Power Lunch - Here To Stay?, and These Boots Were Made For Profits 6/6/23

Episode Date: June 6, 2023

AI is everywhere right now. Apple is breathing new life into VR and the metaverse. And there’s a renewed crackdown on crypto. Which is a fad, and which is the future? We’ll debate.Plus, we’ll get a view on the consumer and the economy from the CEO of Boot Barn. Will people keep buying boots and hats if the economy enters a recession? We’ll explore. 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. Coming up, the next big thing. AI is everywhere right now. Apple breathing new life into virtual reality in the metaverse and a crypto crackdown. So which of these, if any, is a fad and which will own the future, Kelly? We'll ask that. Thank you, Ty. Hi, everybody. And we'll get a view on the consumer and the economy with the CEO of Boot Barn. Will people keep buying boots and hats if the economy enters recession, if they're off on a vacation. First, let's get a check on the markets, though. Dow's down 115, which I believe is fresh session lows.

That's about a third of a percent decline, but it's the worst performer. The S&P is down three at 427, and the NASDAQ is still up about 12 points. It's trying to close out at 7th positive week. Checkout shares of GitLab soaring 31% today. The software company reporting strong earnings and guidance, but a move this big could only mean one thing. AI. They're saying it will increase productivity, and you can see the boost has put the shares back into the green for the year.

Also, Molson Corr is hired today. Jeffreys Bank of America both upgrading the stock. B of A says TAP has gained market share in the U.S. following that boycott of Bud Light. Tap up 25% year-to-date now. And Coinbase shares sinking for the second straight day. Today, the SEC suing the company for operating as an unregistered broker. The stock is down 21% so far this week, tie, and it's only Tuesday.

All right, Kelly, thank you. Despite its fall from Grace, Crypto, once the next big thing. And over the past few years, we've seen a few of those back in 2021. VR was the next big thing. Zuckerberg of Facebook, so sure he changed that company's name to meta, but the hype died down. Now Apple announcing its own headset could bring that back to the mainstream. And obviously, most recently, it's all about AI. Nearly every company jumping on the trend and their stocks benefiting as a result if you got AI associated with it. So which of these three are just fads maybe and which are really going to own the future?

Here to discuss, Herb Greenberg, CNBC contributor and senior editor of Empire Financial Research, Gene Munster, managing partner with Deepwater Asset Management, and Steve Kovac of CNBC also joining us. Gentlemen, I'm going to depart from our intro a little bit there and say, I think all of these have parts and pieces to play in the future. But Herb, let me start with you. If you had to pick one between AI, virtual reality, and crypto slash blockchain, which would it be as an investment opportunity and why? And are there companies that you would aim to?

Oh, as a speculative investment opportunity, I'd probably say Bitcoin, not our blockchain, but actually Bitcoin as a speculative investment opportunity, as an investment opportunity, as something that's actually meaningful from a technological. logical standpoint, I would say AI without question, because it is through it all. It is used through it all, especially through VR. And when you ask about companies, though, Tyler, I think it's way too soon to say which company it would be, because we have so many and we, you know, we're going to have some fits and starts here. And, you know, you can look at NVIDIA right now and you can say it's the AI play, but we just don't know who's going to be coming up, you know, through the channels. So that's my observation right now, and we know that's all going to change. And interesting, want to draw the distinction between a speculative investment and a longer-term investment.

Gentlemen, please stay put. We've got breaking news on Boeing's Dreamliner, and for that, we're going to go to Phil Lobo. Phil. Tyler, take a look at shares of Boeing, which are moving after the company announcing that it will be adding inspections for 787 Dreamliners that are built but not yet delivery, essentially those dreamliners that are in inventory. There may be an issue with a fitting for the horizontal stabilizer that is not in conformance with all safety regulations. So as a result, they're going to be doing additional inspections, Boeing out with the statement just a few minutes ago about this, saying that the company essentially will be doing these inspections of 787 Dreamliners, in part because

they want to make sure that before these aircraft are delivered, that they are in compliance with all safety regulations. And if they are not in compliance, then it may take up to a couple of weeks per plane once they do those inspections to make the correction on the fitting, then they can ticket those aircraft and deliver those aircraft. So for Boeing, this is yet another case where it's not a flight safety issue. This is not a case where they are grounding aircraft or they're completely halting deliveries. They're not even pausing deliveries, but what Boeing is saying is they have found an issue with a part from a supplier in the horizontal

stabilizer, a fitting that is not in conformance. And as a result, they will add extra. inspections. There are, by the way, about 90 Dreamliners that are in inventory built but not yet delivered. And this is not changing their full year guidance in terms of expectations for deliveries of Dreamliners. Nonetheless, that's the pressure that we're seeing on Boeing shares. As the company says, it will be adding these inspections to Dreamliners before they are delivered. Guys, back to you. I'm curious, Phil, why would they only be inspecting those that they have in inventory, basically sitting on the lot? and not inspecting aircraft that have already been delivered.

Isn't it possible that those aircraft have the same part? Remember what I said, Tyler? This is not a flight safety issue. They've been working with the FAA on this. Whenever an issue comes up, the manufacturer works with the FAA, and the determination is made whether or not it's a flight safety issue. If it's not a flight safety issue, what typically happens, whether it's Boeing or Airbus or another aircraft manufacturer,

they will work on a schedule for when those planes come in to do some type of an inspection. That's how it works when it's not a flight safety issue. In this case, before they can ticket an aircraft, and remember, when they ticket an aircraft and turn it over for delivery, they are saying, look, this is 100% in compliance. If they have found a part that may not be in compliance, you can't ticket it, you can't deliver it. Therefore, that's the reason they're doing the inspections before an aircraft is delivered. Interesting.

Okay, Phil LeBoe, thanks very much. news on Boeing there. Back to our panel, Gene Munster, Steve Kovac, and Herb Greenberg. Gene, let me turn to you. You were at the Apple event yesterday. So were you, Steve. I gather you've seen the VR headset, even had a chance to try it on. If you had to, as a long-term investor, Herb made the very sort of interesting distinction between speculative investing and longer-term investing. If you had to choose between AI, VR, or Bitcoin slash blockchain, which would it be? as a long-term investment and where would you put money? From my perspective, it's AI.

AI would get, if I was going to grade it, it's an A. The Metaverse is a B. It was a C last week, so it had a nice bump up there. But still, the concept around AI, and just to add yet another vector to it, is that this is going to be in every product where the Metaverse and spatial computing won't be. As far as companies, I think sometimes the most obvious ones are where the best returns, are. And we've seen that with Nvidia. At this point, I think Nvidia has gone too far, but I think

companies like Google, Palantir, meta, those three, I think, are great companies to really ride that wave. Those would be the AI wave, interestingly. The AI wave. Let me turn to you, Steve. I won't ask you to give an investment recommendation, but I am going to ask you to follow on Gene's comment there that AI, one way or another, is going to be a part of practically every time. company out there or every product in some sense. Yeah, Tyler, Gene is exactly right, and Herbiz, too. And yesterday, a lot of people have been asking me, why didn't Apple make some sort of AI chat GPT announcement? Well, they kind of did, and they've been doing AI for so long. You just don't interact with it the same way that we're used to with these chatbots that have captured everyone's

imagination. The headset, the Vision Pro that was announced yesterday, there's a lot of AI and machine learning going on in there. I tried the headset yesterday, and when you put it on, a lot of computer vision is happening to read the room around you, analyze what it's seeing, and how to place those digital images around. TikTok is another example. Facebook is another example. Those AI algorithms showing you the content you want to see. So everyone on this panel is exactly right. AI is not a fad. It is the future, but that future has been here for several years, Tyler. We've been experiencing AI all along. Let me then ask about crypto. Gene, you're a little bit more constructive on it than I expected. Like you said, you're not an expert, but, you know, viewed as a

benefit by creating rules, regulations, removes and overhang. Herb, just remind me, were you a crypto-sceptic or enthusiast? I've been much more of a skeptic. And when I mentioned speculative, I was talking about long-term, well, I mean, speculative. I was talking about long-term, speculative, not short-term. I'm not I'm like everybody else, I think on this panel, not a crypto expert, just important not to conflate crypto with blockchain. Right, but I guess what I'm asking is if the question is fad or future, where is crypto now relative to where we thought it might have been a year or two ago? It's not where the Bulls thought it would be.

That's for sure. And with the Coinbase news, you now, but you would see some of them basically saying this is giving them exactly what they want because now they'll know what the rules will be going forward and this is going to get rid of all the garbage and that's going to be better for the, for say, Bitcoin. But it certainly isn't, it didn't hit the prices people thought it would hit by now, but the bulls. But I'd look at the bulls that I know, people I like and respect who happen to know a lot about it. And they're still talking hundreds of thousands of dollars down the road. If they're right, the speculative bet long term wins.

All right. Gene, let me give you the final word here. What did you think of the headset that you tried on yesterday? I wanted to ask Steve. I didn't get a chance to see how he felt about it too, but I'm going to say it was stunning. And I went in being skeptical and I was blown away. I think this is something that really kicks spatial computing into the forefront. And it's going to be one of those things that you're until you experience it. You don't understand it. The killer feature is going to be spatial video. It's going to change how people create memories. That's very interesting. The killer feature is going to be the $3,500 price tag for me. That's a killer. It's going to kill your bank account. It's going to kill my bank account. That's exactly right. Herb, thank you very much.

We appreciate your time. Steve, please stick around. Gene, thank you as well. Steve, please stick around. Thank you. Thank you. Also on the tech front and AI, newsrooms across the country are preparing for potential AI-driven misinformation in the lead up to the 2024 election. CnBC.com's Alex Jones joins us here to discuss that, Alex. And the timing of this as major social platforms have also decided to allow more. What do we say with what YouTube and some of the others have done? The timing is curious. Explain us what's going on here.

So over the past, I'd say from February to now, AI, in terms of how newsroom executives have been talking about it, has gone from a very sparse topic to the most urgent topic that many of these executives are talking about. They're talking about it every day. They're talking to their trade organization, digital content next about. They're starting to have preliminary conversations with the big tech platforms with themselves, because while there's all this enthusiasm long-term about what AI could mean for the news business in terms of creating new content, working alongside human beings, in the short term, there is a

giant fear of chaos around two things. One, how do we get paid for this? Because there's a lot of memories in the digital media world to, you know, seven, nine, 10 years ago when many of these companies became dependent on the big tech companies and then realized that they were stealing all of their ad revenue and destroying their business. Buzzfeed, Vice, etc. with Facebook, with Google. But number two, this fear of rampant disinformation, which may come along with AI-generated art and scraping information from the journalistic sites that are out there and then twisting them into forms that are not accurate. And the potential

destruction of brand that goes along with that. And then just from a societal standpoint, the potential chaos that could happen, we've already seen it in little bits and pieces of how, say, an image, a fake image of a bombing at the Pentagon can drop the stock market. It can send the world into chaos. The feeling is that in the short term, until standards are put into place, things could get worse before they get better. But the standards are being rolled back in some ways. So, you know, you have YouTube confirming that they're going to revisit election integrity policy, meta, reinstating the Instagram account, Robert F. Kennedy Jr. I mean, why is it that at this moment, we're seeing companies walk away from some of the more aggressive enforcement rules that they

once had? Well, I think they're looking to the government to some degree to put in place rules because they don't want to be the ones that are held accountable, right? We're back to where we were in 2016 in many ways, where you've got the big tech platforms being like, we don't want to be the arbiters. of truth and untruth, we want somebody else to do it for us. The problem is that the AI technology in particular is so rapidly advancing that you're up against this evolving technology and then regulation from the government standpoint and then standards that are put in place by news organizations and tech organizations and how are they going to partner up to agree.

There's so many cooks in the kitchen on this one that, again, it leads to this sort of chaos stew that I fear is coming in the next months. So Steve Alex mentioned the idea that media companies are concerned about, if I remember what you said correctly, concerned about how they're going to get paid, how they

are going to get rewarded for content that AI picks up from them. Where's the Washington Post or Axios or ProPublica, whatever? How are they going to, who's going to do the paying? Where's the money going to

from to pay for this content or the intellectual property that has been amassed by, for example, the Washington Post or the New York Times, and is now informing the responses that these chatbots and AI-driven models are delivering to consumers. Yeah, Tyler, Allison, correct me if I'm wrong, but it sounds like these companies want the tech companies building these AI products to pay. It's the same thing we saw with Web 2.0 in social media, hoping Facebook would become like a cable carrier almost. And look, this all goes back to regulation guys, because one of the things being kicked around as regulation works its way through is the models that these chatbots are trained on, does it include copyrighted material or intellectual property that someone should be compensated for? It's not just journalism.

It's music. It's art. It's all those kind of things. there are already artists and people in those professionals, or professions, rather, that are concerned that they won't be getting paid for that. And there's resistance on the side of companies like OpenAI and Google to open up their models to say, here's how we're training, what data we're training it on. And that includes, possibly, we don't know, this copyrighted material. So ideally, I guess, Tyler, the money would have to come from those companies.

But then the question becomes, how do you, we've got to wrap it here, but how do you determine and what the price is for the content that is being appropriated by somebody else. Is it by volume? Is it by exclusivity? You know, Shaquille O'Neal has a big ownership of Elvis's rights and Marilyn Monroe's rights. How's, I'll tell you the one thing. I'll guarantee you lawyers will get rich on this. Lawyers will always win, don't they?

Lawyers will always win. I don't know, maybe not with AI. Didn't we talk about that the other day, Steve? They will replace lawyers. Right. The AI lawyers will get rich. There'll be a lot of lawsuits. Yeah.

Thank you both. We appreciate it. Alex Sherman and Steve Kovac. A head on power launch. I love lawyers. We will hear from three CEOs from three key industries, real estate, retail, and tech. First, Phoenix halting construction due to water shortage. Shortage is there.

The Howard Hughes CEO weighing in on the climate impact on real estate construction. Plus, consumers tightening their spending as the economy. shows some signs of slowing, but what is still working in retail. Western fashion apparently hot, boot barn benefiting, up 16% this year. The CEO is here with us in studio. I don't warn my boots today. And finally, Cisco holding a massive five-day conference discussing AI cloud and cybersecurity. The company's CEO, Chuck Robbins, will join us to discuss the company's AI goals.

We'll be right back. All right, welcome back to Power Launch, everybody. While tech has driven stocks higher so far this year, other sectors of, lag, including the S&P real estate sector, flat for the year. And now the industry starting to face a problem many have been warning about, and that would be distressed properties. Diana Oleg, talking to the CEOs gathered at the annual REAP conference in New York City. Hi, Dai.

Hey, Ty. Yeah, Park Hotels is the latest landlord to stop payments on CRA loans in two of its hotel properties in San Francisco. The company said it is in the best interest for park stockholders to, to materially reduce our current exposure to the San Francisco market. Now, I spoke with David O'Reilly, CEO of Howard Hughes, a large national developer. He said this is just the tip of the iceberg. I think we're going to see a lot of borrowers hand back the keys on buildings.

And I think lenders today, unlike in the global financial crisis, are much less willing to blend and extend, kick the can down the road. They're moving very quickly towards foreclosure, sort sales, and getting these loans off their books. And he admitted those sales would be for less than half of their values from just three or four years ago. That distress in the market and bank failures, he said, are also hurting his ability to develop in areas that are still thriving. I think the capital markets right now are starting to strangle real estate a little bit. You know, we're in the market and we're constantly developing new assets, as you know.

We're trying to do some new multifamily projects in the woodlands. We're 97% lease, 16% same store growth. And I can't find a loan. Went out to 48 lenders. I came back with two quotes. That is shockingly unusual. Now, O'Reilly said he sees San Francisco as the biggest office risk because of long commute times and the high crime route. I spoke with the CEO of Digital Realty this morning, a data center reet.

They are moving headquarters from San Francisco to Austin. Callie Tyler? Those quotes, first of all, obviously what's happening in San Francisco is remarkable, but so is what he said about just, trying to get a real estate loan at all right now. They're also a big developer of Arizona housing, as we've talked about that lately, Diana, some of those issues there with water supply constraining new development. What were his thoughts on that? Well, he actually said that they kind of got in under the wire. That is, that they were able to get the permitting in on 100,000 homes just outside of the Phoenix area before the governor came down with that ruling. He said,

you know, it is going to make developers have to think more about energy savings, water specifically and how to make sustainable developments going forward. All right. Diana, thank you for bringing that to us today. We appreciate it. Diana Oleg. As we had to break, Merck is suing the Biden administration over Medicare drug price negotiations. Merck shares are still down nearly 3% today. We will have more on that after the break. Welcome back to Power Lunch. Let's get a quick check on the bond market with Rick Santelli tracking the action in Chicago. 370 on the 10-year, Rick. Yes, 370 on the 10-year.

virtually unchanged. And if we look at the rest of the curve, short-dated treasury yields are moving a bit more aggressively. Look at a two-day-of-toos. We are lower in yields in yesterday's highs, but that's where all the action is, more inversions in the curve. If you look at 10-year, it's not too dissimilar from the charts that traders have been using, really, since non-farm. There's good resistance right around the three-and-three-quarters area. Look at a one-month Barclays. The spreads for investment grade have dropped about 10 basis points for the month, look at it since its highs in mid-March, it's down about 30 base points. Why do I bring it up? Yesterday, we had about 20 billion investment grade hit the streets. Why? Less bank nervousness.

And a lot of people think the Fed may be close to done. And, well, what we're seeing is maybe 80 billion for the entire month. It's been green lighted. The market seemed to be cooperating and do it before PPI, CPI, CPI, and the Fed meeting next week. Kelly, back to you. Rick, thank you. We appreciate it. Let's get over to Bertha Coombs now. for the CNBC news update. Bertha? Hey Kelly. The United Nations Security Council is holding an emergency meeting this afternoon to brief diplomats on the destruction of a major dam in southern Ukraine. Thousands of residents have been forced out of their homes under the threat of flooding, and there are concerns about the impact of the breach will have on Ukraine's water, energy, and

wildlife. Russia and Ukraine are trading accusations of blame. The White House says it's too early to know conclusively what happened. America's largest LGBTQ advocacy group has declared a state of emergency over what it calls a wave of discriminatory laws in the United States. The human rights campaign says there have been more than 525 bills that target the community introduced this year. 70 have been signed into law. The emergency declaration is the first in the group's 40-year history. And a lawyer for billionaire Harlan Crow has agreed to speak with the Senate Committee, investigating Crow's relationship with Supreme Court Justice Clarence Thomas.

Last month, his legal team had refused to give Senate Judiciary Democrats information about the trips and gifts to Thomas paid for by Crow. Tyler, back over to you. All right, Bertha, thank you very much. And after our quick break, a new retail sheriff is in there. The Boots, Boot Barn stock climbing this year as Westernware takes off. And the name was actually a pick in this year's CNBC Stock Draft. The CEO will join us live.

in studio. He'll smile when he gets over here. Welcome back to Power Lunch, everybody. Take a look at shares of the Western Wear retailer Boot Barn, the stock up about 15% this year, even though the company's revenues missed estimates in the latest earnings report. But the stock and perhaps the attire caught the eye from the students from Rutgers in this year's stock draft. With our second pick, we're going with a bit of a hidden gem. We like Boot Barn. Ooh, wow. Boot Barn. Into the cowboy boots? Yeah. So we that there's a resurgence of interest in a Western culture, and we think that Boot Barn,

which sells cowboy boots, cowboy hats, overalls, and basically everything Western is going to have a strong year moving forward. We think that it's growing like its weed. Its customers love the product, and really it's cheap. So we think that this is the stock that can finally dethrone reythrow in the Mountain Goat. All right, let's bring in Boot Barn's CEO, Jim Conroy here with us on set. Jim, welcome. Good to have you with us. Who's buying boots? Is the growth coming from women, or is it growth coming from men or both? It's both. It's across the board.

Most of the product that we sell is very functional in nature. We often say our core customer feeds America, builds America, and protects America, and that's a lot of people across the U.S. And they come in and buy a pair of boots or jeans or a jacket or a hat and they wear through it and they come back in another pair. Is it mostly working attire, working boots, ropers, work boots as opposed to the lovely fashionable boots that you're wearing?

Again, it's both. But what keeps the lights on is more of the functional nature of the product. So the replacement cycle is roughly twice a year. It's not, you know, this pair of boots that I'm wearing will last 10 years. Most boots that most of our customers wear will last six months or 12 months or 18 months. But they'll wear through them. Wow. And come back and get another pair.

It's like running shoes almost. Do you know what your typical household demographic income is? Sure. Our median income is about $75,000. Okay, because I was trying to figure out wearing the spectrum from dollar, general to Costco, you fall as we try to figure out how the consumer is doing and who is that consumer. So it's $75,000. How would you say your typical consumers doing these days? So our consumer is still pretty solid, I would say. The single thing that would impact our

customer and therefore our business would be blue collar employment. And blue collar employment right now is still pretty strong. When you hear about some of the layoffs and more of the high tech firms, that really doesn't impact us nearly as much. We are ensuring that we bring a value-oriented product to our customer as well, just kind of being cognizant of consumer sentiment. But by and large, our customers pretty strong. Where geographically are you expanding, number one, and where would, what kinds of malls, shopping centers stand on? Where would I find your stores? Sure. So we have 356 stores in 44 states.

Much of our growth now is in the Mid-Atlantic and the Northeast. So we've put stores in Pennsylvania, Ohio, Virginia, New York, New Jersey, Connecticut, and there's still plenty of room for additional. And are these in large malls? Are they in strip malls? Where? They're mostly in Super Power Center. So a co-tendor for us would be something like a Home Depot or Dick's sporting goods.

That makes sense. Oh, I see. Okay. What about the show Paramount? I mean, how much we joke a little about how these major cultural moments, I'm sorry, Yellowstone. What did I say? Paramount, but it's on Paramount. On Paramount, thank you.

You know, did that really drive interest in Westernware? I think it has driven a bit of interest. If you think about our business over the last three years has grown 100% in top line revenue. If you look at the other publicly traded companies in our space, they've grown about 15%. So I would give about 15% of our credit to a show like Yellowstone and the 85% of the credit to the 10,000 people in the stores of across the country and the 500 people of the corporate office. Where are the boots made? Boots are made, some in the US, some in Mexico,

and some in China. And do you sell lots of different brands? All the brands that I would know was Ariot or Tony. Tony Lama, yes. Tony Lama, Lucchese. We are absolutely a house of brands. So we have a wide array of national brands, the ones you've mentioned.

We also have our own brands with 10 exclusive brands. And the exclusive brands, And the exclusive brand part of our business is now about 34% of sales. So it's about a third of our business is brands that we've developed over the last 10 years or so. Are you ready for the post, you know, things go in fashion and then they go out of fashion? So after doubling revenue in three years, which is incredible and having, you know, yellow stone and all the rest of it, if people start to sour on Western wear, is there a sense of, okay, let's evolve the company beyond just that? Sure.

Well, we're in the middle of an evolution anyway. We used to be Western and work, and then we've extended into sort of a more capital. casual country lifestyle. So we believe that we're just getting started and going after customers that might be fishing, hunting, camping, or just being outside in general. So as we continue to expand within that market, if there is a fashion trend that then works against us, we think there's more customers to be had in this sort of adjacent consumer segment. The footwear world, and it's not just footwear that you sell, obviously, but boot is in your name, after all. It's interesting to me. What you're wearing, these are hands.

heavy gear. These are heavy gear. And on the other hand, you see people wearing sneakers to work, wearing sneakers in dress settings. So you've got the lightest kind of shoe on the one hand. That's right. And a heavier piece of footwear on the other. That's right. And I think that maybe more of an urban dynamic. If you were, we often joke if you were to fly from New York to Los Angeles and look down for five hours of that five and a half hour flight. There's lots of jokes about this. You're looking. No, you're looking at our customer. And those customers are cowboy has to keep the sun off their face and boots because they're working with horses or they're outside and need a sturdy pair of footwear.

That is safe as well. That's right. I could never get them that didn't pinch my toes. We could make that happen for you. We can get you another pair. Like a wide size or a longer wider toe box? Boots are so comfortable when you break them in. That's right.

Really, really good. I didn't know you were such a Western wear official. I have several pairs. Yes, I do. Yes, I do. Jim, thank you. Of course. Thank you both. Thanks for coming in New Jersey.

Yeah. Good. We'll talk later. All right, very good. Jim Conroy. As we had to break, June's Pride Month and CNBC is celebrating all month long, sharing stories of corporate leaders. Here is Amy Arrett, Madison Reed, CEO and founder.

Diversity is the key to having a culture that is robust and allows people to access their genius. When you can't bring your bold self to work, you're not your bold self. And people integrated between their personal life and their work life is something that I believe a new generation of people in the workforce, not just demand, but don't want to be in a company where that's not true. At Madison Reed, we are a diverse organization. We have a say, the things that make us different make us. Welcome back to Power Lunch, everybody. Let's check on markets with the Dow still lower after that Boeing downward move this, top of the hour. It's down 43, about a tenth of a percent. The S&P's up three to 4277.

The NASDAQ up 29. Let's check on those Boeing shares off the worst levels of the day. They're only down less than a percent now. They're slowing delivery of 787 Dreamliners. After discovering a production flaw, our Phila Beau telling us this is not a flight safety issue. We are also watching Merck lower today, suing the U.S. government, saying its plan to negotiate drug prices through Medicare is unconstitutional. Even comparing it to extortion, still those shares are down almost 3%. All righty, quick programming note. Please don't miss a new CNBC documentary on the life of Ryan Cullen, the mysterious and sometimes controversial entrepreneur turned activist investor.

Making of the Meme King premieres tonight at 10 p.m. Eastern and Pacific. When you don't want to miss. Coming up, we'll talk to CEO Chuck Robbins about the software giant. That is Cisco. New push into AI and much more in an exclusive interview, Chuck Robbins of Cisco when we come back. Welcome back to Power Lunch, everybody. As more tech companies get in on the AI frenzy, Cisco holding a massive conference in Las Vegas to discuss some new technologies across its networking and security applications. Cisco shares trading a little bit lower today, but up slightly so far this year.

Let's send it over to Frank Holland, who joins us from the conference with the chair and CEO of Cisco, Chuck Robbins. Hi, Frank. Tyler, great to see you, as always. Thank you. And Chuck Robbins, thank you. Taking a minute away from Cisco. live 21,000 people here today. So let's jump right into it. You made some announcements today, a number of them, more than you usually make at this event. One of them was about Cisco networking cloud. Give us a sense. You're the global leader in networking. About 43% of market share. What does this announcement mean for your core business? Well, first of all, Frank,

thanks for coming and seeing everything that's going on here. It's a lot of fun this week. You know, first of all, we probably made more announcements this week and we'll finish tomorrow. We have more coming tomorrow than we've ever made at this event. And there's just so much happening in technology that the transitions that we're actually helping our customers go through are amazing. The Cisco networking cloud is really a, it's a capability to bring cloud-based management monitoring and the ability to configure and see what's happening across your infrastructure, from your campus to your data center, to the internet, and actually to have a single pane-of-glass view from the cloud to manage cloud-based assets as well as on-prem assets. And so the teams are very

excited about it. And it's something we've been working on for a while. and customers are pretty excited about it. All right, one thing we've got to ask you about is AI. It seems to be dominating the conversation when it comes to tech. I went back to your earnings call. You only mention you and your team, you only, it's a relative only AI 14 times. Then later on Kramer, on Mad Money, on CNBC, you talk more about it being a tail win for the business. How will it be a tail win for your business, not only the networking business, but also the cybersecurity business?

Yeah, it's a great question. And Frank, I've told my team, I said, look, let's talk about AI when we have something tangible to deliver, because everybody's talking about AI just randomly, and I think it's important to be able to talk about it as it relates to something you're doing specifically today. Otherwise, it's just noise. And so there's one big opportunity for us, which is the infrastructure underneath these GPU networks

that are being built first by the major hyperscalers, and we talked about in the earnings call that we are already the infrastructure layer for a few of those that are being brought up. It'll probably move into financial services after that. So building new technology, there's new innovation coming that actually does a whole lot of work around sort of the reliability of the traffic flows and things like that. But today in security, we also announced some really significant announcements in security that the customers are super excited about.

And one area that we talked about was how we're using generative AI to create a policy assistant. Security policy can be very complicated. So giving our customers the ability to actually use a human interface, and then we translate that to the technical confiative. and then we allow them to review it. So we announce policy assistant. We also announced security operations center assistance, which will help you actually diagnose problems that are going on in your infrastructure

and actually engage with you and help you get to the right outcome of what's really happening and how to remediate. Chuck Tyler Matheson here, good to see you. With all the new applications and data that will be flowing through the pipes of the Internet, how can you be certain that you're certain that your networking gear is going to be able to handle and process all of the torrents of new data that are going to be flooding through networks over the next decade, two decades.

How do you stay ahead as a company of the data demands that this brave new world is going to thrust upon you? So, Tyler, it's great to be on the show and thank you for the question. We've been doing this for the last 35 years. I mean, the internet has just continued to grow from a traffic perspective. And the advent of video, when videos started dominating the internet, it did exactly the same thing. And what we actually do is we design our own silicon, our own semiconductors. And a lot of people don't know that.

So we've actually designed our own silicon that is at the heart of the systems that we're selling to the carriers who are running their big backbone networks around the world, in the heart of some of the big hyperscaler networks today, the cloud infrastructure. And if you think about what's happening there, those are some of the heaviest load networks in the world. And the great news is the team just continues to innovate on higher performance silicon and lower energy consumption, because obviously with sustainability, it's a very big deal as well. We had a recent telecom provider in Europe that put in Cisco 8,000s with Silicon 1 across their entire infrastructure, and they told us they lowered their power consumption by 90%.

So this is very significant when you get that level of performance. performance and that level of energy saving. All right, Chuck, thank you very much. The last we have to leave it there. Chuck Robbins of Cisco, Frank Holland. Thank you very much for your reporting. We appreciate it. Still ahead, if you can't beat them, join them.

Saudi-backed LiveGolf agreeing to merge with the rival PGA Tour, a blockbuster in the pro sports world today. We've got all the details. We've got David Faber when Power Lunch returns. Welcome back to Power Lunch. Big story today of unlikely playing partners. The PGA tour agreed. to merge with rival Live Golf, which is backed by the Saudi Public Investment Fund,

an entity controlled by the Saudi Crown Prince. Our David Faber sat down with the PGA's Jay Monaghan and Yasser Ul Rumayan, the governor of the Saudi Public Investment Fund. And an incredible interview earlier today, David, in an absolute bombshell of a development. As the day goes on, there seem to be more questions, wouldn't you say? Is there any chance this deal doesn't get done? You know, they would say no, Kelly, that they are on a straight line tax. having a definitive agreement. But that said, they don't have a definitive agreement. And it is

interesting, of course. They chose for a number of reasons, I think, to announce this deal as a memorandum of understanding, in part because probably would have leaked once they went out to the players. They do need to sort of line up that support to some extent, although they have the full support of the PGA board. But your question is an important one. And, you know, there are any number of at least questions at this point. I think a number of those questions even came up with the answers that were given by Mr. Al Ramein and Jay Monaghan as well during the course of our interview. One thing, though, they did seem fairly clear on is simply why they chose to do this deal. Take a listen.

We've recognized that together we can have a far greater impact on this game than we can working apart. And I give Yasser great credit for coming to the table, coming to discussions with an open heart and an open mind. We did the same and the game of golf is better for what we've done here today. The idea is to keep everything independent, but strategically they're all aligned. So the idea that we have instead of competing, we're going to be complementing and to look for additional venues. And that's where the PIF investments, capital investments will come in, will kick in. So we'll be either creating, acquiring.

doing some new things to grow the gain of golf. And when I asked Mr. Alman, well, will that be billions of dollars? He indicated, yes, Kelly, it would. We should give people a quick rundown of the deal itself. It also includes the DP World Tour. And again, they're going to basically all get together to create what is now going to be a for-profit entity. Remember, the PGA has been a not-for-profit, but they're basically going to spin-off their commercial enterprises, anything that money-making, essentially, into this new entity.

and the PIF will be making substantial investments, perhaps at outset, so to even things out. And then over time, those capital investments you just heard Mr. Al-Ramaian referred to, and of course all litigation and hostility between these two ends as well. Remind will be chairman, Monaghan will be CEO, and the PGA will retain a majority. So the governance, they say, is still the majority PGA. But, Kelly, there are plenty of people saying, yeah, but won't the Saudis basically control it from economic point, and that may be well the case. Yeah. You know, David, forgive me for being skeptical here.

But when I hear Mr. Monaghan say, we're doing this because we're going to be able together to have a greater impact on the game of golf. The game of golf is better. Please, this is about money, right? I mean, this means that we're all going to get richer by merging than we would have by staying separate and having competing marketing, competitive, competition. competition for players, litigation risk, a war in the form of dueling events on overlapping weekends and so forth. This is about making money. It has to be. It certainly is from the point

of view of the PIF. I mean, they're making an investment here with an expected rate of return. I'm not sure what that will be, but that's what it's about for them. And that's what it's been about all along, by the way, in launching to a certain extent, the Liv golf. I mean, you know, they did it as well there. Now, they've invested a lot without a lot of return, but you're right, Tyler, it's certainly about making money, and now for the PGA, profit is going to be a part of their mantra, right? So that is, that's a key here. Plenty of other things that could get in the way of that. You'd imagine, you know, players who, for example, want to be compensated, who stayed with the PGA instead of taking the bigger money from the from live we know we'll

they need to somehow be compensated for right the right the rory mackleys the scotty shefflers the guys who stuck with the with the PGA you know mickleson and dustin johnson and camsman they all got that money or got some of it at least i don't know how long the how the contracts were structured and now it would seem that an awful lot of the PGA players would feel a bit like chumps for not doing it because now all of the moral, the moral outrage over being in business with the Saudis has somehow magically disappeared. They call it sports washing. Yeah.

Now, again, you know, I did obviously ask about that during the interview. People can view it for themselves on CnBC.com. And Mr. Almer-Meyans said, listen, we bought a club in, you know, the Newcastle Club in the UK, and people were complaining at first. But then when we started winning, they stopped complaining. Is it too early to say to, let's assume the deal goes through, we've got a minute, who won here and who didn't win, or do they both win? I think they would like to say they both won, and I think it's a little early at this point to determine winners versus losers. I think, you know, Monaghan is the one who's perhaps more on the line, right?

Tyler, wouldn't you agree in the sense of making this decision after putting up such significant criticism of live for so long? I will say this, David, when there are big stories, somehow. Now, you are always at the center of them. Congratulations. It's amazing. Always. Amazing. These guys.

Just get lucky sometimes. Oh, no. We're lucky. Hosting Jeopardy? What else? What? It's good to be favor. Man, that's what we're saying here.

Very interesting development there. Very, very. And like he said earlier, if they're not done, you do wonder where they might be looking next in terms of pro sports. All right. Thanks for watching, Power Lunch, everybody.