Power Lunch - Put it in Park & Econ Ecosystem 2/28/24

Episode Date: February 28, 2024

Coming up, Apple is parking its car project to focus more on AI ambitions. But will AI features be enough to get people to upgrade their iPhones? Plus, we continue to look inside the economic ecosystem of health care. We’ll go over the sometimes risky, but often profitable, world of biotech stocks.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Paral Lunch, everybody. Alongside Courtney Reagan, I'm Tyler Matheson. Glad you could join us this hour coming up. Apple Parks, its car project. And we'll now focus more on AI ambition. So will AI features be enough to get people to upgrade their iPhones? Plus, we continue our look inside the economic ecosystem of health care. Today, we're looking at the sometimes risky but often profitable world of biotech stocks. But first, let's get you a quick check on the markets here at 2 o'clock on the East Coast. You can see the mayor averages are down, but not so much. much NASDA composite is the lowest of the three majors, down about three-tenths of a percent, S&P 500, just about flat about exactly where we were yesterday with that flat mark, and the Dow Jones Industrial is down just about a tenth of a percent. United Health, a big drag on that Dow, after the Department of Justice launches an antitrust investigation into the company. But we are seeing a lot of other smaller speculative stock soaring as money chasing anything

with AI in its name or in association with it, sound hound AI, and big, Bear AI both up 60% this week. It's only Wednesday. And Beyond Meat is soaring as the company unveils a turnaround plan, including cutting costs and raising prices. Bitcoin crossing $63,000 today. That is notable. First time since late 2021. A lot of people are looking at the $69,000 all-time high as now a real possibility, 61-416. Let's bring in Kate Rooney more for more now on Bitcoin. Kate. Hey, Tyler. Yeah, Bitcoin is back near that all-time high. territory. Crypto in general tends to be this barometer of risk appetite out there. You are seeing some of the momentum chasing also in highly shorted stocks and small caps. As analysts over at Glass

Node put it, there are, quote, growing signs of speculation. They point to derivatives and leverage in particular in crypto and options markets, futures markets, meanwhile, are approaching highs that we haven't seen since about 2021. They call it the most euphoric period of 2021. That's where we are at this point, almost at that level. Leverage is, of course, the riskiest way to trade crypto or any stock. It tends to really contribute to some of the large moves, both on the upside and the downside. And then there are some more market and crypto-specific factors out there. Bitcoin ETFs are a big part of this. Fidelity in BlackRock, some of the biggest out there have now topped $7 billion and $5 billion in assets, making them some of the

best-performing ETF launches ever. There is also tighter supply as a result of boom in ETFs and demand there lowers the amount of available coins out there. That dynamic is, helping Bitcoin, and then there's some optimism around a market event called The Having, which is essentially a way to keep a cap on supply. It happens every four years. Then you've got Coinbase shares. In the past week or so, they've soared on the back of Bitcoin's rise, but they are seeing some issues today, or at least the company is seeing some issues with their app. It's leading users to see balances at zero. Coinbase now says they are aware of the issue. They say they're investigating it. They say your assets are safe, but we'll keep you updated on that

guys. Back to you. What is the halving? It sounds like a biblical, it sounds like something out of the Bible. The marketing of the scenes. I got a revelation. I don't know. Go ahead. Gosh, it's, yeah. So it's this market event where essentially when you create new Bitcoin, there is a reward. If you've seen the pictures of those miners, you know, those computers, they're basically

racing to solve a math problem to get new Bitcoin. That is the reward you get. That's cut in half. And so it's a way eventually to keep a cap on the supply of Bitcoin, which is $21 million that can ever be created. So it's sort of this wonky market dynamic. It happens every four years. It has historically correlated with some of the bull markets.

So if you're more of a crypto-specific trader, you're most likely focusing on that. But there's now more institutions getting in that say they're probably not thinking about the halving. They're probably thinking about this as more of a risk appetite. They're allocating a certain percentage of their portfolio. And we are seeing more evidence of bigger purchases, which tends to indicate more institutional interest. And that's likely a result of all of these Bitcoin ETFs being launched. All right. Cool.

Kate, thank you very much. Kate Rooney. In addition to the speculation and momentum in Bitcoin, we are also seeing it in AI, have you heard, as investors look beyond the big names trying to find the next Nvidia or AMD. Christina Ports and Avelas joins us now from NASDAQ with more on this. Hi, Christina. Hi, Tyler. Well, we know the major indices are slightly in the red today. And you've got investors that are worried about month-end rebalancing, feeling maybe a little stretched with the recent run-up and stocks. But much of that derisking doesn't seem to be impacting these crowded longs. such as AI winners that you mentioned and those that appear to be AI winners. So let's start with Sound Town, for example. That's up, what, 62% week to date? When you zoom out, though, on a yearly basis, so as you're seeing right now is just over the past three days.

On a yearly basis, you can see the run-up in this voice AI recognition firm is very, very recent. Hopefully we can bring that chart up. That's because Nvidia recently revealed a stake in the firm in its 13F filing. So just on the right hand on your screen, see that stock shoot up. The hunt, though, for AI winners is exemplified by the run-up in Super Micro, Arista Networks, AMD, and although I love talking about chips, it's not all about semiconductors. There's cloud names like Confluent, mobile tech name, Apple Oven,

both up, what, 40% year-to-date, cloud fare, Parsons Corps, Pegas Systems, all up between about 17 to 20% year-to-date, even though none of these are pure AI plays. They just mention AI products on their website, or most some of them mention AI, most of them on their recent earnings calls. And as Goldman Sachs writes in a note this morning, it's the return of the YOLO, You Only Live Once mantra from retail traders who are driving daily trading volume in speculative names and call options.

Goldman Sachs says activity on message boards like Reddit is at the highest level we've seen since March 2020. And we all remember what happened in March 2020, right? Yeah, absolutely. How can we forget it? Christina, I was just going to ask you about that the volume that's going into some of names like a sound town with maybe just a mention of AI, is that from retail traders? Is that from more institutional traders? Is a little bit of both? How can you trace some of that volume?

Two, if I'm going to refer to the Goldman Sachs note, and actually UBS, UBS this morning pointed to three, it would be the corporates, which would represent the investment arms of certain firms like Nvidia or SoftBank. They have investment arms. They invest in companies. Then it would also be retail traders and retail traders get a lot of the the conversation because they're it's they're trending on twitter with the hashtag moa s or other things and then you also have the active managers all of those are those three are driving but retail traders are the ones that are creating the biggest headlines given the search for palo alto or bitcoin or beyond meat that are surging as of late wow all right christina thank you very much thanks meantime we have

seen our share of companies acing their AI rollouts, while others having a bit more of a tough time. And more recently, Google facing backlash over its Gemini AI, to the point that the company's CEO Sundar Pichai telling employees in a memo that its recent blunders were, quote, unacceptable. CnBC.com's technology reporter, Jennifer Elias, here now. Jennifer, tell us a little bit about the blunders and what did Sundar Pichai's memo say. Right. So, Tyler, you guys have talked about this thoroughly over the last week, but last week Google had to pull one of its AI imaging tools that was supposed to be associated with Gemini, its major AI rollout. And it had mistakes in what's very, was factually incorrect, historically incorrect, turning

up images that were wrong of what people would enter into text. So the company pulled it last week. Well, there's been so much chatter since then, and on Monday, the company's shares got hit hard. So last night, CEO Sundarpa Chai actually spoke out in a memo to employees, essentially telling the workforce that the mistakes with the AI image tools, quote, completely unacceptable. He said that the mistakes were problematic. He said that it showed bias. And he also said the team's been working around the clock to address the issues and that they'll instate a clear set of actions, structural changes, improved launch processes. And he went on to say that, you

know, people trust us, users trust us for accurate, unbiased information, and that should be no different when it comes to these new AI products. What did the images show, the images that were incorrect? What was wrong with them? Well, people were inputting texts asking for historical images, such as the founding fathers, other kind of characters in history, which were turning up to be different colored skin, and the people that were inaccurate to how they were initially. So it was things like that and then turning up also wrong information.

So it was just wrong. It was just incorrect stuff. And obviously traces back to, I guess, the algorithm that is used to unearth the images or create the images based on the inputted text or questions. Jennifer, thank you very much. Jennifer Elias, we appreciate it. Thank you. Well, stocks lower today, but still near record highs.

And as we mentioned, money is pouring into Bitcoin and some speculative AI stock. So is that a bad sign for the broader markets? Let's bring in a Brent Judy. He's chief investment officer with Northwestern Mutual Wealth Management. Thank you, Brent, for being here with us. I guess that's kind of a good question, a good place to start. If you look at the broader end of sees, it doesn't look like a whole lot is happening. But in fact, there are some big moves in some of these names.

And it seems like perhaps there is some risk appetite when we're talking about Bitcoin going over $61,000. and some of these smaller AI-related or AI-adjacent names are seeing some big moves. What do you make of all of that? Yeah, so your whole lead in here reminded me of 1999 in the Internet boom. Kind of the names that kind of rode that higher up until 2000 and then rolled over and obviously underperformed for the next, you know, 15, 16 years. And so there's echoes of 99 in the market. I think the market's been bit up a lot on hopes that the inflation narrative continues to improve,

that the Federal Reserve will be able to cut rates, and that will have this soft landing that will escape recession in the U.S., which I still think is unlikely. We still think inflation is a economic cycle thing. It was a transitory COVID thing in the past, so it was caused by COVID. We've shifted now the inflation output look, and we think it's more tied to the business cycle, which all the data would suggest that we are later in a business cycle where inflation becomes stickier, and it becomes harder for the Fed to get inflation to push lower, which means to me they're going to leave rates high, and eventually you will see the U.S. economy fall into a recession.

And I think a lot of these different names at that point will probably see some downside to them. So you think the names like or some of these moves we're talking about, the Bitcoins, the AI or the AI adjacent plays, you think it's risky potentially to be in those names because we're towards the end of the cycle? Absolutely. I mean, if I take you back to 1999, I mean, everybody thought the top 10 names in the S&P 500 were going to forever outperform in the market, you know, had 26% of the S&P 500 in those names. Today, it's 34%. The market's been driven a lot, despite some of these little pockets of AI, the market's been driven a lot over the last few years by those magnificent seven of the top 10 names in the S&P 500, which make up 34% of the index. And to me, you're kind of where you're at 1999. Those are great companies. They probably deserve what they're at today, but how much is priced in in the future? And that's where I think there's good news, where there isn't exuberance are in

things like small caps, midcaps, value stocks. And I think if history plays out like a did back then, those names will guide us higher in the future. So that's where you'd be putting your money today. Do you have any names or ideas in terms of sectors, where you find, I mean, apart from smaller capitalization issues? Yeah, no, it's more broader, just more in those asset classes. I mean, every economic cycle in the past 40 years has had different leadership. So if I take you back to the 1980s, for example, that was driven by Japan and Japanese stocks. The international markets did very well. After that, Japanese stocks just made a new 34-year high last year or last week. I take you to 2000.

That was driven by tech stocks and tech stock exuberance. That took 17 years for tech stocks to make a new high. Think about the 01-07 economic cycle where that was all about China, energy stocks, commodities. China's half where it was today versus then international emerging, which it drove, or less. And so to me, the future is going to be different. Every economic cycle kind of rhymes, but they're unique. And I think the leadership in this next economic cycle will be more so towards value stocks, small-cap stocks, and mid-cap stocks in the U.S.

You seem more worried than some about inflation. I think the evidence has shown that inflation is pushing higher. And so it'll be interesting tomorrow. So there's two different, obviously, inflation readings. The PCE inflation, which I know is the Fed's preferred index, has come down and continued to come down, while CPI shows it has stalled out. You've actually had median CPI, which the Fed views as a good measure of underlying trend. It bottomed in July, and it's actually back up to around 6.5% on a month-over-month

annualized pace. Service sector inflation is still running into 5% to 6% on the three-month annualized basis. And you see companies raising wages. Think about if you're a service sector, small business owner, and you have to raise wages. What do you try to do on the other side to protect margins? You raise prices. That's not what the Fed wants to see. And so I think that eventually means you're going to see some sort of layoffs to try to protect margins in the future, which is more of a recessionary call than anything else. Just to wrap things up here, obviously consumer spending is such an important part of driving the economy. We've heard a lot of retailers report in recent days. And I'm thinking of what Macy's CEO, Tony Spring, new to the job, but said to me when I asked him, how do you feel about the U.S. consumer?

And he said, under pressure, yet they're resilient. So how do you think they are dealing with things like rising prices as we've been going to? going through these cycles of seemingly persistent inflation for some time. Yeah, so I think a lot of the excess savings, unfortunately, at that lower level are starting to wear off. And if you think about interest rates and where they've impacted the U.S. economy so far, a lot of debt in the U.S., a lot of consumer debt is mortgage debt. And that mortgage debt has been fixed. You're now seeing credit card debt reprice. You're now seeing auto loan debt reprice.

You'll see mortgage debt reprice. And the biggest thing, and this is why the market is so caught up on when the Fed's going to actually cut rates, is the longer rates stay higher, the more that makes its way into the economy through debt repricing and through turnover of the housing market. And so I think the lower-end consumer is starting to feel some pain, obviously, and that's why consumers are cutting back overall. And certainly their spending, their savings has come down too. So I do think there is a consumer that's dealing with it right now, but certainly starting

to feel more and more pain from the impact of rising interest rates working their way into the economy. All right. Thank you, Brent. We appreciate it. Brent, Chute. Thank you. Thank you.

All right, coming up, the next part of our econ ecosystem series on healthcare, we look at biotech, the space that has seen some big deals and big stock swings. We'll discuss them and more when we come back on Power Lund. All right, welcome back, everybody, to Power Lunch. We've been looking today at hot areas of the market, and let's check out Biotech. The X-B-I-E-T-F is up 40% over the past three months, 10% over just the past week. So for today's installment of our econ ecosystems series, we dive into biotech. Joining us now to discuss is Laura Chico, Wed Bush Managing Director and Senior Biotech analysts.

There's been a lot of dealmaking. Welcome, first off, Laura. There's been a lot of dealmaking in this area. Do you think it's going to slow down or keep a pace? Thanks, Tyler. Yeah, I think this is a trend we've been seeing a lot of this year and even from the end of last year. So from December to now, we've had over a little. 11 deals, over $35 billion in transactions announced, I don't think it's going to stop any time soon.

Large-cap pharma biotech do have exclusivity expertise that they have coming up that they need to address, also looking for revenue growth. And a great spot to look is in the small and mid-cap biotech space for assets that might be a little bit more de-risk. Are there certain areas in the biotech environment that would be more prone to be involved in buyouts, or is it just it's lots of different, discreet, individualized scenarios? You know, that's a great question. And I think obviously obesity has been a really big theme in 2023. We'll probably continue for the foreseeable future.

But across the area, at least in these recent MNA transactions, it's been pretty broad base. And I think that's really a testament to the innovation in the space. We have a number of deals in oncology, immunology, inflammation, neuro, and even rare diseases. So it's not just within certain verticals at this point. I have to say, Laura, I really, in a way, admire your job because I think it can be really tough to pick biotech stocks, right? You can take a lot of risk and there could be a lot of reward for that, but also, of course, it goes the other way.

And so if you're an investor and you're looking in this space, I know you just kind of went through obesity and we've all heard about that craze. Oncology, of course, that's important too. But if you're evaluating these companies that are developing these drugs, what did you know about the possibility of FDA approval or not? It seems like that's sort of the biggest risk, potentially, when you're looking at some of these names. Oh, sure. FDA or regulatory risk is certainly one element. But I would say that in the past year, we've actually had almost a near record approvals from the FDA, over 50 approvals last year alone. and the calendar is not flowing down in 24.

So I think there's really good dialogue with the agency and companies in the industry. I think there's also, you know, scientific or clinical risk here. But I think companies are getting smarter about the way they design studies. A focus on rare diseases, for example, helped concentrate or focus down to a specific population that you can deliver value to. So I do think there are some unique ways you can try to find some insights. We just put up a chart of some of your choice. in this area. I think neurocrine systems was one. Maybe there were two more. Maybe we can go back to that.

Neurocrine biosciences, edgewise, and Veridian. I'm guessing that there are not too many people on, who are watching right now who know anything about those companies. So I invite you to tell us. Absolutely. Well, let's start with Neurocrine. This is a larger cap name actually with a commercial product in Greza for Tartisdyskinesia. And one of the reasons we like this is the Tartivisgania market It's only about diagnosed about 30, 35% of the patients, but Ingreza is already at over a $2 billion runway right now. And beyond Ingraza, NeuroKrin is advancing another orphan disease product called Kreneserphomp should be in the market, hopefully by 2025.

So a lot to like here with Neurocrin, a focus in the neurology and endocrine areas right now. And then your others, the Veridion? Sure, yeah. moving to Edgewise and Veridian and starting with Veridian. This is a company focused more in the immunology and inflammation space. Their lead asset, BRDN-O-1, is going after thyroid eye disease. And you might have heard of that from Amgen's to Peza. It's an exciting year for Veridion.

They are going to have a pivotal trial readout both in the middle of this year and later this year in two forms of thyroid eye disease. So a lot going on there. And maybe just pivoting quickly over to Edgewise, that's our last name on the roundup here. This is another company focused in muscular dystrophy and then cardiac disorders. And we saw EdgeWise move up pretty sharply earlier off of competitive data from cytokinetics for their cardiac drug. So we will have three different readouts on two programs for EdgeWise this year. So Catalyst activity, definitely a theme across the number of these names that can help unlock value creation.

Laura, thank you for being with us. And you get an A plus for pronouncing all those drug names. Just amazing. Can never do it. Thanks, Tyler. Laura Chico, appreciate it. It's fascinating. I read a piece one time about how they come up with those drug names.

It's like really a big science to it. Something but gumamab. Yeah, there's a lot that goes into. It's fascinating. Be sure to join Power Lunch tomorrow, though. February 29th, the rarest day on the calendar as we mark rare disease day. Laura mentioned a little bit about some rare diseases, diseases which individually affect relatively few people, but together the rare diseases impact the lives of millions.

Joining us will be former FDA Commissioner Scott Gottlieb and Sirath Col Carney, the CEO of CRISPR, as we discuss the efforts being made to help those dealing with these diseases that don't often get a lot of attention. But tomorrow on Power Lunch, they will. I'm really looking forward to that. Already further ahead, the current tone of the iPhone market. One analyst thinks we could have a strong refresh cycle over the horizon. We'll ask them why when Power Lunch returns. Welcome back to Power Lunch. Shift four payments jumping to session highs in the last few minutes as Reuters reports, FISA and Amadeus IT group are competing now to buy that payments processor. The companies are preparing to submit final bids in the coming weeks, and according to the report, though a deal is not guaranteed.

Fiserve hit its session low on that report. It is bouncing back slightly now, and nevertheless down 1 and 2 thirds points, a percent. Excuse me, Cort. Time for the bond report. Rick Santelli has that for us. Hi, Rick. Hi. You know, obviously we all know about the big numbers tomorrow. Fed's favorite inflation numbers.

And look what's happening in front of that. All three of the major stock indices are lower. Interest rates along the curve are lower. Look at an intraday of two-year note yields. Lower on the session. And if you do a two-day, we're lower than yesterday's yields. And here's something else. A two-year break even right now is hovering around two-and-three-quarters percent.

That's basically the highest level in one year. The five-year break even you're looking at there is hovering near the highest levels in four months, which means investors, traders, they're looking at sticky inflation in front of what should be a good inflation number. Let's go talk to a trader. Hey, Dave. Hey, what's up, Rick? Hi, Dave. So tomorrow, obviously, personal income and spending and all the PCE, personal consumption expenditure, inflation gauges.

Is there anything you're going to be looking at in particular tomorrow? If the number's good, I think we rip her or higher. If it's bad, we might have a little bit of a pullback, but there's nothing that feels like it's going to stop this market right now. And that's a great point. It seems, though, every hurdle that gets put in front of equities, they find a way around it. So you think inflation could be the same scenario?

I do. I really do. I mean, it's high. I read an article this week about hotels, the wages, they can't get employees. wages just keep going higher. And of course, everybody passes these things on. It's a vicious cycle. It's a vicious cycle. Exactly.

Then they have to pass it on to the people. Everything's going higher. It just keeps going up. Now, the Federal Reserve, in the very beginning of this episode of tightening, the tightening cycle. Yeah. There was a transitory in then, but after transitory was we're going to be inflation fighters until it gets down to our target. That's not the sense I get from Fed speed. No, and it almost feels like they're kind of slown up. We're not at that 2% target.

and almost feels like they're going to just kind of just trying to kind of ease it as it comes close. And there's no doubt. I don't think there's anybody that's going to argue that inflation has come down significantly from the highs. But the next question is, how sticky will it remain? Well, that's a great point. I mean, if it's not sticky, there could be some panic. I got you. And the final analysis for tomorrow, the one area I want to really watch is the year-over-year core PCE,

and we have made some progress there. My final thought is, do you think that there's anything going on with respect to the numbers tomorrow that's going to alter your feeling on when the Fed's first ease takes place? Well, I mean, I really think people thought it was going to happen at the first meeting. I think March is pricing at 65 or 70 percent.

It's going to happen. It's way below that now, but it was at one point. It was. I haven't looked in the last day or two. But, yeah, so, I mean, I think it's going to happen soon. I really do. When you look at the market movement here, what's VAL been doing in front of tomorrow's number? It's not a panic right now. It's kind of come off. It's chill. Everything's kind of easy. It's pretty tame right now.

It seems awful quiet down here. Well, Tyler, all as I can tell you is it might be the biggest number that we've seen in a while in the morning. But it certainly seems, though, there's more people getting out of positions than getting in them. Back to you. All right, Rick, enjoy that warm weather in Chicago for as long as it'll last. Rick Santelli, thank you. Well, let's get to Contessa Brewer now. CNBC News Update, Contessa. Tyler, Donald Trump's lawyers say he is prepared to post a $100 million bond as he appeals his $454 million civil fraud judgment. They admit he would be unable to secure a bond for the full amount and might need to sell some of his properties if he's not able to delay payment. Trump's attorneys also asked the court to pause enforcement of other penalties ordered by the judge, including a ban on running a company in New York for the next three years.

convicted FTCX founder Sam Bankman-Fried is arguing federal sentencing guidelines recommend he spends no more than six and a half years in prison. Probation officials recommended a sentence of 100 years for Bankman-Freed's role in orchestrating a multi-billion dollar fraud. A federal judge will decide his fate March 28. And Senate Majority Leader Mitch McConnell announced today he will step down from his leadership position in November, ending his time as the longest serving leader. in Senate history. McConnell will turn, or he did turn 82 last week, and he said, it's time for the next generation to take the helm. So a lot of attention being paid to the ages of those serving on Capitol Hill. Yeah, absolutely. Yeah. Thank you very much, Contessa. Well, after the break, beyond belief, despite some low expectations, beyond meat making a bit of a comeback, soaring following

its results. We'll trade that name in three-stock lunch. Coming up next, I'm hungry. Time for today's three-stock lunch where we take a look at three big movers of the day. Here with our trades is Ava Ados, CIO of ER shares. And first up, Ava, welcome. Second up, United Health. Down today. U.S. has launched an antitrust probe into that company. What's your trade on the giant of health care?

This is a giant. It's a $500 billion diversified health services company, and it's in the eye of a storm. On the one hand, the U.S. Justice Department, issued an antitrust investigation on them. And they recently faced the cyber attack from the well-known ransomware group known as Black Cat. So even though they have a revenue growth that's above average, in fact it's 50% above average,

their valuation is also 50% above the category. So given their relatively high valuation and the risk overhead they're now facing, And I think that's definitely a sell because the cost benefit here is not justified. Okay, and it's interesting. Up next is eBay. The stock is on the rise after it did report its results after the bell. This one I do find very interesting for a lot of reasons.

It's in the online space, but obviously deals with a lot of resale, refurbish type items. What do you think about this one? It did also, we should note hike its dividend by two cents, announced a $2 billion buy-back program as well. So what's your trade for eBay? eBay, I think it's a hold. We need to mention that they are having a good day-to-day after bidding guidance expectations. But this is a company that over the last 10 years has not seen a margin improvement. In fact, even though their valuation is one-third below its peers, its net income margin is 27% compared to negative 7% for its peers.

Its revenue growth is less than half its peers. And over the last 10 years, the company is down by 40%. We think on a downward path. We don't believe things are changing anytime soon. And there are better options in this category. We believe investors should not look any further than Amazon in this case. What's their fundamental problem, Ava? So their fundamental problem is that their net income margin.

So even though their net income margin is improving and it's up 27% compared to 7% for its peers, It's revving and growth. They're not growing as fast as the other competitors. There are other competitors. They're taking away market share from them. Amazon has economies of scale. No one can compete with Amazon. At the end of the day, I think they're going to lose the race.

We already have signs. I don't see how eBay will ever win over Amazon. So I don't know why investors would choose eBay over Amazon in this case. All right. Let's move on to Beyond Meat. Shares are soaring as that company tops quarterly revenue estimates, It announces plans for steep cost cuts this year. Your trade on beyond meat, Eva.

It's beyond me. Why investors would ever this company? In the best case, you know, that's a short-term hold, I would say, like even a one-day hold or a two-day hold, if not a sell. So their sales general and administrative costs have doubled in the last four years. Their gross margin went from positive 34% to negative 24% to negative 24%. And the debt has skyrocketed by 17 times from 10% to 173% the last four years. So we are seeing cost skyrocketing, debt is skyrocketing, margins are plummeting. I don't see why investors would be in this company.

Today, they're having a great day, but I think that's a short squeeze. One third of the shares outstanding are short. So in the best case scenario, short-term hold. Now, I really like a clear recommendation. And I think we got it on that one. Beyond meat, beyond Ava. Yeah, exactly. Evados, thank you very much for joining us.

Good stuff. All right, still ahead. Apple slamming the brakes on its electric car plans. We reported that yesterday. The tech giant instead says it's pouring its resources now into AI. Steve Kovac will give us the details when power launch returns. Well, the Apple car has hit a dead end. The tech giant scrapping its ambitious 10-year plan to build an electric vehicle

and instead is shifting resources to artificial intelligence. What else? Steve Kovac has the details. for today's tech check. Steve, I feel like we heard so long about Apple was maybe developing a car, but we didn't really know much about it for all these years and forget it all. Well, let me, let's do a little bit of obituary for the car because they're scrapping the plans to work. It's been about a decade and just billions in spending an R&D for this, Bloomberg, by the way, first broke the news yesterday. And this decision comes after years of leadership changes and

deviations from that original dream they had of a self-driving electric card. It was called Project Titan for the longest time. No steering wheel or, gas pedals. At one point, Apple even thought it could start selling its car by 2020. Obviously didn't happen. The project also created this revolving door of talent between Tesla and Apple and attracted executives from some traditional car companies such as GM and BMW, but nothing ever shipped. And many top execs bolted from the project after just a few years on the job. In fact, the last project leader, Doug Field, he's best known for making the Tesla Model 3. He was in charge and left Apple for Ford back in 2021. Now, most recently,

Recently, the project was run by Kevin Lynch, who was hired originally at Apple to make the Apple Watch. His job is changing now, too, and he's going to be reporting to Apple's AI boss, John Giann Andrea. Now it's all over, and a group of approximately 2,000 people are affected. Presumably many of those focused on the car engineering side are going to be out of a job. But look, if there's one bright spot for Apple, some of that talent is being moved to work on artificial intelligence. And I'll point you to 2017 comments from CEO Tim Cook. He called the company's self-driving car, quote, the mother of AI projects. So there are a few ways to look at this.

Here's just one way. Realization from Apple here that it's better to focus the investment on the technology that's happening now, AI, of course, instead of chasing a highly regulated and low-profit margin market like autos. Also, perhaps all that time and money spent on self-driving AI can apply to whatever Apple may be working on with generative. AI later this year. Or you can just see this as a straight up blunder and Apple's failed attempt to disrupt what Morgan Stanley analysts had estimated was a $10 trillion industry. Morgan Stanley at one time

said they just need to capture 2% of the auto market and they have a business as big as the iPhone. So they end up scrapping the idea that they're going to be a car manufacturer. Yes. Is there any room for them to be the provider of software to other car manufacturers to employ in in self-driving vehicle. That was the idea for, when I talked about all the pivots this went through, keep in mind, the very original idea, guys, was we're going to have a car, no steering wheel, no pedals,

you walk in and it goes. Then they started talking about, yes, maybe we do what you describe. We provide the software, the operating system, if you will, for other manufacturers, Hyundai at one point, for example, our own Philo-Boe had reported this, was in talks with Apple to kind of use that technology. Then they went back to maybe making a car, And then they went back to making a car that maybe wasn't as capable as they had hoped it could be,

all leading up to what we heard yesterday that the project is just over. It's just over. All right. Steve, thank you very much. Steve, Povac. Appreciate it. Good to see you. All right, still ahead. The bullish case for Apple, the Tech Giant may have parked its electric car plans, but one analyst says consumers are revving up for new iPhones.

He'll give us his take next. A recent study of business ownership in the U.S. found only about 3% of businesses were black-owned. According to the Pew Research Center, the states with the highest number are Florida, California, and New York. Celebrating Black Heritage, I'm Sharon Epperson. Welcome back to Power Lunch. We want to keep the conversation going on Apple now. We sort of just finished Ron, wrapped it up with Steve Kovac, who's still world-thest. Bank of America also out with a new note saying consumers may be soon ready to upgrade their phones.

So in the firm's most recent global smartphone survey, more than 40% of respondents indicated intent to upgrade their phones every four or more years. That's up 5% from its previous survey. So here to discuss is the analyst behind that note, Womsey Mohan, Womsey also reiterating his buy rating on Apple and has a $225 price target. As mentioned, Steve is with us here as well. So Womsey, give us sort of a little bit more on the survey. So the upgrade cycle looks a little better than it did on the last survey. What does that mean for Apple's financial potential gain from that? Yes, thanks for having me, good afternoon. Look, I think that this is a Bank of America proprietary survey.

We survey over 20,000 people across four different regions, including the US, UK, India, and China. So it's very broad-based. It's a very good indicator of what the demand trend looks like, but also we get a very fine view into what the install base currently is of existing iPhone users. What the survey really told us was that there are about 40% of users that are on three or older year iPhones

that they're holding onto, and 25% with four or more year older iPhones. What that just means is that if you just think about the install base of Apple devices, iPhones, close to a billion dollars with a four-year replacement cycle, it would mean 250 million units shipped annually. Consensus is only modeling about 230 million iPhones. And regenerative AI coming next,

and we think over the next two years, it's going to become really meaningful. There is a real reason and catalyst for these old phones to upgrade. And this is where we see immense potential. And we think it could be as high as 240 to 50 million units over the next couple of years versus consensus, which is significantly lower than that. It seems to me, Wamsie, that one of the things that has stricken Apple and other phone makers is that the refresh cycle is very incremental now.

The camera's a little better. The speed may be a little better. There may be some things, the form function connection, maybe a little better. What is it that Apple could do with AI that would take that and make a quantum leap, that this is a new revolutionary product, one that gets me excited and not just lets me do some photographic effects a little better? Yeah, no, it's a great point. And I think that when we look at it through the lens of, no pun intended, of like the camera, right?

And you look at it through year-to-year change. Yes, I mean, it's a little bit better. But when you look at it across four-year time frame, it's phenomenally better. So when we talk about this replacement cycles being four years, people who hold an iPhone 10 versus an iPhone 14 or 11 versus a 15, it's night and day. You can also do a lot more with the 15 in terms of capturing spatial video, for instance, which you could use with the Vision Pro.

So there are a lot of improvements that, while you're absolutely right, like on a year-to-year basis or incremental. For the person who's upgrading from four-year-old iPhone, it's actually fairly significant. So that's point number one. But I think on generative AI side, I think the real interesting thing here is that Siri, which has been a kind of mediocre assistant,

maybe actually a hindrance sometimes, is actually something that I think people will look forward to using. This is involving a whole new revamp of that. I think it gets into the place where now you're actually getting a very helpful assistant, something that can help you through your manage your daily tasks, automate a lot of that function for you. So generative AI, you know, we're all starting to use it in different ways, but it really has not yet come in any meaningful fashion to the end device. And at the edge, this opportunity, we think, Apple is the one that's best positioned to

capture this because they have the hardware, they have the software, they have the chip design and the semiconductor pro-us to incorporate all of that very tightly. while at the same time navigating the very complex issues of privacy along with it. So when we think about the use cases here, it's all about being able to automate and make your life a lot better, managing your daily tasks, making reservations for you, being able to order Uber's for you or whatever your commute plans are, being much more smarter and automating a lot of those manual tasks that require us right now to go into so many different apps. Wamsie, it's Steve.

You know, this survey focuses a lot on cyclicality, and this is something we've noticed very recently with, or relatively recently with Apple products, is, you know, three to four years, you're ready to get an iPhone because you're ready to get a new iPhone. You're not necessarily chasing after a new feature. There have been exceptions, like with the iPhone 6 lineup, bigger screens. Obviously, that spurred a huge upgrade cycle. 5G to a lesser degree spurred a huge upgrade cycle. What are you hearing about this AI and this?

this potential generative AI announcement that Tim Cook was teasing again as recently as today, that you see some real features there that can spur the upgrade cycle, or is a survey purely just based on, hey, a lot of people have a bunch of old iPhones out there, they're going to be ready to upgrade? Yeah, I think, Steve, look, it's kind of mixed, right? So, A, yes, the install base is aging, and that clearly the last few iPhone cycles have been relatively weak. and they've been weak because there hasn't been a super compelling reason. People feel, well, I might be able to stretch it out from three years to four years.

And our survey actually shows that people's intent to purchase has elongated over time. So that's very consistent with what most people are seeing within Apple's financials as well. Now, that said, right, like our survey is actually getting ahead of what could be a big update from a generative AI perspective. Because consumers, I don't think, yet have a great sense of what are the users? cases. So I don't think our survey actually is something that is suggesting that there is a huge uptick that's coming from generative AI. Our thesis, though, is that that will come. So I would like to distinguish just between sort of what the survey is saying, which is, yes, there is a whole install base that's waiting for some capable features. But when we do our supply chain checks and

look at like what Asia is telling us about what is happening within both the TSM side of things where the chips are being manufactured, a high bandwidth memory, and capturing all that into the form factor of the iPhone. That's where we see really the excitement around the capabilities potential in the future. Wamsie Mohan, we thank you very much. Steve Kovac, we thank you as well. More power lunch after this. All right, folks, it's been a packed hour. We thank you for joining us. The Dowdown 0.2% right now at 3885. Thanks for watching Power Lunch, everybody. Closing bell starts right now.