Power Lunch - Power Lunch 11/17/23

Episode Date: November 17, 2023

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

Good afternoon, everyone, and welcome to Power Lunch. Alongside Kelly Evans, I'm Tyler Matheson. Coming up today, small caps making a big comeback for a change. The Russell 2000 up 5% this week. Now positive for the year should investors care or are the magnificent seven far more important to the markets and your portfolio. Plus, one of the busiest travel weeks of the year is coming up and multiple storms are in the forecast. We will discuss the challenges with the former CEO of United. Could we get snow? That's what I want to. know, but first let's get a check on the market says the Dow turns positive and is in fact right around session highs today. Up 36 points. The S&P up 8 to 4516, the NASDAQ up 22. As Tyler

mentioned, the Russell 2000s also keep gaining. They're up again today, about 1.3% outperforming and up better than 5% on the week. Also check out shares of gap. Soaring and on pace for a record increase after beating on earnings powered by Old Navy. Is there more room to run or did you miss the rally. We'll get the trade in three-stock lunch coming up. And now to the story, practically everyone's talking about today, and that is Elon Musk's post, which many, including the White House, have called anti-Semitic. On X, Musk wrote, quote, you have said the actual truth, end quote, in response to a post saying Jewish communities pushed hatred against whites. Musk went on to say, quote, the ADL unjustly attacks the majority of the West

because they cannot criticize the minority groups who are their primary threats. IBM, saying it's going to remove all of its ad from the platform, as this must post coincided with IBM's ads being placed near to posts in praise of Adolf Hitler. Ex-CEO Linda Yakorino, saying the platform takes steps to combat anti-Semitism and discrimination and that there is no place for it in the world or on X. Remember what Elon Musk told our David Faber earlier this year. I'll say what I want to say, and if the consequence of that is losing money, so be it. People interested in, excuse me, people invested in Tesla may not be as willing to accept the consequences of Musk's actions, including Gerber Kawasaki CEO, Ross Gerber.

As a shareholder, it's absolutely outrageous his behavior in the damage he's going to. cost to the brand. Simple as that. And joining us now is a Tesla shareholder, Kristen Hull, founder and CIO of NIA Impact Capital. And Americus Reid is a marketing professor at U.PEN's Wharton School of Business. He's also a CNBC contributor. Let me begin with you, if I might, Kristen, because you condemn Musk's recent post on X that confirmed and agreed with anti-Semitic views. He said it is, you said, among other things, this type of behavior is predictable from Musk. It is nonetheless dangerous. This type of anti-simmat antagonistic behavior by a CEO would typically result in the Board of Directors taking serious punitive action.

Why do you continue to hold the shares? That's such a good question. Thanks for having me today. So just to be clear, we did hold the shares for a long time in our core portfolios. And yet with other recent news of racial discrimination and the allegations happening both in California, and New York, we removed the shares from all exposure to client portfolios last year. That being said, we do hold some shares because as an investor, it's both our right and our responsibility to speak up for the issues that matter.

And in this case, they really do need an investor to push that board to do what is right. Why can't you speak, why can't you divest the shares and still speak up as an interested party, as a major investment firm, who has been a holder in the company and has decided to pull out of the holding of those shares because of the behavior of the owner? Oh, that's a technical issue. So we file shareholder resolutions with the SEC, and it's a requirement to hold the shares to be able to do that. And so that is why we have to have them to be able to file a shareholder resolution and to appear on the proxy ballot. Well, filing a resolution is one thing,

complaining to the board would be totally separate, and you could still do that, obviously? Absolutely. And we do. We do. We have written letters to the board, and we're part of a coalition of other investors who are also co-signing letters to the board as well. We have not been answered. Thank you, Chris. America, what should the board do in this case? And it seems, I'm going to editorialize here, because this is infuriating stuff. He either needs to shut up or grow up or both. Yeah, it's a great point, Tyler, and great to be here with you and Kelly. I think that it's an important point here to be made that, you know, you just can't go off willy-nilly and making these kinds of comments. I think it's quite interesting when you're in a situation where you're not doing any really advertising for your companies. Your advertising is really conflated with your personal opinions on a social platform that you own. You can run into trouble when you're sort of just sort of giving comments off the cuff and things of that nature. And I think this is obviously very, very dangerous and just a silly kind of enforced, unnecessary, self-inflicted wound because you're trying to grow the business.

You're trying to build ad revenue. And so from that point of view to put yourself in harm's way where companies will come out and say, hey, listen, like IBM said, we're going to suspend our advertising efforts with you until we can figure all this out. It just makes no sense from a business and strategic point of view. And I think boards need to come out and be really adamant with respect to signaling to Elon that this kind of behavior is just not going to cut it. Kristen, let's show shares of Tesla, which the last time I saw were higher today for all of the pushback against Musk and people suggesting that they sell if they're unhappy with him.

They're up about 1%. Also, they're up about 5% since Musk bought Twitter. And they're up 41% since that interview just heard a snippet from when Musk spoke with David Faber and said, I will say what I want. And if the consequences, we lose money, so be it. In other words, Tesla shares haven't lost money yet. Twitter may be a different story. But there's not that much pressure being exerted here yet, is there? No, we're not seeing that in the short term, absolutely. And the price, you know, those shares are up over 100% this year. What we have concerns about are the long term. And Tesla, if you think about its assets, one is the brand that we've already mentioned. The other are its people and its employees. And so the ability to attract, hire, promote, and retain top talent is the key to Tesla's future. And there are many that are not going to want to work for an erratic CEO that has this type of. of behavior. So we do have concerns about how they're also on the consumer side. They need to

sell those cars. And there are many saying we don't want to be associated with that brand at this time. Americus, let's turn to the IBM pulling its advertising money from the platform, which didn't directly have anything to do with the tweet that, or the X or whatever you call it now, that must place there. But rather, with the proximity of IBM's advertising, to other postings that either embrace pro-Nazi or other kind of hateful speech. What are companies to do? And it was not just IBM whose ads were near this kind of content.

It included Apple. It included our parent company Comcast as well. Yeah, I think it's a great point, Tyler. I think Kristen just made the point that the brand is an asset. The people are part of the brand. The people inside the organization are important linchpins in terms of making the company successful. So this kind of thing, guilt by association, is powerful because if you're not coming out

and making a stand against this kind of stuff and or you're appearing adjacently to this kind of stuff like you were saying, Tyler, as a function of an algorithm who knows how it's working, you're in harm's way. And so this is the kind of thing that smart companies will say. say, you know what, this is way too divisive, way too important of an issue to allow ourselves to be pulled into kind of a chaotic, respond now because now you're in the hornets nest sort of approach. So I think a lot of companies are going to say, hey, listen, we've got to have some kind of guarantee that when we can collaborate, when we connect, when we co-partner with folks,

their values and the types of things they're willing to say that represent what they stand for is got to be in alignment with what we think our brand stands for. Christian, you touched on this, and it's very interesting. You talk about people not wanting to be associated with the brand Tesla, for example. Do you see, so the question is, do you see these comments of Mr. Musk potentially damaging the sales of Tesla automobiles, number one, number two, what, if anything, could Tesla do to distance itself from its founder who is almost? synonymous with the brand? That's right. You know what? It's such a good question, Tyler, because Tesla is the founder. Excuse me. See, I don't even know. I'm confusing that.

So Elon is the founder. Tesla is the brand. Elon is the brand, right? And so how to separate that is complicated. And yet when a CEO, as it's been mentioned, it's so divisive, it is really time for the board to take a stand. Now, we've got a tricky situation here because there is nepotism on the board and the board is highly compensated. And it's very much tied to Elon's wishes. So this is a really tricky conversation. And it's a really tricky stance for investors because we are looking at multiple bottom lines here. And for them to be able to keep these government contracts, to be able to sell more cars and for people to really want to be seen in a Tesla, we really do need to have a fix. I guess, Kristen, my follow up to that would be,

are we at that moment yet? And that's sort of the question about the share performance that we've seen. You know, the risk is out there, but it doesn't look like it's hit, you know, it's hit critical mass. Well, you know, it's interesting. I would say we've been at this point for a long time. There have been headlines for years about racial discrimination and too many tweets to count that have been in cindery and, you know, in conflict of growing the brand in a positive way. yes, shares are up, and yet I do ask us to question, what could those shares be doing? What could that company be doing if they had leadership that showed really positive and constructive human capital management?

If they had systems in place where they showed that their employees were held on the asset side of the balance sheet, something to be cared for to be invested in as opposed to on the expense side of the balance sheet, which is what we're seeing, something that's expendable, where employees don't matter. And so if we had a CEO in place, if we had governance in place that showed that Tesla was a really fabulous place to work, I think that those shares could triple in price. America's can these companies that are either owned directly or heavily influenced by Mr. Musk, can they continue with him in those roles? Or does the boards need to put their feet down?

Yeah, I think it's a great point. I think the boards definitely need to put their feet down and signal quite strongly against this kind of stuff, Tyler. But I think what's interesting about this is that what helps protect Elon Musk is that he has this legion of identity loyal advocates who he speaks to directly in terms of X when he speaks to these 160 plus million people. And so they are motivated to create

a narrative that rationalizes the types of things that he does. In fact, they may make an argument that he's to be admired because of this off the cuff, I speak unfiltered. I'm not controlled by anyone's sort of part of this brand that's built into all of this. So I think it's going to be a little bit tricky. I think he's going to be able to potentially enjoy the protection of his identity loyal fans for a while. But I think if he continues this sort of stepping into these kinds of Hornets nests, it won't be very long before people will at least begin to start distancing themselves from he and his brands. All right. Thank you for the discussion, both of you. Kristen Hull and America's Reed. We appreciate it. Coming up, the case for small caps. After

lagging for most of the year, the Russell 2000 has started to perk up. So should you think small going into the end of the year? Also check out the two big cybersecurity ETFs higher today. They're also higher on the week, the month, and the year. And the CEO of Palisle, Alta warns there will be more demand on the way because of AI. Power Lunch will be right back. Welcome back to Power Lunch. Small caps have grabbed our attention this week. As the Russell 2000 has outperformed, all the major averages, including the NASDAQ.

Year to date, though, it is still basically flat, while the NASDAQ is up close to 35%. But check out this stat, the combined market cap for the 2000 stocks in the Russell is $2.6 trillion. Apple's market cap alone is $2.95 trillion. and Microsoft's 2.8. So are small caps really a big deal, or should investors just trust in the magnificent seven? Let's ask Stephen DeNiclo. He's Federated Kaufman's Small Cap Fund portfolio manager. Siva, Dan Razmussen, who I always follow his writings, he recently asked if we are at the death of small cap equities. So over to you, please. Yeah, I would say it's the exact opposite. I always like that Yogi Berwick quote that says, nobody goes there anymore. It's too crowded. And when you

think about small caps, it's really the opposite. Nobody's there, and that's probably where you should be looking. We have had absolute historic underperformance of small caps versus large caps since before COVID. If you look at since January 2020, the S&P 500 is up about 40%. The underlying profitability, so the ebidah of all the constituents in the index, is up about 30%. So you've had a little bit of multiple expansion. If you look at the Russell 2000 since 2020, is only up about 5%, but the underlying profitability of these companies is actually up 40%. But if you look, 50% of all small cap stocks right now are down more than 40% since the market peak in November 2021. We have never seen that before in history. 30% of all small caps are

trading below book value, all-time high. Almost half of small caps actually have net cash. And if you look at their balance sheets, their death to EBITA is actually a touch better than large caps. I'm not here to say that small caps are less risky than large caps. I'm just here to say that what we're discounting today is way too much. We've never seen it before. And it's probably where investors need to look for alpha opportunities. So why have these small caps been so tarred, my word, not yours, number one. and then what is going to cause that situation to reverse?

Sure. It's a great question. And the reality is, is we've been in this, I've been calling it a Federal Reserve Thunderdome, right? Where interest rates go up, stocks go down, vice versa. And on the small cap side, it has been 3x that move every time we have some type of move in interest rates. And the reality is, is that passive investing 20 years ago was about, 20% of AUM. Today, it's almost 60%. So the majority of the time, the bids for stocks are coming from

passive investing. So if a sector like small caps is out of favor, there is just no bid. I mean, I'm seeing small cap stocks, forget about the day they announce earnings. The day that they announced, the date they're going to announce earnings, these stocks are going down. And you have a number of stocks out there, down 30, 40, 50 percent that have hit their number. all year, have grown profits, have open-ended growth stories, have recent insider buys, and there's just no bid for these stocks because they're not in favor. I just listen to you guys debate Tesla for 10 minutes where you have 50 Wall Street analysts, you have an overpriced car company that's at a trillion dollar valuation.

It's very hard to get an edge in those stocks. But on the small-cap side, you have these idiosyncratic stories where you can really make a management team and a new product can really make a difference at the same point. that nobody's looking at these stocks. Yeah, but people would say, Steve, yeah, but your way is flat or down while Tesla's doubled this year. So let's just talk about what some of the areas you have the most confidence in. You look at small cups. I don't know if you'd advocate buying the Russell broadly.

There might be some quality issues there. What would you buy? Right. I would actually look at specific stocks. And at the Federated Kauffman Small Cup fund, I mean, that's really what we do. Number one stock, new fortress energy. The ticker is NFE. Here's a stock that is down year-to-date, founded by West Edens, the current owner of the Milwaukee Bucks,

founded on a basic premise that the U.S. is long natural gas and the world is short, clean, stable, affordable energy. This company is in the process of taking $7 billion of infrastructure that they've been building over the last few years, all coming online in the next 30 to 90 days. This company, when they came public, wasn't making any money in 2019. year, they're going to earn over $2 billion of EBIT. The stock is trading under six times valuation of their EBITDA. Warren Buffett recently bought a stake in an LNG Cove Point down in Louisiana for 11 times EBITDA. So this is a company that if you just go to where there's been recent transactions, the stock is a double. All right. Anything else before we go?

Yeah, absolutely. Let's talk about. I can talk about stocks all day, guys. Give us two more. Two more. Sure. Let's look at Montross Environmental. The ticker is MEG. All right. The reality is, is they fix, remediate, and detect bad things in the air and in the ground, whether

it's Phaas or methane emissions. This is a movement that is multi-decade in the works. Yes. And Montross is a company that solves the problem of this. The stock is down 30% year-to-date at the same time that they've been. grown earnings each quarter. They've hit exactly what they said they're going to do. And at the same point in the last week, you've seen the CFO step up and buy stock, and you've seen directors come and buy stock. And the stock is nowhere. Why? Because there's more sellers than buyers,

because nobody's looking at small caps right. Yeah, ticker meg, by the way. Yep, quickly on the last one. Yeah, one other stock, custom trucks, CTOS. This stock intraday last week, when I was meeting with them at the Baird Industrial Conference, was down 40 percent intradet. because one point in their conference call, they mentioned there was a few weeks in October where they saw a little bit of fluctuation in demand. They provide equipment for utilities for CAPX. So think hardening the electric grid. They mentioned there was a little bit of wiggle as interest rate rose, which is a real problem,

but down 40 percent, I don't think so. You've had the CEO, CFO, and directors all by stock in the last week. And this is where you should be looking for alpha. Steve DeNiclo pounding the table for small cap stocks. Thank you for your time today. Have a good weekend. Often fun has a great heritage in history. All righty. Further ahead, is artificial intelligence making hackers smarter?

We'll explain why Palo Alto is raising a warning flag around new AI-powered hacks. Power lunch will be right back. Bondioles falling again today. Rick Santelli is in Chicago following it all for us. Rick? Yes, Bondiels down today and down smartly on the week. You know, it's been an important week. We had CPI, 3.2 year-over-year headline, 4% year-over-year core, well above 2% for the Fed's target.

Continuing claims, $865,000, 2-year high. And you could see, at 489, where the two-year sits now, Tyler, we're down 17, 443 on tens, down 20, 2 basis points on the week. Let's go to the charts. Of course, this is CPI Day, but what's important here is to always pay attention to your previous days, session. You know, if we look at how the support levels borne out, what you see is, once you violate some of these previous day session lows, you get a lot of activity, just like we did yesterday and today. But the problem is, is that they're getting smaller and smaller. What that tells me is, is that as we move from 5%, 4.5% was in many traders' minds. Well, we've

basically hit it. Now, if we take a longer-term view, the reason that's asteris, Kelly, Tyler, I hope you remember, 23rd October, we were on the air together. We called that outside session. We called the highs right on this show. But what's important here is all the different moving parts. Let's look at the Elliott wave count. We have a five wave count. Why is that important?

That usually gives you the trend direction, what seems to be higher on the bigger picture. Another issue we want to look at is this head and shoulders here. And if you look at the neckline, well, any kind of a close today below around 440 is very significant. And the other issue that I think Merritt's looking into, if we take one of my old favorites and you look at this most significant area here and you draw the high, low, perpendicular midpoint, you get a lot of different technicals that bring you to the levels we're at. So we want to pay particularly close attention to 440 for the close today. And should we close below that, my next level would be around 4.5. Nice big round levels. Kelly, back to you. All right. A lot of round levels lately. Rick, thank you. What about oil? Big round level there yesterday, but a little bit of a rebound today.

Pippa Stevens is here. Where do we stand, Pippa? Yeah, so rebounding today after falling to a four-month low yesterday, but still on track here for a fourth straight week of gains. And it really feels like there's no fundamental reason for today's rally with Roth MKM calling it a dead cat bounce. And this front month contract does expire on Monday, so pretty thin training. But it is notable that it did flip from backwardation into contango, just really reiterating that the market does feel like it's oversupplied right now. And so crude is kind of now stuck in this range with everyone looking ahead to the OPEC plus meeting on November 26. So that's a week from this Sunday. And we're seeing more and more firms say that Saudi Arabia could potentially do some sort of cut or maybe Saudi Arabia and Russia extend their cuts into the first quarter of Q1, 2024, simply because there is this floor that they want at an $80 level.

Kind of the $80 to $100 level is where Saudi Arabia wants it. And so are they going to take that move? And of course, one of the reasons why the market has been very well supplied is because of non-OPEC production. So that includes the U.S. at a record 13.2 million barrels per day. Wow. Also stronger production out of places like Guyana and Brazil. And so Saudi Arabia can't be very pleased with what's going on in the U.S. And so they could potentially cut more or they could choose not to.

There's a lot of questions. And it's funny because Dan Pickering was just tweeting that he gets nervous around Thanksgiving because of some similar events from seven years ago. that destroyed the bulls last time. So, or the bears like, you know, I'm trying to say, how likely is it PIPA that Saudi Arabia might actually come in and do something like that? I don't want to put a number on it

because, you know, their policy has changed. And I think that one thing they like is they like this ability to surprise the market. You never really know what they're going to do. But I think at the end of the day, they can still afford, they have very cheap production. So they can really afford to bring their production down.

It's currently at about 9 million barrels per day, down from 12. they could bring it down even more without feeling any sort of real pain for the long term, but then they're throwing a bone to U.S. producers. And so at what point do they say, we really don't want to help the U.S. by keeping prices, you know, supported. Yeah, and helping our output maybe take some share. All right, Pippa, thanks. And have a great couple of weeks.

We'll see you soon. We'll miss you. We will dearly. What will we do here at 1230? I am coming back just too. I don't know what we'll do. All right, let's go to Courtney Reagan. is here. CNBC News Update. Hi, Court. Hi, Tyler. President Biden closed out the APEC summit in California

by meeting with Mexico's president. The White House says the two are discussing migration at the border. The meeting comes as Biden faces criticism from some Democratic leaders who say they need more help from the federal government dealing with an influx of migrants to their states and cities. The former head of Spanish soccer has been ruled unfit to work in the sport in Spain for three years. The decision comes months after Luis Rubialis resigned amid outrage over kissing a player at the Women's World Cup final. She said she did not give consent for that kiss. FIFA also banned Rubialis for three years. And people who live in New Jersey can get their holiday drinks delivered to their homes this Thanksgiving and beyond. State regulators just approved permits

for DoorDash and Instacart to ferry beer and wine from local businesses to people's doors. However, it's not for everyone. The permit rules out deliveries to college campuses, hotels, and B.YOB restaurants. You know, Tyler, we had a beer delivery in college in Ohio. Over 21, of course. And it wasn't yesterday. So I was kind of surprised by this news. Very interesting. Okay, Cort, thanks very much. You appreciate it. Ahead on Power Lunch, a huge week of travel ahead for us with some potentially rough weather that could get in the way. We're going to discuss it with the former CEO of United Airlines. Always fascinating to talk with Oscar Munoz. Welcome back to Power Lunch, everybody. We are heading into what is expected to be a very, very busy travel week.

But Mother Nature may complicate travel plans for millions as storms are expected in parts of the country early next week. For more on the state of the airlines as we kick off the holiday travel season, let's bring in Oscar Munoz, former president and CEO of United Airlines. He's also a CNBC contributor. Oscar, welcome. Good to have you with us. I'm glad to be here. I'm going to ask a more broad question than about the specifics of this travel season, which look like it may either set records or get us back to 2019 levels. at the very least. And asks a broader question, and that is, is the air traffic system brittle right now? In other words, are there enough pilots? Are there enough support staff? Are there

enough controllers, et cetera? Well, so there's two different infrastructure items, right? There's air traffic control as a system, which is, I think, in poor and brittle and outdated condition. And I've been very vocal over many years about the need for us as a nation to reinvest in that. With regards to the people and human and operational side, it is much better than it was last Thanksgiving. And yes, it'll be another record and demand with weather coming up. But at the same time, I think, you know, the system itself and the things that the airlines can control and that airports could control were in a slightly better place, although there's always cavities of locations. But you keep hearing about pilot shortages, even at your alma mater United. I mean, you keep hearing that there just aren't

enough pilots and they're having to go out and pay super bonuses to attract people and poach them from FedEx and UPS and so forth? Again, there's clearly a continuing message from certain airlines along the path. You don't hear quite as much of that from the more larger airlines. It is the preeminent place to be if you're a pilot and what you want to get to. So clearly there's a pecking order and some of the smaller airlines may have some vacations, some vacates, into the bigger airlines. But by and large, I think the bigs are doing something pretty worthwhile in creating the pipeline for the future on that. So yes, there will always be shortages. There always be more people that you can get. But again, that's not as much of the

concern with the larger airlines in the country. And I also, Oscar, if you'll indulge, have a couple of questions about the industry right now. One of which is, you know, we do hear after the reports of a lot of near misses last year that the air traffic controllers themselves and a lot of the workers in airports, that that's maybe an area where there's some brittleness to use Tyler's word. Do we have some issues there? And how can those be fixed and addressed? So that's always a difficult conversation because we're going into a governmental agency. And, you know, they are people we rely on all of us as U.S. citizens rely on for our safety. And so their brittleness over time has been a lack of resources, a lack of hiring. And then, of

course, the training that's required and the experience, more importantly, to deal with these issues, as we mentioned, you know, next week is a busy week, potentially weather in different places. It's always great to have people that have been around and have handled that before. So you have that human brittleness to some degree. How you fix it, I mean, there's an FAA reauthorization bill coming up. Clearly, those agencies need money, need the right training programs to get, just like any other entity or business that we have, is to have that pipeline of qualified trained of individuals. to keep all of us safe in the air.

I'm also glad we're showing shares of JetBlue, which are down almost 5% today in Southwest, spirits up there as well. But what's going on with some of these smaller players? A lot all of a sudden has been made of these Southwest discount fares and whether they reveal that there's bigger problems at that airline. Jet Blue, of course, has had a lot of operational challenges in recent years. It used to be one of the best airlines.

Now it's more often found among the worst. What are the implications of that? How do you think we got here? And do we need more M&A? always so difficult to have that conversation in a highly regulated space. Yeah, there's M&A going out. We're waiting for a big decision with a couple of those companies. But by large, demand, consumer demand is a market-based and efficient program, right? People will go where they know they're going to get their flight out on time. They're going to get the right service to different

places. So the consumer will indeed vote with their wallet and go to the right places. Demand, at least, let's say for this week is very strong across the board, strong to stable, if nothing more. I think one of the things that you have when you talk about fares and, you know, in my old world, we never talked about pricing publicly. But as a general nature, it is a function not so much of demand, but of capacity. I think some of the airlines you mentioned are growing and have a lot of capacity, more flights. If you think about them from 2019 to now, there's numbers as high as 40%, 40%, 40% increase in the amount of flying. Someone like a United and Delta are more moderate. So it's probably a 10x capacity built.

So they have a lot of planes going a lot of places and they got to fill them, right, if you have that. So that will tend to bring the fare sales down. It is not necessarily a demand issue. It is a bit of a product choice perspective. And again, and the fairs, I mean, their equity is declining is a larger function of what we call cost convergence, where the cost of fuel, the cost of pilots, as mentioned before, is hitting those usually low-cost airlines, and their cost basis is increasing. So they're having to scramble a little bit more. And as the equity holders look to the future, they don't see necessarily the right path. And again, to some degree, my opinion, for sure, you're beginning to see a little break in the industry from, you know,

the bigger, more established carriers that have been able to manage and can fly places like international to make up some of the revenue and some of the lower cost. Or I think the new term is LMA's lower margin airlines that are being affected, and certainly the stock markets affecting that. Mr. Munoz, thank you. Always good to see you. Oscar Munoz, former chair and CEO of United. That's fascinating. LMA lower margin airlines.

So they're not even cheap enough to be low cost because of some of those factors he mentioned. Now, while AI could make a lot of things easier in society, it of course poses a host of risks as well, including more advanced hacks. We'll get details on that next. Welcome back. AI has the potential to increase productivity. but what happens when that newfound power can also be used for the wrong reasons. Cybersecurity officials have been increasingly warning that AI will make hackers more productive and more dangerous.

Palo Alto's Nikesh Aurora joined that chorus on Mad Money with Jim Kramer. We see adversaries using AI now to attack customers. So this is happening. It's real time. People need to get their technology stacks up to speed, more robust, more in the next generation. That's something we all have to do across the board. Well, our next guest says everything from AI voice changers to software development tools have been helping hackers, but he also thinks AI could be the key to defense. Joining us now is David Kennedy, trusted sex founder and CEO.

David, it's good to see you. And it feels like AI wins either way here because it's both creating the problem and creating the solutions. Yeah, Kelly, Tyra, thanks for having me on today. You're absolutely right. It's a conundrum because there's not a lot of regulations, rules, and laws, but regardless, hackers aren't going to abide by them in the first place. And what we've seen is that, you know, since AI, which has been around, by the way, for a number of years, the advancements, though, continue to move rapidly fast. And hackers are innovative.

They think of new ways of doing things. And we've seen everything from ransom cases where they actually call somebody up impersonating a daughter. It sounds like their daughter, 2 o'clock in the morning, kidnapped, you know, demanding $50,000 and, you know, turns out their daughters at home sleeping. But they have no idea because the voice is exactly the same, the mannerisms. It's definitely increasing at an exponential rate. and defense has to do that as well. And enterprises are already behind. We really need to play a catch-up here.

And it sounds like it's going to be expensive. And I think that's why we've sort of showed these cybersecurity stocks. Do you think, and I think this is really important, a lot of businesses are going to hear this and get scared, but we don't want to scare them into paying for something they don't need. So what do they really need to be prepared for here? What should they be spending on and how should they spend it? That's a great question.

What most companies really struggle with is, is visibility in their own environment and understanding what these patterns look like from hackers. Well, you might hear AI starting to create prototypes for things like code and malware that become harder to detect. They're still using techniques that hackers have traditionally used for over 20 years. It's just changed and spun a little bit differently. So when you're focusing on trying to defend, you know, you look at the recent MGM hack where hackers used, you know, AI voice modulation to social engineer the help desk.

And then from there, they're able to hack. Well, the social engineering may happen. but the patterns that happen after that, you know, getting access to the systems and then spreading across like wildfire across their enterprise, those are things that we need to be prepared with. So the best defense really is visibility in understanding how these attackers are compromising so that you can shut down the attack in early stages and not seeing these, you know, catastrophic breaches that we see for these large and medium size and small businesses across the world. Who's got the lead right now?

Who's got the leverage long term and can the good guys win? I do think the good guys can definitely win. And we are winning. It's much harder to hack into corporations today than it was 10 or 15 years ago. There's been so many different advancements on the protection. The issue that you run into is that when you look at a lot of these companies, you know, they're 30, 40, 50, 100 years old. And so they're using legacy systems. They're using systems that, you know, haven't been touched in 50 years. You look at our critical infrastructure. These things take time to kind of progress and move away from old ways of thinking and to more modern day defenses. And that will happen. It's just going to be a lot of pain and suffering. I think until we get to there. But we are doing really good at defense. Companies are getting better. It is a priority. Board members talking about it.

It's just going to take some time to kind of continue to build those defenses and continue to keep up pace with hackers. And the cost of cyber insurance has obviously been a sore point and a big one for a lot of companies. Real quickly, what about for people, David, because a lot of the tricks you mentioned are also being deployed person to person within families. A lot more people seem to be using social media to kind of scam. what should people do?

Yeah, I'd heavily recommend right now the biggest one that we're seeing is that these ransomware ones where they call you impersonating a sibling or a parent or a spouse and using their voice. And it only takes a few minutes or a few seconds of having their voice to actually create the mannerisms that you would hear on the phone that you're talking to somebody. It's crazy. And I know this is just on crazy, but you have to have a challenge word with your family members that they can say on the phone that validates who they are as an individual or person because Because it's coming to the points where you can't tell whether or not that they're the case that we dealt with less.

Question for you. So if I, no, and I've heard people saying this, you have to have it, you call it a challenge word. Some code word that you and your family know means you're talking to the real person. What if I get a spam call and they say, what's the challenge word? And I tell them, but then they use that to go break. You know what I'm saying? Can't they just do that? Yeah, it's more so when you're having dialogue with somebody that you know, right?

So if you know, you're talking to, you know, your daughter or your son or your spouse, they would have to say that to validate who they are on the phone. I know that sounds crazy again. But in a situation where you're seeing like, you know, hey, I'm kidnapped, well, that's a good, you know, spot to use that type of word and have those established within your family. Right. The one that we dealt with last week, you know, it was, they had combed their social media

sites and they knew that the daughter was actually going to a play. So they actually mentioned that the daughter was coming from a play. And that's when they kidnapped her. And so it was real. The parents had no reason to believe that it wasn't. These types of situations, unfortunately, these are the only ways that can really combat it right now because it's getting very believable. All right, David, thank you very much.

David Kennedy. Alarming. We appreciate it. Thank you. And up next, a retail surprise gap up nearly 30% in what one analyst calls the most compelling beat to date, thanks mainly to improvements at Old Navy. And despite a muted holiday forecast, three-stock lunch is next. We'll see what our expert thinks of GAP and two others.

Okay, time for three stock lunch where we take a look at three big movers of the day. Here with our trades, Jerry Casillini, chief investment officer at Castle Arc Management. Up first is Gap stores, shares of Gap, gapping up 30 percent after quarterly profit and revenue beat street expectations. What's your trade, Jerry, on Gap? And my trade is to buy, you know, get out of the way the Fed's done putting pressure on the economy. Names like this, when they have surprises like Old Navy did, you go for it. You take that run and take that and run with it. So that is a strong buy of a stock that has been, well, it's had its, it's seen good days and bad days. Let's put it that way. Having a good year, though, for those who were able to catch it on the lows. All right, what about applied materials?

Abbott, sliding after voting it's under a Justice Department probe for potentially ignoring export restrictions on a Chinese chip company. The shares are down. What is that? About four or five percent today. What do you do with this one, Jerry? I absolutely load up. This is fantastic that you get an opportunity to get in. These inquiries are always fired off back and forth. They never seem, other than the Nvidia one, they never seem to have any real impact. And you have to take a step back here. These guys are the founder. They're the ones that produce the machines that make the chips. We cannot run the world's AI. system without those chips, and they can't be made until applied materials makes the foundry. So it's absolutely the horse in front of the cart and let this opportunity to buy it take advantage of because these guys have, it's not only cheap, it's also got one of the biggest piles of free cash

coming out right now. If you project that over the next three years, this is going to be one of the more powerful names in the entire chip space. All right, let's move on to Zoom, the company getting an upgrade from City ahead of earnings. Your trade on Zoom, is there room for Zoom in your portfolio? No, there's not. And I hope they don't cut me off by saying this. But, you know, this is tough.

Why buy a company who's competing against Microsoft? Ask that question all day. What can you beat Microsoft at? They have already upgraded teams. They've already done things to enhance the experience. there, and they integrate it. Why would there ever be a need two, three years from now, to move to an independent platform and go through all the steps you're required? This is a cheap stock. It's down, but it's still thought of as a way of playing the future of communication.

And I just don't see why Microsoft doesn't make them go away. I simply put. Jerry, thank you very much. Have a good weekend. It's Friday afternoon. You got what you got. Yeah, you know. Thanks again. Have a good holiday, my friend. You got it. Team still just isn't quite good enough, but a lot of people use it. There are more stories you need to know when closing time comes back. Welcome back, everybody. About 90 seconds left in the show. A couple more headlines you need to know about starting with Amazon blocking promotions for employees who don't comply with their return to office policy. That's according to leaked documents. Additionally, Amazon managers can now terminate those who refuse to come into the office at least three times per week.

Well, that's coming to a lot of employers near you, I think. But it's sort of surprising that Amazon would be so heavy on this. Especially if the labor market keeps weakening. All right, the process of buying a home is unique in the United States compared with the rest of the world for better or worse. For example, the controversial 5 to 6 percent commission split between the buyers and sellers' agents. That's usually substantially smaller abroad. The U.S. is home to nearly 3 million agents. No country comes close.

the 6% commission. For many years, people have been saying it's doomed, it's doomed. After those lawsuits now, it might be. It's what makes America great, I think they'd argue. Tiger Woods new golf league hitting a snag before it tees off. The TGL is an indoor league where players hit into simulators. The venue is under construction and a power outage led to the collapse of the dome. The link saying they're still evaluating the impact on the timeline, but I didn't know it was a simulated.

It's a simulated golf league. All right. Good enough. Should be fun to watch. Have a good weekend, everybody. Thanks for watching, Power Lunch. Closing bell starts right now.