Power Lunch - Hitting the Brakes, and SCOTUS Decision 6/29/23

Episode Date: June 29, 2023

The debate over Tesla’s full self-driving claims is heating up again. Elon Musk thinks it’s the future of the company, and the reason the stock is valued the way it is. We’ll talk to the 2 men whose car ride is at the center of the debate.Plus, the Supreme Court just voted to outlaw Affirmative Action. Colleges can no longer use race as a factor in determining admissions. We’ll look at the fallout for both higher education and corporate America. 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 am John Fort. And coming up, the debate over Tesla's full self-driving claims. Heeding up again, Elon Musk thinks it's the future of the company and the reason the stock is valued the way it is. We will talk to the two men whose car ride is at the center of the debate. Plus, the Supreme Court outlawing affirmative action. Colleges can no longer use race as a factor in determining admissions. We will look at the impact. Kelly?

Yes, a lot of fallout already, John. But first, let's get a check on the markets. Dow's up 213 points as it leads the way the rustles are also very strong today, the small caps. SMPs up eight, and NASDAX down 37. And financials are leading the way after results of the stress test coming out after the bell yesterday. Wells Fargo up 4% Goldman, JPM, Bank of America, adding a couple percent today. We're also watching three IPOs. Savers Value Village, the only one of these three to open above its listing price, believe it or not.

It's still hanging on to that pop while Codiac and Fidelis are below that level. a little bit of a muted, open, we'll say, for a relatively muted IPO market this year. But let's turn our attention now to Tesla. The stock has been on its hair this year, more than doubling and inching back towards that trillion dollar valuation. A sky high metric for a car company that for years has caused controversy for investors and analysts. Bernstein's Tony Sakhanagi told us yesterday he thinks Tesla's valuation is too rich, and the full self-driving technology, well, it isn't that big of a deal for the company. But last month, Elon Musk told our David Faber something different.

Take a listen. Tesla is the only car company selling cars where we believe the car is capable of achieving full autonomy with a software update. So the value of a fully autonomous car is, we think, perhaps five times more valuable than a non-autonomous car. Why? Well, the utility of a car, typically a passenger car, is going to be, maybe 10 hours a week. I mean, it does look like it's gonna happen this year. Why?

Well, we're now at the point where the car can drive on highways and in cities with, and where a human intervention is extremely rare. So, I mean, just, I was able to drive for several days just dropping a navigation pen in random locations in the Greater Orson area with no interventions. And the same in San Francisco, which is a very difficult place to drive. So, I mean, you've got bus lanes, one-way streets.

You know, it's quite a challenging homeless situation. You were driving recently in San Francisco where the car was? I have been doing that quite a lot because of Twitter's headquartered. Of course. So Musk believes the value of Tesla is in the full self-driving and that the tech is much closer than people think. But some new controversy on Twitter may be arguing against that. as a recent video seems to show a full self-driving Tesla almost blow through a stop sign.

There it is. We reached out to Tesla for comment and have not heard back yet. Now, that video was from the perspective of self-driving critic Dan O'Dowd. But Tesla investor Ross Gerber was behind the wheel and released this video just moments ago. It doesn't want to run her over at all. So let's shoot a video, but we're not going to shoot a fake video. They know what's fake. Joining us now are the two people who were in that car in the video. Ross Gerber, Gerber Kawasaki president and CEO.

He's also a Tesla investor and former board member. And Dan O'Dowd, founder of the Dawn Project. As we mentioned, Dan has been a longtime critic of Tesla over self-driving technology. He's been in a battle with the company over it. Thank you both very much for joining us. Since we know Ross's position in the stock, Dan, just to lay the table here, are you short any shares of Tesla or have any financial ownership or relationship here? No, no, nothing, no shares, no puts, no calls, no anything.

Why did you get, in your bio, it says, you know, your sort of goal is to see full self-driving eradicated. Why is that? Well, not eradicated necessarily. If they can make it work, I'm perfectly happy for it to come out, but it can't be out of there on the road. This is the worst piece of software I've ever seen in a safety critical product. It has horrendous safety defects that are simply intolerable. And it is not converging on success.

They're not fixing the problems. They're still there. Seven months ago, I told them that a FSD would blow past a school bus with the red lights flashing and the stop sign out. I showed it to them. They didn't do anything. In February, I made a Super Bowl commercial showing this exact same thing, and they ignored it. And in March, a kid in North Carolina stepped off a school bus and a Tesla on full also on self-driving Tesla ran past the flashing lights and ran the kid down and put him in the

hospital, and he still is not fully recovered. And they've done nothing to fix the fact that it blows past school buses. It's insane. Nobody would build a product like that. It is totally irresponsible. Ross, did you get Dan in the car? How did this car ride happen here? Yeah, Dan agreed to go in the car.

And so we went up to Santa Barbara and met with him. And I let him pick wherever he wanted to drive, as long as it was a real drive in a real environment. And he said, drive me to the office. So I said, okay, fine. So we got in Tesla. I engaged full self-driving, and it drove us to the office perfectly. You can see it all in the video. We went through 13 stop signs.

Eight humans were avoided. And six construction workers in a construction site. We went by fire trucks, schools, and everything. And the drive was perfect. And in fact, really the challenge that Dan is dealing with is the fact that this entire narrative is false. And everything he's saying is a bunch of garbage. And really, the worst part of it is he's saying I'm blowing a stop sign that we didn't even blow. And I was driving. So if he really cared about people's safety, he would actually focus on the real things that need to be improved with full self-driving,

which there are many, which he hasn't mentioned once, just a bunch of false information and all this hyperbole in big words for a software that's phenomenally good and you can see it in the video with Dan sitting right there. I don't know. I mean, Dan, I don't know which one of you is shouldn't, don't we just need a driving test for the software, for self-driving? I mean, if it's a teenager. Absolutely.

I don't mean your test. I mean, there ought to be a standard test where it's got to run a course a certain number of times successfully. Maybe it has to be repeated over and over again so that we as society can trust that this software can actually drive. I mean, it's like saying that AI can be trusted to solve business problems or write stories on it. So you have to check its work. So doesn't it have to be certified? Isn't that the real issue here?

Government has to say, here's the driving test software. Dan, pass it. Absolutely, positively. And that test must include that it does not go past school buses with the lights flashing and run the kids over. It did it. We said it was going to happen. A full-page ad in the New York Times, a Super Bowl commercial, for God's sakes, and four months later, they've done nothing. That should be in the test.

Yeah, but those-Ross. You want a test of the software. Ross, can you agree with that? There ought to just be a standard driving test. Not Ross and Dan went for a ride, and the rest of us have to take your word for it, how the ride went, right? Society needs to know that this thing is being tested at a level that we can trust it, just like a submersible or just like a teenager. road. John, I think my video shows exactly what you're talking about. But no, not your video. Like, your video is not good enough for all the rest of the country to

trust, right, Tesla. No, no, just let me finish. I agree there should be a standardized test for autonomous vehicles before we say it's level for autonomy. You don't have to pay attention anymore. I 100% agree. But for the car to learn how to drive, it has to learn through real world experiences, just like this stop sign, where the sign itself was 30 feet in front of the line, the speed limit on that street is too high. It's 35 miles per hour, and it should be 25 miles per hour. And what we found was a dangerous intersection, not a problem with full self-driving. You're conceding it missed the stop sign, Ross. No, no, no. The stop sign was 30 feet in front of the actual line. So for the car, it creates a certain level of confusion because of the way the intersection

was designed. Most stops signs are actually worth a line. You have to operate on the roads that are there. You have to operate on the roads that are there right now. You've done the test so many times. You don't get to remake all the roads and drive on the roads when your product is unsafe. When we've spoken with this, I just want to Dan kind of get on the record. And regulators, we're told, have taken a sort of cautious approach to this.

And I don't understand how we can describe that when these cars are already out on the roads everywhere and this is permitted. What are the current regulations, Dan, around people being able to use full self-driving to the extent to which you guys did and Elon Musk has described in many others? The current situation is that if it's called a level two car, then it's no regulation. There's no testing. There's no analysis. There's absolutely nothing. You can do anything you want.

If it's a level four car, which means no driver, then there's a bunch of rules and regulations and you've got to go through the state. and it's a lot of work. And Google and Waymo and Cruz and people like that have done that. And they have self-driving cars today. Okay. But the problem here is what Elon Must did was brilliant. He wrote into the manual that you have to keep your hands on the wheel at all times. And then he said, well, it's a level two problem.

It does no, there's, you have to have your hands on the wheel. But watch the videos. Watch the videos. That's exactly what happens. Watch the videos. So, Ross, okay, so Ross, let's bring this back to what matters for investors here. If this self-driving is really going to be level four, self-driving is really going to work, whose insurance is going to pay when the inevitable mistakes get made?

And software makes mistakes, even great software makes mistakes. We just need it to make fewer mistakes than humans, right? Is it going to be Tesla's insurance or the person in the car's insurance who trusted that the software was going to do what it says? Because it seems to me like maybe it's Tesla's insurance that should pay when the software makes a mistake. That's correct. And that's why Tesla has an insurance company right now and is actually tracking all of our driving, our Tesla drivers driving and scoring it so that they are actually offering the insurance directly to Tesla drivers. And my assumption is once they go to level four that they will take the liability if there's an accident with a level four vehicle that was their fault. And I have every confidence that as this software is developed and widely adapted, we will save tens of thousands of life.

See, what Dan's doing is he's hindering the, he's trying to hinder the advancement of life-saving technologies because he's talking about a fake accident that never happened with some kid at some school bus. Hang on, Dan. And it's really ridiculous. A hundred people are going to die today in regular cars and we have to stop. The current system is not great. We all grant that. Dan, you mentioned Cruz in Waymo a moment ago, and they do have autonomous vehicles on the road in San Francisco and the likes. Are they included amongst the players who you think are bad actors here, or do you think that their technology is responsibly being deployed? They are a thousand times more responsible than Tesla, which is reckless.

It's not a question of whose insurance base. It's who goes to jail when you ship a product with a bug in it so grotesque that everybody, knows you don't pass the school bus. And it's been that way seven months and they've done nothing. That's criminal. The kids are going to die and people should go to jail, fix the damn software or take it off the road right now or somebody's going to do it for you. This is ridiculous. Dan, you know the update to software every couple weeks. Boyota wouldn't do this. Nobody would do this. Gentlemen, thank you both. Appreciate you both coming on. Try to get to the bottom of this. Really, we do. Ross Gerber, Dan O'Dowd, we very much appreciate.

Kelly, I think it's an interesting question here. If Tesla does end up being liable for a mistake, how much do you think a jury of, well, I don't know if it's software's peers, but just of human beings, right? CHAPT is not on the jury. It is going to award somebody, right, for the Tesla that hit their kid in the road, when it inevitably happens. And how do investors factor that into what the stock is worth?

No, it's a great question. Coming up, a massive decision by the Supreme Court regarding higher education striking down affirmative action programs at Harvard and UNC and everywhere else by implication. What impact could this have on the college admissions process and could it trickle down to diversity in corporate America? Plus, Regulation Nation, the final day FTC's case against Microsoft Activision that is taking place. But this is just the latest example of regulators taking a more heavy hand with corporations, or is it, with reports out of the FTC that could be targeting Amazon with an antitrust suit as well. Power Lunch, we'll be right back.

Welcome back to Power Lunch. The Supreme Court ruling against affirmative action, finding it unconstitutional to consider race in university admissions. We just heard from President Biden a short time ago saying he strongly disagrees with the decision. For more on how this will affect college admissions and the workforce, those colleges send to corporate America, we bring in Danielle Holly Walker of the Howard University School of Law, President-elected Matt Holyoke, and Danny Savalios MSNBC legal analyst. Welcome both of you. Danielle, I wonder if there are some potential impacts of this

that everybody who's reacting might not realize. In that, education is crucial to the future of the knowledge economy and this country, but will colleges be able to balance their classes now based on maybe economic factors or geographic factors that are measurable instead of using race and achieve a similar result? You know, I think we have some precedent for this. We have places like California and Michigan that have been trying race-neutral alternatives

for a long time. And what we've seen is just, it does not make the same difference that being able to consider race as one of many factors does. So, for example, when Native American students, we saw them fall, you know, almost 90% in terms of admissions in some states. So this affects most students of color who are black, Latino, Latina, or Native American, Native Hawaiian. And I think we'll see some significant drop-offs in those enrollments. Danny, what do you think happens to those students who are not getting into the schools that they used to get into?

I don't know if you know the statistics on this, but are they just not going to college? There are other paths, such as community college to a four-year institution that aren't followed that often but are really very cost-effective. Could we, in effect, end up pursuing more practical paths to higher ed because of this? Well, let's be honest. I mean, when it comes to the student who narrowly missed getting into Harvard, that student is probably not going to go to welding school. That student might go to Dartmouth and have an equally wonderful life and career.

And I say that because these cases really addressed a narrow issue, whether or not Harvard and UNC's admissions policies violated the Equal Protection Clause. In theory, and I stress in theory, the case Grutter, which held that diversity is a compelling interest that warranted the use of race in admissions policies, is technically still good law. The reality is, as recognized by Justice Thomas and Justice Sotomayor, that that case really is effectively overruled because Harvard and UNC's admissions policies, which they themselves argued barely, barely considered race, those policies did not satisfy the strict scrutiny test of the Equal Protection Clause. Danny, what are the implications for workplaces that have also pursued quota-based hiring

goals of minorities in the recent years? Well, that's a really interesting point because constitutionally, we've carved out, at least historically, this one place. higher education, not even K through 12 education, but higher education is the only place where the Supreme Court has said, starting in Bakke and then in Grutter, that diversity is a compelling interest, and by the way, it's not racial diversity. It was general diversity, but diversity on college campus is a compelling interest that warrants sometimes the use of race-conscious decision-making. That case didn't, I mean, the Supreme Court didn't hold that for any other part of

the workplace or the workplace. K-12 education. So in a sense, this case is narrowly, narrowly tailored itself, but it also has implications for the people who graduate university and head on into the workforce. Daniel, I wonder if people realize how much the college admissions process has changed in a generation over 20 years. It used to be people applied to three or four schools and then, you know, picked one. Now a lot of young people are applying to 20 schools, and the charge for these schools is to yield to figure out, are these young people really serious? Who can we actually get? The school that really cares about curating a diverse class, can't they still do visits through Zoom conversations,

figure out who these students really are across all kinds of dimensions and make their pitch to be the school that they choose? Can't they still recruit a diverse class? You know, I think college admissions, as you just acknowledge, is a very complicated realm and is a holistic process. There are lots of factors that colleges and universities look at. And we know that colleges and universities will still be able to value diversity. And I think Danny made an important point that it's diversity of all kinds. I think what the Supreme Court did today was really tie the college and universities hands behind their back and say, yes, you may want to construct a diverse class. but there are some things that you can't do and can't consider.

Chief Justice Roberts did say you can look at an individual's essays and they can talk about the way that race has impacted their lives, but it must be in a way that does that on an individual basis. And I think that really discards the way that colleges and universities really do business. What Grutter did is it allowed colleges and universities to have some deference. And you didn't see any of that deference today by the Supreme Court. they essentially are saying even well-considered plans like Harvard and UNC that considered race is a small factor and the overall admission standard can't be used. But we will see college and universities get creative, I think in terms of recruitment, really offering the ability for students to come visit all kinds of tools that we have at our disposal to help students of all backgrounds understand the benefits of our individual institutions.

Danny, one of the more damning, I'll say, things that the opinion brought up, the majority opinion I thought, was that it's really hard to pin down exactly what the schools are considering that it was overbroad. There was no real category from Middle Eastern students as they were considering diversity. Asian was just one broad category with no distinction between Southeast Asian and Asia's a pretty big continent. I know that we've noticed, does this in a way also call on schools to really collect better data and connect the dots between what they're trying to achieve, what they say they're trying to achieve,

and then measuring the outcomes. Now, I'm really glad you brought up that example. I mean, one glaring example was that there isn't even a category for Middle Eastern students. And, of course, different East Asian, South Asian, they make no distinction. And that itself is overbroad. It's overbroad. It's not well defined. And that was what the majority opinion pointed out.

And that led to their conclusion that this goal of diversity is not furthered by race-conscious decisions. The other thing, too, to consider is, and, you know, Danielle talked about some of the, when schools were allowed to use race, how the numbers went up or down. But ultimately, the challenge here, I think, for the universities is that no one ever really defined what exactly diversity is or how you know when you've achieved diversity and you say, I'm finished because this is perhaps the only. But Danny, they seem, I don't mean to interrupt, but just there's workplace implications,

they seem to be saying, and they use the numbers to say, you know, for the percentage of African-American students accepted the percentage of Asia. So if those, if similar data were demonstrable in a workplace where it seemed that one category, however broad the category, was having a much harder time getting hired versus a much easier time, for instance, could a case be brought on that same basis? Probably not. And that's a very specific reason, because we, the Supreme Court has carved out this very unique space, higher education only.

These tests, diversity, all of these compelling interest tests and strict scrutiny only apply as they do here in higher education. They don't apply in the workplace. There are anti-discrimination laws in the workplace. Make no mistake about it. They're anti-discrimination laws and the Constitution. It restricts the government from discriminating. There are all kinds of anti-discrimination laws.

But in the context of using race-based admissions, this line of Supreme Court case law has only ever applied to higher education, which is a bit of a paradox. But that is the state of affairs as we have them. Yeah. Perhaps the federal funding, you know, that sort of thing is a big reason why there's so much scrutiny or just the importance of that for society. We'll leave it there and we appreciate your time. Thank you both, Danielle and Danny. Where does the C-suite stand on the role of AI? We have a new CNBC CFO Council survey showing leaders are embracing the new technology.

though a bit cautiously. Those results and more ahead on Power Lunch. Welcome back to Power Lunch. Let's turn to the bond market now where yields have been jumping the 10-year 385. It's pushing the mortgage rate back over 7%. Rick Santelli joining us from Chicago, Rick. Yes, and there was good reason to see the jump in Treasury rates. It was the day to this morning, whether it was a stronger GDP on the third revision, better consumption, or look at the chart. five-year chart of the personal consumption expenditure quarter over quarter. It peaked granted at 6%, but that was in mid-21. That was two years ago.

It's at 4.9, which was about as expected, a little lower than our rearview mirror. But if you open the chart up to 1983, when the comp of 6% goes back in time till, you can see how sticky it is. The markets notice. Look at 2s and 10s together, how they jump when the data hit at 830 Eastern. And it was also initial continuing claims, better behave. But as many have pointed out like Peter Bookfar, contributor at CNBC, the June 19th holiday may have kept some states from reporting and getting it in, not to mention there's seasonality issues that might not all be worked out.

We'll wait till next week to see if it gets more smooth again. Tews and Tens are on pace to close at the highest yield since March 9th, as you see on that chart. And finally, if you look at the Tews 10 spread, it's at minus 101. Minus 108 was its March most recent, most inverted. We were challenging that, but we've seen things ease back a bit and not necessarily yields going down. But the long-dated yields catching up the short-dated yields taking some of those inversions out. All things being equal, now we have technically broken out on a 10-year, any kind of a close today above 382,

probably gives us a test of 4%. Kelly, back to you. Thank you, Rick. It would be something if 4% is next. Let's get to Julia Borson now for the CNBC News Update. Julia. Kelly, three families filed a class action lawsuit over the theft of their loved ones' bodies from the Harvard Medical School morgue. They accuse the University of abandoning the donated bodies instead of caring for the remains. The lawsuit comes after the morgue's manager, his wife, and several others were indicted for trafficking stolen human remains. New government data shows pedestrian deaths have shot up 77 percent in the U.S. as 20,

A report from the Governor's Highway Safety Association found 20 people were killed each day last year while walking. Road safety experts think the rise is because of pandemic-fueled reckless driving, more people buying bigger vehicles, and more people moving to the suburbs, where roads are not always suited for pedestrians. The Justice Department says a law that took effect in Florida this week prohibiting some Chinese citizens from purchasing property is unconstitutional. The DOJ said in a filing the law violates the Federal Fair Housing Act and the Equal Protection Clause. Florida Governor Ron DeSantis signed the bill into law in May. It also places restrictions on some citizens of Cuba, Iran, and Russia. John, back over to you. All right, Julia.

Thank you. A head on power lunch. Oil prices down at 12% this year, and there are growing concerns at the start of the year over rising interest rates and the impact on demand. What should we expect in the second half? We'll be right back. Welcome back to Power Lunch. Big moves in energy over the past month as we wrap up the second quarter in the first half. We've got crude on pace for its best month back to last October, even though it's only up 2%.

While Nat Gas is on pace for its best month in almost a year, up 20%. Here to talk about what's driving those gains is Bill Perkins, CEO and head trader at Skylar Capital. Bill, it's good to see you. And, I mean, broadly speaking, it's been a tough market for energy for the past 12 months. Do you see that changing? I see it changing in crude oil and natural gas is going to be a little bit sideways. Crude oil is supportive despite concerns about a recession, although there are some concerns about dark oil from Iran, Venezuela, and Russia, seeing some data where the supply of dark oil is actually quite high.

So we're almost in the best of times if everyone's been marking up their growth prospects, and yet crude is not really participating. Is that because we just, continue to see supply coming into the market or what's been behind that? I think there's still a lot of fears about recession, economic monetary tightening, although demand is fairly stable. We've had an SPR release that put a lot of crude oil on the market. And I think we've seen Russia evading sanctions, Iran evading sanctions. So there's a little bit more on supply on the market than people could count by traditional means. So I think that's keeping crude oil in check.

Bill, it seems like the narrative should be shifting, though, right? I mean, even if we look at this GDP revision from Q1, if we look at how the economy has managed to avoid a recession to this point, so many people are saying, well, if we've gotten this far without recession lights flashing, maybe it doesn't happen this year at all, I mean, shouldn't things look a little better demand-wise and therefore look a little better for energy? Oh, don't get me wrong. I'm bullish crude oil.

And even in a monetary tightening cycle, if you look historically not a financial crisis, demand grows. So I think crude oil is very, very supportive and is underpriced. But we still have some psychological factors to get over. And I think eventually we'll have to ration off demand with higher prices. So let's get on the couch here, Bill. How do we get over that psychological? For the people who are trading out there, what's going to be the trigger that changes the narrative

and then changes the way crude and other energy is being traded? I think it's going to be inventories. I think we're in a show me phase, and people want to see inventories, they're quite low. They're not dangerously low, but they want to see them continually declining. And I think that's going to change the psychology of crude oil and pricing on a go-forward basis. What do you think is feasible for price action to the upside bill?

I think we're going to have to go north of 100 to balance the market under the current supply and demand balances. We have pretty much robust economy, despite a lot of the fear and naysing that's been going on. We have population growth, which is energy growth. And we don't have production growth and investment. We have the U.S. dropping rigs. We have a chronically underinvested sector. And so that doesn't bode well for growing demand. No, but $100 oil, now we're $31 away from that.

I mean, that's getting, we're talking about, what is that, a 50% move from here? Yes. Yes. And that's going, you know, things happen all of a sudden when you don't invest. When you don't invest in producing crude oil, when you don't grow supply, when you have demand continually growing and the proverbial bathtub is running out of water, eventually the market has to react. Bill, I got to go back to the subject of Ukraine here, and I always have to preface it with, of course, the human toll and what's happening on the ground there is most important. That said also a year ago, the prospect of an open-ended war in Europe was seen as being financially devastating. Has that changed? Because it seems like what happened over the weekend suggests this war is likely to go on a lot longer. Yeah, I don't want to predict wars. I mean, it was unpredictable to start and the end. But you do use a lot. Wars are bullish consumption of fuel oil. The sanctions haven't really done much with Russia in terms of moving the existing supply around. We are having declines in Russia production. But I don't want to look at oil through the lens of the war and how long it's going to go on. I want to look at it through the lens. of demand is growing globally every single year, irrespective of monetary tightening,

and investment in oil infrastructure producing oil is not keeping pace. All right, Bill, thank you for your time. It looks beautiful. Wherever you are, I want to be there. We appreciate it for the holidays. Thank you. There you go. Bill Perkins.

A news alert now. Comments from Raphael Bostick speaking at a conference in Ireland from the Fed, saying he does not anticipate further rate hikes. This echoes what we already heard him say to reporters a little bit earlier this morning in Dublin. He said he thinks the current rate is sufficient to get inflation to the Fed's 2% target, and we can get to that target without a severe economic downturn. Also saying he doesn't completely rule out the need for further hikes, but John, this is one area where he does differ with the Fed chair, and perhaps you can say consensus.

I mean, quite a bit. Yes. That's very different from what we heard from Powell. Not a big market reaction to that. I should add. Stocks, if anything, are a little bit off session highs. Okay. Well, AI, perhaps the most hype investment on Wall Street right now, but not everyone agrees. of chief financial officers say they're treading carefully with that. We will dig into the key results from our latest CFO counsel survey. Next. Welcome back to Power Lunch.

Lately, it seems like every company is getting in on AI in some way or another, but the results of our CFO survey show a little more caution. Leslie Picker, how much more? Yeah, John, I thought this is really interesting because when it comes to AI, the CFOs are really treading carefully here for all the talk about how AI can boost labor productivity, enhance products to stimulate customer demand. CFOs really remain cautious. In our quarterly CFO Council survey, we asked our members what best describes how their companies are investing in AI. Get this, 41% said they're evaluating

AI but remain cautious. 18% said they have no plans to invest in AI. And only 32% said their AI investments are accelerating. But perhaps they still see the tailwinds AI is providing to the broader tech industry because when asked what sector will see the biggest growth in the next six months, more than one third of respondents said technology. That's actually a huge jump from the survey six months ago where only 9% expected technology to be the biggest sector grower. But the CFOs we surveyed are also torn about the impact AI will have on jobs. 18% belief AI will create more jobs than it destroys, but the remaining 82% of respondents were split between AI as a job killer and the notion that it's too soon to know what the impact will be, guys.

Well, but for CFOs, a job killer probably isn't exactly a bad thing. I mean, I hate to be morbid about it when it comes to jobs, but CFOs kind of like to ax those costs out. And I guess there are a couple different ways of looking at those figures, too, like more than 70% are either accelerating, their AI investments or considering it, but I guess investors have to figure out what considering means. Yeah, they're definitely treading with caution. I think they're evaluating because it's so much in the news and because when investors say, hey, what is your plan for AI? They have to say something. We're looking into it. I've talked to a bunch of different people in the C-suite on areas that are maybe a little outside the realm of what you would expect with regard to AI. And they're like, yeah, we have

to look into this to a certain extent. Does it make sense for us right now? Has the technology caught up with our needs exactly? Maybe not, but we're definitely looking into the array of startups that are out there as well as the array of R&D that's taking place. Got to have those case studies to see if a competitor is saving money or making money with it, I imagine. Leslie Picker, thank you. Oh yeah. Coming up, moving to the sidelines. Key Bank downgrading Disney to neutral on uncertainty for some of its key businesses, including ESPN. We'll trade it and other calls of the day in three-stock lunch next. Well, it is time for today's three-stock lunch. We have three analysts calls, all resulting in downgrades today. First up, Key Bank, downgrading Disney,

saying it sees meaningful uncertainty. Here with our trades is Eva Ados, chief operations officer at ER shares. Eva, okay, so Disney, since 2015 or so, Disney, under a hundred bucks has been a buying opportunity. It's under 90 now. Why do you say sell? I say sell because of many reasons. First of all, we see the park attendants coming down. I think they have high expectations for park attendance regardless of the fact that the park attendant's ticket has gone up 50 times in the last 40 years. We have the continuing dissentist Disney conflict going on. ESPN subscription growth has stalled. And top line and bottom have both come down significantly. So I think overall, in addition to that, we also have a big

badge, a $300 million movie, Indiana Jones. We'll see how that plays out. So all these difficult is, I think they're much better companies to be at rather than Disney right now. All right, leaving it on the sidelines. What about Pfizer-Ava, the stock getting a downgrade at Credit Swiss today, saying they're entering a period of uncertainty and limited pipeline catalysts, maybe especially after their weight loss drug struggle somewhat? What would you do with the trade? I have this as a hold. On the one hand, I'm concerned as we see the COVID vaccine sales are back in the rearview

mirror. So they are expecting a $23 billion decline. And given the fact that the COVID vaccine sales accounted for one-third of the Pfizer's $100 billion revenues, we're going to see a significant decline in the revenues. The only reason why it as a hold and not a sell is the fact that we're going to see a significant decline in the revenues. The only reason why I have it as a hold and not a sell is the fact. the fact that the stock prices back where it was in 2018, that's pre-COVID levels. So the valuation based on expectations is fine.

Their margins have improved regardless of the fact that revenues are significantly down. However, I think it's just going to move with the market. That's why it's just a hold, not a buy and not a sell. Okay. Finally, Citizens Financial, the stock also getting a downgrade. This one from JPMorgan on concerns about commercial real estate. Eva, what would you do with it? It's a sell.

I think the Fed put a target on their back with the recent bank stress test results. They have the lowest capital ratio. That's at 6.8%. And I think if we ever have another regional bank crisis, investors, that's the first bank that investors are going to sell. By comparison, you have Schwab with the highest capital ratio, 22.8%. And both these banks are down by about 30% year-to-date. So I think they're much fair.

If an investor wants to have exposure in banks, there are much better banks to be at right now. Okay. Eva Ardos of ER shares. Still to come, turning the tables. China reportedly using our own technology to spy on us, and consumers are using AI to fight back against annoying telemarketers. Those stories and more when Power Lunch returns. Welcome back, everybody. Just four and a half minutes and a lot more stories to get through today.

So let's get to it beginning with three key stories involving the FTC. First of all, they're saying generative AI raises competition concerns that was in a blog post, significant. Keep an eye on that. Secondly, it's the final day of the Microsoft FTC court hearing over their Activision Blizzard acquisition hopes. The goal of the FTC is to show Microsoft wants to do whatever it can to boost Xbox past subgrowth and bring more customers to the platform through exclusives. And finally, reports are emerging, and we saw this earlier, John, that the FTC might be targeting Amazon with an antitrust suit over the online marketplace. Yeah, this Xbox versus Sony thing is so interesting because especially this thing that came out about how Sony just wanted to kill the Activision Blitz and Merger, regardless of what's happening with exclusives on the platform. So I don't know.

It looks to me like Microsoft has done pretty well for themselves in the testimony here, but we'll see. I think they're going to prevail. What do you think? I mean. But then what happens in the UK, which already blocked it, right? Yeah, I don't know. Can the UK hold out? Can they carve it out?

A lot of questions still remain. A lot of questions. And China is using our own technology to spy on us. The Wall Street Journal reporting, the Chinese spy balloon floating in our airspace earlier this year, was equipped with American-made technology. Preliminary findings showed the balloon did help China collect photos, video, and other information, but apparently did not transmit them. Do they find an iPhone on there or what?

Listen, the most important thing about this is that the Chinese are pressuring us not to release the full report and threatening retaliation. And so there's a high-level, high-stakes back and forth going on. you'd think it'd kind of be a no-brainer to release this. We're already getting leaks of what the report has to say. I don't see how they can withhold it at this point, and then we'll have to watch for the fallout. We will have to watch. All right.

You can. It's a battle over Aspartame today. Well, we know how to say it. One of the world's most common artificial sweeteners could soon be declared carcinogenic. They all are, eventually, it seems like. Reuters reporting the World Health Organization's cancer branch could list Aspartame as a potential cancer risk as soon as next month, pitting it against food producers and regulators worldwide. Aspartame is a sugar substitute, commonly found in soft drinks and chewing gum.

Do you remember the name of the other one years ago? From the past. That was called, you know, got slipped into the same category. We're like, all right, well, now we've got as aspirate. Yeah, and you know what? This was, ironically, as Indynewy has told the story, Pepsi developed it, but now it's most famous for being associated with Diet Coke. The launch, successfully of Code Zero has probably reduced the risk somewhat.

I don't know if they would literally take it out because of this declaration, but it would seem to put pressure on those sales. Just have sugar, I guess, and have less sugar. I do monk fruit sugar or something. It doesn't glucose. But it's not bad. I do it in coffee. It's okay.

All right. Kind of expensive, though. Right-Aid hire today on the first quarter of beat, thanks to a boost from weight loss drugs. It saw pharmacy sales jump more than 3% year over year, citing growing sales of OZempic and other popular weight loss injectable. The only reason we want to flag this is because Walgreens just came out with some pretty disappointing results. I didn't hear a lot of talk there.

about the same benefit at all. I wonder why the difference. Me too. And talk about turning the tables. There are now firms for hire that use AI bots to distract and deflect robocalls for you. John, how does this work? I don't know.

Automated dialers apparently can call 100 numbers per second to get hold of you, but AI can now delay and distract those out. So they'll answer sometimes, I think, and then pretend to be sort of an unwitting person to say they'll draw them into the conversation. It's the AI knowing it has a dead end, and they feel like this is wasting enough time

by the robomarketers that they've flipped to the tables. I just send all calls to voicemail that are not in my address book already. I do say, but then this, all the health care calls, this tends to screen them out, and then you have to go back and kind of work back. I need AI for that. It's a dangerous game when you're a parent.

So you've got to put everything important in your address. No, I read a voicemail once that said, Kelly, we just want you to know Gregory's fine, but he did have a rock thrown at his eye. This was two hours later. Oh. Glad he's not sitting in the nurse's office this whole time. Yeah, you're confessing all kinds of stuff here.

Now, we need AI to help us, yeah, for that, to help us respond to that. Happy forth, everybody, by the way. I'll be back the week after. For short, Independence Day, so important for us to recognize and celebrate it. Thank you for watching, Howard. And John, thanks for being here. Closing bell starts right now.