to get through. Starting with real estate, it's the top sector in

the S&P today thanks to a 20% gain for S.L. Green. sold just under half of their stake in 245 Park Ave for a total valuation of $2 billion. They took over that office tower from a bankrupt Chinese company back in September. And then there's prologis with the Blackstone warehouse portfolio, millions of square feet. So deals are what's priming this real estate market. And a sigh of relief for office in particular. All right. Well, President Biden announcing more than $40 billion in new federal funding to expand the nation's

broadband internet access. It's part of the administration's effort to deliver broadband to the entire country. by the year 2030. The money will be parceled out to states over the next two years, with each state receiving at least $100 million. You can forget about having to have satellite high speed by the time this is supposedly done. All of this federal spending, state and local spending over and call it will continue to keep the economy going, keep the labor market tight, even while the feds are in tight. But will, yes, I was going to, what will it do to inflation? Yeah, no, totally. It's they're fighting, you know, giving with one hand, taking away with the other. But definitely

going one way, car insurance premiums. They're soaring, and this may just be the beginning. CPI report showed auto premiums up 17% from last year, and sure say the increases are necessary because they're losing money thanks to more accidents and higher repair costs. And the higher cost of vehicles overall, just in general. So inflation is part of that story? Absolutely. I don't know.

Anyway, a survey from bank rate found that 39% of American adults now have a side hustle or secondary income stream to help supplement their finances, and of those folks, 44% of them believe they will always need that side hustle to make ends meet. That's a telling tale here. And I've heard from CEOs who think they're at work from home employees are still double-dipping and working not just a side hustle, but legit two jobs at once.

Paradigm shift. Tells you something about this economy. All right. And New York City cracking down on coal and wood-fired pizzerias, drafting new rules that would order eateries using the old baking methods to cut their emissions by 75%. The rule could require the installation of air filtration systems that cost up to $20,000, not counting maintenance, which seems like a weird twist to the whole story. Here's what I would say.

I would say, I live in Connecticut, and you used to be there. New Haven-style pizza is all about wood, coal-fired stuff, and I enjoy New England. I'm sure if they're starting in New York, they're probably coming for Connecticut next. Then New Jersey. Has California done this yet? California Pizza Kitchen? It seems like that would be intuitive that they would do it. Yeah, anyway.

Scandalous. Yes, exactly. Thanks for watching Power Lunch. Closing bell starts right now.