Power Lunch - Return of Meme Mania?, Disney Drama 3/27/24

Episode Date: March 27, 2024

Is “Meme Mania” making a comeback? Reddit shares have had a huge rally since its IPO. While shares of former president Donald Trump’s media company are up 70% this week. We’ll look at what could be different this time around.Plus, we’re following the drama at Disney. The company just settled its long-running legal dispute with Gov. Ron DeSantis, while it also faces a proxy fight ahead of next week’s shareholder meeting. We’ll break down everything at stake. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody, and welcome to Power Lunch alongside Julia Borson. I'm Tyler Mathes. I'm glad you can join us. Coming up is Meme Mania making a comeback. Reddit with a huge rally since its IPO just last week. Former President Trump's media company. That one is up 70% this week. We will look at whether it could be different this time. Plus, the Disney drama, the company is settling a long-running legal dispute with allies of Governor Ron DeSantis, also today officially adding Hulu to Disney Plus. All of the company faces a proxy fight at next week's shareholder meeting. A lot to discuss on Disney, but first, let's take a check on the markets. The down S&P 500 are both trying to snap three-session losing streaks. But while the S&P 500 has gained 10% so far this year,

it's remarkable that's happened with one of its biggest components falling 10%. Probably is the biggest component here with more on why Apple has gone from market leader to market laggard. is Steve Kovac, the darling, now the duckling. Yes, exactly. And look, Apple started this year, basically on top of everything. They had the launch of the Vision Pro, returning to earnings growth or sales growth, rather, for the first time in a year, the largest market cap in the world.

Oops, but a slew of headwinds, many of them from governments around the world, have humbled Apple this year, sending shares down 10, 11 percent or so year to date, all while its big tech peers continue to climb on the hopes of AI. So let's run down what's happened so far this year. First of all, you got the China business may not be improving. We saw this report from Counterpoint Research that said iPhone sales fell 24% in the first six weeks of 2024 from the same period a year ago. Meanwhile, the EU started enforcing its tough new tech law called the Digital Markets Act. EU said Monday just this week, it's investigating Apple for violations of that law, which come with steep fines.

And Apple canceled its next big thing, that self-driving car project type. And of course, last week, the DOJ unleashed its wide-ranging antitrust lawsuit. So what can change things? Maybe turn things around. Well, guys, mark down June 10th on your calendars because Apple told us yesterday that's when it's going to hold WWDC. That's, of course, the annual developers conference. Likely going to hear the AI plans for Apple there. And if you don't believe me, just take a look at this ex post from Greg Jawswiak.

He's Apple's marketing boss teasing an absolutely incredible WWDC with the AI. and I capitalize. What do you think that means? Apple's put enormous pressure on itself to, as Tim Cook has put it, break new ground in artificial intelligence. Apple doesn't have a clear AI narrative yet, instead pointing to past products and kind of recasting them now as AI instead. Now, after all that in the summer, we have September when Apple typically releases new iPhones. Those need to come with exclusive AI features to convince folks to buy who maybe would want to hang on before another upgrade. The question is, what's the best case in our what Apple could announce in this AI realm in June?

Like, we've seen so many chatbots, AI assistants. What is going to actually be impressive in this AI space, given how many other products are out there already? That is the bazillion, what, $3 trillion question so Apple can get back to that market cap? What can they do? When Tim Cook says break new ground in AI, that says, we're going to see something we haven't seen before. I don't know what that is. Start with making Siri better. That seems like a low-hanging fruit.

And then we have, you know, those reports last week about these potential partnerships in AI with Google's Gemini, with China's Baidu, which they already have search agreements with both of those companies. And to what extent are they going to be using those AI products in their own whatever idea they have? So that's going to be interesting, too. So as you look, you went through a real panoply, a litany of concerns that have afflicted Apple since in the last 10 weeks, let's say. Antitrust. Antitrust in Europe or violations of the Digital Security Act. Europe, AI, the car project, and so on so. Of all China, of all of those things that you mention, which ones are potentially the most damaging to Apple over the long run?

It's, if they can't deliver a bang-out announcement at WWDC on artificial intelligence, these concerns will all be validated that Apple is behind, that Apple can't come up with an innovative product, although that bearish narrative will be fulfilled. But the bullish narrative is they're just going to knock our socks off with something great in artificial intelligence that we haven't seen before. So that's where the pressure is. A big deal there would cover a multitude of other sins. And they have to sell iPhones at the end of the day of the day. All of this is to make them or help them sell more iPhones.

China is a big part of that. It doesn't sound like this quarter is going to get any better as far as the China business. The economy there, the consumer there is weak and also competition from Huawei. Yeah, fascinating. And just to think about all of those regulatory issues, such as distraction when they need to keep their eye on the AI ball. It's going to be a big question for Apple too in the coming years. Yeah, Steve, thanks so much.

Meanwhile, the demand for AI chips has made Invidia the third biggest company in the U.S. by market gap behind Microsoft and Apple, but there is a new threat to Nvidia's AI dominance and is coming from inside the house. We sent Christina Parts-Nevolo's to Austin, Texas, for more on Amazon's own chip building aspirations. Christina?

Well, it's not only about high cost, it's also about short supply that is causing so many big tech companies to really focus on building custom chips in-house from meta, Microsoft, Amazon, AWS, I should say. Even OpenAI is considering it. And of course, to reduce their reliance on Nvidia chips. That's why I came to this lab, Anna Perna Labs, or you can see everybody's working diligently. You know, they've been working on their chips for the last 11 years, including the one I'm holding in my hand. This is a chip used for inferencing on an inferencing board, inferential. And the thing with Amazon is, or AWS, is they're still building all of these chips, working diligently.

But at the same time, they need to maintain their partnership with Nvidia. Listen it. It also means bringing the very best Intel, AMD, Nvidia, whatever the partner might be, to AWS for customer workloads that might need those chips. And so, you know, it's really not just an approach that says, hey, we want to get everything onto our own silicon. It's really an approach that says you want to give customers the best choice. The best choice and obviously the cheaper alternative because it's always about giving their customers the best of both worlds. The problem is competition from Nvidia is fierce, not only Nvidia, AMD, etc.

And it's really not easy to compete. That's why labs like this have been around for at least 11 years. And I say that, and I think of an example, Steve was just talking about Apple. Apple, for example, there's just six researchers, roughly from six different universities yesterday that published a report saying that there are security flaws now in Apple's chips that are used in the M1, the M2, and the M3 you've used for a lot of MacBooks. And these security flaws reveal encryption keys, secret encryption keys. So that's not a good thing. Another separate story with Apple is that they tried to get their smartphone chip off the ground, but were unable to do so in time.

So then they had to sign up with Qualcomm for another three years. Microsoft, for example, they have launched finally after years of production their first, or I should say, set of two AI custom chips in-house, and it takes some time. For companies like AWS and all these lovely people around me, they're spending billions of dollars to plan their future destiny so that it's not as reliant on Nvidia, but for now, there is a balancing act of being Nvidia customers and competitors, guys. So, Christina, in the media industry, used to call this being frenemies. They have to maintain their relationship. They have to buy those chips and also are trying to create alternative rival products. My question, Christina, is.

is given what you're seeing there about the variety of chips and also the volume they're able to create, when will we see these tech giants be able to create enough of their own chips to not rely on the likes of Nvidia? Well, specifically for AWS, they're able to offer these chips to their AWS customers and say, okay, you can either go the Nvidia route or you can go the AWS route. I guess the strength that Nvidia has right now

is the developer software that's a part of that ecosystem. And often what Jensen Wong, the CEO, will talk about, he'll say, oh, everybody uses Kuda. There's over 4 million developers around the world that are using that software. And so it makes it a little bit more difficult to switch over completely to a competitor. But that's something that all of these big, you know, AWS is known for the cloud, known for all their products. So they are working on it. And they argue that they can offer it at a cheaper price. So if you're willing to switch away from certain software and then go for the cheaper, maybe more power-efficient option,

it could be a win for customers, especially when you're thinking of these GPS. use that are you're factoring in costs anywhere between 30 and 50,000 dollars per chip. And that's a chip, not including the entire board that has thousands and thousands of pieces and all this intricate. Look at how tiny. He's using tweezers. I was going to say two tweezers right now. So clearly it requires a lot of effort and skill.

So CEOs and CFOs and boards are paid to make these kinds of decisions. But I can only imagine that the capital expenditures required here for companies like Amazon, or Microsoft or Apple to build its own chips, to build their own factories, to make those chips, or to buy or lease capacity from captive suppliers, has got to be vast. Do you have any idea what the capital outlays are when a company wants to do this?

Oh, Tyler. And unhitch? I asked this question twice, and although the AWS team is so helpful and friendly, they would not give me an actual amount on how much they're spending per year on specifically building in-house chips, which are then manufactured elsewhere.

I'll swear, most likely, TSM. But if we're going to give a ballpark figure, remember Open AI and Sam Altman talking about, you know, localizing it, bringing chips into America, building there, creating a foundation, and then he had put a price tag of $7 billion. Obviously, billion is quite a bit. But that just puts into perspective how much money

a lot of these companies have to spend over years. And I say years. Over 11 years here, Microsoft has been working on their chips for also, like over five, six years on their custom AI chips, And yet they've only recently launched them this year. Meta falls into that category, too. It's just not easy to do.

And eventually, eventually the money's going to run out and they're going to realize, okay, we either let the chip companies do it or we decide, okay, we're doing a good enough job, or we go and acquire a smaller chip company, which was actually the case for this particular lab years ago. All right, Christina, thanks very much. Christina Ports in Evelace in Austin today. All right, now to our next topic on technology, tech topic, TikTok. Congress seems to want to ban the app or at least force its Chinese owners to sell it. But what do you think?

Steve Leesman joins us now with the results of our CNBC All-America Economic Survey. Steve. Hey, Tyler, thank you. Nearly half of Americans are concerned enough about the national security threat posed by TikTok to support either banning the social media app or forcing its sale. But there are substantial political divides, generational divides, and splits, of course, among those who use the app and those who don't. 20% say it should be banned no matter what. 27% say it should be banned unless sold to a non-Chinese company. So put that together, 47% support a ban or a sale, which is a plurality.

22% say they're unsure. 31% say hands off of my TikTok. Republicans come in 60 to 20 for the ban or for sale Democrats split 40 to 30 in favor, just slightly in favor, that is. And independents are 34 to 40 against the ban. But those aren't even the biggest splits we picked up here. 31% of all voters say it should be banned, but it's 48% for those 18 to 34, just 11% for the 65, an older crowd. While 20% of non-Tick-Tac users oppose a ban, that jumps to 53% for those who are using the app at all,

and it's 67% for those scrolling through the app every day. This issue may be more fraught for the Democrats and Biden than for Republicans and Trump. Biden's struggling to hold his winning coalition together from 2020 and already has problems with the youth vote, take a look here. While the survey shows a 39% overall approval for Biden for all registered voters, rises four points from the last survey to his long-run average of 40%.

But it stayed down at 33 in this last track for young voters, seven points below their long-run Biden approval. Best outcome could be a sale that is seamless to users, that's the best political outcome, but this could only be the beginning of a series of issues pitting national security and social concerns, on the one hand against tech freedoms on the other. Guys?

Steve, one thing that's so interesting to me about this is the fact that there are plenty of TikTok users who are happy with a ban or fine with a ban and sort of indicating the fact that people believe that they're going to be able to continue watching short form videos, say on other platforms like YouTube or Instagram. Did you get a sense of whether or not people would feel like they would be voting, the people who are concerned about a ban,

would be voting based on this being an issue? How important is this as an issue? So that's an important question. I don't think this is a decisive issue. You think of issues like inflation, issues like taxes, issues like abortion. They rise up and become one of the most, one of the more important issues that we registered when we have voted, what their top concerns are. This isn't even on our list. And I guess it wouldn't even register on our list.

I do think, though, an election where both candidates are very close in the polls, it's 46 to 45. with Trump just one point in front, it's a marginal issue, but it's an election where the margins may matter a lot, Julia. Is it a partisan issue? I mean, go back through those numbers that you mentioned a moment ago, with Democrats, I think, mildly in favor of a ban, and Republicans more staunchly so. Yeah, and look at the independence there, they're 3440 against. It is a partisan issue, 60, 20, and you'll note when you look at that chart, I don't know if we can bring it back up. It's tough to recycle those things. But there's a lot of undecided so people could be swayed on it. But yeah, Republicans seem more in favor of it. Here's the thing. You guys remember when

Donald Trump called us up and we did an interview with him on Squawk Box and he said he opposes the ban. So it's kind of unusual right now at this point to have the Republican electorate be at odds with their presumed nominee. We'll see if former President Trump pushes that issue more and brings his electorate more in line with where he is on it, or whether or not they stay on these different sides on the issue. All right, Steve, thank you very much. Steve Leesman reporting. Appreciate it.

Pleasure. And coming up, the return of the meme trade. Why Reddit, the home of viral trading could be the newest target. That story in Tech Tech, plus Hulu on Disney Plus launching today, as we see media companies pushing users back into a new kind of bundle and away from a la carte streaming. We'll discuss further ahead. meme-like volatility might be returning to some parts of the market.

Reddit and Trump media to the big movers today. So could this signal a new wave of meme stocks? Dear Deboza, it takes a closer look in today's tech tech. Dee? So, Julia, yes, this is a new wave. The old meme stocks, they aren't backed by any means. But what it underscores is a market increasingly driven by momentum and retail investors. One, though, is not like the other.

Let's take Reddit first. It's price to sales multiple. higher than that of other more profitable social media names, MetaSnap, Pinterest. At the same time, it hasn't gotten so out of hand that it has surpassed InVidio, which I'm just showing you here as a benchmark for a momentum stock driven by fundamentals, not a meme stock. Now look what happens when you add DJT to the mix. On this next screen that you're looking at now, it has just $3.4 million in sales for the first nine months of a year, giving it a price to sales multiple of more than 2,000.

That blows anything else out of the water, even Invidia. And you can barely even see them on this chart, guys. So when I say one is not like the other, we're at meme levels, but DJT is in a league of its own. So, Deirdre, break this down for us. What counts or qualifies as a meme stock? Just about the volatility. Is it trading volumes? Because I was there on the floor reporting on the Reddit IPO last week.

And at first, it didn't look like it was going to be meme stock. It went up, but it wasn't necessarily in meme territory. So it has to have momentum, like you said, volatility, divorced from fundamentals, as I pointed out with those valuations, and maybe importantly, it has to be a topic on the Wall Street Betts subreddit. So I was looking through some of the comments this morning on DJT in particular, and you had users saying pump and Trump. Another one said, there are Waffle House locations with more revenue in a month than Truth Social had in an entire year, which is. like interesting guys because they're very aware of how ridiculous this is. There was even a user that posted the financials of DJT and the other said, get out of here. We don't like to talk about fundamentals. That's not what we do in here. You know, I find there's a delicious

irony in the DJ Trump valuation on a week where the valuation of his properties has been such a headline issue. Here is a valuation that is so outlawed. landish where he didn't. He, Donald Trump, didn't talk up the valuation. The market pushed the valuation that high. The branding, the brand value of Trump pushed the valuation that high. He didn't do it per se. Tyler, it's a SPAC also, right? Didn't we learn this lesson in 2021 that the incentives, particularly in the SPAC structure, need to be looked at very, very closely? But let me also say this. So there's a word of warning. Yes, these are divorced from reality.

And yes, the meme stocks of 2021 are nowhere near those peak valuations, but it's also very, very dangerous to short these stocks. Even if you know that they don't make any sense, take this number, SPAC short sellers, they lost nearly $160 million on paper in 2024 so far. So even though we can say all of these things doesn't have any basis in fundamentals, they can keep going higher longer than investors can remain liquid or remain solvent. I will go out on a limb here and say that if you buy DJT today at, what is it, 66 a share, something like that, I didn't see the last quote there. If you buy it at 66.50 a share today, if we come back and check in six months or a year, I don't think it'll be 66 a share. It'll be lower. I'm not sure either,

but Tyler, I don't know. These things don't make any sense. So, they can keep going for a call for a time. That's not to say that it might not be 266 in between then. Yeah, exactly. It could easily be. It could easily be. Sounds like unpredictability is another hallmark of these stocks. Yes.

And short squeezing. That's also another trait. Thanks very much, Dee Bosa. All right. Mark shares higher on the back. That's not the bag. That's the back of an approval for its rare lung condition drug. We will trade that name in three stops line.

Welcome back. Bond yields heading lower today after that seven-year auction in the last hour. Let's get over to Rick Santelli in Chicago for more. Rick. Thanks, Julia. Yes. Seven-year note auction today was the best of breed. 43 billion, sort of an oddball maturity, so not a record size offered by the Treasury. It completed 176 billion in supply. And as you look at the intraday chart, you see that low yield. That was after the auction results came out. a really spectacular auction, if spectacular is defined as investors fighting each other to get to those seven years. Now, if you look at a two day of tens, you should notice a couple of different things.

It also extended its yield drop, its price increase after that auction. And more notably, we are much lower in yield today than yesterday's low yields, much higher in price and yesterday's high price. So the momentum continues going into the holiday short and week. If we look at the yen, and this is key, this is a 24-hour chart, it traded up to nearly 152, which is in favor of the dollar versus the yen. We haven't closed the dollar yen at 152 or higher since the 29th of June, 1990, as you see on this chart, 34 years. And what reversed it was verbal intervention. We all know if you have been watching the history of intervention by the Japanese, it has not been successful to think that they're going to try to move the market with guidance verbally. Maybe a much better idea than throwing their money in because if you lose on the ladder, the market senses it and many traders go after it even harder.

Tyler, back to you. Rick Santelli, one of the great mysteries of CNBC folks is who's going to do the CNBC news update in any. given hour. And this hour, it is Dom Chu. It is indeed, Tyler. Here is your CNBC News update. Transportation Secretary Pete Buttigieg offered no timeline this afternoon for the reopening of the crucial port of Baltimore. But he said it is a top area of focus in the aftermath of the collapse of the Francis Scott Key Bridge. He also said the White House is focusing on dealing with supply chain issues addressing surface transportation and rebuilding that bridge.

Israel has asked the U.S. to reschedule an abruptly canceled meeting on its plans for a ground offensive in Rafa. Prime Minister Benjamin Netanyahu called off the plan talks after the United States abstained from a United Nations Security Council vote calling for a ceasefire in Gaza. The U.S. has warned that a full-scale invasion of Rafa would be a mistake and would weaken Israel's security. And the Illinois Supreme Court agreed to hear an appeal from former Empire star Jesse Smollett. He was convicted on five counts of disorderly conduct in 2021 after Chicago police found he hired two brothers to stage an apparent hate crime attack back in 2019. Smolette has maintained his innocence. Tyler, I will send things back over there. Tom Chu, thank you very much.

And after the break, two big headlines out of Disney, launching a new bundle and settling with DeSantis. All with the company's shareholder meeting just a week away. The stock is up. Yes, up 32 percent this year. One year, it's up nearly 26%. Welcome back to Power Lunch. Big moves happening in the Magic Kingdom today. Disney and the state of Florida agreed to end litigation over control of the Entertainment Giants governing district in the state.

Now, the move ends in nearly two-year legal battle brought on by Governor Ron DeSantis after Disney showed opposition to Florida's so-called don't-say gay bill. But this is not the end of Disney's troubles. Bob Eiger and his colleagues are still gearing up to take on Nelson Peltz's proxy ballot. next week at the company's annual shareholder meeting. That's on Wednesday. Peltz's campaign got a lift from advisory firm Egan Jones earlier today. They said they see, quote, very little downside and a lot of upsides to putting Peltz on the board. So let's dive into all things Disney with CNBC contributor Jim Stewart along with UBS media and telecom analyst, John Hudlick, who just raised his Disney price target by $20 this morning. Jim, let's start things off with you

since you wrote the book on Disney. Disney Wars. You know so well. How this company works, what do you predict will happen on Wednesday when we get the results of this vote? And how do you think this whole proxy battle will shape how Disney changes in the coming years? Well, those are great questions. And, of course, I don't have a crystal ball. You don't know how it's going to turn out. I mean, there's a tremendous amount of suspense about this. I will say I would have said a few weeks ago that I thought there was little doubt that Disney would win. It's tough to win a proxy contest. The big, you know, company, like Vanguard and Fidelity, they're very reluctant to embrace shareholder challenges to existing

management. But Peltz has recently picked up a lot of support from some of the advisory services, and there is this looming issue of succession hanging over the company, and would Peltz really be in a position to add value to that very important process that's going on? So there are a lot of balls in the air. It's been a very nasty fight. a lot of character assassinations going on, all kinds of claims being made.

But I think it's good down to the finish line. I think it's also worth remembering that even if Peltz doesn't win but gets a substantial shareholder vote, I don't think the board can ignore that. He has said he's not going away. Even if he does lose, he'll remain a major shareholder. If he gets a lot of support, the board will have to listen to him. And remember, years ago, Eisner was the CEO.

Disney won a share. shareholder challenge, but there was so much opposition that he ended up having to leave. Yeah, such a fascinating history to this company, and we're right now showing the board of directors that is up for re-election. John, you have this fascinating note here outlining all the different reasons why you're optimistic and bullish on Disney stock. You're raising your EPS estimates and also upping your price target by $20 to $140. How much do you see this Peltz proxy battle as a distraction and potentially limiting Iger's ability to accomplish some of the things he's put in motion over the past year? Yeah, I think it is a concern. I would say, as of now, I think it's a

distraction. It's taking a lot of management time, but I would say the early signs of a turnaround orchestrated by Bob Iger's return are in motion. I think we're seeing the signs and then I think we capture a lot of that improvement in our new model in our report today. But I think there's risk to that. I mean, if Help wins, if there's a change in the board, I do think there's a risk that Bob could lead the firm and really jeopardize a lot of the gains we've recently seen in the company. Yeah, I want you to specifically dive in here to your outlook on direct-to-consumer and where you see that business going, John, because that's a key part of your, your bullish note here and the fact that you see those D to C margins increasing. This is something that's also

important to Nelson Peltz. But what's your outlook for the streaming business, especially today, as we start to see the integration of Hulu and Disney Plus. Yeah, and I think that's a key issue, Julia. We're the cusp of seeing Disney Plus and Hulu put together as one service probably by the end of the year. We do think there's a substantial amount of synergies in putting those businesses together. And we think it's good for growth. And I think, you know, you really need to compare the operations of that business to where Netflix is. Last year, Disney Plus, despite over $20 billion in revenues at the D to C segment, lost over $2 billion.

If we could get anywhere close to the Netflix margins of over 20%, this could be a substantial, you know, earnings generator for the company. And we think the company's on the pathway to prove that out. Jim, as in our intro, we said Egan Jones says they see a lot, see very little downside and a lot of potential upside to putting peltz on the board. I'd like to get your reaction to that. what is the downside and what is the upside? And as John just said, the downside might be that Mr. Iger says, I don't want any part of this. Get me out of here. Well, you know, I've done a lot of research and interviews on Peltz's record at other companies. And by and large, pre-other CEOs and top executives who, when he came on the board, generally praised his presence there.

Thought he was very constructive. He listened. He changed his mind if necessary. The one negative that they almost all brought up was how time-consuming that it was. That you suddenly, there's no question that Iger would have to spend a lot of his time dealing with peltz, holding peltz's hand, disgustings with peltz. I mean, I believe it was that Mondalives, the CEO had to create a new executive position to handle all the managerial duties. so she could spend all the time dealing with Pelt. So I think that is a risk. On the other hand, some of the charges against Peltz, I think, ignore the fact that he has a very large financial interest in the success of Disney. By the way he bought last fall, he's sitting on a big gain already.

But he wants the company to succeed. He wants it to make money. He is aligned with the interests of other shareholders. And so I don't think it makes much sense to say he's going to go in there and be destructive. That's the last thing that he would want to do. not in his financial interest to do that. No, certainly not his financial interest, but that whole process may indeed be distracting

if he is indeed elected to the board. Another key piece of this company, of course, is the park's business of great interest to Nelson Peltz and, of course, a huge piece of Disney's revenue and profits. John, you're bullish here as well as they continue to invest and expand, but I'm curious if you're at all concerned about the growth in the past year or two being a result of pent up post-pandemic and whether you see any impact from consumer spending slowing down.

There seems to be any evidence thus far. I mean, travel has been very strong with the consumer. As you said, we like the new CAP-X program to modernize and expand the parks, both in terms of the existing parks and, you know, the cruise ship business, which is a very high ROI business. So we think, you know, based on our new model and our numbers today, that they can continue to grow that business at a mid to high single digit rate. And again, it's a very high ROI business and I think it's something that sells a lot of growth ahead of it.

Yeah, no signs of slowing down just yet. Well, this will be a fascinating one to watch in the lead up to the meeting on Wednesday. Thank you, Jim Stewart and John Huddlick. All right, coming up, Yellen's warning to China, the Treasury Secretary slamming Beijing for distorting the world economy. We'll get the key details when power lunch returns.

Treasury Secretary Janet Yellen entering a solar plant in Georgia this afternoon. Megan Kisela joining us now with more on what Secretary Yellen had to say about China. Megan? Hey, Julia. So in a speech just getting underway this afternoon, Janet Yellen is taking aim at Beijing over what she sees as overproduction of several key technologies. That includes solar, electric vehicles, and lithium ion batteries.

Yelan is saying she'll be pressing Chinese officials to address over capacity during her upcoming trip to China. She says she'll make it a key issue in discussions, arguing that excess capacity, in these industries hurts not only American workers and firms, but also China and the global economy. The issue here, as Yellen will lay out in her speech, is that Chinese overproduction in government subsidized industries has led China in the past to sell products abroad at reduced prices. That makes it harder for other countries to compete. So part of her concern now is that the U.S. has seen this play out before with solar panels. To emphasize this point, she's delivering these

remarks inside a Seneva facility. It's a solar cell manufacturer that produced solar cells in the U.S. for a decade before declaring bankruptcy seven years ago due to a flood of cheap imports from abroad. Today, Yellen says the company's back on track to restart manufacturing this spring after securing around $100 million in financing from the Inflation Reduction Act. So, guys, this shows just one way the Biden administration is aiming to compete with China on these issues. Guys? All right, Megan, stick around as we bring in our own PIPA Stevens to help react to this and the impact on the solar industry.

So I think the crux of the issue here is that the administration is trying to have a as much renewable energy developed as quickly as possible, while also jump-starting a U.S. domestic supply chain. And this is challenging because China is by far the leader here. They control more than 80% of the solar supply chain. By some estimates, they've invested very heavily to be the leader in these new technologies like solar and batteries, you know, lithium refining, things like that. They also benefit from cheaper electricity, cheaper labor,

all of which is to say that what McKenzie says that solar cells manufactured in China are about 50% cheaper. than those in Europe and 65% cheaper than those in the U.S. So there's no question. It's hard to compete. On the other hand, the Inflation Reduction Act is certainly making a big stride there. We've seen tens of billions of announcements of factories to try to resure that production. But the reality is that these things take time.

And for right now, China is the leader and they are sending a lot more product into the channel. So, Megan, how did this company come back from the ropes, the company that you're at? They got financing through the Inflation Reduction Act. what makes them think now, given the sort of dynamics of the marketplace, that they can make a goal of it? I think they're looking at this financing. They're looking at the administration's focus on making sure we produce at least some of these solar cells and solar panels in the U.S. as sort of their opportunity. They're trying to hire more and build out this production.

But I think one question really, one criticism that we hear most often of the Inflation Reduction Act is that by subsidizing our industries here, we're doing exactly what China's doing. Do we really want to over subsidize, or are we at risk of over subsidizing, I should say, an industry that wouldn't be sustainable without this government investment and maybe can't be sustainable then long term? Yeah, so both sides potentially oversubsidizing. Pippa, how do you see this playing out? You mentioned that it's going to take a long time, no matter what it happens here, it's going to take a long time.

But how do you see this ultimately impacting what's happening here on U.S. oil? Well, I think the first thing to note is that the module manufacturing is now coming to the U.S., and that is the last stage of the panel manufacturing process. And for the time being, things, we haven't really gone further up the supply chain. So things like the polysilicon, the ingot, and the wafers, that is still taking place outside the U.S. And the U.S. doesn't actually import cells and modules from China. After a series of tariffs were levied against China solar products, a lot of that production then moved to Southeast Asia. And so we now get more than 80% of our modules from four countries in Southeast Asia.

And so I think that ultimately the U.S. will build out a robust supply chain, at least for certain portions of clean energy. But the fear is that just like we've seen with Europe's reliance on Russia for hydrocarbons, if it's too concentrated in one area, that also poses a risk, even maybe a national security risk. And just a final question to Megan, does this indicate any sort of a change in the U.S.-China policy, or is this just more of the same? I think we are seeing the Biden administration get a little bit firmer on this point. In previous trips to China by Yellen or by officials beneath her, they have been noting that they're addressing over capacity. But we haven't quite seen her be this specific on exactly what they're worried about.

You know, this is something that is an issue in this industry. It's also something some people worry about with chips as well because we've seen this play out before. So I think, you know, they emphasize that they want to be cordial with China. They don't want to shut down that interaction, especially not that economic cooperation, but they also want to make sure that it's fair. So we're seeing them ramp up that dialogue. All righty, folks. Thank you very much. Megan. Pippa, thanks so much. And coming up, driving drugs and drapes. We'll get a trade on Tesla, Merck, and RH in a fresh, free-stock lunch. And as we celebrate Women's Heritage Month, and we're sharing the stories of some of our newly named CNBC changemakers. Here is Kathy

Englebert, WNBA Commissioner. I was always very curious. So I say curiosity drove me, but confidence built me. I tell a lot of young woman today, raise your hand, build your capability, good things will come. That's what happened to me. And that's what we've been doing at the WMBA. That's what a changemaker really is, is someone who's going to make decisions to affect change to transform a league of our size and scale and thrilled with where we are right now. Welcome back, everybody. Time for today's three-stock launch here with our trades. Jerry Castellini, president, chief investment officer with Castle Arc Management. First up, let's go to Tesla, Wall Street continuing to cut price targets on the stock. Fresh round of warnings on the first

quarter deliveries numbers. Evie manufacturer, one of the very few underperformers among big tech stocks so far this year, down about 27%. Jerry, your trade. Yeah, so Tesla, I would put in the same categories Apple, two worst performers of last year's Mag 7, and they're actually being kicked out. So there certainly isn't a lot of excitement there anymore. And when you think about it, Both of these stocks have kept away from investors. They're a real strategy and what they're doing in AI. If we knew more about them, it would be easy to conclude that both should stay as underperformers. But think about Tesla for a minute.

The expectations now for deliveries have been cut. China is not a surprise on the upside anymore. It's a big negative concern. Stocks pulled in. They just raised prices. So that market might be stable. But more importantly, they're most likely going to have a very scary on the upside announcement at some point on their AI application. And it'll be wrapped around this self-driving aspect that they've developed.

We don't know if it's going to come soon, but we would very much expect something here in the next maybe even three weeks, just hinting at where they could go. And you would not want to be on the wrong side of Tesla when they're now applying that type of technology. to on the road driving. So you think you would say buy this here in light of the fact that you think something's coming big on AI? So from a tactical perspective, I would let the quarter come in the next few weeks, let them report, let them give you potentially more bad news, and take that as my entry point. We don't own it right now. We're looking at it very closely. And if we see any weakness in it, given the upside that they have, that would be a great time to start. buying. So on the hold, we're going to your earnings and buy regardless. Okay. Well, shares are up about

1.5% today. And next up, Merck, the company is scoring a major drug approval for a rare life-threatening lung condition. shares of Merck up over 4% today. Jerry, what's your take on this one? Now, 5%. Yeah, I say follow the crowd here. This is a unique, this is a unique therapy. No one has it. This is probably a $20 billion market. Merck has a hold of fill in their pipeline. the fact that this is going to be on the market now and help fill that, we think it's going to lead to a higher multiple for the stock, and we think it'll do a lot better. All righty. Let's move on to, I guess it's RH company, formerly known as Restoration Hardware. It's on deck to report earnings after the bell today. Your trade here, Jerry.

Yes, so this one, to me, is a sale. It might have a little better than the expectations, but the reality is these guys are selling fixtures. And, for furniture. That was the pandemic cycle. Both of those things are hard to consume. It would take quite some time to go through another cycle like that, which means they're more likely to have earnings disappointments over the next two to three quarters. So we would fade that and look more at a consumable name in the home sector, more like a Home Depot. All right, Jerry, thank you very much. Jerry Castellini. We appreciate it. Always good to see you. We will be right back. We only have two minutes left in the show and several more stories you need to know.

So let's get right to it. New York City's MTA board approving a new congestion pricing fee for vehicles entering Manhattan by vote of 11 to 1. Now, this first of his kind program includes a $15 toll for most passenger cars entering the city below 60th Street during peak traffic hours. The MTA claims it will help reduce traffic and also raise a billion dollars annually for public transit improvements. But it is still facing multiple lawsuits by elected officials and residents, New York, New Jersey. Tyler, $15 is to make everything more expensive. So let's say I want to meet a friend for dinner on the west side of Manhattan. Because you live in New Jersey.

I live in New Jersey. I leave here. I go across the bridge. It is $17. I go into West 60th Street or wherever it is. It's another $15. And then I have to park, which is another $50. People are going to be coming to New Jersey to meet me, not the other way.

I think it's going to be litigated. I don't think it's going to go into effect for a while. I think that's probably true. All right, next story. The spring housing market underway, and yet the mortgage market isn't moving. Weekly mortgage apps are down 16% from a year ago, while refinance applications are down 9% in the same time frame. I guess it's higher interest rates and people sort of locked into the idea that if I have to go take out a 7% loan, I'm going to stay where I am and enjoy my 3% or 4%. Homebuyers are going to hold out for lower rates and also for more housing.

inventory. Yeah. Well, do we have time for one more? I don't know that we really do. Let's just look at 15 seconds. Dow Industrial is up 289 points. It's been a good day here. Thanks for being with it. Always fun to be here. Thanks for watching Power Lunch.