Power Lunch - On the Hot Seat?, and Buyback Blowback 2/27/23

Episode Date: February 27, 2023

We’re getting new details on the failure of Goldman Sachs’ consumer banking venture, ‘Marcus’ – and why it has CEO David Solomon on the hot seat. We’ll explain all you need to know. Plus, Warren Buffett says critics of buybacks are ‘economic illiterates.’ We’ll look at the impact of buybacks on the markets with a reformed ‘buyback critic’ himself, Herb Greenberg. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch, everybody, alongside Kelly Evans. I'm Tyler Matheson. Hope you're having a good Monday. Coming up, new details today on the failure of Goldman Sachs' consumer banking venture, Marcus. And what it has CEO David, why it has CEO David Solomon on the hot seat. We will discuss his future this hour. Plus, Warren Buffett says critics of buybacks are economic illiterates. We'll look at the impact of buybacks on the markets with a reformed buyback critic himself, Herb Greenberg. us what changed his mind. But first, let's get a check on these markets. Stocks are higher. They're

off their best levels, though. Last week was the worst week of the year for all three major averages. Today we're seeing half a percent gain for the broad markets, 1% gain for the NASDAQ. Let's take a closer look at some of the stocks that are making moves today with Dominic Chew and Christina Parts of Nevelis. Dom, you first. All right. So it's the planes, trains, and automobiles market check today, Tyler Kelly. For the plane side, check out what's happening with Boeing, which is up about two, two percent or so roughly right now, making it one of the best, if not biggest point contributors to the Dow Industrials, the commercial jet defense contractor trying to bounce back for bigger losses on Friday, tied in part to federal aviation regulators

saying that Boeing had temporarily halted deliveries of its 7-8-7 Dreamliner. Those shares, by the way, are down roughly 9% since it did hit a 52-week high back in Feb 14. Now, for the trains, it's Union Pacific. America's biggest publicly traded railroad operators up 9% or so, and that's off-session highs, making it the best performer in the Dow transports. CEO, Lance Fritz, is out. He will step down later on this year amid pressure from activist hedge fund Sorobin Capital, clearing the way for a leadership change to those shares up about 9 and a half, 10 percent, and we'll cap it off with automobiles of the electric variety. EV maker, Fisker, surging higher, just about about 25, now 30 percent or so

after it reaffirmed its production targets for the full year. Fisker still reported quarterly results that fell shy of estimates, but did say that costs were lower than expensive. in 2022. Now for a check on the tech trade, let's head over to Christina Parts and Avelas at the NASDAQ market site in Times Square. Christina. Thank you, Dom. So a potential biotech deal is driving the sector higher right now. The Wall Street Journal reporting that Pfizer is in talks to acquire biotech named Seigen in a deal worth more than $30 billion. Seagin stock, you can see on your screen, soaring over 10% right now. And this is happening, even though this deal is in the early stages and would still have to overcome tough antitrust

review, so it's still not a guarantee. Components of the XBI biotech ETF are also jumping on the notion. There could be other takeovers in the biotech space. Just in the near future, you can see names like Cell Dex up 8%, C. Jen we know, and an Intellia up about 4.5%. Morgan Stanley analysts, switching gears right now, fuel investors have been too negative on cybersecurity named Crowdstrike. They increased their price target to $150. The stock is trading right now at $121.68. They argue the firm can definitely leverage AI. And that's why you're seeing Paulo Alto, Z-scaler, and Data Dog, other software names are moving at least about 2% higher in sympathy right now. Guys?

All right, Christina, thank you very much. We begin today with the big story about Goldman Sachs, ahead of the company's Investor Day tomorrow, a rare but important event. CEO David Solomon's leadership being called into question with underperformance of Marcus and the Apple Credit Card under the spotlight. Joining us now to discuss what this means for the future of the company and for Solomon, as its CEO, is CNBC.com banking reporter, Hugh, welcome. Good to have you with us. As you look at Goldman's foray into consumer banking, checking credit cards and the like, is this just a simple case that Goldman is not suited to be in this business? It's not what they do.

It's not in their DNA was what a lot of the old guard of Goldman Sachs, part. partners, you know, have said from the very beginning all the way up to Gary Cohn, who was the number two and the president of Goldman Sachs for quite a while. That's one of the revelations in this story. Still, you know, I have to look at it. When I look at the story of Marcus, I have to say, you know, there were bright spots and it was, you know, succeeding at a certain point. And things really went south in 2021. And so, you know, why? The death blow for Marcus was that Goldman Sachs here, and I will take a step back. One of the surprising things in. my reporting the story is the extent to which the decisions that CEO David Solomon made had an impact on the story of Marcus and ultimately its failure. So he had done a series of reorganizations, just shifting the walls around for this. Shifting people. Shifting people around for this organization. In 2021, you had a partner, a guy named Omar Ishmael, who was one of the original architects of Marcus, internally very well regarded. And ultimately, you know, he felt like he had been looked over for this promotion that happened in late 2020. One of his...

peers had got it. And so he leaves for a place, a Walmart-backed fintech named one. And this sets off a series of essentially disastrous things from Marcus. You have waves of people leaving. You have a lot of lack of discipline in 2020 leading to a boom and bust scenario. And things really went south. One of the things that I, let Kelly jump in here in just a sec, one of the things in your reporting seems to be this, that there were a lot of people who felt that the initial credit card deal with Apple was very poorly engineered from the standpoint of Goldman Sachs.

One of the delicious details in this story for sure is, you know, a meeting in which you have a credit card veteran in many decades, Barclays City, you know, one of the folks who got hired to inject some retail-making talent at Goldman Sachs, he shows up, he finds the contours of this deal which have been verbally agreed to, and he says,

I'm paraphrase, what the hell happened here, guys? who agreed to do this. The feeling was that they gave away the store at Apple and that essentially Goldman executives were so eager to get this deal with the tech giant that they gave away the store. And also, I forget who it was who was telling us this in the last week or so,

but saying if you were going to make a consumer bank, Goldman approached it in the worst possible way because they went after credit cards and sort of high-cost online loans, which are two not traditionally great ways to build a sticky and loyal customer base. The ways to do it are to open brick and mortar locations, for instance, in other countries or to do that here, you know,

create those deep relationships, low-cost checking accounts, for example, are they going to now try a different tack, or is this whole consumer thing history, and is David Solomon going to be history as a result? Well, well, that's definitely a bridge too far. One thing I will point out, David Solomon was a proponent of the digital checking count. He was enamored of the success of chime at the time, huge valuations for these startups. But what happens is, you know, the fintech, Obviously, valuations have seen a collapse, and they've pulled back from this. On the point about David Solomon, I have to say there is a lot of chatter. If you speak to Goldman X folks and current folks, there's a lot of chatter right now that he is at risk.

We don't really know how real that is. What I think it's fair to say is that he has to focus on, one, creating more consensus internally among partners and other internal stakeholders to agree on the path forward, and this begins to market. For Marcus, for the consumer banking or for the company at large? Goldman's Saks large. And, you know, as it pertains to Marcus to your question, they're going to be, they've obviously slimmed down the ambition there. They're basically saying we're going to be the behind-the-scenes partner. We're going to be, just like with Apple and the Apple card, we're going to provide the balance sheet and the tech, but we're not going to be the leading brand. And so it's going to be a very much more, you know, a smaller ambition for this going forward. And their investment day is tomorrow. So presumably we will, we will learn at least something more about Goldman's. They're going to provide deep dives into basically what's going to be the growth engine. We know now the growth engine is not consumer anymore.

That was kind of the story from three years ago at the first investor day. Now, tomorrow they're going to say what is the new growth engine, which I suspect will be asset and wealth management. Oh, they're good. I mean, they get into that now. They can't get into that now. How are they going to be the 45th player or acquire somebody? So, Kelly, we've had this discussion in this sort of show. So it's too mature, basically.

They can't buy their way into it and how are they going to grow their way into it. And I think they're going to, I suspect they'll convince us. you know, they'll try to convince people, this is how we're going to grow our way into it, because acquiring huge asset management players, too difficult in this environment. It would be fascinating. All right, here's a fascinating day tomorrow. Hugh, thank you very much. And, oh, by the way, Goldman Sachs CEO, David Solomon, will be where?

Squawk Box tomorrow, 8 a.m., ahead of the company's Investor Day. I am sure that he will get lots of very spicy questions. I was going to say set your alarms, but hopefully people are up. Hugh, thank you. The back and forth is debate on. buybacks, meanwhile, continues over the last few weeks. Companies have found themselves under Washington's microscoped over these practices, the White House slamming Chevron last month, that being the latest example. Now, in his annual letter to shareholders, famed investor Warren Buffett, calling critics of the

practice economically illiterate. But as this fight goes on, and if companies become more hesitant on the buyback front, could it pull the rug out from under the market? Let's bring in Herb Greenberg, editor with Empire Financial Research and Reformed. We've got reformed broker, Herb. What do you reform buyback critic? Yeah, reform buyback critic. That's a better way of putting it. Never was a broker. I'm referring to Josh. Let's nuance Warren's views on this for just a moment so people are clear. He says you can't call them all good or all bad. You have to look at the price. Anyone who's ever been through a CFA course or anything like that knows Herb. If they're accretive, fine. If they're dilutive, not great. How do you approach the issue?

I approach it that it's really just, you know, it's another form of capital allocation, and it's really a test of how good the management is or is not. And, you know, investors want to know that the capital is being, you know, put somewhere. And the reality is it's just another form of investing. I mean, that's what buybacks are. And you want to be in companies that are doing it with good cash flow and that have good balance sheets and can actually have looked around. and they really do feel that's a good use of their money. I mean, look, look, I have some companies in the model portfolio of one of my newsletters, and when they say, you know, investors are pushing them to do buybacks, and the companies will

say, hey, look, we've got a lot of money. We're generating a lot of cash, but we have a priority list. Buybacks are at the bottom. I love seeing that. But then there are other companies that just historically keep buying back stock. Their stocks have not maybe done very well. They're just like, you know, like a like a, like a. like they're just, you know, they're static.

And, you know, that's a great use of cash. I mean, there's a company I like. I've mentioned it here in the past, Allison Transmission. It went back over 50% of their stock over the past 10 years. I mean, they're like taking themselves private. Boring as that company. So, Herb, your view of buybacks is rather more benign than that of some critics of buybacks, some of whom would say that it is a convenient way for managements to restrict

compress, contract, the share float, and thereby, in part, artfully manage EPS, to which often, not only stock price, but to which often executive compensation is tied. How do you answer those who say this is really financial engineering? Don't confuse financial engineering with sound financial management, because for some companies, you know, you could say that could be whittled down to really one question. Does the share repurchase create value for shareholders? And, you know, if a company's buying back stock purely to offset options that are being exercised, I wouldn't, you know, that's an issue. But if they're doing it because it is the best use, and yes, they're basically giving you a bigger share of the

company. So what's the problem? I don't see the problem with that, Tyler. And as I looked at it back when I was somewhat of a critic, it was an easy mark. And now when I look at the politicians and the politicians are saying, this is, you know, it's an easy scapegoat. I would say that when I looked at the state of the union address, and by the way, I tilt left. So this is not a political statement. When I looked at political, when I looked at the state of union address and everybody was cheering, cheering when Biden was talking about let's get rid of those buybacks, let's tax those buybacks. Let's put a quadruple tax. I thought, how many of those people even know what a buyback is? and you know, because you know that many don't.

So, Hurd, if they raise it from, you know, 1% to something much higher, 5, 10%, what is the net impact going to be on the stock market, do you think? Well, assuming it goes through, which it probably won't, but what would the net, I don't know what the net impact would be. I would suspect that some companies might pull back, but the stock market, I hope the stock market is tied to much more than buybacks. Again, companies that do buybacks the right way and can afford them. that's good for that company. I'm most interested in the company, not the market. So I know that's my way to wiggle out of that question, but I think you have to look at each company independently,

because this is not a one-size-fits-all. Sure. So take your favorite one. What would the companies do where buybacks were suddenly costlier? Would they turn back to dividends? What would they do? Yeah, they could end up paying this company pays a dividend. They could pay a bigger dividend.

Of course, that's more of a tax-it-on investors. You know, ultimately, they're going to pay tax on that. Some investors would prefer dividends. You know, there's a mix. I like to see some companies that do both buybacks and dividends. So, you know, what will a company do? Hopefully it won't set that cash of fire by doing something stupid. Raise executive pay.

You can think if you need to, you know, you've got some. Yeah, go ahead. And that's the other thing. You know, when you see people talking about it, it's a way to, you know, for management to enhance its own wealth. It's actually a way for, again, in many companies, for management to enhance shareholder wealth. Because remember, it's about all shareholders in that case. And by the way, if you look at compensation and you look at how management is compensated, you know, you don't want to see just earnings per share as a bonus structure for the bonus structure.

One metric earnings per share. That's horrible. That's horrific. That's not a good thing. But, you know, it's easy to point a finger at it. It's another thing to actually go in. do the work and understand, you know, how management is compensated for that specific company and how management is done, how the performance is. And again, I come back to, is this a company that's generating a lot of cash and that has a really solid balance sheet? Right. Really boils down to that. Right. Herb, appreciate you joining us today. Herb Greenberg. Always pleasure. All right. Coming up, we will get more clarity on the consumer tomorrow Target reports. Lowe's Wednesday. Up next, we'll talk to Stephanie Link about what else she's watching.

watching this week and Twitter announcing more layoffs as Elon Musk tries to turn around what he calls the world's largest non-profit. All that and more coming up on PowerLine. Investors will be watching a lot of key economic data due out this week, including consumer confidence tomorrow. That's on top of a slew of retailers reporting. And here with more on what to expect and some important names to watch, Stephanie Link, Chief Investment Strategist and Portfolio Manager at Hightower, as well as the CNBC Contribes. Let's start, Stephanie, welcome number one, with the economic data this week. What are the two or three data points that you'll be watching?

What do we expect from them? Yeah, so it is a busy week. I think the PMIs and the ISMs will be interesting because you get the services component as well as the goods component. And I think services is going to continue to be the bright spot north of 50, which is expansion. And on the good side, I think you're going to see continued contraction. And that's exactly what we've been seeing all year, actually for the last couple of quarters. But we do know that services is about 70% of the consumption, U.S. consumption.

So we kind of root for services. But we're hearing that very consistently from companies as well. And then, of course, we get a big number, fourth quarter unit labor costs. And that number, 1.5% growth month over month, but a 6% year-over-year number, it's likely still too high. And another reason why the Fed will continue to be hawkish and continue to be raising interest rates. Let's move on to a couple of consumer names that report this week, Target and Lowe's. These are stocks that you have your eye on, not necessarily ones that you own or favor as buys right now.

But talk us through them. Yeah, well, I own a small position in Target, and I am inclined if it does fall what options are pricing and 8% move either way. But if it does fall on the news tomorrow, I am inclined to be a buyer because I do think as you progress through 2020, 23, that this company is going to clean out inventory and that margins actually, as they clean out that inventory, will recover. I mean, their goal or their target and guide for tomorrow is low single-digit negative comp and also a 3% operating margin. I think that's a low hurdle, Tyler.

But again, the key is going to be inventories. It was 14% growth last quarter. It was 43% growth in the first quarter of last year. They've made progress, but they still have a long way to go. I guess Lowe's has a lower bar now, Stephanie. What do you think? Yeah, I would say definitely Lowe's has a lower bar. And it also trades at 14.7 times forward versus Home Depot at 18 times.

So a big discount to its competitor. But the reason it does, Kelly, is because 75% of their revenues is do it yourself. And that we know has been under enormous pressure versus the pro business, Home Depot has a much better mix. So inventories are also going to be key for these guys too. I thought Home Depot did a pretty good job. Sales to inventory spend actually narrowed to 12% versus the 19% prior quarter, but it's still high.

So we've got to see that. And then of course, these guys have a self-help story component to them in terms of cost-cutting and operating margin goals. Their goals are just to get to where Home Depot is now today. And their goal is to get to 14.5% operating margins by 2025. So they have a long way to go. go. I'm not involved in this one. I prefer the home builders and I like D.R. Horton, as you guys know. All right. Finally. Finally, broadcom. I guess the question is, can they make the case that they're

deeply enough into AI, which is everybody wants to see these days? I know, I know. AI and data center is about 30% of their total revenue. So they do have pretty good exposure. We know that from NVIDIA, it was obviously the positive. The guidance was the positive. So we'll see what they have to say there. I think that's going to be the bright spot. Enterprise and cloud probably going to be under pressure, not surprising. That's again what Nvidia gave us a sense on. I think their total revenue semiconductor business can grow about 19 percent and infrastructure software probably about flat. But they have industry leading margins and I think that's really important and a backlog of $31 billion. That's also very important. This stock is only up 3 percent in the year. The SMH is up 17 percent.

I kind of like this one, especially given the valuation. It's a discount to the group. Stephanie, always great to have you with us. Appreciate it. Stephanie, Link. Thank you. Thank you. Coming up, some food for thought.

For today's Clean Start, we'll take a look at a startup that turns food waste into chicken feed and sells it to farm. Hmm. Are humans next? No. We'll be right back. Welcome back to Power Lunch. Let's get you caught up on the markets where the Dow's up 121 points. The NASDAQ continuing to lead the way will also hit bombs and commodities.

But we'll begin with Bob the Sons. over at the New York Stock Exchange. Bob, what are you watching? Kelly, it is right in the middle of a trading range, but it's very amusing and interesting to me to see Fisker move so much. You know, these EV makers have had a terrible year. Generally, they're having trouble hitting their production targets overall. But Fisker surprised everyone. Now, they missed on earnings, but made very positive comments about deliveries. They've been waiting for this SUV for a while now. It's going to be called, of course, the ocean. They talked about 46,000 deliveries this year. That would be a huge target if they were able to make it. They're still losing money. They're projected to lose money.

But there's a possibility that could be cash flow positive, maybe. That's kind of got people going. Look at the move up in some of these names. It was up 20 percent today for Fisker here. But most of these other EV makers haven't. The big thing for Fisker is they are having this manufactured in Europe. So they're a contract manufacturer. They don't have their own plant. That'll help them out a little bit.

Again, that's the biggest gainer at the New York Stock Exchange. Elsewhere, we're closing out February down 3, 4 percent on the S&P 500. not a lot of big gainers, but some of the aerospace and defense stocks have done very well today. They're down a little bit today, but Northrop Grumman's had a very positive month. Lockheed's had a nice month. Textron's had a nice month. Boeing's down a little bit. That's one of the few of the big aerospace defense companies that are not outperforming the S&P 500.

But you want to know the truth? Tyler, the hottest thing on Wall Street, it's not equities. It's bonds. Short maturity treasury bonds, treasury bills, I should say. Those generally around one year maturity to two year maturity. These ETFs that own these like the I-share short treasury, spider portfolio short-term, Vanguard short-term, huge inflows. Tyler, everybody loves this two-year treasury yield at 4.8%.

My mother brought it up to me over the weekend. And if your mother brings up something to you, pay a lot of attention because it's really steeped into the zeitguise, Tyler. And you're right. Everybody is paying attention to bonds these days for a change. Bob, thank you very much. Let's go now to Rick Santelli, speaking of bonds. He is in Chicago. Yields are falling. Rick. Yes, you know what? These high yields are definitely capturing many investors' imaginations. Just be careful that whether you're in a fund or you actually hold the security, if you're holding a two-year and you're happy with the rates,

you might have to hold it to maturity should there be any change to rate structure. And therein lies the rub. You need to be happy with that return. Now, if we look at it in two-year, by the way, is the star for me today as well. So let's look at a two-year over two days. You notice how it just flew on Friday? Well, Friday was a huge day if you're a technician. Because if you go to the charts longer term, you can clearly see that last fall we had a high-yield close for twos that was 4.725. Well, Friday was the day we finally closed above it.

And as you look at the spread between twos and tens over a couple of weeks, you can see that it had been less inverted. And all of a sudden, two-year on Friday changed that. Now, even though today twos and tens are about equal-distance, so there's not a lot of curve implications, we're still darn close to a fresh four-decade extreme on twos to tens. And the main reason is as follows. Whether you look at threes, tens, or thirties, only twos have closed about. love their fall high yield close, and that's very important to pay attention to. $4.65 is for three years, so you want to watch that level very closely.

Kelly, back to you. All right. Thank you, Rick. Let's check out commodities now. Pippa Stevens here. What's going on with oil these days, Pippa? Oil is lower off the worst levels of the day, and it is still the same macro factors. The dollar strength worries about what more rate hikes might mean for demand that are driving the narrative.

But we did get a call from Goldman Sachs yesterday who are once again pounding the table on triple-digit prices. They see the market flipping into a deficit by June, and they said that even if OPEC and its allies unwind those production cuts come June, this boom in Chinese demand will offset those new barrels. However, this boom in Chinese demand has really yet to materialize, despite people pointing to this as a key catalyst for quite a long time now. So it's China is what they're counting on.

Everyone is counting on China. Yeah, I mean, it really seems like China is what could meaningfully push prices higher. oil in this range, WTI, between 70 and kind of 82, for a number of months now. And there has yet to really be a strong catalyst in either direction. So I think China demand is the one that everyone keeps pointing to all the oil bulls. And for the oil bears, it's the point that hasn't materialized yet. May I quickly ask what's going on with lithium prices? Because we started to talk about the decline in the past week or so, but is it picking up speed now? Yeah. So Chinese spot prices are down more than 20 percent since the end of last year, with global prices down about 11 percent so

far this year. And part of that is thanks to an increase in inventory. We've also seen CATL, the big battery maker, cut their prices in an effort to gain market share. So that is weighing on prices right now. But of course, you know, they are up more than 800 percent over the last three years. So there's many who say that this pullback would actually be healthy because it could mean a faster rollout of EVs because when the battery prices are so high, it does impact demand. So it could potentially be a positive, but we'll see. All right. Pepper, thank you. Good to see it. All right. Let's get to Bertha Coombs Now for CNBC News Update.

Bertha. Thanks very much, Tyler. Here's what's happening. The Biden administration is launching a major crackdown on companies that illegally employ migrant children who have come to the United States without an adult. That according to the New York Times, which published its own investigation that found it has been happening all around the country. The Times says the Labor Department may try to stop the interstate transportation of goods when child labor has been found to be part of the state. supply chain. sources tell NBC news that congressional leaders and top members of the Senate and House Intelligence Committees will get their first briefing tomorrow on the investigations

into classified documents found on the properties of Joe Biden, Donald Trump, and Mike Pence. And an internal government watchdog will reportedly look at Transportation Secretary Pete Buttigieg's use of government deaths for official trips. His office says he needs. He knows. He made 18 flights on FAA planes for seven trips, and in all but one instance, it was less expensive than having him and his staff fly commercially. Tyler, Kelly? Very interesting.

Bertha Coombs, thank you very much. Ahead on Power Lunch, Twitter, laying off more staff, Amazon, expanding same-day delivery, and Kathy Wood, weighing in on NVIDIA. We'll break down today's top stories in our tech check feature. Welcome back. Time for today's tech check. Dear Drobosa, joining us from San Francisco to talk a few topics in the news. Dear Joe, welcome. It's good to see you. Let's begin with reports of more, I mean, we shouldn't begin on such bad news, but the layoffs more so at Twitter? What are we hearing? Yeah, it's happening. And hello everyone. Welcome to the new tech. First up, as Kelly said, those layoffs, they continue in the industry as it continues to reckon with a slowdown. Palantir also, that was out just this morning, the latest to announce, that it is cutting 2% of its workforce. And over the weekend, the big story wore those layoffs at Twitter. So there's more reports as well that meta is going to do another round. So for investors, the takeaway here, it's got to be that cost cutting guys, a focus on margins has worked for tech stocks. They were

able to regain market leadership this year. But now the question is, can more cuts sustain those gains or do investors start looking for a transition back to top line growth? Kelly and Tyler, today at least that tech trade is working. It's coming off the worst week of the year for the NASDAQ 100, but back on track at least to start this week, midway through Monday. Let's return to a frequent topic, Kathy Wood on our air this morning. She's been out chopping wood, stacking it, and her flagship fund up 25% this year. What's going on? Yeah, poster child of at least the unprofitable tech trade. And there's a lot in that interview. The ARC ETF rebounded to start the year, of course. But February performance, it has fallen off, along with a lot of the less

profitable, more speculative tech. Here she is on NVIDIA. Have a listen. We do own it, but for our flagship fund where we've consolidated towards our highest conviction names, part of that has to do with valuation. Invidia's valuation is very high. So even there, Kathy Wood is saying that the valuation is high, which is saying something. But interestingly, there was actually this very bullish note on NVIDIA today,

Bernstein, Stacey Raskin, saying that chat GPT, could be huge for NVIDIA. He tried to size the chat GPT AI opportunity for the stock, estimating that executing 100 million chat GPT queries per day would require $1 to $2 billion in annual GPU sales. That goes up to $10 to $20 billion for a billion queries a day. I was looking into this, guys, the current number of searches on Google per day,

it's about $8.5 billion, so it only needs a fraction of that for the bull case for NVIDIA. Wow. I mean, it makes sense. A lot of chips to drive this bus. A lot of computing power. Meanwhile, Deirdre at Amazon, many companies still cutting costs, but they're investing in a way to try to make even faster delivery possibility.

Yeah, so Amazon essentially here trying to balance the two major themes right now, efficiency and growth. So while sales have weakened across, its major businesses, e-commerce cloud advertising, it's still doubling down on same-day delivery. So in doing so, guys, Amazon is essentially using its broad logistics network, which had expanded during the pandemic, to better compete with retailers like Walmart that can lean on its own thousands of physical stores to fulfill same-day orders. It, of course, comes at a tricky moment for Amazon and CEO, Andy Jassy.

Shares have shed half of their value last year, but Amazon has never been one, guys, to go on the defensive. They're always the least offensive in some way, and Andy Jassy is carrying that torch. to put you on the spot and I forgive you in advance for asking this question. I forgive me in advance, please, for asking this question. But do you have any idea roughly what percentage of Amazon's deliveries are handled by Amazon, from origin of order to delivery at my door are handled by Amazon's trucks,

its delivery people, its planes, as opposed to others? Well, its logistics network has grown so much over the last years. I don't know the exact number of it. Yeah, but it has doubled over the pandemic, right? Andy Jassy is someone who would say that they had to lean in. They overbuilt. They have too much capacity. But that wasn't able to take advantage of this massive shift to e-commerce that we saw during the pandemic.

The result is they built too much too quickly. But he'd rather be in that position. So now they're getting back to things like same day delivery, which is what they're trying to do here. They have this program called fulfillment by Amazon, which a lot of their merchants use, which simplifies the process, but you give up some of the privacies and data in return. So it's up to the merchant here, but this idea of that same-day delivery, Amazon would own and operate that whole process, which can be more expensive, certainly, until you get to scale.

But the hope here is that you do get to scale and you better compete with the Walmarts and the targets of the world. To me, it's a marvel. I ordered, to bore everyone here, I ordered on Friday night. some coffee machine de-scaler. It arrived Saturday morning. I mean, and it was all, it was all, do you see the option now for when you order it says,

do you want it between 4 a.m. and 8 a.m. Yeah, it said something like that. I think it did. Yeah, but I mean, and really the reason I ask is I see so many more Amazon trucks on the road and Amazon delivery people working to deliver the goods. It's amazing. Yeah, I mean, pre-pandemic, one-day delivery was kind of, off to the races. They scaled that back during the pandemic to better deliver more products

to more people. But now they're getting back to that one day delivery. Of course, for that prime flywheel. It's what it's all about, guys. The machine is now completely descaled. It's all good. Come over. Have a cappuccino. I'm glad to hear. All right, good. Yeah. I knew you would be. Thank you, Deirdre. All right, not your run-of-the-mill startup. After the break, we'll take a look at one company turning your food waste into chicken feed. and profits. We will explain in today's clean start. More than one third of the food produced in the United States is never eaten, and all that wasted food is contributing to global warming. But there is an easy remedy. Diana Ollick joins us with a look at the new competition in composting in her

continuing series on climate startups. Hi, Dai. Hey, Ty. Yeah, each year wasted food produces the same amount of greenhouse gas emissions as 42 coal-fired power plants, and that's according to the EPA. And that doesn't even count the emissions from all of it rotting in landfills. Now, composting is a way of reducing that, but it can be both time-consuming and messy until now. Wasted food makes up nearly one quarter of both landfilled and burned waste, contributing significant greenhouse gas emissions. composting can eliminate a lot of that. And now the competition in that space is heating up. Names like Lomi, Rinkle, Vitamix's food cycler, and a startup called Mill.

Look, no one likes their experience with trash at home. Icky, drippy bags and fruit flies or rats. It's just like it's a problem that we've come to accept, but frankly, it doesn't have to be this way. Rogers, who also co-founded Nest Smart Home Systems, says Mill differentiates itself among kitchen composters by keeping food as food, turning it into chicken feed, clean and simple. We sell our feed to farmers as an ingredient to chicken feed, which actually helps subsidize the membership. Yes, there's a price for all this, at least $33 a month for the service, which includes the

kitchen bin and a prepaid box every time you send the milled results back to mill. Just let them know in the app when your bin is full. Investors in the company say they don't see the fee as a problem. There are millions of people that already composts across the United States, and in fact, there are many people that already pay for this service. What Mill does is upgrade the entire experience. Mills plan is to start in consumers' kitchens and then expand to local municipalities and do this on a much larger scale. Mill is backed by Breakthrough Energy Ventures, Energy Impact Partners, lower carbon, Prelude, and Google Ventures. Total funding so far, $100 million. We asked some consumers

if they would pay to do this when they don't get any fertilizer back like traditional composting, and the responses were mixed. But Mill said, says it's already sold out its first subscriptions and is now launching its first test pilot with the city of Tacoma, Washington, where residents using a mill can supposedly reduce their city waste bills by around $25 a month. Back to you guys. So basically, simply put, why do so few people compost? Well, it's like he said, it's messy, it's a pain. It's not like recycling where, you know, you get the bin and the municipality takes it away. And also, it's not really required. In fact, there are only nine states that restrict sending food waste to landfills and only one state, Vermont, which outwardly bans it.

Fascinating. Diana, thank you very much. $100 million. They have raised a lot of money. All right, Diana, thank you very much. Appreciate it. Exclamation point. Yeah. Still to come, some key movers in today's three-stock lunch. There you get a glimpse. We're back after this. Welcome back. It's that time for three-stock lunch. Today we're sipping on some big movers. We've got end phase higher on an upgrade to buy at Janney Montgomery Scott, they're bullish on solar.

Fisker, pacing for its best day in two years on that news. They'll begin deliveries of their first EV this spring and some profitability hopes. And Teledoc, down 10% in the past week after an earnings miss and downbeat guidance for 2023. Here to help us trade all three is Courtney Garcia. She's senior wealth advisor at Payne Capital Management and a CNBC contributor. Courtney, welcome. Start us off with N-phase.

Would you be a buyer here? I would, actually. So N-phase, I mean, really solar and clean energy in general. It's long been seen as the future of energy, but it's been really hard to invest in profitably. And that's where I think something like an end phase actually stands out because not only is it profitable, but their gross margins are above 40%. And I really like that they have a strong balance sheet. They have about $1.6 billion in cash and less than $640 million in liabilities. Plus, they have a lot of free cash flow.

So it really is going to lead them into a lot of more growth opportunities we move forward. And lastly, I like that they have the ability to pass on their price increases to customers, as they face things like supply chain issues or chip shortages that have affected them. But when you're in a higher inflationary environment, when you have the ability to pass on those cost to customers, that is really important, which they have proven to have. And so I think for all of those reasons, I'm optimistic here. Let's move on, Courtney, to Fisker. What do you think?

Fisker, I'm not as optimistic on. I actually, is a cell rating here. The problem here is profitally is going to become really important, especially in the higher rate environment. They're not only not profitable. They really don't have any revenue to show. currently. So it is up on some news that they're going to finally deliver some vehicles earlier than expected now in the spring, which is great. But they really are still going to be facing a lot

of the issues their competitors are with supply chain issues, issues with chip shortages. And they have really not a lot of room for breathing in their balance sheet. So they basically have enough cash to cover this year's worth of expenses, but not by a whole lot of margin. And so if they don't have the demand that they're expecting or if there are any further supply chain issues, there's not a lot of a lot of room for error there. So I would, I would not be a buyer here. All right, Teledoc, that brings us to this one going the other way today. You have buyer of the weakness or seller sticking with the trend? Cellar sticking with the trend here. Teledoc, again, is unprofitable. They're not expected to be profitable until probably 2025. But I really think this is a company

who was benefiting from the trend during COVID. But now they face a lot of competition, not only from smaller competitors, but also the likes of an Amazon who just bought one medical. And they're just currently their free cash flow is deteriorating, and it's really not the kind of company that I'm going to continue to be in. And while they did have not a bad quarter, they recently reported, their guidance was not very optimistic for future growth. So I would avoid this one again. All right. Courtney, great to see you. Thanks for all your picks today. Thanks for having me. Courtney Garcia. All right, two years after a bombshell report showing that Hollywood is losing 10 billion annually from racial inequity, the industry is actually moving

backwards. During February, we celebrate Black Heritage through the stories of some of our CNBC teammates, contributors and leaders in business. Here's Roger Ferguson, former Federal Reserve Vice Chair and a CNBC contributor. My heritage and culture as being an African-American male has had a major impact on my career. And the main thing is that it is focused in on areas where blacks have frankly been disadvantaged, with a real focus on financial security, financial literacy, retirement savings, you know, that range of topics. And I think it's really important for everybody, but it's particularly important for our African Americans who, you know, have been, you know, forced to be at the bottom end of the income and wealth spectrum and anything we can do

to overcome, you know, all of that years of heritage and discrimination, I think is really important. Welcome back, everybody. Much like other parts of corporate. America, Hollywood made some big promises to improve diversity, both on screen and behind the silver screen. But two years later, little or no progress has actually been made. Julia Borsden now with more. Hi, Julia. Hi, Tyler. Well, two years ago, McKinsey dropped a bombshell report that declared that Hollywood was losing $10 billion annually from racial inequity in the industry due to failing to serve the audience and also lack of funding to profitable content from diverse creators.

Now USC's Annenberg Inclusion Initiative is reporting that diversity progress has reversed. Hollywood employed fewer directors of color last year than the year before, 20.7% down from 27% the prior year, while women of color directed fewer than 3% of the top 100 movies. We're really seeing a disconnect between the audience, right, and the talent. that are given the opportunity to tell stories. And we know that this is about access and opportunity, not a talent pool issue. There are lots of folks that are ready to go

and want to tell these big stories. They're just not given the opportunity to do so. We saw this lack of diversity reflected in the fact that none of the directors nominated for an Oscar this year and none of the filmmakers nominated for Best Picture are black. But there has been progress in one area. women of color are gaining ground on screen.

A record 16% of the 100 top grossing films last year featured a woman from an underrepresented racial or ethnic group in a top role, up from 11% the prior year. But that increase in diversity did not appear in the Oscar nominations. Only two of the 10 acting nominees are black. Tyler? You know, I've got a couple of questions here. Are some studios making more progress than others?

Do we have a measure at that level of granularity? There is, and there's a fantastic study out of USC from their inclusion initiative that breaks this down. And in fact, Tyler, CNBC's sister studio Universal Pictures, which is run by a woman, Donna Langley, they actually have produced more films led by an underrepresented, someone from an underrepresented group than any of the other studios. So that is one film, one film studio that's showing progress. And it's not a coincidence that it is run by a woman. So I think that's really important to point out there. the numbers that you cited speak for themselves, but they seem to be largely one year to the next

kinds of numbers. Do the longer term trends tell them a more favorable story? Because it could just be, I don't mean to ascribe it this way, accidental that the number of directors went down that much. A seven percentage point drop is not nothing, Tyler, but over time there has been progress. But it's coming off a very low base. Right. All right, Julia, thanks very much. We appreciate it. And we appreciate you being with us today to watch PowerLine.