Power Lunch - Roller coaster trading day as Wall Street digests deluge of earnings 1/30/25

Episode Date: January 30, 2025

The S&P 500 is higher in a volatile session today, as traders digest earnings from a slew of megacap tech firms. We’ll tell you all that you need to know. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

And welcome to Power Lunch. It is prime time for big tech and your money because you may be invested in some or maybe all of the big tech market moving stocks. But we have got somebody who says you just might be a little crazy. Is it crazy to let your car drive you, especially in Texas? The Tesla plans you've got to hear. And one of America's premier real estate developer says the Fed has got it all wrong. He's here to explain why. Looking forward to that. Let's check on the market. gets hired this afternoon. In fact, the NASDAQ eking out a small gain now, the SMP up half a percent, the Dow leading the way up a little bit more than that. And a lot of big earnings movers. Let's check on a few of them, namely IBM. Who would have thought the star of big tech earnings last night would be IBM, coming in with a 12 percent gain. It's held that since the results crossed AI angle here,

the latest name in old tech to become sexy again, thanks to that. We've already mentioned Oracle and Cisco in that crowd as well. This is a record high for IBM shares at 256 here. That AI business, their actual sales and bookings hit more than $5 billion. Going the other way is Comcast, the parent of this network, hit by consumer losses in broadband, and Peacock's flat subscriber growth, down 12% could be the stock's worst day since 2008. Even worse for Whirlpool, though,

which is getting crushed after predicting weaker than expected earnings for next year. They're very dependent on the housing market. We saw those numbers this morning, the CFO saying he's not seeing green shoots or anything to indicate a recovery, Brian, is around the corner. Yeah, it's a lot to hit. All right, so we've got a lot to do, Kelly. But let's start at the top and focus on big tech valuations.

Because there is some growing concern that you may be paying or not be paying paid enough to take on the growing market risk, the so-called equity risk premium. What you're paying for gross stocks over the risk-free rate of U.S. government bonds is now close to levels not seen since the dot-com era. But these kinds of warnings aren't new. You've heard it for a few years. tech has, for the most part, just kept going up. The NASDAQ 100 has nearly doubled in just two years. But so-called value stocks are up only about one-third or maybe one-fourth in that time.

But they've also started to take off a little bit lately. As one of the growthiest names of all, NVIDIA, hasn't made you a dime if you bought NVIDIA last June. And get this, call this WBI, Kelly, wonky, but important. NVIDIA is actually just the 140th best performer in the S&P 500 over the past six months. Let's talk about all of this together, joining us out of kick it off. GMO cohead of asset allocation. Ben Inker, he says that you as an investor need to be cautious of an overly concentrated market. You know, Ben, even recent, I knew Nvidia hadn't done well, but I even surprised myself finding that data that NVIDIA

for all the hype it's getting, has really been a spectacularly average stock for about nine months, are so-called value stocks finally in love again? Well, I'd say, for one thing, Nvidia, a lot of Nvidia's tougher time really has come this week. And it does speak to the fact that when you have a company where the vast majority of its value is based on growth expectations for the future, that there's a vulnerability there if people change their mind about what they think the future is going to be. So, Nvidia is a very high-quality company. They have an amazing franchise. The reason why they have been vulnerable is because people have assumed that the world is just going to continue to want more and more and more of those chips

at extraordinarily high gross margins for them. And suddenly that may not be so true. It is a tricky problem. You've got an amazing company with amazing products. They might not be an amazing investment because that valuation is high. Fair enough. And we're not picking on Nvidia here. I want to be clear. It's just kind of been the poster child that's made people a lot of money. I hope a lot of our viewers and listeners have become super rich owning Nvidia stock. But to Kelly's point at the top of the show, look who's up 12% today. It's IBM. I mean, IBM is a company. that honestly, Ben, and I mean this with love and affection for all my friends that work at IBM, I have no idea what they do.

They got some sort of consulting business. They do cloud. They do database, data centers. But I couldn't really explain in plain English what IBM does. I'm sure I'll get a nice note from IBM PR for saying that. But you get my point is that sometimes as an investor, you've got to look for the names that maybe you're not thinking about or that, let's be clear, or not being mentioned. in the financial media every day. Absolutely.

There are some wonderful investment opportunities out there in names that just don't get that much interest because they're not going to make you rich this year, right? There's plenty of stocks out there that are trading at decent valuations. They're pretty good quality companies, giving you a nice dividend yield. Maybe you're going to get 10% out of them this year. And, hey, 10% pretty good. It's kind of at least in line with the long-term return to equities. But the thing is, my God, people maybe not who invested in June in NVIDIA, but the people who invested in 23 or 22 or, you know, luckily enough in, you know, 2004 in NVIDIA have made fortunes from it.

And the thing is, for most stocks, you're not going to make a fortune. But that's okay, right? The way you make money in the long run is compounding. and the stories we get that that really resonate are the companies who have done something very abnormal. Ben, is it true that the GMO US value ETF is up 3% over the past year? I think it is. Well, to be clear, it launched in November. Okay, okay.

I see that. Yes, I see that. Got you. Got you. Okay. So then this is not going to be an undefri. So then this is my. larger question for all the investors. And many of us are at heart value people, right? We've,

we've read the Ben Graham and we understand. So, but the performance and what is the missing factor that value as, as a factor is, is not the most important thing, right? Is it all, does it all for you come down to valuations? I feel like Munger and Buffer are always good examples of this. Like, it's not always, it doesn't have to be a cigarette butt, right, to be a good investment. So what are some examples of companies that you think, you, you know, people should be owning right now. Yeah, I mean, we think, you know, in the U.S., there are plenty of companies trading at kind of non-scary valuations that are pretty good companies.

We like a bunch of the big financials where the PEs are fine. These are strong franchises. They're spinning off a lot of cash within pharmaceuticals. You know, I mean, there's a couple of high flyers there who have made a lot of money from the GLP ones. the rest of that group of large pharma are really actually pretty cheap. They're cheaper than they look because the accounting gets it wrong. The accounting doesn't understand how these companies do their investment.

A lot of stuff gets expense that should be capitalized. They're cheaper than they look. And then there's a bunch of manufacturers, right? The auto companies are a little bit scary, but really cheap in spinning off a bunch of cash. You can see in resource companies. Again, these are not companies that are going to double in the next year. Right. But they're really quite cheap.

The world needs what they produce. And we think there's really good expected returns from a lot of these less exciting seeming companies. But I remember having this discussion with Bill Miller probably seven, eight, nine, ten years ago. And I asked him because Ford and GM had been under some pressure. And I said, come on, Bill. I mean, because he is also a value investor at heart. I said, don't you look at Ford and GM at some point and think, you know, this is, it's gotten cheap enough. I mean, Ben, those stocks since then, as you know, I don't have to tell you, look at GM on earnings the other day, down another 9%.

Meanwhile, Tesla has grown its market cap how many times over. So I think investors in this space have just been burned so many times. Tesla is a weird case because they've grown their market cap, not because they're sold more cars or we found that last night made more money off of them. Tesla, it's weird, but it is not the case that they are a trillion dollar company because they are so awesome at making and selling cars. And GM, yes, they had a tough move after earnings, but they're actually up a lot over the last year because they generate so much cash. So I would say it's not that these companies don't have challenges.

And it's not that some of them won't have problems, right? IBM is at this point within tech, very much a value stock, had a good day. You know, Comcast is also a value-type stock having a bad day on earnings. But one of the things I can say about these companies is the risks tend to be more asymmetric to the upside. It's not that bad things can't happen to them. But they're valued in a way that when the bad things happen, hey, the fundamentals are worse than I thought. So I'm going to keep it at the same PE, but on a lower earnings. The problem when you buy that high-flying growth stock and that growth doesn't come in is not just, oh, well, it was trading at 40 times my estimate for this year's earnings. And my estimate for this year's earnings have come down somewhat. It's, well, wait a minute. Maybe this thing shouldn't be trading at 40 times earnings because they're not as growthy as I thought. So we do think that the value stocks these days have the skew of risk in the.

their favor, the tricky thing with growth is the valuation almost doesn't matter until they disappoint. Yeah, no, I take your point. And look, GM's up 32% over the past year. So there you go. That's a win for the value community. Ben, thanks. Appreciate your time today and having this little debate. Ben Inker of GMO. Well, hot takes and powerful points of view still to come, Don Peebles, who says the Fed's persistent pause is a mistake. He joins us next. And further ahead, Bernstein, says Rivian is on the road to ruin. The shares are down more than 80% since going public, and even still, they would need to hit all-time lows to match their new price target. He joins us to explain. Don't go anywhere. Welcome back to Power Lunch. The Federal Reserve kept rates on hold

yesterday as expected, but our next guest is saying that is a big mistake. He once again, well, I don't know if we're always the only member, Don, but definitely yesterday, the only member of our mock fed to vote for a rate cut, and he wanted 50, a half-point cut as well. Don Peebles is here on set with us. He's chairman and CEO of the People's Corporation. Welcome. Thank you. You know, if you look at it, Don, you're a real estate developer. Of course you want lower interest rates. Give us the broad economic rationale. The broad economic rationale is high interest rates have created tremendous stress in local and regional banks. Local and regional banks are the primary lenders to small businesses, and they're not making loans anymore. And what has

happened is that the local lenders are stressed because of the large portfolio. of commercial real estate that they own and apartment buildings. And they are generally the development lenders or the bridge lenders for commercial office buildings. But let me stop you there and be, again, put my populist hat on and say, I don't care. Why do I care what happens to the banks, right? What about what about the, what about everybody else? I don't know.

Well, we do care about the banks because they're fueling the economy and small businesses create the vast majority of the jobs in this country. And local and regional banks are the primary lenders to those industries. And then, of course, the housing market. We have a housing shortage in every major city in the country. There's a significant shortage, rental housing and for sale housing. And what's happening now is housing affordability has been the lowest that has ever been since they've been keeping statistics. So most Americans cannot afford to buy a home and they have to spend a disproportionate amount of their income to pay for one.

All driven by interest rates. This is very complicated, and so it's tough to do right here. In his interview yesterday with Scott Wobner, a great interview as normal. Jeff Gunlock said something fascinating, which was that in parts of the commercial loan market, they're starting to re-rate some of these big loans that we were talking about, retronch them because of higher rates or whatever. It's a very complicated story. But what I heard, I think Jeff say was that bubbling under the surface, way deep, but starting to bubble, are bigger problems in commercial real estate because of rates than we may think.

What do you think about that? Absolutely. I think there's been this attitude with most lenders, including in the CNBS market, the special servicers, is to give these buildings a little bit more breathing room in terms of making debt service payments and the like with the hope that interest rates would decline. That now is a far-grown conclusion that they won't decline any time in the foreseeable future. And so therefore, you've got significant stress in that sector and also what was an a tranche is no longer an atronch because. So that's, and that's what I think Jeff Gunluck got to.

But it's a, when you say trunch, your mind goes back to 2006, 2007. In sort of plainish English, what does that mean when they say re-rate retrench? Well, basically, it's simple. If you have a loan and you look at it as a stack, a pyramid here, or, you know, a building block. The top building block is the A tranche, and that would be the premier tranche. Super credit, no risk of default, etc. And it's a small portion of the loan. Maybe it's the top 10%. So, and then you have here at the bottom, the worst portion, the highest risk, the loss first. So if a loan's $100 million, and you have the D tranche, if you will, and that tranche is, you know, $10 million, then that's the first loss. So of the loan, goes down to, or the property declines in value from $100 million to $50 million, and there's a $50 million loss there. So that works its way up the different tranches.

And what's happening is getting dangerously close to the mid-level to the upper portion of the tranches that are supposed to be risk-free. And as a result, those are going to have to get repriced for investors because the risk is greater. Otherwise, they can't trade them. Right. But is that why people in that space are going to say, we'd love lower interest rates? Give us some breathing room, right? What about people who say, but inflation, you know, that it's going to be persistent,

it's going to be sticky if we lower rates here that we're never going to conquer or vanquish it? But the hidden inflation is what Americans spend the vast majority of their money on. They spend it on housing and automobiles. Those are the top two purchases. Both are interest rate sensitive. And without attractive interest rates, they can't afford to buy either one. And what happens when they buy fewer homes and fewer cars, then jobs are lost. And so there's a double impact there. And what you're seeing now in many sectors now,

our job cuts are beginning to take place now and more are going to start happening. And they're going to be in banking. They're going to be in real estate. They're going to be in construction. And unless we see a change in policy, I think we're going to, we could be dangerously close to a recession. Can the Fed change that policy? Because the Fed cut rates last year and the bond market went in the completely different direction, basically thumbing its nose, at least for now, at the Fed. Well, I think the bond market didn't take the Fed seriously. They were tiny cuts.

That's a problem, Doug. That is a real, what you just said is a massive statement, I think. Yeah, but the reality is that the Fed should have made bigger cuts. They should have been 50 basis points at a minimum every time. And there should have been at least a 100 basis point cut in that process. now to make these minimal cuts and then to do nothing and look all around you. Every sector that's affected by interest rates has gotten worse. And in fact, mortgage rates actually went up.

Home mortgage rates actually went up. And that's because of the bond market because they're not taking the Fed seriously because now the market is pricing in that these guys are not, these people are not going to cut rates anytime soon. And I think that is going to have a big impact in terms of commercial. real estate mortgages and the losses that are associated with them because they're going to start coming now because the lenders are going to have no choice for sure we will see more of this coming the longer that we're at these levels don always a pleasure thanks really appreciate it don people's of

the people's corporation well speaking of the fed and rates let's go now to rick santelli who's in chicago and rick yeah there's stuff you're looking at here with economic data but you got to respond to what don just said which is the bond market is not taking the fed seriously that is a gigantic statement. It is. And listen, Mr. Peeble is a genius, hugely successful businessman. Who am I to go against that? I will just throw this out there.

The Fed cut 50 in September, the tenure was at 365. So I think that the Fed's not taking the bond market serious. We're done with that conversation. Now, today we had GDP, our first look at fourth quarter. And even though you could say 2.3 was a little light, It was a good report. Consumption was off the charts at 4.2%. And as you look at this two-day chart, on the right side, you see all those lows we were trading under 4.5%. Well, after the GDP data, the market reversed.

Now, even though 10-year yields are a basis point in a half lower than they closed yesterday, they reversed higher after that report. That's an important issue to pay attention to. Now, if you look at where the 10-year closed yesterday and the way they're hovering right now, They're on pace for the lowest yield close going all the way back to mid-December. And let's keep with the notion of central banks here. So the ECB cuts 25, their fifth cut in a row. And what's really fascinating is look at our tenure, as I pointed out, 365 when we cut in September.

Here we sit at four and a half. Same thing with the ECB. When they did their first cut in June, June 12th, I believe, the 10-year boon was at 268. Today it's hovering around 251. It was down seven basis points after the quarter point cut. But the point is the same. The markets are pushing back against central banks. And in both cases, whether it's the booms yield curve or the U.S. Treasury yield curve, they've

remarkably steeped. So even though that boon yields is about where it was, okay, their two-year is significantly lower in yield like our two-year. And the reason this is important is the yielded difference between our tens and European tens, the Boons, yesterday closed it. One hundred and ninety-five basis points the closest it's been since mid-November. That's an economy in Europe that has a boatload of problems. Lots of debt.

The U.S. economy is cooking in Greece by comparison. So our rate structure really does represent in some ways the stronger economy, in addition to both countries or both entities. needing to issue a lot of debt, Brian. Back to you. Rick, thank you very much. Don, besides the fact that you're handsome and a genius and super rich, do you want to comment on anything that Rick just said? Well, I agree with all of that. Of course you do. But look, I do, look, our economy is doing well on the surface, but it's got some major issues and headwinds ahead. And those are driven by interest rates that are way too high. And we rely heavily on construction,

to create jobs and economic activity in most of our major cities. So we've got to bring these rates down. And that will propel the economy and we'll see greater growth. All right. Well, appreciate it. Don, thank you. Yep, appreciate it. All of your time today. One of more of them.

You are very handsome. I should say that. But, you know, I've had some eye issues lately, so I don't trust me. All right. Up next, are you banking, wink, wink, on some tech weakness. One trader says it might be time to turn to where the money is. That's a hint. Market Navigator, next.

Contribute to a health savings account to pay for medical expenses with tax-free money. If you're enrolled in a high deductible health plan, you can put up to $4,150 for yourself or $8,300 for your family into an HSA by April 15th. And your contribution will be tax deductible. For CNBC, I'm Sharon Epperson. Welcome back to Power Lunch with stocks picking up some steam this afternoon. Dom Choo's here for Market Navigator. So let's Kelly talk a little bit about 2025. It's a great start for the financials right now. It follows up on a 2024 where it also had a strong year and beat out technology. It's up more than 32% by the way the sector in just the past 12 months.

And it's worth noting financials just they continue to outperform even over the tech sector again this year. So is betting on the banks a sustainable strategy for outperformance in 2025. Our next guest is overweight financials and says it's not too late to get in on the action. Joining us now is Katarina Simonetti, a private wealth advisor over at Morgan Stanley and Katarina, the bank trade had been talked about as being the catch-up trade for years. It finally came to fruition in 2024 and 2025. So what makes it so that it has legs? Well, Dom, thank you for having me on the show.

And of course, we've been talking about financials for a while, but one of the most striking features about the market volatility over the last week. It's not just rotation out of tech, but specifically rotation out of tech into financials that have outperformed tech this week, this month, and for the entire year that we just had. And as you said, we've seen the 32% growth in financials over the last 12 months because all the focus was on tech, but we don't believe that it's too late for investors who are underway. the sector to go into financials and increase exposure in their portfolios. Katerina, financials are more than just banks. They're the driving force of it. There's no doubt

about it. But there was one point over the past couple of years that the story was all about the insurance companies. We know that they're under pressure right now, given some of the natural disasters, wildfires in L.A. and whatnot. So when it comes to financials, is it the big banks, the little banks, the medium-sized banks, the insurance companies? What exactly think is the driving force for 2025? Well, John, we have. to take the entire picture into consideration. Financials as a whole stand to benefit from the deregulation as the policy of the new Trump administration, heightened M&A activity that is going to come as a result of this deregulation, the lower potentially decrease in the corporate tax

rates, and also the fact that we might be in the higher interest rate environment for longer, which includes the higher rates on mortgages and car loans for the lower side of the financial sector. And we've seen that the rates in this sector stayed high despite of the couple of rate cuts that we have seen already. So banks are the pulse of the economy. It's just plain as simple. What we saw over the years is when investors are bullish on financial sectors and

are bullish on banks, they're generally bullish on the economy. So on some level, it's the indicator of the health of the economy and investors as the view, you know, the economy and, you know, potential for the economic, for where we are in this economic cycle. All right. Katarina Semenetti, private wealth advisor over at Morgan Stanley. Thank you very much. We'll see you again soon. Thank you very much for the thoughts there on financials. Now, Kelly, what's interesting about this, remember there was a time when people used financials as income plays.

They bought them for the dividends. Yeah. Then all of the restraints came in on pure buybacks and dividends. You wonder the deregulation does it lead to more capital deployment to shareholders. That's going to be a big question as well. Also, a deal-making cycle could benefit some of the smaller companies from that appreciation or the whole sector over time if it's coming. So we'll see.

There you go. Dom, thanks very much. You got it. Brian, over to you. All right, thanks, guys. Still to come on a much more serious note, the very latest on the crash in Washington, D.C., what we know so far? We still don't.

What's next? Welcome back, President Trump, holding a wide-ranging news conference earlier about the tragic crash in Washington, D.C., see, well, there's still a lot we do not know. Many people are asking is, will this tragedy, its crash, lead to material changes to make air travel safer? Let's bring in Phil LeBow now with a lot more. Phil. Brian, I wouldn't be surprised that ultimately there will be some changes within the air traffic control system around the country somewhere down the line. Once they have drawn an official conclusion from what caused this crash, this mid-air collision between a U.S. Army helicopter and,

and an American Airlines regional jet. Let me bring you up to speed in terms of where things stand with the investigation right now. The NTSB, the National Traffic Safety Board, transportation safety board, it will be giving an update in about 15 minutes in terms of where they stand. They lead the investigation, by the way.

Meanwhile, the New York Times is reporting that the air traffic control tower at Reagan National, when the incident happened, the staffing was not normal. The article from the New York Times, which was posted in the last hour, basically says there's usually two, ATC control operators in there, one dealing with civilian aircraft, one dealing with military

aircraft, but there was only one at the time of this incident. And finally, Reagan National, it has reopened. Let me show you the map here, because I've had a number of people ask me, well, how exactly did this happen? You see the Potomac River there? The runway you want to focus on is the one at the top there. That is runway 33. That is the runway that the American Airlines jet was coming in on final approach. That's when it was in a collision with the U.S. Army helicopter, which was on a training flight. And it's not unusual that you see Black Hawk helicopters flying in that corridor around Reagan National. If you fly into there, you know that you see a lot of those flights. Meanwhile, for the acting administrator, who has just been named for the FAA,

remember the previous acting administrator, resigned right before President Trump was inaugurated. Chris Rushlow is his name. He's a longtime FAA presence, executive, if you will. He used to lead their accident investigations, left briefly. Now is back, and he is the acting administrator. And he inherits a situation that, according to the head of the Transportation Department, the new Secretary of Transportation will include a real thorough analysis of what exactly happened so it doesn't happen again.

Here's what he had to say. We will not accept excuses. We will not accept passing the buck. We are going to take responsibility at the Department of Transportation and the FAA to make sure we have the reforms that have been dictated by President Trump in place to make sure that these mistakes do not happen again. And again, we still don't know the true root cause of this collision. There are some theories that have been bouncing around. The New York Times report is certainly going to fuel a lot of discussion about air traffic control, the tower if it was not properly staffed. We will learn probably more from the NTSB, probably in about 15 minutes when they give their first briefing.

That's just going to be an initial one, guys, where they say, here's where we are. Have we gotten the black boxes? Are we able to start doing some analysis in terms of what happened? By the way, I should also point out that New York Times report is based on a preliminary, preliminary. safety report based on this incident that the FAA put together that the New York Times says that it saw. But a big deal, we got to go, Phil, but a big deal, if accurate, because you don't want to fly into O'Hare, we don't want to fly in Newark if there are not enough controllers on the job. That's it. And if they're doing, if they're doing two jobs, if one person's doing two jobs instead of two separate people,

that's a huge issue. Phil, thank you. Phil, thanks, Phil LeBeau. We appreciate it. Let's get to Contessa Brewer now for the CNB. News Update. Contessa. Kelly, three of President Trump's nominees for cabinet positions are facing tough questions on Capitol Hill today at their confirmation hearings. President Trump's nominee for Director of National Intelligence, Tulsi Gabbard, was grilled by Democrats and Republicans about positions she has declared in the past. Several Republicans specifically questioned her on her support for intelligence leaker Edward Snowden and her shifting views on the legality of electronic surveillance programs. Cash Patel, the nominee.

to be FBI director has been asked about his allegiance to President Trump. And he pushed back on assertions that he might go after political opponents or pursue a so-called enemies list, a group where dozens, he alleged, were part of the deep state in a 2023 book. Patel said it was an enemy's list, but that calling it that was a mischaracterization. Robert Kennedy Jr. was back for day two of his confirmation hearing this time in front of a different Senate committee. And again, he faced questions about his anti-vaccine activism. He also stumbled in defining the different aspects of Medicare, a program which he ultimately would oversee as Secretary of Health and Human Services. So that's all happening in D.C. as we speak, Kelly.

Very busy. Contessa, thanks. And Tesla shares are revving up despite missing estimates for the fourth quarter last night. The stock up around 3.5%. We'll dive further into the EV industry next. Welcome back. We have a news alert on OpenAI. Always busy over there. Kate Rooney, what's the latest? Hi, Kelly. Yeah, so I'm being told by a source that Open AI is now in talks for a mega funding round led by SoftBank that may value the company at around $340 billion. Just an eye-poppy number roughly double where it's currently valued in private markets. A source telling me SoftBank is going to be leading this. We reported earlier that SoftBank is expected to invest. between 15 and 25 billion dollars. Again, these numbers could change.

This deal is ongoing. This source asked to be not to be named because the deal is still confidential. And Open AI, as well as SoftBank, did decline to comment the Wall Street Journal first to report this new valuation number. Guys, but it is a record-breaking number, making Open AI now one of the most valuable

private companies in the world. If you think about the context here, ByteDance, parent company of TikTok, is around $225 billion, SpaceX, 200,000. billion dollars. So this is just a massive cash pile for OpenAI to build out computing. As we've been talking about Stargate as well, I'm told that this funding round could be used to also help fund that Stargate joint venture, which Sam Altman was here in D.C. talking

about just a week ago, guys. But that is the latest from OpenAI. Well, whoa, Kay Rooney. I thought Deep Seek was going to, you know, six hamsters and a guy on a bike and a wheel. And then you've got, I thought it was going to do the same thing. Apparently, investors aren't that worried about the valuation of OpenAI vis-vis deep seats. Yeah. No, it's a good point. I mean, flash forward, was it Thursday, but Monday we were talking about how this was going to undercut prices. There were so many questions around the economics. Sam Altman was on stage here in D.C. earlier talking to lawmakers, Trump administration officials, saying essentially there's never been a more important time for computing power. I talked to Kevin

wheel as well, the chief product officer. The message from both of them was, this does not change the equation for how much money we're going to need. We still need to build out these data centers. And the takeaways from Silicon Valley that I'm hearing now is that because of the IP issues, the deep seek, the cost is actually not as low as we originally thought and that may have been an overreaction. But the other takeaway is that they are still able to raise this prolific amount of money. I mean, these are record-breaking numbers. It's just unbelievable. A $40 billion private financing. This is not an IPO we're talking about. Yeah, we'll see if it changes. But for now, the concern may be not.

there. Kate Rooney, glad you're there in D.C. Thank you. All right now, let's talk cars, electric cars, because there are a few big stories that are happening right now. First up, Tesla CEO, a guy named Elon Musk, jumping on the earnings call last night and saying, yeah, robo-taxies are coming to Austin, Texas. Its full self-driving is ready for prime time, planning to launch its robo-taxies in June in Austin. That stock already red-hot and up another three and a half percent today. The flip side, is Rivian. Now, Rivian, they may be gorgeous SUVs, at least I think so, but Bernstein analyst says that does not make it a gorgeous stock. And Bernstein is beginning coverage on Rivian with an underperform and a price target of $6.10 and 10 cents a share. You can see, folks, that's less than half of where Rivian is right now. Let's talk about both. Daniel Ruska heads the U.S. automotive research team at Bernstein. They're suspended with coverage on Tesla. So you could talk macro, but not price. But let's start with Rivian. Rivian, great-looking cars.

I may or may not know somebody that owned an SUV. I'm winking at the camera. But how did you get the 6-10? That's awfully low. Hey, Brian. We looked at what this company can achieve in the next five to 10 years. And we looked at what we think sales can be in 2030, gave that a good multiple, and discounted it back.

And we were very surprised to find kind of three big misconceptions within consensus. consensus is wildly overestimating the addressable market for these cars they're going to do. It's not recognizing the CAPEX they have to spend to get to that point. And for some reason, everybody's forgotten about the Volkswagen Joint Venture that will dilute this equity by 20 to 40%. Daniel, I thought I was struck. I'm a consumer reports, a subscriber, which means I've now reached full adulthood or something. But I was glancing through the other day, their quality rankings. And just out of curiosity, Rivian was at the very, very, very.

bottom. Now, interestingly enough, the owner satisfaction scores were actually pretty high. But I don't know what to make of that. But look, this company just doesn't have scale right now. No, it doesn't have scale. Look, last year, they made 55,000 cars. That's like three and a half Ferraris. And it's like sixth of Porsche. And so they don't have scale. The next car, the R2, that has to come. And I think, Brian, you mentioned kind of our low target price, but I don't think we're being unfair in our forecast. We're actually assuming they're going to do everything they told us they would do. We're not giving them a discount on any of their plans, but it's just not enough to make

this a compelling equity. I would just say that they could lighten the suspension a little bit, maybe change or eliminate the one-pedal driving, but I'm just going to say that as a random dude, not as a TV news anchor. Daniel, I'll add this, though. So let's say they outperform your expectations, right? And you have to change it. Would that get you above $6.10 if they sold 20% more cars than even they say? As you can imagine, we've talked to a load of investors in the past two days.

I think there are three big buckets of upside. But making more cars is not it. Because to make more cars, you will need to spend more CAPEX, build more factories, and that just doesn't give you the return you need. You could start selling FSD-like technology like Tesla. Maybe they get to that point. RJ teased, hands-off, eyes off driving the other week. Maybe they can start selling software to other OEMs,

but both of those opportunities are maybe $1, maybe $2 on our share price. And so we don't think there is a clear road to really outperforming at this point. And the chart you just had up really shows how much cash they've burned so far. By the time we get to cash flow break even in our model, Tesla will have, done that with 23 billion less in cashburn. So by the time Riven gets to 10 years, they will have burned 23 billion more than Tesla at that point. Wow. And some have asked, you know, can they go hybrid, try to tap into that market, which seems to be more successful in the U.S. But because you teased it, Daniel, I know you don't cover Tesla specifically, but, I mean,

do you think that that is, I still don't know how to ask this question the way you can maybe answer it? Does its market, is its market cap justified, given the opportunity it has vis-a-vis the rest of its EV competitors right now? Yeah. So, I mean, what we can definitely say, if you look at that, and that's also the question I asked Elon yesterday evening as the first one on the call, said, look, you know, what do you got to do to kind of justify that high market cap, or in his view, even supposedly higher market cap going forward? And he clearly pointed to two things that do not relate to building cars, right? It's FSD, full self-driving, unsupervised, getting those robotaxis on the road and the team was very excited about the Optimus robot.

I mean, on both accounts, you kind of have some questions, right? FSD unsupervised has been in the cards for long and I'm really glad if we get close because then my commute gets easier, my wife's life gets easier or family life gets easier. That's great. But I'm just not sure how close we really are to have regulators agree to that. And on Optimus, you have to say that there are like 25 different robot companies out there that are trying to do exactly that, and Tesla is one of them. I don't think success is guaranteed at this point.

It's a fascinating point you make that you're separating the technology from the regulation. I've talked to regulators. I've talked to car insurance executives about this on and off the record. And the reality is, Daniel, even if you build the technology, whether it's allowed or can be insured is a very different animal, is it not? Absolutely, Brian. And, I mean, I've covered the European space, and I've covered the European space, and I covered the US space, I know the regulators fairly well, the way this eventually gets kind of,

the crux will be the insurance, as you say, right? Because regulators ultimately will not be able to audit the end-to-end foundational model. It's going to be impossible. And so they're going to say, okay, we kind of understand, we think we understand what you've been doing, but you take the risk. And that's really, also the question for us always, is it real hands-off self-driving, right? does the OEM, does the manufacturer of the car take the risk? And of course, the manufacturer of the car only takes the risk if there's an insurance on the other end that backs them. The only OEM globally doing that right now in any form is Mercedes.

That's the only car that actually takes liability when it's engaged in autopilot and has a crash. And that's your, I would think that's walkie and interesting today. Daniel, appreciate it. Thank you very much for joining us. Have you AI? Yeah. I like that. But by the answer your question, how can somebody pay a lot and have a low score?

I think if somebody pays a 90 grand for a car and you ask them what they think of what they spent 90 grand and they're going to say it's good. They're going to say it's good because what are you going to say, no, I'm stupid and I shouldn't have spent the money? Probably not. Tech stocks have been moving markets all week up and down. We'll highlight some of the biggest names in the news in Three Stock Lunch next. Welcome back. It's a big tech edition of Three Stock Lunch today. And so we turn to Gil Luria for some trades.

He's an analyst at DA Davidson. Gil, I still remember your call about 14 market cap, who would get there first and how everyone couldn't all get there at the same time. And let's let that hangover this conversation and start with Microsoft. It's down 6% after that revenue missed last night or the guidance. What do you make of it? Well, Microsoft is investing more and more and getting less and less growth. The decelerating Azure business is a concern,

especially since they're indicating some of it is company-specific issues. They've invested so much in AI. They've taken their eye off the ball in terms of their other businesses that are now decelerating. And yet they're still increasing their spend. That's a concern. Free cash flow is down 29%. Margins will be done for the next couple of years.

Where are their customers going their Azure customers? AWS and Google Cloud have caught up. Let's not forget Microsoft had a big lead in AI a year and two ago, but that's no longer the case. AWS and Google have caught up. They have a full AI offering, and they've been ramping their baseline cloud business in a much better way over the last couple of quarters. We expect to hear an acceleration from them next week. Very interesting.

Okay, let's talk Apple. Earnings are out tonight. You a fan of the stock? Absolutely. We're in the best place possible, which is long-term expectations are good because Apple will be the leader in providing consumer AI. Short-term expectations are low. People don't expect iPhone sales to grow very much.

The expectation is about 2%. They did 5.5% last quarter without AI. So any contribution from AI should make the expectations doable today. And more importantly, we learned this week models are getting a lot smaller. They'll fit on a phone, whether it's a Chinese company that does it or American companies that do it. Small models on the phone is where this is headed. We're going to be doing AI on the handset and Apple's going to be doing that. That brings us to Nvidia. Where does it leave them? By the way, those shares, which are down 15% this week on the DeepSeek news, actually got a little bit of a fill up, kind of on this news of Open AI's latest funding, massive funding round, which is interesting. It's down about 1% today. What do you do with it?

Well, at some point, Microsoft is going to stop wanting to overspend on data centers. And so that's going to have to come out of Nvidia's pocket. There will still be customers for Nvidia, the ones that want to build the greatest data center ever. the vanity-driven investors like Elon and Zuckerberg and Masa, they're the ones driving the spend right now. Increasingly, the bigger customers, which is Microsoft, Amazon, and Google, are going to moderate their spend and use more of their own chips and their data centers. So it's going to be hard for Nvidia to keep anything close to the current growth rates. Apple, sounds like your favorite of the three Apple, Microsoft and Nvidia. Gil, thanks for your time as always.

Gil Luria of DA Davidson. All right, before we go, we're going to call this. The RBI random, but interesting, it's coffee prices. I don't know if you're a coffee drinker. I drink way more than I should. Love it. Coffee hitting another record high. It's doubled in a year.

It's a weird crop, very sensitive crop. Coffee prices now at their highest level, Kelly, since the 1970s, a drought in Brazil, the permanent reason. But if you're going to buy coffee, just note, it will get more expensive. Yeah, I mean, this is one of those little things that makes people feel like inflation is still going up, up, up, up, up. This is kind of, you know, egg prices, right? We talk about the breakfast index

and how, like, that goes higher. You feel like you're starting your day already on an inflationary note. Who can afford breakfast? Fancy. And get some chickens. Kelly, thank you. And thank you for watching Powerluck.

Closing bell starts right now.