Power Lunch - New House Speaker, Earnings Everywhere 10/25/23

Episode Date: October 25, 2023

The House has a new speaker, as Rep. Mike Johnson of Louisiana is elected with 220 votes. We’ll get all of the details, including how this could impact markets and a looming government shutdown. Plus, from tech to banks and more, there are plenty of corporations set to report their earnings results. We’ll do a deep dive into the key names on deck. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everyone, and welcome to Power Lunch alongside Kelly Evans, literally alongside Kelly Evans today. I'm Tyler Mathis, and now new at two. The House. The House has a speaker. Representative Mike Johnson of Louisiana, elected speaker of the House. We've got more on that in a moment, plus further ahead. Earnings, earnings, and more earnings from tech to banks to airlines and defense. A lot of key names reporting results, and we're going to dive into all of them ahead. Let's start with a check on the markets, though, as the Dow is down about a third of a percent now. Session low earlier was down about 150, so we're slightly off that level. The S&P and the NASDAQ show you how widespread the pain is really the Dow's being helped by a couple of stocks in particular travelers in Microsoft. The S&P down 1.4%. The NASDAQ down 2 and a third

percent now as in danger of falling below its 200-day moving average. As I mentioned, rising interest rates, a culprit here again. Top of last hour, we had a five-year bond auction, didn't go over so well, and that's helped change the market tone. Alphabet is also helping drag the NASDAQ lower, sinking on those disappointing cloud results and a stark contrast to Microsoft, which is still up 3% while Google is the second worst in the S&P, down almost 10% at the moment. But let's start with that House vote. As Tyler mentioned, we have a speaker. Emily Wilkins has the details. Emily? Hey, Kelly. Well, after 22 days, the House finally has a speaker. Congressman Mike Johnson of Louisiana. He really got all Republicans to unite around him. All 220 Republicans were voting today. There was one absence. It voted for Johnson. He is now officially becoming the Speaker. They are in the process of

swearing him in. And as soon as they do, he's going to have to get right to work. Of course, the House does want to have a show of support for Israel, but there's also that upcoming government funding deadline of November 17th. And Johnson has laid out a very aggressive plan to pass the eight remaining appropriation bills before that point. Now, Johnson is going to be a bit different from Kevin McCarthy. He is much more conservative than McCarthy was and a little bit more further to the right. A couple of main differences is one major is that he hasn't supported a lot of Ukraine funding. Back in May, he voted against sending 40 billion of funding to Ukraine. He said that the focus really needs to be on the

U.S. and the U.S. border. He also voted not to certify the 2020 election. And he opposed the current stop gap measure that is funding the government until November 17th. Now he did support that debt limit agreement that kept us off the fiscal cliff. And of course, he is now going to have to maneuver as speaker as the leader of the party. And he's already told several members that he doesn't want to see a government shutdown, that he's open to another stopgap bill to keep the government funded, potentially until January, potentially till April. They still have to figure those details out.

But it will be very interesting. You know, Mike Johnson is not someone who has been in Congress for a very long time. if you compare to the normal tenure of speakers and leaders of the House. And now he's really going to have to be able to in negotiations go toe to toe to with President Biden, Chuck Schumer, Hakeem Jeffries, and really be able to keep Republicans united, which, as we have seen over the last month, is no easy task. So certainly Republicans, I think there's a lot of celebration right now.

There's a lot of relief right now. But I think you have to realize that in less than a month, we are facing another government shutdown. And that means that Republicans really kind of, kind of need to keep the celebration short and get right back to work. All right, Emily, thank you very much. Emily Wilkins, reporting from the Capitol this morning, or this afternoon, I should say, where a speaker has just been elected.

For more now, let's bring in James Pethikoukis, Economic Policy Analyst of the American Enterprise Institute, and a CNBC contributor. James, welcome. We don't know much about Mike Johnson, but I'll tell you one takeaway from me, and that is that the person who controls the House of Representatives today, at least the majority, is Donald Trump. No doubt the fact that Donald Trump has opposed some of these failed nominees and seems to support this one. That has been key. We don't know much about him.

That's one reason why he's going to be getting why he has this job is because no one knew much about him. being a mystery and otherwise having a pleasant kind of bland demeanor while also being on the deep right and having Trump's endorsement. I mean, that is a thing that really unlocked this puzzle. And that brought over the eight who had opposed Speaker McCarthy for being insufficiently conservative on fiscal matters and other things. He is a staunch social conservative as well on such things as abortion, sex education for younger children, etc., etc. He is in tune. All those sorts of issues.

He's very in tune with the base. He doesn't come across as a member of what they would call the Uniparty or the Swam or the establishment. So he can see with that background why he has his job. But listen, the real problem with the Republican Party isn't the person who sat in that chair. It's the people in front of those chairs, a very divided party. And let me tell you, there is a considerable amount of wishful thinking going on here, thinking that, a, there's no government shutdown. It's going to be smooth failing until January or April. This is a person who may do a great

job, but he has no, is no stir running, running a big committee fundraising, whipping votes. he has given a very vague, really, plan of how to move forward. So I think there's a lot of wait and see here, not just assume it's going to be smooth sailing at all. Yeah, I thought it was interesting to read that he really does have to hire a larger, a much larger staff very quickly. So just a side detail in what will be a very busy period for him. What is the first or most important or consequential order of business, do you think? Yeah. I realize maybe some previous guests said, listen, zero chance of a shutdown.

I mean, you know, I don't know about that. I think there is a chance of that. Again, he sort of gave, he wrote this letter saying that, you know, we want to move forward, we don't, we want to extend this thing into January or April. Again, but that letter was very detailed light, and the devil really is the details. You know, what are, what will be the spending cuts? Why, why will the people who did like McCarthy, why are they going to jump on board here if what he eventually is going to offer is not much different than what McCarthy was offering.

I understand this is a big win for the folks who didn't want McCarthy, but will this be enough? It's getting McCarthy's head is that to win. If that was the win, we would have already had a speaker before. Obviously, they want more. What's also interesting here, James, is the idea that he has voted against monies for Ukraine. It is likely, or what President Biden has proposed, is a bill or a package that lumps together monies not only for Ukraine but for Israel, and he has received money from the American Israel Public Affairs Committee. So he is a strong supporter of Israel, as well as border security funding.

How is this gentleman likely to try and thread that needle if a bill that packages those three, things comes together. I don't know how he does that, and I would wager that he doesn't know exactly how he is going to do that. This is what I meant. All the problems that McCarthy faced remain, and now they're going to have to be handled by someone who has not been thinking about this job for the past decade, who maybe was not thinking about this job a month ago.

And now this is, this would be tricky for the most, you know, experienced speakers of the past, whether it's close, if you're going back to Tip O'Neill, it's going to be extraordinarily difficult for someone, again, who is not even, I think he's chaired a subcommittee. I don't think he even chaired a major committee. Big John, he could be, look, I'm not saying he's not up to it, but, again, you know, time will tell here. Yeah, I mean, I think he's only been in Congress since, what, 2017, if I'm checking. That's not very long. That's not very long. Barack Obama had only been in Congress for a couple of years, too, before he became president.

James Pethakuka is always good to hear from you, sir. Thank you. Thanks very much. For more on more impact on what impact this could have on markets, as well as the NASDAQ weakness today, let's bring in Peter Anderson, Chief Investment Officer at Anderson Capital Management, Kevin Mon, President and Chief Investment Officer at Henion and Walsh Asset Management. Peter, let me begin with you. Is there any particular market effect that you can discern from the fact that the House has

finally been able to get out of its own way and elect this speaker? There's a lot of boxes we need to check in terms of uncertainty going forward. So this certainly was a box to check. I don't think it's really going to have as much impact as some of the other boxes that we need to check. For instance, higher interest rates, federal reserve action, international conflict. But of course, it's better than nothing. And so if it's better than nothing, Peter, where does it leave you as an investment? investor? Well, I really, in my investing strategy, it's almost a trivial aspect. I mean, I look at companies that are basically independently operating from all this noise that's going around right now.

So even though there's a lot of turbulence in the markets and internationally, if you stick to stocks that you think are immune, are mostly immune to all this noise, and I'd say that respectfully the noise, then I think you're set for the rest of the year and the year beyond. All right, Kevin, what do you think? Are we set or is the struggle just beginning? The struggle will continue, unfortunately, Kelly, but electing a new House speaker, while it doesn't eliminate the likelihood of a government shutdown in November, it does increase the likelihood of much-needed increases in defense spending. In fact, given all the geopolitical crises across the globe right now,

military spending can and will only increase. According to Satista, they anticipate increases every year between now and 2003 going up from $746 billion to $1.1 trillion in defense spending. If that's the case, defense stocks may ultimately be defensive stocks, at least for the next nine to 12 months. All right. And Peter, I'm struck by your line here. And I want our viewers to brace themselves where you say, I love.

of a 5% 10-year, you say, rising rates are good for markets. I hope the tenure goes to 6%. So while people are throwing things at the television, as they watch the NASDAQ below the 200-day in the S&P, almost back where we were in May, please explain. Well, Kelly, I wonder if you remember where you were, say, 16 years ago, because that's the last time the 10-year hit a 5% yield. And my thesis is that for the past 16 years,

years, we have been living in La La Land with yields as low at mortgages, practically at zero rates. And investors have anchored on the past 16 years rather than looking, now, 16 years for many people is an entire career so far. But if you look back to the 80s and 90s, you know, we've had the 10-year Treasury peak at 16% back then. So it drives me personally crazy. I throw things at the screen when people are saying higher for longer. And really higher, in my opinion, is not a 6, 7, 8 percent yield.

That's a symbolic of a rationally operating economy. So when yields, when the 10-year reaches 5, 6 percent, to me, I'm thinking that now we're coming back to a more normally operating economy. Kevin, let me just conclude here. I assume you think that the Fed is unlikely to raise rates next week when it meets. There's just too much going on, frankly, and too much uncertainty. But I note that you are, while you're cautious over the next six months, because there is so much going on, you're quite optimistic over the longer term. I really am.

And just taking the flip side, what Peter was just saying, I believe that rates will be lower, yields will be lower and inflation will be lower over the next two to three years. Maybe it would be better overall if a 10-year state at 5% or higher for longer. But in all likelihood, even according to the Fed, we can anticipate roughly 50 basis points in cuts next year, another 125 basis points in cuts in 225, and then another 1% in cuts in 2026, according to their own dot plot chart. If in fact that is the case and rates do come down that should open opportunities in stocks and bonds, notably municipal bonds. But over the shorter term, Tyler, to your point, we do like aerospace and defense stocks. And I think what's happening in the world today is going to actually provide

upside potential for stocks that benefit from an increase in defense spending. And there we're showing three of your choices, Lockheed, Northrop, Grumman, and Howmett. And gentlemen, we appreciate your time today. Peter Anderson, always great to see you. And the same to you, Kevin. Appreciate it. Thank you. All right. Coming up, the Bitcoin flip, it's hard to track why crypto does what it does. We often hear it's a hedge for volatile markets, but it's not always the safety play it's meant to be. Why is it moving higher this week? We will dig into that next. Don't go anywhere.

Welcome back, the price of Bitcoin nearing the $35,000 mark again. After topping it for the first time since May of 22 yesterday, the crypto has doubled in price this year. signals that the SEC will clear a path for the Bitcoin spot ETF are certainly fueling the bulls. But what else is behind this? For more, let's talk to Ryan Rasmusis, Crypto Research Analyst at Bitwise Asset Management. Welcome, Ryan. And CNBC.com's Crypto Markets and Investing Reporter Tenea McKeel is here on set with us. Tenaa, welcome. Thanks for having me.

Let's start by running through some of the litany. It seems a lot of this is the ETF, but then, okay, why still today? You know, I do wonder if this is a little bit, is it a kind of dollar risk? me, what are people saying about why Bitcoin is at 35 nearly again? Well, it's a unique asset. So it's a little bit of everything. The investor base is kind of a mixed bunch. So definitely a lot of speculation around the ETF.

I wouldn't write it off as just speculation. There is a lot of momentum building around that case. We've had both Mike Nogratz and Kathy Wood from ARC recently on CNBC talking about how the shift in tone that CC is shifting in tone and it is looking more likely like they're engaging with the community on getting this. On the other hand, there's also the rates. If you look at what happened on Monday, you saw the 10-year yield touch 5%, and then fall down again.

High rates, historically bad for Bitcoin. So there was a little bit of that as well. And then there is another narrative where the rates can be a little bit of a catalyst for Bitcoin because even if you don't see it as a safe haven, it is a safe haven in crypto. So what you've been seeing throughout the crypto market all year is the dominance of Bitcoin in the market, climbing, climbing, climbing since January. So basically, because of that high-rate environment, we've, you know, we've seen resilience in the Bitcoin price, even in the face of, you know, four or something interest rate hikes,

but you do see a lot of crypto-native investors leaving other crypto assets that are much, much riskier because of yield fears and putting that money into Bitcoin. Ryan, let me turn to you. I'm quizzical about Bitcoin because it is an asset that has no evident intrinsic. value and whose price is set purely by the demand and the supply in the marketplace. And if demand, and I would guess you're going to answer me in the affirmative here, that the reason Bitcoin is rising in price is the anticipatory demand that is coming if there are Bitcoin ETFs because it will widen the market so much and so many more people

will be, have access to it. easy. That's right. A Bitcoin ETF is a huge unlock for investors who haven't been able to allocate to Bitcoin or to crypto as an asset class for its past 15 years in existence. So that's why we think, if it wise, a Bitcoin ETF is the biggest thing to happen to Bitcoin since it was created in 2009. 80% of wealth in America hasn't historically had access to Bitcoin. So we do think that the upcoming spot Bitcoin ETF is going to be a huge influx of demand. And like you said, it's a commodity, its price is set by supply and demand. And we see a clear sign that demand will be climbing in the near-to-law.

What will these Bitcoin, I gather BlackRock has an application out there. Wisdom Tree may have an application. There are probably others. What will these ETFs actually own? Physical Bitcoin? Yes. I mean, it's not physical. It's digital, but.

Yeah. So these spot Bitcoin ETFs will own the underlying Bitcoin itself. People will allocate into these ETFs. The ETF will go out and purchase Bitcoin on the market. And that's exactly why we think it's so bullish for the price of Bitcoin is because you're going to have this constant influx of demand on Bitcoin as an asset. So it will hold the underlying asset. That's why people are so excited about a spot Bitcoin ETF, because it's the first time

that you've been able to own the underlying asset in this ETF wrapper. So for every dollar goes into an ETF for spot Bitcoin, a dollar of Bitcoin will be bought off the open market. And what are, Tanaia, what are people saying about whether this is just the last gasp of a run? I mean, you know, again, is it facing more serious headwinds going forward if liquidity is generally tightening? Liquidity has been a big issue all year, really kind of hampered it. We forget that, you know, although Bitcoin is up as much as it is right now, and it has doubled its year to take gains, just this week, a lot of analysts are saying that even with all of these positive catalyst, it's going to be hard to see Bitcoin reach another all-time high because of the rising rate

environment. So, you know, looking at levels, I think that actually has helped a lot of investors. Rob Ginsburg from Wolf often has often said over the last several months, you know, as long as it's not dipping below 25K, that key support that we've been watching all year, you know, he's going to remain long on it. And it really, it is exciting for investors because it has really been stuck in this very narrow range of between 25K and 30K. So, you know, holding at about 34-7 right now, a lot of analysts saying that if it can hold at 32, and we'll see how long it hangs out here. But a lot of positive catalysts behind it, and if it can hang at 32, that gives it room to run to

about 38 to 40. Today, we have to leave it there. Ryan Rasmus, I almost called you Ryan Reynolds, Ryan Rasmussen. Take it, man. It's good. Ryan Rasmussen, thank you very much. Appreciate you both being here. Further ahead and under the radar name getting crushed after results. Commercial real estate stock co-star falling short of analysts' expectations. We'll trade it in three-stock lunch. But up first, sunpower down 17 percent tracking for its worst day since 2020. We will explain why when power lunch return.

Welcome back, everybody. Oil, giving back the majority of its gains since the Israel-Hamas. war began, but the big wildcard is whether Iran gets involved, and Pipa Stevens has more. Hi, Pippa. Hello, so prices are higher today, but Bank of America said today that the market is being too sanguine around the outbreak of the war. And so they laid out different scenarios looking forward and what it might mean for oil prices. So they said that if the conflict remains in Israel, Gaza, they see oil at $90 to $95. Any escalation to Iran means $120 to $130. And then in the

unlikely event that the Strait of Hermuz were to be closed, prices could get up to $250. And essentially, what Francisco Blanche said is that there is a floor under prices right now between Saudi Arabia and their production cuts, as well as the United States refilling the Strategic Petroleum Reserve. So he's saying that all this is not yet being priced into the market, and that exposure by investors right now is about $250 billion. That's about $100 billion less than historical highs. And so there is still room.

However, people aren't going full in yet. they're getting upside by buying calls rather than buying the outright commodity because there is so much uncertainty in the market right now. And about the global economy, which could pull things the other way. One clear downward mover is Sunpower, down about 20 percent today. It seems like every day we're talking about another alter clean energy blow up. Yes. So Sunpower is facing both issues with the broader solar industry and then as well as company

specific. And so last night they announced an accounting restatement. Basically, they said that they previously restated, overstated inventories by between $16 and $20 million. And so this is not a cash issue, but it does mean that their cost of goods sold were higher than previously expected. They also pointed to a quote material weakness existing in their financial controls. And so while this amount is not that much on the face of it, the issue here is that they

are approaching a key level that could breach a covenant with one of their lenders. They said they are in talks with their lenders and presumably we'll hear more when they report earnings next week. But the threshold is $100 million in liquidity. and as of last quarter, they had $114 million in cash. What could breach the covenant, do you know? So it depends on the different lenders, but there are different triggers in place. And so what they said is they're working with their lenders on waivers that could

account for something like having to restate financial. Yeah, exactly. That could be a trigger. That in itself could be a trigger. Exactly. So these have a lot of provisions in terms in them. So the issue is that they could trigger it on multiple different ways, and so they are in talks with those lenders now.

Very interesting. Okay, PIP. Thank you very much. Let's get to Bertha Coombs now for a CNBC News update, Bertha. Hi, Kali. Israeli Prime Minister Benjamin Netanyahu said today that the country is getting ready for a ground offensive in Gaza. He didn't say when it would happen. Netanyahu's announcement came in an address to Israelis after the Wall Street Journal reported,

Israel agreed to delay the invasion so that the U.S. can rush missile defenses to the region to protect U.S. troops there. France is sending a naval ship to the Middle East to support hospitals in Gaza, as officials there are warned of a collapse of their health care system. President Emmanuel Macron said today the ship will leave in the next 48 hours. And here in the U.S., the U.S. Postal Service is updating safety efforts in the wake of robberies and attacks of mail carriers. The U.S.PS announced today larger rewards for information leading to arrest and conviction of someone involved. involved in a mail crime, as well as the installation of high-security blue collection boxes to make it harder for criminals to get into them. Postal Service also replacing universal key locks. You know, you've seen a lot of postal workers with keys for secured mailboxes with tens of thousands higher-tech electronic locks.

Kelly, it's just amazing that postal workers should be robbed and attacked. Yeah, their job is hard enough. It became so widespread that it makes sense they'd have to impose these countermeasures. Bertha, thank you very much, Bertha Coombs. As we head to break, let's get a quick power check. A lot of big movers today, Stride, the formerly K-12 for-profit education firm, hitting an old-time high up 20% after an earnings and revenue beat ticker LRN. On the flip side, a firm having its worst day since February,

after Compass downgraded the stock to sell, shares down nearly 16%. That's your power check. Power Lunch will be right back. Welcome back to Power Lunch. Alphabet is helping to drag the NASDAQ and S&P 500 lower today, sinking on disappointing results from its cloud business, while Microsoft, however, is remaining strong. Steve Kovac is here with those details. What do we learn from these earnings? Yeah, let's break this down. I'm calling it a tale of two clouds. Microsoft in alphabet moving in opposite directions today,

mostly due to their cloud performance last quarter. Let's start with Microsoft, Azure cloud growth posting a surprise beat of 29% growth, which CFO Amy Hood attributed to better than expected AI usage, contributed to three points of that Azure growth. So investors happy with the reacceleration of Azure growth after the growth declines we've seen over the last two years. The question now, of course, will that continue or will it plateau again? Amy Hood, while she was quite conservative in her guidance, so it's hard to tell at this point. Meant, the AI assistant co-pilot goes on sale a week from today. Microsoft also conservative with expectations on that, saying sales from co-pilot will grow, quote, gradually between now and next summer. Now let's get over to Alphabet.

Despite strong overall growth in the top and bottom lines, great ad business, that myths on cloud revenue expectations punishing shares. Google Cloud's still a distant third in cloud market share behind Amazon and Microsoft, but everyone is growing at the same time. And there's something else going on here, guys. This AI boom is accelerating growth for Microsoft's cloud, but Google's miss on cloud might be a sign it's not seeing that same benefit yet. Meantime, Microsoft appears to be managing its cloud costs better than Google, guys. All right, Steve, let me ask you a quick question. What is co-pilot?

Co-pilot, we're going to be talking a lot about this. We are? This is the AI assistant that works with programs like teams and outlook and kind of helps you through your day, for example, one example of many. If you come back from vacation, Tyler, and you have 6,000 emails waiting for you and you're overwhelmed, you just ask your co-pilot assistant, you know, tell me what's important, or tell me what I, even better, tell me what I need to do. that I missed, and it will bubble all that up to you and give you those action items.

Other examples I've been given, for example, if you need to make a PowerPoint presentation, a process that can take some people hours, you just give it all the data, and it will get you about 80% or 90% of the way there, and you tweak it as you go. Well, that's pretty cool. Stick around, Steve, for more on those results, as well as Meta, which is set to report after the bell. Let's bring in Julia Borson, as well as Andrew Boone, Internet analyst at JMP Securities. Julia, what are you looking for and looking at in meta, which has had a great year?

Yeah, meta shares up over 150% in the past 12 months. And I think the key thing here is that meta not only outperformed expectations in Q2, but they guided to a pretty strong third quarter, not with any specific numbers, but indicating that they're seeing a lot of strength. And what we're expecting now is the company's fastest revenue growth in two years. Analysts are expecting 21% revenue growth. This would be accelerating from 11% revenue growth in the prior quarter. So really showing strength here for a couple of reasons.

One is that the ad market is really seen as stabilizing. We saw better than expected numbers for SNAP. And we could see that play out as well for META. I would also point out that Google, for all of its weakness in cloud, did have strength in YouTube, 12% revenue growth in YouTube. So I think we'll see this overall stabilization and growth at the ad market. And also use of AI. Meta's been using AI to improve targeting,

creation of ads, measurement of ads, and that can boost them as well. Andrew, let me bring you in here. Are you excited about meta? Which are the Internet stocks you most excited about these days? You know, I expect META to put up pretty strong results for 3Q tonight. Google as well as SNAP both highlighted retail as a portion of strength this last quarter, and retail is 30, 35 percent of META's advertising revenue. And so I think they can put up a pretty strong quarter.

this as Reels continues to take share of time, and the ad pricing that's behind Reels continues to grow. You're not concerned about what do you think was going on with Snap in this weakness that brands, some brands pause advertising after the Israel Hamas War? Snap is more of a brand platform. It's more about building awareness for brands, and you just don't want to be next to content that may negatively influence your brand. You want to stay away from brand safety concerns, and so I think there are times, And you've seen this in the past two, three years. The BLM movement comes to mind when I think of past kind of events like this, where you do see brands just pause temporarily.

I don't think this is a sign of weakness overall for the ad market, but just a pause that were. Do you want to pick up on that? Yeah, I would just say the other advantage that meta has versus Snap is just meta has so much scale in general. And then it also has this strength and direct response. Snap said it was seeing gains in direct response. They've been pivoting to embrace these direct response ads more. direct response, you could measure their impact. You can go after specific demographics, whereas brand is going to be one of those things

that might be more likely to fluctuate at time. I think it's interesting, Steve, that you mentioned in talking about Google's cloud, that it may not be getting the same level of boost from AI as Azure is at Microsoft. We were both at the Technology Executive Council yesterday. You had to stay here to hold down the fort. I'm sorry, we missed you, we thought of you. Chat GPT must have been mentioned 150 times, barred zero, until I mentioned it at the end of the day. And there's a lot going on there.

So that is what's really benefiting Microsoft here. All that chat GPT usage, all these open AI customers that are flooding in, by the way, that grew like crazy over the last quarter. 11,000 open AI customers up to 17,000 net or 18,000 now, I think it is. That's huge. and all of that spending going on and all that usage and activity, that benefits Azure. That is all running on Microsoft's Cloud. So that's to their benefit. That's why they invested so much in that company because they saw this coming.

And here we are. We're seeing the benefits there. On the Google side, they were not very clear of how they plan to monetize AI. You know, Sundopachai talked about search a little bit and said it's going to make search better. Very unclear. You can use Bard now. It's okay. It's kind of Wikipedia-ish.

It's very basic. It doesn't give you better insight necessarily than going to a website. So there's still a lot of work there. It will get better, but it's still kind of unclear. So, Andrew, as you look at these companies, whether it's Microsoft ChatGBT, GBT, or Google or others that are in the world of AI, my sense is that they are in a phase of intense investment in these products, and none of them are actually making money on these products. Are they?

Well, let's bring this back to Google. At I.O., which is their marketing conference last year, they talked about a 5% improvement in terms of ROAS, as they incorporated better AI models for Performance Max, which is their AI-driven, direct response algorithm that better places spend. And so I do think it's directly impacting results and improving ad revenue. That being said, there is a cost here, right? But I do think that it's minimal versus the gains that we're,

seeing on the top one. But that's not necessarily the generative AI barred stuff they were talking about yesterday. And I would say just in general, META would say we've been doing AI for a long time. Remember, there's a big difference between the generative AI of chat TBT, which made such a big splash last year and this idea that MET has always been using AI or for years has been using AI to target ads. So I think I would just say back to this whole idea of chat GBT, just the first mover advantage it had in capturing everyone's imagination and attention.

in understanding what generative AI could do. It's really key. You know, one of the things I learned yesterday, I learned the difference between AI and generative AI. Because I never knew what... We've been experiencing AI in subtle ways for a very long time. But now the generative AI stuff is making consumer-facing, and that's why we're feeling it so much right now. Andrew, if I may as just a parting question, what would it take for Google to be able to re-accelerate its cloud growth, citing the efforts of AI if that's what we'll have to do. Optimization was highlighted for Microsoft much earlier in terms of cloud clients that were

trying to pull back spend and trying to just lower compute costs. I think that came later to Google. And so there's going to be a tough period of time as IT budgets get scrutinized here near term, but I don't think that changes anything for GCP longer. It's just Microsoft was earlier to the AI tool set. And I think that they were lapping kind of efficiency costs much earlier than what you're saying for GCP. All right. Okay.

Thank you all. Thank you. We missed you yesterday. Well, now I feel like I really missed out. We'll invite you to the next one. Catch the replay, maybe. Steve, Julia, Andrew Boone of Citizens' JMP securities. Thank you all.

Coming up, counting calories, Morgan Stanley says the rise of weight loss shots will lead to less food consumption and less appetite for junk food, too. We'll ask one of the analysts behind that call, who should benefit from all of this, other than, I guess, people, when Power Lunch returns. Welcome back to Power Lunch. To Americans struggling with weight loss, anti-obesity drugs seem like the best thing since sliced bread. But to snack companies who see consumers steering clear of sugar and sweets, the future is starting to look a little more stale. At least that's what our next guest thinks. She has four packaged food names she's keeping an eye on amid the weight loss craze. Joining us now is Pam Kaufman, Equity Research Analyst at Morgan Stanley.

Pam, it's great to see you. And whenever we reach the point that people start rolling their eyes about the hot new thing, whether it's chat GPT or the weight loss drugs, you know, it's worth remembering that there's going to be a very real impact here. So we've already come to the point that no one wants to hear anymore about it. But you think this impact is going to be very real, don't you? Yeah, and thanks for having me. So we do see implications for the packaged food industry from the exponential, growth in anti-obesity drugs.

And there are new data points supporting our view that there's a significant impact on food consumption among the people taking these drugs. There was just a survey that, a study that came out recently on Manjaro at a medical conference that showed a dramatic impact on how much people were eating while they were taking the drug. And Manjaro, for those who don't know, is Eli Lilly's Type 2. diabetes drug, but our pharma analysts expect an approval for obesity treatment by the end of this year.

Right. So let's run through some of the companies. Maybe you can lead us from who you think is most to exposed to least? Sure. So in our view, the companies that are most affected by these drugs are companies with high exposure to snacking. Our work and the study shows that there's a significant mix shift in people's behavior when they're taking obesity drugs. And we see this as having negative implications for companies with

high exposure to snacking, like Hershey, Mondleys, Campbell's, Kellanova. The work shows that there's a significant reduction in cravings for food overall, but a more significant reduction in cravings for sweets and also fast food fats. So we see the snacking companies as not position, to benefit from this shift. What about the granddaddies of them, Pepsi and Frito Lay and Coke? So I cover the packaged food companies. I don't cover the beverage companies. But over time, companies will adapt.

And Coke actually made comments on their earnings call yesterday that they're already well positioned to benefit from a shift to less calorie consumption. This was amazing to me. Monjaro patients experienced a 71%. reduction in calorie intake at lunch once they began taking this medicine? Wow. Yeah, the impact is very striking. So, like you said, a 70% reduction in calories consumed at lunch, people lost 7% of their

body weight or 15 pounds within six weeks. And that's happening because they're eating much fewer calories and also eating fewer sweets and fast foods. So we think that this will impact purchases for packaged food and also how how much people order at restaurants. Let me ask you a tough question. Are these drugs rich people's drugs? Because they are high priced. And if you don't have good insurance, an insurance may not cover it. If you can't pay write big checks, I don't know how you get it. There is a perception that these drugs are being taken by wealthy people. But actually, okay, According to Novo Nordisk, about 45 million commercial lives are currently covered for obesity

treatment in the U.S. for Wagovi. And the average copay is about $25 out of pocket for people on the drugs. There's also, as more medical studies come out, supporting the health benefits of these drugs like the select study, like the recent positive chronic kidney disease study, there are prospects for broader insurance coverage. and also potential for Medicare to start reimbursing the drugs. Interesting. Pam, thank you very much, and I didn't mean to catch you off guard with that question, but you had the answer. Yes. Thank you. Pam Koffel. I appreciate it. And still ahead. Payments, planes, and properties.

We'll get the trade on Deutsche Bank, Boeing, and Co-Star Group. There's a fresh three-stock lunch on the other side of this break. We're going to celebrate the new speaker. All right, time for today's three-stock lunch. We're going to trade some big movers of the day. First up would be Deutsche Bank, after beating expectations, third quarter net profit there. Here with our trades today, Ryan Belanger, founder and managing principal of Claro advisors. What do you think of Deutsche? Yeah, I think Deutsche faces a lot of the same headwinds that many of its peers are facing, and namely those are investment banking decline.

You know, the IPO market is still pretty much dried up, and deal volume is way down. So their fees are compressed, and I think a fierce competition for deposits is still something that's facing a lot of these banks. You can get money markets and treasuries at five, five and a half percent. So I think getting one or two percent in a bank account, a lot of customers are moving their money. And so I think Deutsche Bank is just facing those headwinds, and I think they're going to continue to struggle a little bit.

So you say sell this one? Yes. Okay. Let's talk about Boeing then. That's slightly lower after the company said they'll deliver fewer 737 max than expected this year in light of detected production flaws on the aircraft. shares are down 2% you a buyer? I don't think so.

I mean, not to be a buzzkill, but I don't think I'm going to be a contrarian on this one. They've got nine consecutive quarterly losses, three straight quarters of sales growth slowdown. So I just don't see a lot of catalyst here for the stock. They cut their 737 target for this year. So if you're a contrarian, I think you could buy it. But I just think in this market where rates are, I think there's better opportunity in other stocks. Let's move on to a co-star group, a real estate company, shares dropping after the company fell short on third quarter revenue and cut its full year outlook. But you see revenue growth here being a reason why you like it.

I do. I'll play contrarian on this one. I think this is a smaller company. It's in the mid-cap space. It's not as well-followed or well-known as a lot of these other stocks. And I think there might be an opportunity here. They had 50 straight quarters of, growth. I think that's significant. And I think that, you know, you should pay attention to a stock like this. People will pay up for growth in this market. I mean, that's the one area of the market people are willing to pay for. And I think this company will have it. Obviously, a nice opportunity to enter the stock today. Ryan, can't thank you enough. Appreciate it. Ryan Belanger. Have a great day. All right. Appreciate it. Coming up, mortgage demand goes up in arms. And the best and worst states for tipping will reveal that and more in closing.

time when we returned. Two minutes or so left in the show and a bunch more stories to know about. Let's get right to it, starting with GM and Honda scrapping plans to develop affordable electric vehicles. Less than two years after that partnership was first announced, the plan to produce millions of EVs under 30K each was doomed by slow demand and changing market conditions. We've heard some concerns on this front from GM as well. Yeah, a lot of concern that the uptake on EVs is not what anybody expected it to be.

We'll see, as certain states put in 2035 mandates, you have to have, all new cars have to be EVs. We'll see what happens. I think that price point is more challenging as well in a post-COVID environment, and that's going to be a real hang-up. Yeah. All right, data shows Americans racked up $105 billion in credit card debt, or excuse me, credit card interest last year alone. And according to the Consumer Financial Protection Bureau, one in three subprime or deep subprime borrowers was in persistent debt. in 2022. That is up from 25% in 2021 and back to near pre-pandemic levels. Whatever savings and balance sheet repair a lot of consumers experienced during the pandemic seems to have washed away

as they've gotten back in the habit of spending more, traveling more, etc. And the extra savings have run out. And inflation is the major one and it's contributing to low components. I think you have to watch the subprime areas. We saw this with TransUnion and Equifax. You have to watch autos for some early signs of broader trouble that could spread. And people these days, of course, use their credit cards in many more places or debit cards, in many more places than they ever did before, like grocery stores. Oh, yeah. I used to go in and pay cash. Right. Can you imagine? No. Yeah, I use my phone. Well, you have to bring $500 these days in grocery stores. Yeah. All right, I got to read this one.

New survey from USA Today and one poll calculated the top states for giving gratuities in the bottom states, too. See, if you can guess, the top five most generous tipping states, California, followed by Missouri, Florida, Arizona, and little old Rhode Island. How about that? The least generous states, okay, you ready for this? Illinois, Mississippi, South Carolina, New Mexico, and Tennessee, where the percentages are rather low. See, the low cost of living extends to tipping as well. I wonder if it's because California has more auto tips, you know, things like that are suggested amounts. Oh, it's suggesting that 22%.

All right, folks. I'll leave a tip for everyone here, all the team. Thanks for watching, Power Lund.