Power Lunch - Meta vs. TikTok, Hack Attack Crime Wave & AI's Energy Demands 5/31/24

Episode Date: May 31, 2024

CNBC’s Tyler Mathisen and Kelly Evans take you through the heart of the business day bringing you the latest developments and instant analysis on the stocks and stories driving the day’s agenda. “Power Lunch” delves into the economy, markets, politics, real estate, media, technology and more. The show sits at the intersection of power and money. “Power Lunch” gives viewers a full plate of CNBC’s award-winning business news coverage, plus a healthy dose of personality from the show’s anchors and the network’s top-notch roster of reporters and digital journalists.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon and welcome to Power Lunch, everybody. Alongside Kelly Evans, I'm Tyler Matheson. The Dow is actually higher today, not by much, but it is in the green. We have been down five of the previous six days, and all five losing days were 200 points or more. The one up day was four, not 400, just four points. And the S&P is performing the least poorly, if we can say, down about 2% while the NASDAQ is down more than 2.5% week to date. Today, it's chip stocks weighing on tech. NVIDIA, lower by 2%.

AI Darling's Super Micro, the biggest decliner. You can see there, it's almost 7% decline. And Dell, another AI darling hitting the skids today. AI helped boost its revenue, but it hurt profit margins. Dell is down almost 20% right now. HP and Hewlett-Packard Enterprise are both falling 6% to 7% as well. If you zoom out a little further, the major average is still on track for a winning month of May. the NASDAQ still up 5% for the month, so how should we view the market action as we close the books on May and turn to June?

Let's bring in Mike Bailey, Director of Research, with FBB Capital Partners and Mike Santoli, a pair of Mike's CNBC Senior Markets commentator. Mike Bailey, let me begin with you. If I'm reading my notes correctly, you have a rather, shall I call it, benign view of what the market may do from here. You think that corporate earnings may pull stocks along and falling in front. may push them from behind? Absolutely. No, I think that's a good summary in terms of what we're looking at. You know, listen, this is Power Lunch. Let's do a food analogy. We've just come through a very nice meal, if you will.

Macros are pretty good. We're inflation's coming down. We're getting kind of this Goldilocks. Earnings, generally a pretty good earnings season. So pretty good meal. However, we just got this kind of terrible dessert right at the end. Some of these software companies and Salesforce is blowing up. So that's really what we're looking at here for broader markets.

an indication of what's next, some more pain in the tech space, or is this sort of a one-off? We're putting sort of everything together, looking at the last several weeks. In general, our view is that we're going to see markets continue to perform. If stocks are chasing earnings, overall, earnings look pretty good if you take out some of the software companies. That's our general views, that we are going to see a continuation of some of this move. We'll have to see that. We're going to get Adobe earnings in a couple of weeks.

That'll be another data point for investors. There's the benign view, Mike Santoli. Give us the counter argument here whether you agree with it or not. What would those who are more skeptical about the market say today? Well, I think first of all, Tyler, you'd observe that the market itself has been a bit erratic here. You've had a majority of stocks really underperformed this month and also this year. There's been this defensive leadership, especially recently among the mega-cap tech stocks, seeing some reversal of that yesterday and today.

And it really seems to be the catalyst in the form of treasury yields going higher. So they backed off for two days. The point is, I think the macro has to remain in a relatively contained path. You know, in other words, disinflation has to be persuasive enough that it's still underway. You can't have the overall economy slow too much. Earnings, I agree, are definitely the big support right here. It's probably one of the reasons the market is insulated from big sudden downside. But I also feel as if the April pullback of 5%, maybe it was somewhat incomplete, You didn't really refresh people's need to kind of rebuild their exposures and get bullish again because they never got bearish. I think that's interesting, Mike Bailey.

Also, I was asking earlier about breadth, which evidently is starting to kind of turn lower or however you describe it exactly. I mean, what do you want the market to show us at this point? It has been very strong, but it's starting to tell us that maybe its energy is flagging, Mike Bailey. Yeah, there's a little bit of that. I think in some ways, the execution risk is starting to get amped up a little bit. So you've got some high growth companies. It's the new economy, some of the software companies under some pressure. So that is raising some questions among investors broadly.

Is the AI trade over? Is this just a one-off? But I think a couple of things, there is going to be pressure, especially on these higher-growth tech companies to execute. Oh, by the way, stocks are up, valuations are up, so there's a less margin for error. So companies really do need to execute. Again, it's going to take a few weeks here for us to do. get some more companies, more data points to support that. At this point, again, I'd go back to overall pretty good earnings season. So that gives us some confidence that we're in pretty good

shape. However, you know, we do need to see some better execution, especially in some software companies. Mike Santoli, some people that we've talked to on the past couple of days actually believe that the next move by the Fed will be to raise rates, not lower them. What do you think the trajectory of yields is likely to be? Do you think, what are you hearing on that particular point about maybe higher rates to quash inflation, not lower ones. Yeah, I tend to doubt that we're particularly close to getting to that point where you'd have to move the entirety of the Fed's existing rhetoric and bias that's essentially still saying, yeah, we might roll forward the date of the first cut, but right now they're sticking to this

idea. And, you know, John Williams, New York Fed this week, they still buy their models and framework say policy is restrictive. A lot of the things they look at suggest that there still is this sort of slowing underway and disinflation should kick back in. So I think it takes a lot to steer in the other direction, given how far along they've gone along that path. Now, in terms of how yields go from here, you know, I mean, I think that 5% on the 10 year has been historically and also most recent episode a little bit of a significant barrier in terms of when yields become particularly hostile for stocks. In this range, where we're in right now, it feels as if the economy and the market can make peace with it. You know, we were at four and a half percent

yields in late September of last year, and the S&P was a thousand points lower. So clearly, when earnings are growing, you can be okay with yields if they're not shooting higher and if the Fed is not forcibly trying to restrain the economy. Mike Bailey, you sort of remind people that semis are traditionally a pretty volatile part of the market. They experience boom-bust cycles. Maybe we'll still yet see one with some of our leading edge players now like NVIDIA. For who are worried that that could be around the corner at some point, where else would you be looking in terms of which stocks to own here? Great question. So I think you can own semis. You want to make sure you're diversified. Don't put everything on to one particular company. Outside of that, if you still want growth in tech and you want to diversify a little bit away from semis, I'd look at Amazon.

So Amazon not officially a tech company, but basically that's what it does. So as markets have gotten more expensive, Amazon's gotten less expensive. That really is compelling to us. It's growing very nicely. The last time Amazon was this cheap, we were talking about iPhone 4. We're talking about the Flash Crash. This is 14 years ago. So I would argue Amazon's a much better company, more diverse by a lot more growth drivers. So it's a pretty compelling business.

A lot of people own it, but I do think there's plenty of runway for this thing to keep going. I remember the Flash. Mike Santoli remembers the Flash crash. Don't take us back. May of 2010, right? You always. You could ask Mike Santoli. We've got to bring back the trivia.

Gentlemen, thank you both. Appreciate it. Mike Santoli and Mike Bailey with FB. Let's get to the bond market now. Ten year is lower after this morning's inflation data, consolation of other events. Rick Santelli has the latest in Chicago. Rick?

Stand by. Hi, Kelly. You're exactly right. Treasury yields are lower on the day. The ten years you look on a chart that starts last Friday are still a couple of basis points higher on the week. What's the motivation for these moves?

Let's go to our guest, Chem. Hi, Chim. And let's go to the whiteboard here. How's that? CHEM, this is a pretty easy read here, okay? Here's our income data. Here's the four metrics for inflation embedded into the number. If you just look at the top, this is last month, this is this month.

What conclusions can you draw? Stagnation, inflation, right? I mean, this is what we've been talking about on and on throughout. People have called it a soft landing. It's not a soft landing. You're still getting a hot inflation number with a slowing economy. Yeah, I mean, there's very little doubt. These numbers are smaller.

the consumption went negative, and it's been negative over the last four months, and if you look at yesterday's GDP, what did that tell us on consumption? Yeah, same thing. Same thing. Things are coming down. And when everything has the consumer's ability to keep consuming is so integral, these are big changes. And once again, just so people understand, viewers, listeners, okay? These are the metrics for inflation.

Only the month-over-month core was lower. And if you really look it up, this number was like 0.24. 8. If you look at the websites, they put it out at 0.25, so they rounded. But we're only, what, three tenths away from making that equal to last month. My point isn't to belittle the numbers. My point is to pay attention to them. That's absolutely right. I mean, there's structural inflationary forces, and we can start to cyclically slow them down. But at the end of the day, that inflation is going to continue to be pretty high. I think that's the biggest point. Now, you were a little bit late coming to this spot. Maybe we should,

Tell viewers what goes on at the end of the month when you're an options trader. Well, look, at the end of the day, this is the end of month and beginning of month coming. When the month is up, you know, 6% for the month, a decent run. At the end of the month, there is a reinvestment, a re-leveraging effect that happens in portfolio. So we've been getting this softness as we've broken down technically a bit, but what do you get? A big pushback, you know, coming into the end of the month. On top of that, three holidays coming up, you know, two more holidays coming up. That's really slow, low liquidity, and in that context, you're getting a lot of VANA and Charm flows with a big quarterly expiration come as well.

Real quickly, okay? Vana and Charm, just real quickly. Tell our viewers what that means. Yeah, what that means is you have the whole world and the options world is long put, short call to hedge long exposure. The dealers are short those puts and short stock. So every day that goes by when VAL comes down, that means there's a buyback of deltas every day, a buyback underneath the market. And big explorations, big exposure like a June OPEX, I mean even more of those flows. So these are the market forces, the structures at work underneath the market that push things higher, even in the context of what might be weak news, right?

Tail wagging the dog? That's exactly right. Nowadays it's flows, flows, flows, first and foremost. Jim, always a pleasure. You're such a knowledgeable trader. Tyler, have a good weekend and back to you. Rick, thank you very much. And folks coming up in the moments following the Trump guilty verdict,

both the Trump and Biden camp sent out fundraising request to supporters showing this the verdict could be a boost to both campaigns war chests. That story is next on Power Lunch when we come right back. Welcome back to Power Lunch as soon as the verdict was announced last night. Former President Trump convicted on 34 counts. Both campaigns immediately kicked up their fundraising efforts. Megan Casella in D.C. has more. Hi, Megan.

Kelly, that's exactly right. So we're seeing former President Donald Trump and his campaign working to fundraise off this guilty verdict in a major way. The campaign said this morning that it had raised nearly $35 million yesterday after the verdict from small dollar donors. The campaign says nearly 30% of those were contributing for the first time. Now down ballot, we're seeing some momentum to both the NRSC and the NRC. So those are the Republican campaign arms for the House and the Senate. They say they set records with their fundraising yesterday, raising $300,000 for the House and $360,000. $30,000 for the Senate. It's not just the small dollar donors lining up behind Trump either. Venture

capitalist Sean McGuire said he donated $300,000 last night, Elon Musk and Bill Ackman, both showing signs of support today and David Sachs. He's the venture capitalist who's co-hosting a fundraiser for Trump in California next week, saying that the dam is beginning to break when it comes to Silicon Valley support for Trump. Now, the Biden team is also looking to raise money here. No dollar figures yet from the Democrats, but their push to supporters has centered on the idea that the only way to keep Trump from the White House is at the ballot box in November. And Kelly, I should add that we've now heard from both Trump and Biden today. Trump is calling this a sham trial while Biden is saying it's dangerous to say the justice system is rigged. So both candidates will now be taking

that case to their voters to see if it can make a difference before November. Kelly? I heard Megan some commentators last evening pointing to the small dollar donors who have been so prevalent in the Trump fundraising in the wake of the trial verdict, kind of poo-poo the fact that these were not the big donors. You mentioned some bigger donors that seem to be turning in Trump's direction, but couldn't one argue that the fact that there are so many small-dollar donors be a positive for the Trump campaign? In other words, and that there are so many of them are new donors that it suggests that it's not

just the volume of money, but it's the number of money. number of people represented by that money that really matters here. Absolutely. I think that's what's so important here is when you can see a widespread breath of support, really, that makes a big difference. Of course, money matters. All of this money for both of these war chests is going to go a really long way between now and November. But at the end of the day, you have to have voters who are casting ballots and who are supporting you. So the fact that the Trump camp says they have 30% of their donations last night came in from new people, that That means they're getting folks engaged for the first time with their campaign.

They're going to try to parlay that into further donations, into better support, into more discussion about President Trump, more support, and of course more votes in November. So the mega donors have a major role to play here, and it is interesting that we're seeing so many line up behind Trump, but the small donors, as you say, play at least as important as a role, I would say. Megan, thank you very much, Megan Casella, and I was interested by my friend Larry Sabato, last hour, with you saying, hey, remember. it's still may. It's still may.

There is a lot of time. And a lot can happen. A lot can happen. And probably will. Right, he put his finger. And also saying the outcome, broadly speaking, Congress, the White House, it looks very close and very close if that means gridlock. You know, is that just the ultimately the biggest takeaway? You know, a lot of noise, but not a lot to conclude policy-wise. We'll see. Fascinating stuff.

All right. Further ahead, Facebook has had a lot of problems over the years. But one hurdle it has not been able to get over is Gen Z, saying it's, for old people. But now it may be seeing growth in younger users. What's causing the change of the young people coming back to their parents' social media platform? We'll be right back. Welcome back to Power Lunch, everybody. Checking the major averages right now, you see the Dow is up 269 points. That's about three quarters of one percent. The S&P, about a third of a percent lower, and NASDAQ falling 200 points or 1.26%. Take a look at the Bitcoin trading. Right now, around 67,000 off the recent highs, but up 150% in a year.

67,264, down 1,500 a day. That's 2%. That gain is not keeping some former Bitcoin miners from chasing the next hot thing, which is AI. Mackenzie Sigalos is at the Consensus Crypto Conference in Austin, Texas with more. Hi, McKenzie. Hey, now there's, of course, been a surge in demand. for AI compute and infrastructure, and a growing number of Bitcoin miners are retrofitting

their massive facilities to help meet that need. Now, publicly traded firms like Core Scientific, Hut 8, Bit Digital, and Hive have all launched AI operations. They're looking to beef up their revenue streams after the having back in April cut rewards paid out to Bitcoin miners by 50%. Now, Corp, which emerged from bankruptcy in January, tells CNBC that it's been diversifying beyond Bitcoin for about five years now. The best way to think about Bitcoin mining facilities is that we are essentially powered shells

to the data center industry. And so the retrofit back to HPC is actually much easier than one would think. And so there are components that we have to purchase to retrofit for HBC, but it's things that we can easily acquire. Pivoting from Bitcoin mining to AI isn't as simple as repurposing existing infrastructure. It means swapping out ASICs, so the processor's purpose built for crypto mining and replacing them with GPUs. Digital asset fund manager coin shares said in a report that even though AI operations demand up to 20 times the capital expenditure compared to Bitcoin mining, they're currently more capital efficient and profitable.

Companies like Hive and Hutt 8 are seeing a positive impact on their revenue structures. Currently, BIT Digital derives 27% of its revenue from AI. Hutt 8 at 6% and Hive at 4%. There's certainly been a lot of talk about the power. demand that, that number one, AI does, but number two, that Bitcoin mining brings. Are the two sort of compounding that problem? In other words, when they get together, AI and Bitcoin, you have kind of a multiplier effect on the power grid demand and the problems it could cause. Yeah, it's a great question. And energy demand is still something that these miners are perfecting.

I will say a lot of them are looking at using clean energy simply because it's the cheapest. in many markets. An industry report estimates that the Bitcoin network is actually 55% powered by sustainable electricity. Miners also say another benefit of their business is that they can power down if demand is high. The core CEO says that they're actually already working with the grid to figure out how certain AI applications can periodically be shut off to cut energy use. Meanwhile, new data out today. And to your point, Tyler, finds that data centers could use up to 9% of the U.S. is powered by 2030. That's more than double what it is today. So tapping into nuclear energy is seen by many as the answer to meeting that demand. Bitcoin Minor Terowulf

runs on nuclear, and they're another big mining name jumping into powering machine learning. All right, McKenzie, thanks very much. Mackenzie Seagallos in Austin for us today. And speaking of AI, demand for energy is a big reason why solar stocks out of nowhere are having their best month. Huh. And more than a year, Pippa Stevens, who always smells so. I always know when she's here. She's here with that side of the story. Yeah, you know, flower, sun, it all comes together. So they are down today, but still up about 18 percent this month. That is the tan. And it actually saw its first month of inflows so far this year. And of course, it all comes down to the power demand from AI and data centers. And basically the understanding

that all of these are going to require so much new solar wind facilities. And the fact that they're built by tech companies, all those tech companies have these, you know, net zero goals. And they also have deeper pockets, a little bit more flexibility on the PPA side. So now Wall Street is saying companies like for solar are going to be the big beneficiaries, that stock of about 50 percent so far this year. So it's that name, other names like Next Tracker, Array, Sholes, all in the utility space. However, the residential installers, they're also up this month, but that seems to be more just because of all this momentum behind clean energy

versus an actual fundamental case because they still remain very challenged by a higher rate. So kind of distinguishing between utility and residential. All right, Pippa, thank you very much. Pippa Stevens reporting there. Let's get over meantime to Contessa Brewer for a CNBC news update. Contessa. Tyler, President Biden this afternoon outlined the roadmap for an Israeli ceasefire proposal in Gaza. He says there would be three phases. First, there would be a ceasefire for six weeks, which would allow people to return to their homes. And during that time, Israel and Tamaa would negotiate a permanent end of the war. Phase two would see the release of all remaining living hostages and Israeli withdrawal.

And the last phase would be a major reconstruction plan for Gaza. We will wait to hear how Israel responds to that proposal. House Republicans are demanding testimony from Manhattan District Attorney Alvin Bragg and other top prosecutors who worked on the former president's Hush Money trial. The House Judiciary's quote, weaponization of government, unquote, subcommittee, which is led by Trump ally Jim Jordan, called for that testimony June 13th. And members of the Swedish pop sensation group, Abba, reunited today to receive a prestigious knighthood from the country's king. The 1970s band has sold an estimated 385 million records, including hits like Dancing Queen and Waterloo.

And guys, the one that I lobbied to have as the CNBC theme song, Money, Money, Must be funny. I did see that show. I thought the play on Broadway was very good. Wait, but you didn't grow up on the music? No. How could you not? I knew Dancing Queen.

Yeah. Now I know a few more. Fantastic. But I will stick with it. I will back your petition. I will sign it. I have to go answer the call from the lawyers who are worried we're going to get sued because I just said. Yeah, you went more than a bar.

Yeah. Condescending. So go to the bar. Hi. Coming up a barrage of cyber attacks has been hobbling companies across multiple industries, healthcare, luxury, hotels. They're all experiencing security breaches and receiving. receiving ransom demands. After the break, we'll take a look at how the attacks are transforming and

which companies and stocks could offer solutions. Welcome back to Power Lunch, everybody. The NASDAQ right now down more than 1%, 1 in a third percent or 222 points. Software names contributing to those declines, and Steve Kovac has the names and the numbers for it. Steve. Yeah, they're all feeling the pain this week, Tyler, as the AI hype around them meets reality this earning season. Take a look at the tech software ETF down more than 7% on the week so far, and it's on pace for its third negative month in a row. And some notable individual laggards that are components of that ETF, that includes Salesforce, GitLab, and ServiceNow. Those are all down 12% or more this week. And just in the last 24 hours, database company MongoDB, down about 25% so far after trimming its fiscal year guidance.

And though it's not a pure software name, look at Dell shares down more than 17. percent now following its earnings report, even though its AI server business grew 42 percent. The problem there? Well, no profits and all that sales growth. Similar to what we saw from Salesforce earnings earlier this week, the lesson here, guys, it's not enough to tell an amazing AI story. That's priced into many of these software names already, investors looking for AI margins and profits. And finally, somewhat related, you have snowflake shares down today. following a report, its technology was breached and used for recent hacks against Ticketmaster and Santander Bank. You see shares there down off 4.5% guys.

Wow. Just so many of these reports, it's unbelievable. We're this many years into it. And it's just still such a problem, United Health and all the major hacks we've had lately. Steve, thank you very much. Steve Kovac. Indeed, in recent months, a barrage of cyber attacks have plagued companies with hackers breaking into the digital vaults of United Health Group, the auction house Christie's, and MGM in Vegas. In each case, the hackers demand big ransoms or threaten to inflict bigger damage. And on Thursday, as we mentioned, a notorious hacker group called Shiny Hunters claims it breached the data of 560 million ticket master users globally in a recent cyber attack, according to multiple reports. Joining us to talk about that and what's going on more broadly, Dave Kennedy, co-founder and chief hacking officer of binary defense. David, it's good to see you again. And do they just keep getting bigger?

What's going on here? Well, I think you're seeing a lot of success with these ransomware groups. You know, you look a few years ago and they were maybe getting 100,000, 200,000 type of payouts, and they've moved to much larger organizations like you saw United MGM Caesars. And the payouts are astronomical. Elfie, one of the largest groups reportedly out of Russia, is estimated to have over $300 million in ransomware payments alone. So they're making a ton of money going after larger organizations. And that money then is then put into more sophisticated attacks.

So they build better weapons to attack these organizations and companies. They're more efficient in what they do. They get affiliates that help them go after these big companies. So it's just scaling. It's essentially a whole other business revenue model, you know, for these organized crime groups. And they're going after some of the largest companies in the world now because they're having that much success. If you were consulting, as I assume you do, to some of these big companies and a company, let's say United Health is subject to an attack or ticket master or whomever. And they face a ransomware.

What would you tell them to do? Pay it? You know, it's such a tough decision when you're in these organizations. I mean, some of them, you know, if they don't pay it, they're completely going out of business. I mean, I've been in meetings before where I've had the CEO break down cry because they have to pay a ransom because their business is literally going to go out of business if they don't. In other cases, you know, you may be able to actually recover and it's a painful process during that period of time. You look at what MGM was able to do, you know, they experienced over $110 million worth of damage but did not pay the ransom, whereas Caesar's paid, you know, $15 million for the ransom because it's a lot. it was the easiest way to recover.

You know, my advice is based on the situation, you know, is always to not pay the ransom if at all possible. But again, if the business can't operate, they're going to go out of business if they don't. Sometimes the only option is unfortunately to pay the ransom. Does this mean that cybersecurity is not working? What do we know about the cyber defenses that each of these companies have had in place prior to the event?

You know, listen, these companies have full-fledged cybersecurity programs, but the issue that you run into is scale. You know, the larger you are as an organization, the larger your attack surface becomes, you know, more ports and protocols and things and more services that you use from third parties, cloud providers, which creates these opportunities for these attacks to be successful. It really only takes, you know, one user, for example, if you look at the case of MGM, you know, they're able to use essentially AI voice modulation to remove Russian accents, you know, call up the help desk and then, you know, impersonate somebody. These are, you know, sophisticated attacks, yet very difficult to protect against. It's not that cybersecurity isn't working. It's just the scale of these organizations and companies and how they're kind of modeling. how they look at their organization's growth and capacity, technology, you know, increases complexity

within an organization. If they don't have a solid security program based on its foundations, you know, it gets very difficult and challenging for these organizations really scale their cybersecurity programs, let alone their technology footprint. Let me ask the same question in a different way. Are the bad guys winning or are the good guys winning? Who's ahead here? You know, it's tough because you look at Russia, for example, and, you know, every country is kind of known or, you know, home locations are always known for their delicacies. You look at Chicago, for example, you know, you have your, you know, pan pizzas. You have Ohio, which is known for their majestic pierogies, which is dumplings and, you know, potatoes.

Russia is known for their organized crime groups and how they, you know, have impunity within the Russian government. So you have these groups that are making hundreds of millions of dollars, you know, setting out, you know, hundreds of millions of dollars of research, development, and sophistication. And then you have, you know, cybersecurity programs that maybe have, you know, $5 million to $10 million, maybe five or six percent of the overall IT budget. So the scalability of how much money is being thrown on the attacker side versus defensive is definitely outweighed, especially when you start getting into groups like China, Russia, North Korea. It's a hard scale, scaling issue. The companies are trying as much as they possibly can.

But unfortunately, you know, we're still really behind the curve across the United States, across almost all organizations and companies when it comes to trying to withstand these types of attacks. But, Dave, they don't have unlimited, as you know, they don't have unlimited cash to throw at this situation. And if they're going to get hacked anyway with ransom demanded, why waste, you know, just to choose a figure, a million dollars a year on cybersecurity that's not going to prevent an attack, when you could just pay $15 million for the ransom if it's demanded of you. You know, I mean, it's a very weird situation. Look, a lot of homeowners and car owners grapple with the same kind of thing, you know,

or health insurance, you know, do you just take the risk or do you pay the money and get sick anywhere or have these bills anyway? Do you really, is the industry able to function, or is there something more that needs to be done regulatory-wise to try to help these companies out? That's a great analogy on the payment versus, you know, having to invest into cybersecurity. You know, what I can say is that, you know, if we were able to go in and say, like, OFAC, for example, go and disable, you know, us being able to pay, the United States being able to pay ransoms via Bitcoin and those types of methods, these ransom work groups would

probably shut down within three to six months, but the United States would experience a substantial amount of pain. So regulatory-wise, absolutely there's things that we can do to reduce the impact of these ransomware groups and the amount of money that they're getting. The problem is they want to go through the pain and suffering of three to six months of organizations that wouldn't be able to recover from these. I think the big thing here on cybersecurity is that, you know, it is all about reducing risk. It's not eliminating risk, as is anything you know, you get insurance. It's, you know, helping with situations that you didn't think would actually occur. Cybersecurity is very much the same thing. What these organizations related to focus on is reducing the risk in

their core critical systems like customer information, intellectual property, trade secrets, focus on those, you know, scalability-wise, and then work on the rest of the organization as you go along. And I think a lot of them miss that mark. They try to secure everything, which isn't necessarily possible. Very interesting. And I note that, you know, the cyber stocks have done very well, but it does feel like perhaps it need to show more for what for what they're doing. We have to get better. We absolutely do. I mean, these are the largest breaches we've ever seen, you know, in our lifetimes. And they're only going to grow. They're only going to get larger and they're only going to impact, you know, many more people, ticket master, 500 million plus. You know, we're seeing these happen all the time now. It's time to step up and really a defense. our personal information, you know, intellectual property, everything else that we have here. And the whole industry, really. Dave, thanks for joining us. We appreciate it. Dave Kennedy with Binary. All righty, meta claiming Facebook has seen growth in the number of young users,

thanks mostly to its new AI tools, but are we actually seeing a shift in the social media area? That is next. We'll explore it when we return. Welcome back to Power Lunch. Meta out with some new data today, showing its highest number of users from 18 to 29 on Facebook. in years, Meta credits AI. With TikTok's fate still up in the air, could Meta finally have a leg up? Let's bring in Andrew Sellepac, a social media professor at the University of Florida, and our own senior media and entertainment correspondent, Julia Borsden. Julia, let's start with you.

What do these numbers show and how surprising are they in line of the fact that it's not just maybe people of a certain age coming back to Meta, but to face. Facebook specifically. Yeah, we're seeing this strength out of Facebook for, and I'm saying Facebook, meaning the Facebook app. This is not referring to the greater company and Instagram, but the Facebook app is seeing strength for two specific reasons. One is Reels.

That's the short form video format that was so successful for TikTok. Meta had successfully implemented Reels both at Instagram and on Facebook and it is working. The company is saying that Facebook Reels watch time in the U.S. and Canada grew over 80% from the first quarter of 2020 to the first quarter of 2024. The other factor at play here is AI. The AI algorithm is working to recommend content that people want to watch. And those are the two key features that are driving this growth in that core Facebook platform. Andrew, what do you make of this?

And is it, could it be in part that people are aging out of TikTok and moving back to something that's more familiar? Could it be that people are worried that, well, maybe TikTok's going to go away? and I'd better choose brand acts here. I think it's a combination of factors. Definitely that there's been a lot of discussion about the dangers of TikTok, the problems of TikTok, the possible ban of TikTok. Obviously, meta being Facebook and Instagram, has looked at how much of their audience has gone over to TikTok and tried to replicate some of those things with reels.

And I think it's also important to keep in mind when we're looking at 18 to 29. That's a very wide age range. both some Gen Z and some millennials. And I think a big thing with the millennials is, you know, they're now out of college. They're not getting jobs. They're moving away. One of the big things they want to do is stay connected to those people from their past. That's just not something you would do on TikTok.

Yeah, so they sort of serve two different. So it's really, I mean, the advantage, I suppose, of Facebook, the app, as Julia, so correctly phrases it, is that it is really a social community, I guess more than an, entertainment community. Am I right there, Andrew? Yeah, I mean, it's one of the big things that we look at the differences between some of the apps and, you know, social media platforms. The biggest thing is that TikTok is really a media app. It's an entertainment app. Whereas when you look at Facebook, Instagram, those are much more about your social connections. And people have that still need,

desire, and want for community and connections. And you're not going to really find that on TikTok. You're going to find that on Facebook, which, you know, to be a lot of quite honest was what Zuckerberg originally said he wanted for the platform. Yeah, I mean, what's interesting here is Mark Zuckerberg always said he wanted Facebook to be a utility. And while we have seen these additional entertainment components come to play like Reels, there are two new stats out from Facebook just today that really indicate how this platform Facebook is utility. One is that one and four young adult daily active users on Facebook in the U.S. and Canada use Marketplace. This is where people go to buy and sell things.

People see Facebook as their go-to destination. And then also more than 1.8 billion users engage in Facebook groups every month. So we talk about maintaining your social network, but groups are also sort of maintaining your communities or remaining part of your communities. And I think those two factors really speak to what Andrew was talking to, talking about here, this idea of being a utility. My wife, Jojo is on Facebook marketplace selling stuff most of the time. Cleaning closets, getting rid of all the shoes I gave her that she doesn't like.

Andrew, thank you, Julia, good to see you. I wish we wore the same size. Probably about twice as big. After the break, Key Bank is bullish on McDonald's, specifically pointing to its efforts to close the affordability gap. Is that enough to convince investors? We will trade that in three-stock lunch. And as we had to break, we're celebrating Asian-American Native Hawaiian and Pacific Islander Heritage Month. Here is Myra Doria, McDonald's U.S. national field president.

But the most important memory I have growing up is when, I worked in a flea market that is owned by my cousin in the Philippines. It gave me a great crash course on business acumen. And I tell everybody, I can lose everything in my career, not my accent. And that's a very meaningful statement because the accent is who I am, the value I hold true to myself. It's time for today's three-stock lunch. Malcolm Etheridge is here with our trades today. He's CIC wealth management's executive vice president and a CMC contributor.

Malcolm, it's good to see you. Let's begin with McDonald's grappling with those value meals they're rolling out while franchisee costs and perhaps frustration are rising. The shares are hired today, but they're down 14% year to date. Are you a buyer here? Yeah, Kelly, I actually think this one is a buy. I know a lot of the attention, like you said, has been around the $5 meal deal. You got the folks on social voicing opinions on whether this should become a staple rather than a temporary promotion. You've got the franchisees who are concerned about how this is going to

impact their bottom line. But I think the thing that makes McDonald's an attractive stock right now has nothing to do with the value menu. It's their forecast to grow restaurant count by four to five percent over the next five years because that translates to what that translates to is the upfront fees that they collect from each of those franchisees each time they sign someone up plus the five percent each year that they're collecting as their revenue sharing. All right, let's move on to Gap. We did a big segment yesterday about the return of denim. Shares are up about 25% as earnings beat on sales growth at all four of its brands and raised its full year guidance.

What's your trade on Gap? It's been kind of in the revenue doldrums for several years. You, Todd, consider me a skeptic. I rate this one of sale. I know that shares of the gap have performed well over the last maybe six months or so, but year over year growth is still negative, right down more than 6%. in fiscal 22, down another 5% in fiscal 23. And I know they're guiding for better margins in fiscal 24,

but for a company that's currently trading at about 16 times, I think now, times forward earnings. That's concerning to me when you compare that to other competitors like American Eagle, which trades at about 14, urban outfitters trading at 11.5. Gap's not a better run company than those guys, which means it's trading at an unrealistic premium here. Interesting.

Unrealistic premium. All right. Let's get to Alta Beauty then. And they were also reported earnings yesterday, showing the effects of a slowdown with the CEO outlining plans to boost sales. Shares are slightly higher but off the best levels of the day. This was the winner of the 2010s. What do you do with it now, Malcolm? So there was something that was discussed in the alter call that actually got me interested in this one.

I know they had a tough start to the year to put it mildly, but I think the big attractive buying opportunity setting up here is where they talked about plans to expand into Mexico, right? The reason that's significant is because there's not a dominant beauty brand there yet. Support just entered that country a couple years ago and Alta has some of the most loyal companies, loyal customers they are in that category. So down about 30% from their most recent high. I think investors in this name are getting a chance to buy into that expansion at a decent discount. Well, there you have it. Picking it up, Bullish on Mexico.

Malcolm, thanks so much. We appreciate your time today. And remember, you can always hear us on our podcast. Be sure to follow and listen to Power Lunch wherever you go, whenever you go, your car, your home, your basement, whatever you're doing, the podcast is there. We'll be right back.

All right. Welcome back to Power Lunch. The Dow right now up about 260 points, a little more than two-thirds of 1%. We've had a change, by the way, at the top of our Stock Draft Leaderboard. Eddie George, the football star, Steady Eddie, has taken the lead thanks to his pick of Nvidia.

owes Pearlman falling now into second place as Carvana fell 9% this week. Draft Kings also had a bad week, down 14% on a possible tax hike in Illinois. And that sent Brianna Stewart and Karen Feinerman's team, the money machines sliding down the leaderboard. Kelly. Speaking of which, shares of Boston beer have resumed trading after a brief halt for volatility, as the Wall Street Journal is reporting that Jim Beam parent son Torrey is in talks to buy the They're now up almost 30% on these reports, which are saying that talks are still in the early stages.

There's no promise of a deal. We'll bring you more as you have it. Just keep an eye at Boston Beer trading at 330 with this pop. This was almost a $1,300 stock in 2021. It has been hurt hard by the move away from its typical beers the last couple of years. Up $75 a share today. Yes, indeed. Yep.

A couple of other big stories. In the time we have left, a rare move from a hedge fund. Bill Ackman's Pershing Square reportedly eyeing an IPO. with a deal expected in the next few days. Ackman, selling a stake in the firm and a funding round expected to value them around $10.5 billion. Reminds me of when KKR went public and a variety of the other private equity firms did this. Right. It was a real game changer.

You know, and I was trying to think if there's other, you know, Fortress was not a great, that was a little bit of a top at the 2000 peak. Have there been a lot of hedge funds that have gone public? Have there been any with a really great track record? Yeah. You know, I'd have to, I'd like to read the Barron's article on that. Yeah, yeah. All righty, Costco's shares are a little bit lower, despite beating sales expectations for the third quarter. The company's new CEO pointing out some areas of strength at stores, including high-ticket items like $1,200 swing sets, golden silver bullion, waggou beef, and expensive artificial trees.

I've always liked the beef at Costco. I didn't know that they now have Wagyu. Yes, I think they do, and I think there's a lot of homeowners kind of my age and so forth. We just need convenience. Give me the tree. Give me the fake tree. The swing set. Put it in on. Let's go. Want to mention as well before we go, the Elon Musk is planning a live town hall on his ex-platform, which would potentially involve former President Trump.

The move would be in partnership with News Nation and comes right after the former president's conviction. Now, we know, of course, he's tried other high-profile events on the platform that had streaming difficulties and so forth. I can't remember who was it with anyway. Yeah, I can't remember either, but this would obviously be one that would. Yes, it was Ron DeSan. His presidential announcement.

That's what it was. He tried to do that live on Twitter. That was kind of a flop. Technically speaking, whether this one goes better, the substance itself is one issue, whether they can just pull it off as another. All righty. We're going to say goodbye for the weekend.

Have a great weekend. The Dow is higher right now. The Merry, Merry Month of May. We'll end on a positive note, at least, for the Dow. We will see you in June. Closing bells starts right now.