Power Lunch - Market Malaise, Changing The Game 4/18/24

Episode Date: April 18, 2024

The S&P 500 and Nasdaq are both riding 4-day losing streaks, while the Dow is having its worst month in over a year. What can turn this trend around? We’ll ask our experts.Plus, Caitlin Clark is on the verge of getting a huge contract from Nike for a signature shoe. We’ll speak to WNBA Commissioner Cathy Engelbert about the impact Clark is having on the sport. 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, everybody. Welcome back, Simomodi. Good to have you with us and good to have you with us. I'm Tyler Matheson. Stock's heading to the, well, kind of downside right now. The S&P 500 and NASDAQ, both on four session losing streaks. The Dow having its worst month in a year and a half. How about you? Is this the worst month in a year and a half? Not for me. So what can turn the trend around? We'll find out this hour. Plus, Tyler, changing the game, Caitlin Clark on the verge of getting a huge contract from Nike, for a signature shoe. We'll talk to the commissioner of the WNBA about the impact Clark is having on the entire league. But first, a check on the markets

because stocks have been losing steam returns the lows of the session with the Dow Jones Industrial down just about 20 points, S&P 500, lower by 11. But it's really being led by the tech sector with those latest results from Taiwan Semiconductor weighing on the tech sector. And to chips specifically,

you'll see NASDAQ down about four-tenths of 1%. We want to compare two complete. different stocks right now. Tesla and United Health. Just take a look at the price action. Tesla down for a fifth straight day, 14% in one week. United Health up 11% in a week following its earnings. All right. The two companies almost identical in market cap now as Tesla's tumble has sent its market value below a half trillion dollars. Let's get to Mike Santoli at the New York Stock Exchange. Mike, does this Tesla-UNH dichotomy tell us any of about the markets or is Tesla just kind of it's in its own cubicle?

Yeah, Tyler, I would say it's mostly about the fact that Tesla's been in freefall, but it does also reflect that this is much more of a show me market than maybe it has been in the latter part of last year or even the early part of this year, meaning where the earnings estimates are going higher or you're getting evidence that the current estimates are supportable, the stocks can perform. Otherwise, no. And earnings estimates for Tesla have been really going straight down for months now. So therefore, the valuation looks still challenged, even as the stock has gone lower. I would point out it's also pretty much crossing with Walmart's market cap at this point as well. So it's kind of going down the ranks as these more steady

companies, and UNH, of course, had had a tough start to 2024 as well, but did have better than anticipated guidance within its report. So I think it's about the market following the numbers in a little bit of a macro flux moment because we do have yields going up again to those multi-month highs. People trying to figure out if the economy can absorb that. It's about a 4% decline, I guess, from the highs or thereabouts, but recent highs. Is anybody really worried about this decline having longer-term traction or are more people on the side that we're probably, no matter what the Fed does or doesn't do in a bullish sort of environment?

At this point, I do think most folks are saying, look, we went up about 28% from the lows in October to the high three weeks ago, giving back 4% of that. So I don't think there's panic. I don't think you see evidence of panic, but I do see evidence of growing concern about this little upturn in volatility. If I'm looking at things like people buying protection on the downside, put option volumes. And also, of course, when you do get a pullback, sometimes you want to see people get a little bit more scared before you have this sense out there that you've kind of shaken enough people. out and this poll back can be viable. All right. Thank you very much. Mike Santoli.

All right. For more on the market and the Fed, let's bring in CBC contributor, Tom Lee, who's a co-founder and head of research at Fund Strand. Also joining us is Professor Ragu Rajan, former IMF chief economist and governor of the Reserve Bank of India, a professor of finance with

the University of Chicago Booth School of Business. Gentlemen, it's great to have you both on Power Lunch. And Professor Rajan, I want to start with you. Incredible just to see how quickly the market narrative has changed from expecting a rate cut in June now to some economists saying, perhaps not at all this year. You've been in the seat that Powell is in, different country, India, but still, I'm curious how you think he navigates this complicated scenario that we're in,

which is hotter economy with inflation remaining much higher than expected. And at the same time, rates also staying higher, the impact that could have on consumers. Yes, I mean, clearly what's happened is we've had three strong readings of inflation. can dismiss, certainly the January one, but the next two basically suggest inflation is not coming down. In fact, it's going up. And if you look at the measure that the Fed has looked at most closely, which is the super core measure of inflation taking out housing, it's gone up at an 8.2 percent rate over the last three months. So this is something to worry about. Is inflation coming down steadily, as it seemed, at the end of last year? Or is it having a

set of legs and moving up. So my sense is, you know, they're going to do what they did, which is watch and wait. But, you know, you heard, you know, New York Fed president talking for the first time about potentially rate hikes. I think that's still some ways away. Serious talk about that. But clearly, the kind of rate cuts that were expected are off the table. Certainly in the next meeting, they have no more news on inflation or the labor markets, and it's likely they will continue pausing, but how long they will pause is now very much in question. Tom, Professor Rajan mentioned John Williams,

New York Fed President, who did just mention rate hikes, but he did say that's not his base case, but even the fact that he mentioned it, you saw the two-year move to around 4.99%, which is a high for this year. You still have this notion that stocks can continue to outperform if rates stay high.

How long do you think that theory will last? Well, I think it's going to be valid as long as one of several things happens. One is that as long as the economy remains resilient and robust and so far earnings have actually been coming in quite good. I mean, we're only sort of the start of earning season, but already Q1 looks good. And I think the second is that inflation, I think inflation really has a bifurcation taking place because even as the professor said, it's Supercore. The reason Supercore is annualizing at 8% is auto insurance. If you took Supercore out of, sorry, if you took auto insurance out of Supercore, the long-term

average is around 2.7 and it's actually annualizing at around 2.7% right now. So the biggest driver of inflation are the two stubborn components of auto insurance and shelter. So I don't know if Williams really wants to be raising interest rates or hiking just because auto insurance rates are high. And I think the third thing to keep in mind is that we don't really need the Fed to make three cuts. I think the one risk to markets would be that the inflation is accelerating to the point where the Fed has to hike and therefore really weaken the economy.

I think that's still very much a tail scenario, but that's the one, of course, that would unsettle markets the most. Professor Rajan, how critical is China's recovery to global economic performance? Well, it certainly is very important, right? China has been the engine of global growth for a long time pre-pandemic. But I think it's also important for, you know, the reflationary forces we're seeing. I mean, if you look at commodity prices, they were largely dead in the way. water for the last year because China wasn't performing up to expectations.

As Chinese growth news is getting better, you're seeing some commodities perk up. Certainly, you're seeing copper pick up some in recent weeks. So my sense is that the deflationary effects of China, which have been substantial, especially on the good side, may abate a little bit. if Chinese growth picks up. And of course, it will also add to global demand, which is important. It was back in 2005, I believe, Professor Rajan, where you had called in Jackson Hole, we heard said that the U.S. financial system is facing great stress. And then a couple years later, we saw this great crash in 2008. When you analyze the U.S. economy, where we're at,

where treasury yields are trading, do you have similar concerns? No, look, I think we haven't seen the last of the mini crisis we saw in the banks, in March of 2023, in the sense that a lot of small and mid-sized banks are still sitting on long-dated assets. And this is where higher for long, higher long bond yields could result in some of them having to mark assets to market, even some below their value of their equity. So some of them may be underwater. We aren't still out of those woods.

We have sort of alleviated the immediate panic, but some of that is a source of concern. Of course, sharp movements in markets almost always create problems some ways. It's hard to know where, what big bets are the shadow financial system taking now, which hedge funds are extremely ill position for a sharp movement in interest rates. But that could also happen. But so far, you know, we haven't seen the kind of turmoil play out, for example, that we saw before the global financial crisis. And I think it's, as our other participant said, at this point, tail risk rather than the central scenario. Tom, Tom, back to you with a question on small caps, which you say will probably outperform the S&P 500 by 50% this year.

A lot of people have been protecting that the day of small caps is going to arrive. Why are you so confident right now when it has taken so long for that sort of prophecy to come true? Well, that's quite a prophecy, right? I think we're exiting more than a decade of underperformance of small caps versus the large caps. And now we're at a point where the risk reward is so attractive investors really should be thinking about them. We hadn't really recommended small caps for several years until this year. First, on a price-to-book basis, which is really the most important measure, they're trading at 44% of the S&P right where they were in 1999.

But projected growth this year is much higher with median earnings growth in the Russell 2000 of around 19% for EPS versus 11% for the S&P. And on forward PE, you're paying 10 times the median P.E for the Russell 2000 against S&P around 16 times. So kind of multi-decade low evaluations, better growth. But of course, sort of the timing accelerant is when the Fed can really conclusively begin to cut rates. I think that's one reason why small caps have really been hurt in the last couple of weeks is that delay. Tom, thank you very much.

We appreciate it. Professor Rajan, thank you as well. Meantime, coming up, a power player and changemaker in the sports world. We'll speak to the commissioner of the WNBA next. What a week she has had. Plus, Netflix reporting after the bell. It's seen some strong growth in recent quarters. So what is on investors' watchless Power Lunch will be right back.

All right. Welcome back to Power Lunch, everybody. Caitlin Clark, still a couple of weeks away from making her WNBA debut for the Indiana fever, who drafted her first earlier this week. But according to reports, she is poised to land an eight-figure endorsement deal meantime with Nike, which, could include a signature shoe. For more on how Caitlin Clark is literally changing the game.

Let's bring in Kathy Engelberg. She's the commissioner of the WNBA. joins us live from our inaugural changemakers event in New York City. Spotlights women leaving an indelible mark on the business world. And Kathy, welcome. Good to have you with us. Certainly Caitlin Clark has left an indelible imprint on the business of women's basketball. You had a big night draft night on Monday.

ratings were big, the ratings for the college championship game, outdid any basketball game, male or female in recent years. How important is Caitlin Clark going to be to growth in revenue for your league this year and into the future? Yes, it's great to be here, and it's so important to have household names and build rivalries and have games of consequence. That's what March Madness had. That's what our draft, this draft class was amazing the other night. Sunday night, over 3 million people watch that draft at peak. And so it's really important to have those household names. These players, we have the confluence of a lot of positive elements having right now

with these generational players with huge social media followings. They have huge endorsements already coming in. They're getting more endorsements now that they've declared pro. But this whole draft class was amazing with Caitlin and Angel Reese coming off of last year's national championship was the most viewed ever. Now this year we blew those records away. And we're so excited to have Caitlin and the first. rest of the rookies coming into the WMBA this year.

Yeah, Camilla Cardozo, Paige Becker's, who I think is still at Yukon, but obviously is on the horizon to come in. You've got compelling personalities, but back to my question, how much do you think, for example, season ticket sales are going to go up? How much do you think is, is Caitlin going to mean going from 10,000 attendance at a typical game on a Tuesday or a Sunday to 15,000 or 20,000? What? Yes, business is booming, especially for those games, just like what happened in the Big Ten with Iowa playing in those sold-out arenas.

That's happening for us. And hopefully, a rising tide lifts all boats and will lift all of our teams. We have some great rivalries forming with Caitlin Sabrina in New York, with Caitlin Diana Tarasi and Phoenix. There's a little edge there. Obviously you have Cardoso and Angel Reese going to play in Chicago. So I think parody in the game is really important, as well as having these players really help us drive the league to higher heights. So you asked a revenue question. Revenues, media rights, corporate partnerships, and then gate people coming to game.

So we need more people to watch, attend. And the quality of the game is what I'm so proud of. It's there. I mean, people love watching our game. If we can get fans into the funnel to watch the games, they're going to come back, and then they're going to attend and rep and buy merch and everything that goes around. avenue model for sports. So it starts with media rights. We need to get those valued correctly. And then it goes to corporate partnerships. And we've been doing great on that. There's a lot of corporations who are stepping up to support women's sports. A lot of money and capital inflows.

We raised capital, 75 million in capital two years ago. So when you see that money coming in, you know you're a gross stock and you know you're a legitimate sports media and entertainment property. Kathy, what does that ultimately mean for WNBA players where there's been so much criticism around how they make much less than NBA players and in general male athletes overall. Yeah, and one thing, there's a false narrative out there about Caitlin herself. Nobody ever just looks at base pay. It's proxy season, right? You look at base play plus bonus plus stock options, et cetera.

She'll have the ability to make up to half a million in just her W earnings this year. And then obviously she has huge endorsements. You just mentioned her Nike endorsement. There's a huge opportunity for us to lift this for all of our players. And as we get into a new collective bargaining agreement in a year or two, that'll be an opportunity to pay the players more than one we did in 2020 was viewed as progressive and historic. We tripled the pay of the top player. And now I think what's happening, they're also getting endorsements. I mean, I think LeBron James signed an 80 million plus endorsement with Nike before he even came into the NBA.

And no one ever had that narrative that his salary at the NBA was a lot lower than his Nike endorsement. And so we're getting there. Those other men's leagues are 50 to 100 years, or 75 to 100 years older than we are. We're tipping off our 28th season. We are the longest tenured women's professional sports league in the country by double any other. So we're proud that we're leading here. But yes, do we have a lot of hard work to do? Yes, we need our media rights valued appropriately.

And we need more partnerships and more people to attend and watch and rep the WMBA. I'm just curious about expansion. You talked about bringing new teams to new cities from Portland. You talked about Nashville, Denver. What about international? Because we've, of course, seen the NBA and NFL go to Europe and other countries beyond. Yeah, it's a great question. We're trying to globalize our game, too, because when I joined the league, we were basically a domestic league.

And we have a lot of fans around the world. We showed our games in India last year for the first time. I think 22 million unique viewers watch WNBA games. So we have enormous opportunity globally to bring our game there. We bring our game to over 200 countries and territories. But we also did do a preseason game in Toronto last year, sold out. The night after the Stanley Cup playoffs with the Maple Leafs, the next day we sold out the same arena.

And so, yes, this year we were going to Edmonton in a couple of weeks for a preseason game in Canada, and hopefully we can expand in Europe and more broadly. And I've admired how the NBA has globalized over time in Asia, in Europe, now in Africa, and we'll follow on suit as we start to grow this league. A question and an observation. The Olympics fall right in the middle of your season. How are you going to accommodate that? And how important will the U.S. women's Olympic team be to expanding the brand awareness,

the personality awareness of your players? Yeah, so the U.S. women's national senior team are going for their eighth consecutive gold medal in Paris. Actually, the WMBA was born out of the 96 Atlanta Olympics when the women won the gold medal. The commissioner of the NBA at the time and Adam launched the league back in 97. And so it is really important because now we're on this run of eight. Diana Tarrasi herself is going for her sixth consecutive gold medal. That's 24 years of excellence. So it'll be a great story.

We will break for a couple weeks, but it'll be in the middle of our season right off of our All-Star game. And it'll be great. When they come back, we'll get a big pickup and lift. I know NBC is going to market a lot around this team. And again, eighth consecutive gold medal. Well, we are the network of the Olympic. Kathy, as you well know. I want to just make this observation. One of the genius things I think you all did was have at the NBA All-Star break. Was it Sabrina Ionescu in the shoot-off with Steph Curry? She almost beat him.

Steph Curry almost beat him. I think he had to make the last shot. And she was shooting from the NBA three-point line. I encourage you to continue to do that because that was maybe, that was the most compelling part of what otherwise to me was just kind of a normal NBA All-Star weekend. So congratulations. Kathy Engleberg. Yeah, I think it was, yep. Go ahead. Finish your thought. It was a great event. It was a great event. It came off a Sabrina setting, breaking Steph's record in our All-Star game last summer. And it was an idea we had executed beautifully by the NBA during the three-point competition at NBA Skills Night. And it was, it was highly viewed. And I think people, especially for for young girls to see Sabrina on that court. and even someone like me who played back in the 80s, it was a great night.

Yeah, it really was. Kathy Englebert, thanks. Exciting time. Dow is back in positive territory. Let's get to Kate Rogers with a news update. Hi, Kate. Hey there, Seema. Welcome back to Power Lunch here.

So jury selection in former President Donald Trump's hush money trial is just resuming after a lunch break. This morning, two jurors were dismissed reducing the number of seated jurors to five. Prosecutors also accused Trump of continuing to violate his gag order. The judge also urged the media to stop reporting detailed information about jurors out of concern for their anonymity. U.S. senators introduced a bipartisan measure to speed up the development of nuclear power plants run by nuclear fusion reactions. The senators say it would set a clear regulatory authority to scale up fusion energy facilities and incentive investments here. Fusion, which is the same process that powers the sun, could be a power source that emits virtually no greenhouse gases. And the countdown is on for Taylor Swift's newest album.

And even though it hasn't come out yet, it's still breaking records. Spotify said the tortured poets department is now the most pre-saved album on the streaming service. It comes out at midnight. Back over to you guys. I cannot wait for that one. All right, Kate, thanks very much. I end up next. Netflix on a hot run, up 78% over the past six months, fueled largely by its password-sharing crackdown.

What's in store for earnings? Power Lunch will explore that when we come right back. All right. Welcome back to everybody. Netflix reporting results after the bell coming off a strong run as of late. So can it keep the momentum going? Steve Kovac here with what to expect. What do you say? We'll find out in a matter of hours. But in the meantime, we know Netflix has been on a tear coming off that quarter where it smashed expectations for new subscribers and revenue growth. And of course, the big reason for that cracking down on password sharing. Shares are up 26 percent so far this year. But the question for this quarter is that in a moment. momentum going to continue, or was this just a sort of brief spike and growth from password sharing

cracking down? Streets expecting for this quarter a little over 4.5 million new subscribers, that would be more than double from the year ago quarter. Revenue would be up 13% in the same period. What we don't know as much about, though, is advertising and gaming. It's unclear, for example, if the cost of licensing and making mobile games keeps Netflix subscribers stuck to their subscription. For advertising, though, the company has said it has more than 20, million users on its plan with ads, but it's unclear how much revenue those ads are bringing in. And on the content side, we're seeing a lot more experimentation, such as live events, including a major one coming up, that boxing match between Jake Paul and Mike Tyson this summer.

My money's on Mike. Still, no traditional live professional sports beyond documentaries, guys. Steve, stick around. Let's bring in Barton Crockett, senior internet media analyst at Rosenblatt Securities. He's sticking with a neutral rating on the stock ahead of its results. Barton, it's always great to see you. You're a bit more cautious going into the support, but you're not alone. I read the reports from Deutsche Bank, Goldman, among others. Your price target, 554, which is below where the stock is trading. Tell us why, tell us the number one reason.

You're a little bit more cautious. Well, I think Netflix's stock has a strong history of really moving in tandem with subscriber growth. And they've had a tremendous lift in 2023 from the the page sharing crackdown. They added nearly 30 million subscribers in 2023. And that was on, you know, 100 million people globally, 30 million in the U.S. being impacted by page sharing. You know, many of them, I think, have already signed up if they were going to. And so I think the impact of that fades. And I think you're probably looking at a 2024 where there's much less subscriber growth than there was last year. And history would tell us that that's a tough setup for Netflix's stock. And so, you know, so that's number one. And, you know, I think we'll start to get a

sense of that here with the March quarter earnings, but really the story will be told in the June, September, December quarter, when the paid sharing comps really kick in. Is it competition and also just trying to figure out their ad tier strategy? Or could we put some of the challenges at the macro level, whether it's higher interest rates, consumers now being a bit more selective about where they're putting money to work and what they want to buy. Look, I'd say it more charitably. I think that they've just had so much success that it's going to be hard to sustain that. And I think the stocks run, you know, with the performance that you see here, tells you that the market's expecting this to be sustained. And, you know,

I'd like to see that be digested. I think there's a ton to be, you know, to admire at Netflix. I think they're really killing it in terms of dominating subscription video on demand. You know, Their ad rollout, I think, is a slow burn, but one that ultimately, you know, is having success. But, you know, trees don't grow to the sun here to use the cliche. 30 million subs, retreating from that, I think, is, you know, something you want to let the market digest before you apply one of the shares right here. Steve, size up the competition. Is it really a threat? Well, we're seeing some interesting stuff with the competitors.

We know the problems that Paramount is going through right now. So let's just kind of put that aside. Look at what Warner Brothers Discovery is doing. Look at what our parent company, Peacock is doing. Look what Disney's doing. First of all, Disney's copying the password cracking, crack it down and password sharing, just like Netflix said after all that success. Second of all, we're seeing those companies, Warner Brothers Discovery, NBC Universal,

start licensing more content back to Netflix. Netflix is, if you go on Netflix now, you'll see a lot of content from HBO, for example. That used to be unheard of not too long ago. So Netflix has kind of turned back into this hub of where everyone knows that's where all their eyeballs are. And so instead of doing original content, we're also seeing them spend on these more reruns and so forth from traditional media companies as well. So the competition is starting to rely on Netflix because, look, Peacock losing money, Disney Plus still losing money. All these are money losers and they need to make up that revenue somehow. They're the best name so far in terms of how the companies been able to gain market share.

But Barton, you also say that Netflix could be a sleepy beneficiary of AI. Explain what you mean by that. Sure. You know, if you're looking for a new story in Netflix, you know, beyond Patreon, I wonder about this one, which is, you know, we're hearing a lot of talk about tools like SORA OpenAI. You know, Tyler Perry was kind of billed an $800 million soundstage that he pulled back on because with this type of generative tool, he's not sure you need to have studios anymore. You know, that sounds like that could be a big cost saver.

And it sounds like if anyone's really kind of benefit from that, it could be Netflix. So, you know, what I'm interested in hearing them talk about on the call is that. Is there, over time, a real kind of cost reset that they could lean into, perhaps more than anyone, from using generative AI to do a lot of the production work for content? I think that's really important point to note. And I'm going to be listening for the same thing on the call because if you think of the way Netflix operates and how it chooses program, they are so data-driven. They know what people like to watch. That's why we just see so many repeats of the same theme. For example, like there's just a flood of reality shows.

I can totally see them thinking, hmm, maybe if we just ask an AI to create a generic reality show or something, I can totally see them at least experimented with that. That's going to be really, that's a really interesting point for Barton. It all comes back to data. Exactly. Media company, utility, a technology company, that's the tool. They know what you like to watch. Barton, final question. Some years ago, there was concern about the bloat.

in the budget of Netflix for original content. Have they got that in the right spot? You know, I think the, yes, I think they're moving in in a really strong direction there. You know, part of that is, you know, they learn from experience. Part of it is the lessening of the competitive intensity, you know, which Steve Colac was talking about, that they're able to license content so they don't have to make it all themselves. I think that's very margin positive for Netflix. They're looking at three and a half percentage points or so of margin improvement in 2024 over 2023. And I think that's part of the story there.

All right. Barton Crockett, thank you. And Steve Kovac will be waiting at those results with Netflix up about 25% so far this year. See it a couple hours. All right. He's still ahead. High energy, high reward. Taiwan semi says an insatiable appetite for AI chips helped fuel its big first quarter beat, but soaring electricity costs also eating into its profits.

We'll discuss that. when Power Lunch comes right back. Welcome back to Power Lunch, everybody. The money continuing to flow from the government to the semiconductor companies as part of the Chips Act. Micron Technology set to be the latest recipient. Megan Kassella has the Washington angle. Christina Parts and Evelas looking at the corporate side.

Megan, let's begin with you. Megan? Hey, Tyler, that's right. So Commerce Secretary Ramondo just confirmed at CNBC's ChangeMaker Summit that Micron will receive the next Chips Award. Companies expected to get $6.1 billion in direct grants from the Commerce Department to help them build out manufacturing hubs in Idaho and New York. Senate Majority Leader Chuck Schumer was touting the impact of the investment in his home state, saying that Micron will invest more than $100 billion over the next 20 years,

create more than 50,000 jobs in New York alone, and those will be in manufacturing, construction, and all along the supply chain. A senior Biden administration official also added that this award highlights how the Chips Act is making America more. competitive, creating jobs and driving economic growth in Syracuse and all across the country. Now, the Commerce Department has just about $10 billion left to dole out from that $39 billion chips fund. And Riemondo told us in an interview on this show earlier this week that all of that money will be allocated by the end of this year. Ramando told me the next rounds of investments are likely to focus on memory chips,

as well as funding for suppliers, wafer, chemicals, all of those input products that we need to support chip manufacturing in the U.S. Tyler. So 10 billion, what did you say was left? 10 billion was left here? Yep, exactly. That's a lot of money, but it's not all that much, really, when you look at what, well, what is it, 8.5 billion, 6.6 billion that have already been given out

to Intel, TSM, and others. Who else is in line with their hands out for this? We know that some of those bigger companies are likely looking, AMD and VD is likely to get a little bit of money. But we also, because it really isn't that much money left, like you said, We really need to see some of that money go to suppliers. That's the commentary that we hear most often is it's great that these big companies get these awards, they create these big investments that the administration likes to talk about.

But are we going to be able to support all of that manufacturing here if we don't also support the upstream suppliers? So maybe we'll start to see some smaller names get some smaller awards as well. Megan, thank you. Let's turn to another chip story. The Micron side of things with Christina Partsalevus, who's been digging into that stock. Christina. Well, Micron, we talked about the award. award was largely expected after competitor Samsung received funding just last week.

So a lot of analysts were expecting this. Micron already warned it needed chipsacked funding to support its investment plan. So this news is seen as a positive, especially since the firm already started construction in Boise, Idaho with production supposedly slated for next year. The question is if that plant or the New York plant one gets delayed, we know we've already seen delays with TSM and Intel. The stock, though, look at it. Down.

We're showing you TSMC right now, but Micron is down, and down with the entire sector. That's because TSM's results are spooking investors right now. This is the largest chip manufacturer in the world, and they said, yes, AI demand would grow to over 20% of 2028 revenues from its current low teens level, but they listed a few concerns in their report. First, a lower 2024 outlook, which doesn't include memory chips to 10% growth year of a year from an over 10% growth. So just that over amount was the change. Management expects Q2 margins to be impacted because of the earthquake in Taiwan, higher electricity. electricity costs and production of inefficiencies that we're starting to see with the three nanometer production technology that's the most mass produced at the moment. The capital

expenditure guide was reiterated. Analysts see that not necessarily as surprising, especially after ASML yesterday maintained its top line growth, but you have other concerns, too, that revolve around non-AI demand. TSMC sees auto sales down this year when they previously thought they would be up, which is negative for on semi-NXP, STM. That's why they're all in the red right now. The company said smartphone sales were recovering great, but slowly. TSMC counts Apple as its biggest customer, so you can read into that how you want. And then lastly, TSMC warned around foundry weakness, which is perceived as a negative for global foundries and United Microelectronics. And that's why so many of these names are lower today, Tyler.

All right, TSMC, Christina, also had some interesting comments on a topic we hear a lot about, which is how much power these chips use. What did they say? Yeah, they said that soaring electricity costs are really just eating into their margins and their profits. The company forecast a 25% increase in electricity costs starting this April, this month, that would reduce gross margins and contribute to higher costs for customers, competitors, this all according to the CEO in the early morning earnings call today. TSM's power costs, though, are emblematic of a greater problem facing firms all across the country. How are they going to power these AI machines, large language models we keep talking about when so much of the infrastructure here in the U.S.

is outdated. McKinsey says that data center electricity use will double over this decade. You can just look at this graph. It's surging. The latest International Energy Agency reports stated that chat GPT consumes roughly 2.9 watts per hour of electricity per request. If you don't know what that means, it's like running a 60 watt light bulb for three minutes. That's 10 times as much electricity as just one Google search. And many are raising concerns because of this. The Arizona Public Service warning that they'll be out of capacity before the end of the decade if they don't get upgrades. Oregon's Portland General Electric doubled its forecast for new electricity demand in the next five years. You got tech execs weighing in, Elon Musk warning we may see a power shortage for chips as soon as next year.

Amazon CEO Andy Jassy telling Fortune that there's not enough power for large language models. You got Open AI CEO Sam Altman saying we need an energy breakthrough for any future AI technologies. And that's why you have so many of these big tech firms rushing to get their own power by building massive data centers and even nuclear power plants. Yes. Incredible. Christina, thank you. And Tyler, I've been following the industrial side of this, some of the companies that are working on the AI infrastructure. And their biggest complaint is also there's a scarcity of power demand, power capacity.

Because without that, they can't continue to build all the parts that they need. So companies like Eaton, vertive, they've all had a really strong year. Coming up here on Power Lunch, homes, rails, and casinos. We'll get the trade on D.R. Horton, CSX, and Las Vegas stands in three-stock lunch. We are back in two. Welcome back to Power Lunch. It's time for today's three-stock lunch today. We're looking at some of the biggest earnings movers from the past couple days.

Here with our trade is Courtney Garcia, Senior Wealth Advisor at Payne Capital Management and a CNBC contributor. Courtney, our first talk is D.R. Horton. shares are jumping higher after the home builder beat second quarter estimates, raised its 2024 outlook despite that supply slowdown. What's your trade? Yeah, we've actually, we've been very optimistic with home builders, and I remain optimistic. I would absolutely be a buyer here of D.R. Horton. This really is just a supply and demand story. And we've talked about this previously, but there have been about five million more households created than homes that have been built in the last two decades. That problem is not going away. And the fact that interest rates are high

only makes this problem worse. And the fact that rates may stay higher for longer means a majority of homeowners at 80% have mortgages that are less than 4%, meaning they are not wanting to sell. And that's where your new home builders come in. And DR Horton specifically is there to fill the gap because they have those lower entry point homes, which is great for your first-time homebuyers. And they're also a large builder who can help with incentives if rates stay high or if the markets were to soften, which can continue to benefit them in the future. So those supply and demand constraints are only going to continue in the near future, I think Derek Horton is well positioned to take advantage. All right, let's move court to CSX, shares of the rail transport, real estate stock moving

higher. Company beat Q1 estimates on the top and bottom line. CSX also reaffirming 2024 full year guidance for revenue, growth, and volume. So what do you think of CSX? Yes, another company with good earnings here. I always like to see when they're beating expectations. And I think one interesting thing that you want to look at with that earnings report is you saw the volume actually was increasing. And that's something that I think you want to make sure you're taking a look at as we go forward here. Manufacturing PMI was just above 50 for the first time since 2022, which just means that rolling recession we had the manufacturing industry is likely coming to an end here. You're seeing the consumer continues to remain strong and they're seeing consumer spending remains high. You're seeing

retail activity. There's a lot of restocking that's going on. All of that means more rail is going to be needed. CSX again is going to benefit from there. I think we're going to see more of that when we get more earnings later this year. So absolutely I would be a buyer here. And Courtney, finally we have Las Vegas Sands. The casino stock is sinking despite beating earnings and revenue estimates for the first quarter. The stock is among the worst performing names in the S&P 500 today. And shares are down about 20% dating back to last year. A lot of this has to do with the China trade. But what are your thoughts? Yeah. And don't let this name fool you. Las Vegas stands actually not in Las Vegas. All of their exposure is going to be mainly in your Asian casino markets, which that's the

the play here. If you believe that that recovery is going to continue, and I actually do believe it will, this is your way to play it. They have a lot of exposure in Macau and Singapore, and if that recovery continues there, they are well positioned to take advantage. The reason that they're doing poorly today specifically, you're seeing they did beat earnings expectations to your point, but they also are doing a lot of renovations into those properties in Asia, which is going to absolutely affect their bottom line when you look at the short term, probably the next quarter or two here. But those improvements are going to be longer term trends for them. So if you, if you, think the gaming industry is going to improve in China, I do think it is. If you think China

eventually is going to improve, I do think it is. And some of those improvements they do are going to be a longer-term story. I think this is something that you want to play here. Just take advantage of the fact that it is down quite significantly. Yeah, I did see a nice pickup in Macau sales. Courtney, thank you. That's Courtney Garcia. Thanks for having me. All right. Remember, you can always hear us on our podcast. Be sure to follow. Listen to your favorite show Power Lunch on your favorite streaming service. We'll be right back with new developments on the bidding for NBA media rights. A lot of basketball today.

Yeah. Well, welcome back to Power Lunch. The NBA is the next hot property in the media rights space, and those rights may be about to open up to a whole new group of bidders. CNBC's Alex Sherman with some new reporting on this story. Alex, this has basically been the property of Disney ESPN and Turner, which is owned by Warner Brothers Discovery. They had exclusive rights.

but that window is about to shut. That's right, Tyler. The window closes on Monday, April 22nd. So that's Monday of next week. And what I'm told is that a deal with the incumbent partners is unlikely to be reached by that. That means the NBA can start talks with outside partners. And look, some of this is not entirely unexpected.

We have reported now for, I'd say, at least six months or so, that the NBA is interested in bringing in, a third party, whether that's Amazon or Apple or Netflix potentially, our own parent company, NBC Universal, is interested in the rights. So this will allow the NBA to speak with partners that are not Warner Brothers Discovery and Disney to potentially create a new package of games or maybe just start an even more intense bidding war for the rights available. Is one of those potential bidders thought to be more inclined to enter this bidding act than any other? Or do we know? So we know the NBA wants a robust screaming partner for its third party here. I think Amazon would probably be considered a frontrunner for a new package to be created.

there have been some rumblings that Netflix might be interested in a smaller package of games, like this new in-season tournament that debuted. This year, our own parent company is definitely interested in rights. The question there would be would NBC Universal actually replace Warner Brothers Discovery as a partner. We do know that Warner Bros. Discovery and Disney are in talks. Thank you, Alex Sherman. First, we have to cut you off. Power Lunch is done.

They're playing our song. We'll see you here tomorrow. Closing bell right now.