Power Lunch - New Airline Rules, and Peloton Rides Again? 5/8/23

Episode Date: May 8, 2023

President Biden is expected to propose new rules to make airlines pay customers for delays and cancellations, if the airline is to blame. But how will this affect the carriers? And it sounds great for passengers, but will the costs just be passed onto them anyway? We’ll explore. Plus, Peloton shares have been a disaster for years now. But one analyst just gave it an upgrade. Is the stock really investable now? We’ll debate. 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. I'm Dominic Chu alongside Kelly Evans, as you're seeing here. President Biden expected to propose new rules to make airlines pay customers for actual delays and cancellations if the airline is to blame. So how will this affect the carriers and it sounds great for passengers, but will the costs just be passed on to us anyway, Kelly? That is the question. We will debate it. Plus, Peloton stock. It's been kind of a disaster for a couple of years now. but one analyst upgrading the name today. Is it really investable now? We will see. Let's check on the markets, though,

as we see the Dow down 55 points this hour. The S&P is now up by a couple. Dom and the NASDAQ is up 13. The regional banks rebounding, by the way, pack West up after cutting its dividend to preserve cash off its best levels of the day, but man, this has been super volatile just the last couple of minutes.

Now it's up about 8%. Six flags also jumping on strong earnings. People are spending more at the parks. This stock having its best day in more than three years popping 20% and Albemarle rising as B of A upgrades to hold from sell. They had just come to sell about a month ago. So what changed lithium prices, they've stabilized.

They say that'll bring buyers back to the market. Three and a half percent pop today, Dom. All right. So, Kelly, a new proposal from the Biden administration could create some massive turbulence for airline stocks. We are all aware, flying has now become very tense. There are plenty of stories about unruly passengers and customers being kicked off flights or even arrested at the terminal, and one key cause of the growing frustration,

the frequent delays caused by industry-wide issues. So now, the White House wants to require airlines to compensate travelers for outright cancellations and delays. Phil LeBoe joins us now with the details, and I got to admit, Phil, as a flying customer, I'm very happy about this, but how much can the airlines actually control? Well, that's the question, Dom. This is really moving towards what we see more. in Europe. If you fly in Europe and there is a delay, that's because of the airlines, because of

poor staffing or a mechanical issue. And we're not talking a 15, 20 minute delay. We're talking about something three, four hours. Then you are compensated in Europe. And that's at the heart of the proposal. This would be cash compensation if there is a delay or a major delay, I should say, or a cancellation. And the airlines would pay you for hotels, meals, rebooking. And again, this is for lengthy delays, not a half-hour delay or an outright cancellation due to the airline's fault. In other words, like I said, a mechanical issue. Poor staffing. Not because a storm goes through. A storm goes through and your flight gets canceled? Uh-uh. You don't get compensated. And all of this has to do in large part because of what we've seen in the last year, year and a half with the airlines,

as we saw them add flights, they couldn't always keep up with what happened in terms of cancellations. And the meltdown at Southwest is example number one where they could not get the schedule in place to accommodate people. And remember, they had 16,000 flights that were canceled in that last week of last year. The DOT has pushed Southwest to compensate those passengers, and they're working on it. We've talked with CEO Bob Jordan about that. As you take a look at shares of Southwest, keep in mind that that meltdown, it costs the company more than $1 billion. So the airlines realize it's not good business to have cancellations. Now, will this change things dramatically?

I'm not sure it will because the airlines have already said, and Bob Jordan told us this, look, we're adding more slack into the system. We're not going to be as aggressive when it comes to scheduling as we were last year. And when you have the possibility of having to compensate passengers, that will change things as well. So we are waiting to see the final details about this proposal. but we're really moving more towards a European-style system where if there is a cancellation because the airline is at fault, you would receive cash compensation or at least the offer of cash compensation.

All right, Phil LeBoe with the latest there on the possibility of some of those policies going to effect. So what will these proposed changes have on the airlines in terms of overall impact? Will any additional costs eventually be passed on to customers anyway in the form of higher fares or fees? Let's bring in Jamie Baker. He is a senior airlines analyst with J.P. Morgan. He upgraded American Airlines just this morning and downgraded Southwest and Frontier Airlines in that same note.

Welcome, Jamie. And by the way, congratulations on being inducted into the Institutional Investor Hall of Fame, one of the best airline analysts out there. Let's talk a little bit about whether or not these kinds of issues and things can be resolved by a fee structure. I will say, Jamie, I was flying from Austin, Texas back to New York just this past week. We got delayed for weather by hours. And I understood why, because there was a ground stop in New York City. What exactly can customers expect? Well, you know, as Phil just alluded to, we don't have the fine print yet in terms of what

the administration is actually going to recommend. In the scenario, you know, in your example, for a weather-related delay, I would suspect that, unfortunately, there would be, you know, no compensation, you know, coming your way. So we don't actually have anything yet to analyze, but we do know this. Whenever incremental expense is placed on airlines, whether it's higher fuel, you know, a new pilot contract, having to compensate passengers, the ability to put that to passengers is always more challenging for those airlines that really target the most price-sensitive passengers, you know, the really elastic end of the demand curve. So, you know, we'll analyze the details when they come out, but my initial view is that this is

a discount or airline tax. Okay, so that means if you look at the overall kind of pricing scheme for commercial airlines, Jamie, that the deltas, Americans, and United's would fare better on a relative basis compared with the Southwest jet blue perhaps and maybe the frontiers. Yes, that would be our conclusion. For example, You know, I've seen it suggested that airlines will have to be able to interline passengers. So if your passengers are disruptive or disrupted or disruptive, I suppose, you'll need to, you'll have to have the ability to place them on a competitor. American Delta and United already routinely do that.

The reason discounters don't is because there's cost associated with, there's technology associated with it. There's craning and headcount associated with it. So your conclusion is absolutely correct. We would think that the relative pressure would be felt more on the discount airlines who, you know, right now are no longer maintaining that margin high ground that they once did, which was one reason that we made, you know, several ratings changes this morning. Yeah, Jamie, to that point, and I wasn't sure if the, you know, deals had anything to do with that as well, some of the uncertainty there. But, man, taking American to overweight when that was supposed to be the one that came through the pandemic in the worst shape with its debt and everything else. Just talk to us about why you now think that has such opportunity.

Well, look, I'm fortunate because I work very closely with J.P. Morgan's airline credit analyst Mark Streeter. And Mark and I have both been impressed with the speed at which American is bringing its balance sheet under control. And that really is largely a function of just how strong the demand recovery has been. And it's somewhat paradoxical. If you think back to the second quarter of 2021, American was losing money, demand trends were very, very poor. And that's where its debt peaked at close to $50 billion on a gross basis. And yet the stock today is 35% lower.

Despite American returning to profitability, the demand recovery is well in excess of what anybody was hoping for in 2021. And they're about 60% of their way on the way to. that, you know, reducing long-term debt by about $15 billion by 2025. Normally, when airlines go from losing money to making money, when fundamentals get better, when balance sheets, you know, start to get brought under control. That's the reason for stocks to go up, not down. That was the crux of the recommendation. Makes sense. I mean, again, Jamie, thank you so much for joining us today. A lot of news in the space, yours especially. We really appreciate it.

Jamie Baker. From airlines to auto, shall we? Let's talk some Tesla with the stocks. slightly higher today, and you might not have guessed it, but over the weekend, we learned that Warren Buffett and Charlie Munger are fans of Elon Musk. Yes, I think Elon Musk overestimates himself, but he has a, he is very talented. So he's, he's overstimating somebody who doesn't need to overestimate to be very talented. He would not have achieved what he has in life if he hadn't tried for unreasonably extreme objectives. What's fascinating is that my next guest says Tesla is the healthiest automaker out there, getting a 90 out of 100 on his financial rating system.

That puts it way above GM. It's just 62. Let's bring in James Gellert. He is the CEO of Rapid Ratings. Jim, may I? Either one. Welcome. So Tesla, you think, is sort of balance sheet and financially speaking in pretty sound shape?

Yeah, Tesla's doing really well. At a 90 on the financial health rating scale, it is the farthest away from a financial problem, default. When you really break it down, you're talking about a company that has a significant amount of cash relative to any liabilities. You've got a significant amount of cash relative to relatively to minimis debt. Strong operating profits as well as strong net profits. And kind of any way you slice it, it's a very strong company with very little to worry about. Different story from, what, three, four, five years ago? Sure is.

I mean, if you take a look at the reason why Tesla was such a, I guess, a lightning rod story was because people were saying they had to invest so much money in there. They weren't really profitable. They were trading at multiples from a valuation standpoint way above the general motors and the Ford's out there. So if you take a look at the way that it stacks up to those guys, what exactly then does that say about the future for Tesla versus a GM or a Ford or a Volkswagen who have grand EV ambitions of their own?

I think all of the OEMs, the major manufacturers, are actually doing pretty well. And we can talk about a 62, we can talk about a 62, We can talk about 69, 65, where a lot of the major manufacturers are congregating ratings-wise. And those are low-risk ratings. Over 90% of companies that have failed in the last 20 years have been rated 40 and below. So the companies that are rated 60 are actually really quite strong. What Tesla has that others don't is the ability to experiment with things like pricing,

and you're seeing that now. And that's a way to capture market share at a time when many people are afraid to buy new cars because they've become so expensive. So you've got a perfect storm in autos like a lot of other industries where you've got high inflation, you've got recessionary concerns, you've got the move to EV, which can provide even more costs and embed more costs, and you've got supply chain challenges. All of those kind of wrapped together in Tesla's in good shape. It's fascinating that basically your analysis suggests Tesla's price cuts come from a position of strength and not desperation,

and that's obviously been an argument point in the market. It's also, we watch the shares, for instance, AutoZone, and AutoZone has bought back, like 85% of the float. It's crazy. But are those auto parts retailers you think in fundamentally good health? I mean, are they continuing to benefit from some of the pandemic tailwinds or not? Are they more of a financial engineering play? Well, no, I think they're fundamentally reasonably strong. AutoZone's rated a 64. O'Reilly's is rated as 68. These are good ratings. And a lot of that comes from, again, the consumer factors. People are trying to buy fewer new cars, perhaps, holding onto cars a little bit longer, and in doing so, they're buying more parts.

So those are fundamentally reasonably strong companies because of that factor. Is that a longer-term trend, people taking care of their cars longer? And if so, does the EVS... I ask us out of a position of experience. I literally have an 05 infinity with a 218,000 miles on it. I've been paying for the upkeep. It's costing me more now. But can you do the same with EVs that you can with my internal combustion engine vehicle?

I'm worried you're not driving your car hard enough. We don't know yet what the lifespan is on parts for EVs. We just haven't gone through enough cycles. But without question, there's a big push, and every manufacturer is pushing more for EVs, which is creating more supply chain issues, but it's also creating more demand and education of the consumer base. Not everyone's prepared to go there yet, and I think that's one of the reasons. They don't know how much flexibility they're going to have with their vehicle. And you say Tesla may be healthier than expected, even some of the other OEFES?

the car parts. Carvana may be the other side. You know, maybe one of the unhealthiest names out there. It was just up, what, 25% last week, you know, people jumping into it kind of hoping for, I don't know, that it has a lifeline here. What is your analysis say? Well, Carvana's rated a 16. And again, zero to 100. It's hard to be a 16.

And they're doing that because they have been losing money. The pop in the stock last week after their earnings was a suggestion that they may be on the way to becoming. EBIT adjusted EBIT positive in this upcoming quarter. But even if they are, that doesn't change the fact that beneath that is a huge interest payment. They've got about 8.4 billion in debt. Wow. And they're in the process of negotiating or tussling with two major players, Apollo and PIMCO, two of their biggest bondholders, for an exchange. They tried to do a coercive exchange. It was rejected. The bondholders came back looking for a debt to equity swap and a payment in kind

conversion of some of the interest payments. We don't know yet whether that's going to, whether that's going to work, but it has to because they don't have enough cash to pay interest for the balance of the year. Wow. And maybe the poster child for those who face this kind of refinancing issue this year. Well, let's say it's a little bit of a, it's the tip of the iceberg above the water. There are lots and lots and lots of companies today, like Carvana, that have too much leverage, have operational degradation over the last handful of years, and are in a position where if they can't refinance or somehow turn around their operations to generate enough cash flow to cover their interest payments, much less actually retired debt, they're going to be

in a similar position. That's really interesting. Jim, thanks for joining us. We really appreciate it today. Jim Keller. All right, well, we've got some news just out now on the banks. It is called the Slews. He's heard it a lot so far today. We're talking senior loan officer opinion survey, SLOOS, to put it simply. It tells us how much or how much your how little banks are actually lending. But given the current climate, it's getting a lot of attention for obvious reasons, and certainly today.

CNBC.com's Jeff Cox is looking at the details for us. So let's talk sluze. Is the economy still getting the money it needs to maybe, dare I say, grow? Well, Dom, the report today, which covers the first quarter of the year, didn't have a lot of surprises

in terms of what's happening right now. Look, bank lending standards are tightening, demand is tightening. Credit standards are also, so credit quality is also deteriorating somewhat. The big news from today's report is that they ask several special questions of institutions about why they tighten standards and why, more importantly, they expect to continue to tighten standards. And some of the answers that were kind of scary. First of all, they said in terms of why they did tighten standards, they cited an uncertain economic outlook, reduced risk tolerance,

deterioration in collateral values, and concerns about banks' funding costs and liquidity positions. Now, when asked about what they see things looking like going forward over the next 12 months, the reports is that banks most frequently cited and expected deterioration in the credit quality of their loan portfolios, again, customers' collateral values, reduction in risk tolerance, and here's the big thing, concerns about bank funding costs, bank liquidity positions, deposit outflows, as reasons expecting to tighten lending standards over the rest of 2020. Of course, that translates into less lending, less economic growth. This is the very thing that the Fed's own economists warned policymakers about back in March

and said they expected the credit issues to result in potential shallow recession as we go through the rest of the year. So that really borne out through this report today doesn't generally get a lot of market attention, but I think a lot of folks are watching it today to see what we can expect going. forward from the banking community. Okay, Jeff Cox, I mean, I'm hearing a lot more investors talking about the scrutiny on net interest margins at regional lenders as well, so it kind of jives with what we're seeing in sluice. Thank you very much. We appreciate it.

Coming up on the show, Peloton can't seem to pedal its way over the hill. This stock has been falling for so long. It's way down from its pandemic highs, down more than 20 percent just over the past month. But one analyst says the worst is over for Peloton. That's coming up next. And as we head out to break, a quick power change. check on the S&P. On the positive side, Beatrice, the pharma stock topping earnings estimates while missing on revenue. Now, on the negative side, you've got Tyson reporting a loss in cutting its

annual outlook as well. Up and down. We'll be right back after this. Welcome back to Power Lunch. Shares of Peloton are higher today, getting a surprising upgrade from BMO Capital Markets. Now, if you've watched this stock, you know all about its rapid rise and then bitter fall since reaching a peak intraday high of 167 bucks in change back in December of 2020. The stock has now crumbled to under $10 per share, as you're seeing there. Way under even its initial IPO price of $29. Hurt by things like shifting consumer demand, corporate scandals, and costly recalls. Now, most recently, nosediving 29% in a month and reporting poor subscriber guidance,

but the company assures its revamp is under. way, leaning more into subscriptions and less on equipment sales. And BMO says the worst could be over for this stock. So here is the analyst who made that upgrade. Simeon Siegel of BMO Capital Markets. Simeon, this is a controversial stock, I guess, you could call it. Pandemic peaks, this was the next best thing, changing the paradigm of fitness. And we're a far cry away from those levels now. Why the upgrade today? Kelly, when Dom said surprising, I couldn't decide if it was the upgrade of Peloton or that he was saying it came from me. I've gotten some wild emails today. People are asking if I'm feeling okay.

So listen, I think we have had so many conversations about this company. And what I want to be very clear is throughout all of our negativity, I'm pretty sure in most of my reports we would recommend the bike, not shares. This was a fantastic is, right, a fantastic product built a fantastic community. And the question was, why did the market dislocate that value? you so much why fundamentals diverge from sentiment. And I think it could be as simple as we all saw four Peloton vans driving outside our streets and assumed that the world saw that too. That's inflected. And so do I think that the Tam, do I think the ultimate opportunity is through the roof? No, I think that those risks still remain. But at the end of the day, I think the stock is now reflecting

a different scenario. And I think that creates some nuance where it's time to step aside. I mean, Samin, it's almost like you could. of just declared victory and walked off into the sunset. And, you know, I was short on this thing when everyone was long. And so now it's like, okay, do we see a short-lived rebound? Or is this a really kind of investable thesis for the long run? Yeah. And listen, Kelly, you know me well. My goal was never to root for failure. My goal was never to knock them to down. So, like, my goal is not to take the victory lap. But I think the important thing, if I'm, I want to be intellectually honest about this. And so when I look at this, I say, we held our price target. Our price target is

$0.50. That's actually a pretty nice upside here. Do I think that the long-term concerns are behind us? No. I think that we were negative into the print because this was the quarter that the company had to guide subscribers down. It is seasonal, right? In addition to saturating the market, it's beautiful outside. Thankfully, it's finally a beautiful outside. That makes it harder. It makes people want to churn more, and it makes people less inclined to pick up a new bike. But that doesn't mean once it gets cold out, that doesn't change. And I don't want to oversimplify that because I do still think that at the end of the day, the satirate, concerns exist. But I think it's also easy to say,

the way we all took it to sentimentally positive. I think it's possible to take sentimentally negative. And so that's why I didn't raise the price target and I didn't lower my price target. I felt like it was an appropriate level. Where we are with the stock right now argues that's in favor. And an interesting thing that you and I have talked about forever about other brands, not about tech streaming products, about physical fashion brands. When you sell less and charge more, when you internalize that that that's what you should do, that's how you become healthy again. And so one thing that we saw that was very interesting out of this print was you're watching

the price people are paying for months go up. So you'm getting fewer customers, but they're paying more. That worked for a lot of brands, and that's a nice sign of restructuring stories. All right. And before we let you go, Simeon, you made allusion to that total addressable market, that Tam. In your mind, what assumptions does that total addressable market look like for Peloton right now and in the future? It's a great question. I'm not smart enough to know the answer because it doesn't exist yet, But I think what I have done this whole time, the reason our bare thesis, our cell rating was predicated on the fact that the data we saw,

the customers being added never suggested the 100 million member opportunity was close to what we were seeing. I would say that's the same. I think the way that I'm thinking about it is there's three million members now. That's going to be give or take. You're at the point where you're losing about 100,000 people per quarter. So you have to find a new 100,000 people per quarter. It's going to be hard.

So I think this is going to be less a Tam story, more value, opportunity, more. a restructuring opportunity if we're getting excited. And that's why we want to focus on the brand. We want to see the company bear hug their brand loyalists. And that's what I think the next step would become. $8 or so a share, maybe up to $9.50. Simeon, thanks for joining us. We appreciate it. It's a fun take today. Simeon Siegel. Good see you guys. Speaking of Peloton, let's get a quick check on our stock draft. You'll remember Peloton was chosen by NFL star in Adama Kinsu, along with United Health. Today's gain in the shares is keeping him out of last place. But as you can see, he's still in the bottom five. From last place on, Erica Sullivan, C.J. Mosley, Sue, Ryan Reynolds, Diamond to Shields,

and in our top five, Charlotte Flare, Rutgers, Tori Dunlop, D.K. Metlap, and Dom, Tom Bergeron. There you go. In the lead. But remember, the contest runs. It's very early on right now. Further ahead on the show, rising risks, turning a lump of coal into a clean energy gift. Maybe for Mother's Day. We'll take a look at a transform, a push to transform abandoned coal mines into heating and cooling hubs for communities. Plus, Mark Zuckerberg has a lot of energy. a reputation. He's often depicted as a genius, a computer nerd. He's never really denied that.

But he's also now a jujitsu champion. We'll explain when Power Lunch returns. Welcome back to Power Lunch. Checking on the markets right now, the Dow is down by just about 50 or so points. Falling to a new session low is that Slews report, so to speak, showing tighter bank lending standards came out just in the past 15, 20 minutes ago, recovering some of that ground now. We want to turn out of the bond market after a big jump in yields on Friday. Actions a little bit more subdued today, but Rick Santelli is never subdued, and he's tracking the action from us, for us, from out in Chicago. Rick, what does the yield picture look like the next day?

You know, Dom, rates are pretty firm today, all things considered. Now, if you look at an intraday of two-year note yields, of course, the most susceptible to anything that has to do with the Fed, that the loan survey, was out by those senior loan officials, you could clearly see it had an effect on two-year note yields, pushing them up a bit. And if we put a two-day, we could see that the jobs report Friday resulted in a rising rate that continued right into today. We're at the high yields of this session, and many were questioning whether Friday's jobs

report was actually that good. You know, 149,000 revisions in the previous two months. All weekend, all as I read was, people scratch their heads is to the long litany of inaccuracies in some of these jobs reports, but it is what it is, and it certainly seems to have pushed rates up a bit. And if you look at a March 1st, Dom, and this is really interesting, we know that right around March 7th, we made the high-yield close at 507 for twos. To think right now after that loan survey, after the Fed last week, after the jobs report,

we still are barely at 4%. 100 basis points, 1, 1-4% under that high-yield close is unbelievable. And if you keep that same chart and look at January Fed Fund futures, you can see it's high, just like the longer term two-year note yields doesn't look like it wants to be going up. This doesn't look like it wants to go down, which means that the November meeting, the September, November, December, and January, all are pricing in a quarter point ease. Will it happen? I can't say that it will, but right now the markets say it's priced in based on what dynamics are in the marketplace.

Dom Kelly, back to you. Rick Santelli with the bond report there. Thank you very much. He talked about a lot more quarter point hikes, but oil is having a great day. Maybe everything's coming up roses, we'll call it. What are we up, Pippa, like 2, 3%? Yeah, so we're off the best levels of the day, but still up about 3% in extending Friday's rally. But, of course, we have to put that in perspective in the sense that we still posted a third straight week of losses last week for oil.

And prices are still below where they were prior to that surprise production cut announced by OPEC and its allies at the beginning of April. Now, that group does release its latest monthly market report on Thursday, and so that will give us a better idea of how they view the current supply demand balance ahead of their June 4th meeting. Now, one quick thing to take a look at, energy stocks entering a death cross last week. That is, of course, when the 50-day moving average drops below the 200-day moving average for the first time since 2018. That happened. It does signal overall bearish sentiment regarding the group, and that is despite some very good earnings. You know, we still have more coming. We'll hear from Devin later today, Oxy tomorrow.

Certainly a lot of selling in that group for right now. Yeah, like you said, selling on the one hand, buying on the other. That kind of day, Pippa, thank you. Let's get to Sima Modi now for the CNBC News Update. Cima? Kelly, good afternoon. Here's the update at this hour. The gunmen who killed at least eight people in a shooting at Dallas area outlet mall

was a neo-Nazi sympathizer. That, according to law enforcement officials, authorities say symbols on his clothing and a preliminary review of what is believed to be the shooter's social media account reveals hundreds of posts that include radically or ethically motivated violent extremist rhetoric. The officials stress that the investigation is ongoing. Closing arguments are underway in the civil rape and defamation trial against former President Donald Trump. Lawyers for E. Jean Carroll say she was, quote, exactly Trump's type

and pointed to the notorious access Hollywood tape as evidence of his behavior. Trump has denied Carol's accusations as his lawyers call Carol's claim, quote, an unbelievable work of fiction. And Disney is expanding its legal efforts against Ron DeSantis after the Florida governor signed legislation voiding Disney's development deals in Orlando. In an amended federal lawsuit, Disney is accusing DeSantis of doubling down on his, quote, retribution campaign by continuing to target the company. Don back to you. All right, Sima Modi, thank you very much for the news update there. Ahead on Power Lunch, Amazon's Adventure, get it, adventure, the latest industry it's aiming to disrupt using.

AI technology and why it has some big players on notice. Our lunch will be back after this break. You've heard people say it. AI is going to disrupt everything. Entire industries are going to change forever and in the crosshairs and maybe the first one to experience all this is actually advertising. Dear Jabosa has details now on what Amazon is doing here. Hi, Deirdre.

It may be one of the first, but certainly not the last. That so-called AI roadkill list is growing by the day it feels like. Like last week, it was Chegg and Egg Tech. This week, it's advertising. And we still have Google I own a few days where generative AI is going to be front and center. And that could give us a few more names. So here's where we stand. After bestowing AI halos on companies and business models that would benefit from generative AI over the last few months,

investors are now increasingly trying to price in the downside stock impact of the boom. They're looking for companies that could be left behind. Today, Goldman writes in a note, the market is now entering the, quote, prove you won't be disrupted stage. So ad agencies, they are on deck. The information reporting that Amazon is working on AI tools to generate photos and videos that could help it push more ad formats to smaller sellers disintermediating agencies like Omnacom Group WPP publicists. Following that report, Bernstein writes today, how high on the AI roadkill list should those ad agencies be? It's brutal, but similar lists they're being compiled at other Wall Street firms. Meanwhile,

guys, Jeffrey Hinton, known as the godfather of AI. He's raising alarm bells again, saying that AI could be a bigger threat to humanity than even climate change. Rhetoric we've heard before, guys, from lots of important people with a lot of knowledge in the space. Yeah, with a lot of knowledge in the space, Gerardra, and I think, you know, we joke about how there's all these, like, really big, exciting, you know, ideas about AI, and then it turns out it just helps people file more legal claims and, like, do better advertising. It just doesn't seem so sinister when it's performing, you know, those essential functions for society.

Unless you think that those functions are going to end up creating a lot of unemployment and rendering certain business models completely defunct. So there is both these sides. And this is understandable. And some of the people who raise the fears will argue on the other side that at least they're being raised now where other technologies have only been worried about when it was too late. So that may still be the case here.

But again, it's such a new gigantic platform shift that. there's going to be all different sides of it. And you're really seeing the business model, the investing side come out with these roadkill or short lists, the businesses that are going to be hurt or rendered defunct by AI. Whoever's best at it is going to keep big, get bigger. That's probably the biggest argument. Deirdre, thanks. We appreciate it for now. Deirda Bosa with Tech Check. All right, coming up with the show, a new purpose for old energy. The clean way communities could use abandoned coal mines to help heat and cool their homes. And as we head out to break, CNBC is celebrating Asian-American and Pacific Islander Heritage Month throughout May, sharing

stories of business leaders in the community. Here is Faye Isotiluno and the C-O-O-O of Tinder. Connie Chung was the first person on national television who looked like me, and she left the impression that somebody who looked like me could make a difference in the world. And then now as we are building businesses and services that are meant to serve bigger and bigger populations, we really need to understand and empathize with the unique user needs that people have. And in building a global workforce, we need to have new and diverse voices around the table in order to help us make long-term decisions. Welcome back. It's no secret that home energy bills are heading in the wrong direction these days. But one untapped resource could help in the fight against rising cost

for fuels, abandoned coal mines. They could be turned into heating and cooling hubs for communities thanks to new federal funding. Diana Oleg explains in her continuing series on the rising risks from climate change. Underneath an unremarkable warehouse in northeastern England lies an abandoned coal mine. It is a relic of energy's dirty past, but a potential gold mine for its clean future by providing geothermal energy for homes and buildings. Abandoned coal mines can be full of water. especially when the mining has ceased.

So that water will contain heat. Here's how it works. Abandoned coal mines fill up with water. By drilling boreholes way down below, that water can be brought to the surface with pumps and then pass through heat exchanges and heat pumps in buildings and homes. The first ever neighborhood mine water heating scheme

in Great Britain just went into full operation at the end of March and will eventually serve over 1,200 homes. Hopefully, most of these schemes, of these schemes, if not all of them, will be able to operate at a similar or better cost to the traditional fossil fuel heating schemes we have at the moment. Geothermal heating is not new, but taking it from abandoned coal mines has yet to take off, especially in the U.S.

Even in the dead of winter in Pennsylvania, it's still warm in a coal mine. Yes, it's going to stay at a consistent temperature year-round despite what's happening outside. Natalie Cruz-Daniels, with her students at Ohio University, is studying abandoned mines in Appalachian, Ohio. to see which ones are close enough to towns to be used for home heating. Coal fields run under at least 20 states in the U.S. and here in Ohio, there are more than 4,000 abandoned coal mines just like this one. In other words, a wealth of opportunity for geothermal energy. Back in 2007, the U.S. Department of Energy reported that the amount of water currently being discharged from underground coal mines

in just the Pittsburgh coal seam could potentially be used to heat and cool roughly 20,000 homes. So why aren't we doing that? Cruz Daniels says that while it's a relatively inexpensive form of clean energy, the location and legacy may be liabilities. I think some of it's out of sight out of mind, right? When we look at investment in new technology and investment in clean energy in Appalachia, it's limited. Coal is controversial, so investors don't target the coal regions, which she says is a mistake. In a less predictable climate and in a warmer world, this opens up an opportunity for

turning this legacy, this liability, into a resource. Geothermal energy from coal mines can not only be used to heat homes and buildings, but also to cool them. And here's another potential, data centers. They're some of the worst carbon offenders. But researchers in Scotland are now studying how hot air from data centers can be pumped into coal mines and then recovered from the water to heat other buildings. Back to you guys. So, Diana, I'm trying to understand the, the, the, fuller story with this. If it is geothermal and it's mines for coal that are the key for this, does it limit the kind of building residential and businesses? Does it limit the geographies to just

those coal mine areas in, say, places like the UK or Appalachia? Yeah, I mean, you have to be near the coal mine. That's what they're researching in Appalachia, and that's why they put that development around the coal mines there that they put the entire system in. You have to be close to a coal mine, but there are so many across the U.S. and around the world. that there's likely to be a lot of neighborhoods nearby. All right. Diana Oleg with the latest there. Thank you very much. Still ahead on the show, a different kind of growth opportunity.

We're talking Scott's Miracle Grow on pace for its best day in a month after an upgrade by analysts over at JP Morgan. We'll trade SMG and other big movers of the day. Our three-stock lunch is coming up. We'll be right back after this. Welcome back. It's time for three-stock lunch. First up, we have Z-Scaler, the cloud security firm pre-announcing third-quarter results earlier today and raising its full year guidance. The stock is soaring more than 20%,

as you can see there today on the heels of that news. After hitting, by the way, its lowest level in three years just last week, it's expected to release an actual full third quarter earnings report on June 1st. So here with our trades today is Danielle Shea. She's VP of options over at simpler trading. So Danielle, what do we think? Z-scaler, are you chased in this thing after a 20% gain today? So when you look at Z-scaler, one of the things that I like to see is momentum. And you can see that when it gapped up today, we were able to hold that momentum and we continued trading higher.

I think that has to do with the fact that the short float is a little bit elevated in this name. So whenever I get a name that gaps up like this and we have a little bit of short float, I think it's good for a little bit of short-term upside. And so for that reason, I'm trading this one. I'm targeting 115 on it. I'm going to see if we can get it. If we do end up losing momentum and we break through the level in which we gapped up today, that's where I would take a stop.

But for right now, I think it's good for short-term upside. However, I would warn traders that in the longer term, this is still in a downtrend. All right, and it's at 108 now, so there's about $7 higher. Danielle, next one is Tyson Foods. Dom and I have been talking about this all afternoon. I don't know. We'll see if it's a canary in the coal mine, but a surprise loss for Q2. Sales were flat from a year ago, cut full-year revenue guidance.

you know, the stock is down, you know, about 16 and a half percent right now. Pricing power, margin compression seems to be the big concern. What would you do here? So when you look at this one, I mean, I really like trading post-earnings momentum. And when you have a big gap down like this that breaks some pretty considerable support zones, generally that's going to keep going. And so when you look at Tyson Foods here, it's just barely clinging on to that $50 price point. I think that if it breaks 50, we could get a quick flush down to around 45.

and that's going to be down to around the COVID lows. So I think that this one is good for some more downside. Granted that it does break that $50 price point. So I did go ahead and buy some puts in this out into June looking for that break. Of course, you know, if that break doesn't come through, watch out for the bounce and that's the point where you would cover. But for this one, I think it looks good for some continued downside momentum. All right. And the final name, Danielle, here is Scott's Miracle Grow SMG.

analyst of JPMorgan upgrading shares to overweight from a prior neutral, saying the fertilizer maker will benefit from a drop in commodity costs. They say the rearview mirror is there for some of these higher commodity costs. What do we think here? So when you look at this stock, I do think it's good for a little bit of short term upside. You know, it's had a nice trend reversal off of the lows. I'm not going to, you know, call it to go back to where it once was. But when you look at the stock, I do like the reversal. And this one has a little bit of elevated short interest as well. which does help with that upside buying pressure. So when you look at this one, I think it's good for about another $5 of upside, but there's quite a bit of resistance between the $75 and $90 price point. So I'd be careful with it to the upside, but I think there's a little bit more room to trade it. All right. It's still up 46% over the last year-to-date period.

You know, that and Tyson's both seem to be falling, like almost a deflationary, you know. You don't want me to. You're going to call it, aren't you? I wouldn't call it right now. All right. I'm going to put the mush on it. Disinflationary. And Danielle, thank you.

It's great to see you today. Danielle Shea. Still to come, Mark Zuckerberg, giving a whole new meeting to the phrase beating the competition. That and more when Power Lunch returned. Welcome back to Power Lunch. Time now for a couple of other stories catching our eye today. And this one literally caught our eye while watching that Nuggets game last night with Phoenix. If you haven't seen it yet, the ball goes out.

That's Yokic right there. No, that's the other player. Matt Ishpia takes the ball from him. Yokinjj jumps on him, gives him an elbow to the neck. Ispia flops, right? throws the hands up. This wasn't just any fan. I don't think Yolkut realized at the time. This is the owner, Dom, as we talked about here, the highest price point paid for a team, $6 billion that just launched direct to streaming and a familiar face to CNBC where we know him

for his mortgage company. Yes, for United Wholesale Mortgage, which is one of the reasons why he's been featured on CNBC so much. But this particular move, I mean, I think I've seen way too many basketball games in particular because the fans are so up close that, team owners or senior executives, all these players might need a lookbook or some kind of an image. Of all the front row places, that ball could have got. The real debate was whether, you know, should Yokic have gotten thrown out of the game? Obviously, they're in the playoffs headed towards the finals. He used the league MVP for two years straight.

So of all the people who, Ishp has been accused, by the way, of trying to influence the game in Phoenix's favor by holding that ball. So, by the way, Yokic did get a technical call on it. I mean, drama. A lot of drama at the NBA playoffs right now. Let's move on to our next story, which is Mark Zuckerberg, the Facebook founder, meta platforms, we'll call it now, billionaire, philanthropist and now jujitsu gold medalist. So you heard that right. Yes, the meta CEO is competing in his first and completing his first tournament. He won gold and silver medals, by the way, posting the photos to his Instagram, of course, saying the caption, quote,

competed in my first jujitsu tournament and won some medals for the guerrilla jujitsu team. So Mark Zuckerberg is a renaissance man in some ways. You remember there was that point in his life when he was only eating meat that he killed? Every year he would give himself a new challenge. There was meat eating, yep, lots of them.

I kind of figure this one though is maybe something to do with self-discipline or being a little bit more committed to certain types of things. He started during the pandemic when we were all, you know, going nuts. And he said that doing that physical activity for a couple of hours then gives him kind of the relaxation to go tackle complex business problems. Or the clarity of mind.

So I guess investors should be cheering for it. You make a good point. You know, in the future, how would we even know if these images are legit? AI generated or otherwise. He posted it himself. Metaverse-esque. You could go ask some of these AI photo things to show Mark Zuckerberg. What was the one a couple years ago surfing on?

I don't even remember, you know? There's going to be new teams of people just to verify whether these folks. photos are true or not. A job creator, I maintain AI will be. We should mention we've been talking a lot about inflation, deflation. Prices for ketchup, salsa, and pasta sauce could all be headed higher because of a tomato shortage. California tomato growth associations has extreme weather. Of course, record rains or snow. They've over-saturated the soil, so farmers have had to push their season back three weeks. Could be a shortage as soon as this summer. And of course, that causes higher prices. Then, of course, maybe we see a glut in the fall dom when people plant extra seeds.

How much tomato do you use in your household? Tons. Yeah? What about you? Like the canned stuff or is a tomato sauce or ketchup? Everything. Everything all the time. My kids put ketchup on everything. Yeah.

I like condiments, but I don't put ketchup on everything. But as I said, this all comes in full circle to Tyson Foods today. And, you know, your chicken nuggets may be cheaper, but the ketchup's getting more expensive. I'm trying to think of what the substitution effect would be for ketchup. Right. There isn't one. They have a monopoly. Well, thanks for watching Power Lunch, guys.