Power Lunch - State of the Union & Rivian’s New Ride 3/7/24

Episode Date: March 7, 2024

President Biden is set to deliver the State of the Union address tonight, and corporations are expected to be a target. We'll discuss what the President's proposed tax increases would mean for business and the stock market. Plus we'll talk to the CEO of Rivian, as he unveils its latest vehicle – which could be a make-or-break moment for the company. 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 Courtney Reagan. I'm Tyler Mathis. I'm glad you could be with us today. President Biden will deliver the state of the union address tonight, and corporations are expected to be a target. We will discuss what the president's proposed tax increases corporately would mean for business and the stock market. Plus, we'll talk to the CEO of Rivian as he unveils his latest vehicle at what could be a make or break moment for the company. Some news already coming out of that event. But first, a check on the markets. Let's see where we are here at 2 o'clock in our trade. day on the East Coast, NASDAQ composite leading the way again, up 1.6%, the S&P 500, adding more than a percent. Dow Jones industrials are the laggard, but hey, they're higher by half a percent here. And chip stocks helping to boost that NASDAQ composite today. InVIDIA,

now up 85 percent this year. It's added almost a trillion dollars in market cap in 2024 so far. It's only March 7, too. Micron higher on an upgrade from Stiefel and Intel, gaining on reports it's expected to receive three and a half billion dollars from the government to develop advanced chips for the military. All about those chips. $900 a share for Invitable. I remember when it was 700. You know, I remember back when it was 700, about two weeks ago. All right, let's move on now. Let's begin with the State of the Union. The president expected to propose, among other things, a 21% minimum tax on corporations and a quadrupling of the tax on corporate buybacks. Babazzani.

joins us now for the NYS. You've followed buybacks for years. What would the practical impact of what the president's proposing be? It likely wouldn't change things too much, Tyler. Corporate America is flush with cash and they're buying back a near record amount of stock this year. That's good news. President Biden wants to increase the taxes on those buybacks. He's reportedly going to propose an increase in the buyback tax from 1% to 4%. So the theory is that imposing additional taxes on buybacks might encourage companies to invest in hiring more people or capital expense. While the validity of that theory is debatable, there's no doubt corporate America appears to be embarking on a buyback spree. February had the second strongest month ever for announced buybacks.

2024 looks to be a near record year. That's according to Goldman Sachs. Corporate America has wide latitude on what it does with the cash flow that's generated, but it typically falls into three buckets, buybacks, dividends, and capital expenditures. While the percentage that goes to each bucket ebbs and flows, corporate America has recently shown a greater pension for buyback. And the reason is buybacks are immediate gratification for the shareholders, because in theory, it should reduce shares outstanding and improve earnings per share. What causes companies to spend more on one bucket over another?

Well, if you're a big tech company investing in AI, technological growth will cause you to invest more in capital expenditures and less in dividends and buybacks. But for most companies, it's really about economic growth. Higher growth means more money to hire more people. slower growth likely means diverting available cash to buybacks and dividends. Now, would hire taxes really discourage buybacks and divert spending to more hiring? In early February, META authorized an expanded $50 billion share buyback program. That's equivalent at that time to about 5% of this share is outstanding. Under the current tax, the company would pay $500 million.

Under Biden's tax, the proposed one, it would rise to $2 billion. Now, that's a lot of money, but it's not clear if it would cause META to divert money from buybacks to capital investment and hiring people. The bottom line here, guys, it's economic growth that encourages companies to hire. Back to you. All right, Bob, thank you very much, Bob Pisani reporting. These higher tax proposals are the continuation of what some corporate leaders consider to be an anti-business stance from the Biden administration.

Listen to what Conoco-Philip's CEO Ryan Lance said earlier on CNBC. When you poll most of the CEOs today is it's a tax. backing us from every direction. It's every three-letter acronym that you have in the government today. It's the EPA, it's the DOI, it's the BLM, it's the FTC, it's the SEC, now coming out with some of their rules. And I think it's just that environment that is that is not pro-business, that is not sort of enhancing what we could be doing even better than what we're doing today. All right, joining us now is Ed Mills, managing director in Washington policy analysts at Raymond James. Ed, I'm glad you can be with us. respond why don't you to Ryan Lance's comment here that this is an avowedly anti-business administration.

That seems to be what he was saying just there. Do you agree? So, Tyler, I think what the Biden administration would say is they would point to a lot of the different fiscal stimulus programs that were passed under this administration, the bipartisan infrastructure bill, the Inflation Reduction Act, the Chips and Science Act, all of that being what we've considered at Raymond James, the hidden stimulus in this economy, that is causing businesses to invest a lot in manufacturing, invest a lot in the workforce, driving up wages, keeping people employed. And part of why we have been calling for a soft landing. I do think what we've heard from the Biden administration, CNBC had Lyle Brennerd on earlier today, talking about how this is not the Biden agenda. This is the American People's agenda. And that's because a lot of these things, despite what we might not like in the business community or for corporations, it has a lot of popular support. So a lot of these things have to be viewed more through the political language, Tyler, then kind of through this market angle that we're required to look at it.

Let's talk about possible tax hikes. Bob just mentioned one potentially on buybacks. I'm curious there. Corporate minimum tax, increasing the maximum. rates there or the rates there to 15 to something like 21% or something like that. Are those likely to pass in any, they're certainly not going to pass this year, but in a new Congress. And if Biden wins, he would ask for them, presumably his opponent would not.

Yeah. So, Tyler, this is all about next December's expiration of the 2017 Trump-era tax cuts. On December 31st of next year, the corporate. tax changes are permanent, but the individual tax provisions all expire. So this really is a political speech tonight, setting up what is going to be a contrast between the Biden campaign and the Trump campaign. And what Biden will be saying is if I get reelected, we shouldn't keep the corporate side permanent. If you want to extend out some of the individual tax provisions, we should balance this off with changes to the corporate tax code. Now, that doesn't happen unless there is a Democratic

sweep, but also what's keeping a little less pressure on Democrats on the individual side is that if Democrats do nothing if they win the election in November, that $10,000 cap on salt also goes away. That's about a trillion dollar tax cut for a lot of constituents of Democrats, especially in these high-cost states. Obviously, we have a long way to go until the election, and we know things are very dynamic and change all the time. But as of right now, it does seem that former President Trump may have a slight lead over current President Biden for a possible re-election. If that happens, what do you expect the market will do or will behave at this point? Yeah, Courtney, this week we put out a report here at Raymond James that looked at the election probabilities.

And as the things stand right now, we do think that former President Trump has a slight lead. However, what was really interesting to us is that when we look at the composition of Congress, you can make an argument that if Trump is reelected, that there's a high probability of a Republican sweep. And if Biden's reelected, there's a decent probability of a Democratic sweep. So on these tax issues, if you have a sweep, that unlocks reconciliation. That's the ability to do this on party line. Even if there's not a sweep, we believe whoever is in the White House is going to make the determination on these fiscal clip issues like taxes.

And so the market will react with some uncertainty in that Democratic sweep or Biden reelection. But it's not all bad, as I talk about, the fact that the salt cap goes away. That's a real positive for a lot of folks. If it is a Trump reelection, the expectation will be, you know, most, if not all of the Trump tax cuts stay in place after 2025. Ed Mills, thank you very much for running us through this ahead of the state of the union that we're here tonight. So how will the president's proposed tax increases impact the stock market somewhat? What we just asked Ed Mills, at least about the future, our next guest says he is more concerned about what gets traction in his past rather than what's proposed.

So let's bring in Jeremy Bryan, portfolio manager at gradient investments. Thank you for being with us here, Jeremy. Obviously, we have the state of the union tonight. The election is still some ways off. Many people will be paying attention to what Biden has to say, potentially the unofficial launch of his new campaign. campaign, but will markets actually react if it is just a proposal at this point, as we suggest? Short answer is no. I really honestly don't think so. I think everybody is in relative agreement that

nothing's going to happen until November, right? We're kind of in a period of stasis where they're going to go out and run. That's what they're going to go out and do right now, and they're going to have a lot of proposals as a result of running. And as we get closer and as we get, you know, near and near to the election time. You know, I think even a month beforehand in 2016, there was a probability that it was Hillary's to lose, right, at that point. So you never know beforehand. We never take a shot.

We never try to forecast all that stuff beforehand. We'll monitor, we'll pay attention. But really, especially around portfolio actions, we are not going to do anything in advance of these potential type of things that really don't have a lot of traction to pass up until after the agendas are set after the election. Our previous guest, Ed Mills, suggested that some of the programs that Biden had put into place are kind of just now really starting to pay off. And he called it a hidden fiscal stimulus, things like the Chips Act and the infrastructure bill. When you look at where we are currently and with the state of inflation and the state of the economy, do you believe that recession is off the table? Do you believe that some of these policies have helped that? Or is it all about the Fed? It's funny. I don't think they're that hidden. We've been talking about the Inflation Reduction Act, reshoring the Chips Act is all within that. And if you look at the performance of the industrials

who would benefit from kind of infrastructure, these kinds of things, it's about the best performing sector out there. I think over 48% of industrials companies in the S&P 500 are at all-time highs. So it's not really all that hidden. The companies have benefited from that. And frankly, they're have certainly benefited from it. So to answer your second question, whether a recession, I just, I don't see where is it, where is the recession at? I really don't see it in the near term. There's nothing that would suggest us rolling over, especially right now, that would suggest

that we're in recessionary conditions. Now, are we going to continue to accelerate and accelerate and accelerate? Probably not. We're probably more of a, you know, a stable to maybe even decelerating economy. But I just don't see the avenue, especially in the near term, for recessionary conditions in any way, shape, or form. So, Jeremy, you point out that industrials have had a nice run broadening out the market rally. Do you think they've gotten a little overextended? And if so, would you lighten up on them?

Yes. I think they have. If you look at the valuations of industrials, there's a lot of them, especially in the cyclical spaces that are trading at at least 10-year highs in valuation. Now, does that mean they're going to collapse tomorrow? Absolutely not. But what it does mean is if you're an incremental buyer today or a holder today, you have to make sure that these companies are going to not only meet, but exceed their numbers going forward. And in a decelerating economy, that's going to be difficult for them to do. So from our perspective right now, that just does, you know, there seems to be a little bit of a dislocation there is that the all-time high-in valuations usually are in areas where they think it's a cyclical trough. We're not at a cyclical trough at this point right now. So I have a little bit of hesitation being a buyer of those industrials that have worked really well over the past six months. There's that famous saying in baseball, I think we Willie Keeler hit them where they ain't. Where are the a aaints in this market where I should be hitting them? Yeah. You know, one of the one of the a aaints that, you know,

is starting to work here a little bit is we like the healthcare space outside of GLP1. And one of the areas that's been hit because of GLP1 drugs is the diabetes. diabetes market. We think that that's an attractive space to be playing in right now. We think there's both growth and relative value in those spaces, whether you're buying something growthy like a Dexcom, which still is growing over 25% organically in that market, or whether that's an Abbott or a Medtronic, which are more in the value space, not growing quite as fast, but still very opportunistic in there. We think that's a space where, you know, where you were talking about hidden where they ain't. We think that that's an area where people have shied away.

from because of the GLP1 dynamics, but we still think that's a very positive, long-term secular market that's going to continue to grow for these companies and continue to expand that area. All right, Jeremy, thank you very much. We appreciate your time today. Thank you. Jeremy Bryant joining us today. Thank you.

Well, coming up, the fight against spam, Google says it's doubling down a low-quality search results, but it might be a while before you see any improvements. We'll dig into the details in today's tech check, plus a conflicting force. The solar industry just wrapped up a record year, but solar companies are painting a different picture. We'll shed some light on that topic when Power One's returns. Shares of Google positive today, but underperforming on the year down almost 4% of it concerns over threats to its core search business. But one executive there is now tamping down those fears. Deuter-a-Bosa has the story.

And today's tech check. Hi, Dee. Hey, Tyler. So we got an update on the status and the resilience of search that could make the bears think twice. and there are a lot of bears these days. It was Alphabet's chief business officer, Philip Schindler. He spoke at Morgan Stanley's TMT conference just down the street from us here in San Francisco. And for all of those fears around other chatbots eating Google's lunch, he said that they've actually seen positive search query growth in all major markets over the last 12 months.

And that as they experiment with SGE or search generative experience, that's like their chatbot light within traditional search. He said that they're still running ads above. and below those results. So instead of this idea or fear that Google is going to cannibalize their cash cow search ads, they're incorporating Gen AI products into that business. So the big question, of course, though, what does that look like in the future? Well, Schindler said that he sees a world where there are gen AI-based ads, as he calls them,

integrated into generative AI answers. He believes that Google can create consumer and advertiser value over time by making ads more like commercial experiences. So they're thinking about it in a different way. And of course, the big advantage that they have is distribution, right? It's been rolling out generative AI features to billions of users already. Maybe more accurate to say hundreds of millions of users, many of whom aren't actually looking for chatbots, but maybe getting more familiar with them nonetheless.

And Tyler and Courtney, I don't know if you've noticed some of these features when you do Google searches, you have to opt in, but it'll show you. It'll give you like a little Gen AI answer. Have you noticed that? I haven't noticed that. That is interesting. It looks differently when it's a Gen. AI answer. So sometimes it shows up as a box and it tries to answer your question directly like it would and a chat. But sometimes it's a button that says, would you like to see a generative AI here?

We've got a video of it right here. So look out for, and I guess this is kind of like the bull and the bear case, right? Is that you have to maybe be looking for it. But the other case is that you're not looking for it, but you're getting comfortable with this kind of search. You may not even know it. And that's what it's all about, right? these changing habits right now and whether Google is going to be left behind. Can I ask, D, I mean, everything that that's gone on with sort of some of these AI

snafus that we've been talking about with Gemini and then yesterday we were talking about some of the Microsoft snafos. Has that sort of slowed any of the innovation in the rollouts with AI in other use cases for these companies specifically? Well, I don't think it has slowed anything down, but I mean in the case of Google, right? They wanted to do things boldly and responsibly. So they may have rushed Gemini out earlier than they would have liked because they see what Open AI, Chat, GPT, Anthropics, all these other things are doing, only to have to pause it, right? So in this space, I think you have to allow for a certain amount of mistakes along the way.

And they're certainly not unique to Google. You mentioned we talked about co-pilot yesterday. I was at Salesforce's Trailblazer event yesterday talking to their head of AI. And she said that it just things like this, these snafus, they don't slow them down. just motivate her, Claire Shai, to continue to improve on it. And I guess that's the message is that it's so early that we're going to see a lot more of this. Quick question, Dee. The genius of Google, I think, most would agree, is how they have integrated advertising into the search product. How are they going to integrate advertising into the AI product?

Tyler, you kind of hit the nail on the head there, right? They've been able to integrate advertising and sometimes you don't even know if it's advertising. That's been to their benefit and also some users don't like that at all. But that's exactly what Philip Schindler, their chief business officer, said that they're doing with generative AI. He says that they're providing that generative AI answer. And they're still advertising above and below it. So they're not necessarily like disrupting their whole business model. They're just adding it in. And then critics would say, of course, that that's not enough. And Chad GPT has already become a verb. So maybe they need to do more.

All right. Deirdre Bosa, thank you very much. Thanks, Dee. Well, further ahead, Rivian, just unveiled a smaller SUV dubbed the R2 and announced a major cost savings plan. We'll speak with the CEO, RJ Scorringe, when Power Lunch returns. Fed Chair Powell testifying on Capitol Hill. Second straight day for that, and that comes ahead of the jobs report tomorrow. Let's see how the bond market is reacting with Rick Santelli in Chicago. Rick. Yes, and Tyler, tomorrow, early alert. We're going to be paying really close to. attention to the hours work, the work week. Last month, it was 34.1 that really popped out as extraordinarily low, and that could affect productivity. As for Chairman Powell, he did

have an effect on the market. But let's start early. Look at a chart of 10-year treasuries, 10-year boons in the European Union, and 10-year guilts in the UK. At 815 Eastern, see the way they all went down, then they all came up. That was the first big salvo when ECB downgraded inflation and green. The second was, and you see it mostly in short maturities like two-year, right around 1125-ish eastern time. Powell is making comments about how commercial real estate isn't exactly his worst-case scenario. He thinks things could go a little better than worst-case for big banks especially. And he talked about when he gets more confidence, he feels that he's close to lowering rates.

That pushed rates lower, as you see on the chart right around 1125, which is finally a one-month chart of twos and tens, even though we reversed in both maturities, especially long maturities today, we're still near one month low yield closes. Courtney, back to you. Rick Santelli, thank you very much. Well, solar stocks, those are under pressure with the TAN fund dropping 43% in the last year. But the industry actually saw record growth in that same year, 2023. So Pippa Stevens is here to explain the divergence. What's going on here?

So you wouldn't necessarily think that based on the mixed earnings reports you've seen as well as lots of talk around the impact of higher rates. But in 2023, U.S. solar installations hit a record 32. 2.4 gigawatts. That is enough to power about 5.9 million homes. That was up 51% from 2022 as residential, commercial, and utility scale. All posted record numbers during the first full year of the Inflation Reduction Act, which co-author of the report, Cia, said as quote, supercharging solar deployment. That said, some of 2023's growth was thanks to previously delayed projects coming online, as well as a pull forward in California residential demand ahead of a key policy change.

And this year, the industry is forecast to grow, but not at the same rate, thanks to several uncertainties, including, of course, the election, as well as interconnection delays, permitting challenges, and, of course, higher interest rates. Now, rates have hit the residential site, especially hard, which we started to see last year, and that does line up with commentary we've heard during earnings, which is that Resi is much more challenged than the larger utility-scale projects, and you see it in the divergence in some of those stocks there. Wow. Look at that one. 61, 62%. That's amazing.

Pippa, thank you. Well, let's get to Kate Rogers now for a CNBC news update. Kate. We're going to go to break right now and try to get Kate's audio fixed. Coming up, we will speak with Rivian founder and CEO, RJ Scringes, the company unveils its latest vehicle. Power Lunch. Back in two. All right, welcome back to Power Lunch, everybody. Let's talk about shares of Rivian, losing 50% of their value so far this year. But up 10% today, as the company unveils a new lower-cost electric SUV. at a very important time for the company. Our Phil Leboe is in California with Rivian's CEO for a first on CNBC interview.

Phil, take it away. Tyler, thank you. RJ Scorinch, founder and CEO of Rivian. This is the R2. We're going to talk about that in just a bit. But I think one of the pieces of news that has come out is this was going to be built at your new plant in Georgia. But you're pausing that, correct? That plant.

Explain what you're doing here. Well, we're so excited about this vehicle. We wanted to get it into market as fast as possible. And we'll still be building these in our plant in Georgia, but we're going to first launch them out of our facility in Illinois. And what that gets us is the ability to get it to market quicker, and it saves us well over $2 billion in capital in the process of launching it. So you are pausing the plane.

You're not getting rid of the plant, but you're pausing the development. Georgia is incredibly important to us. The partnership we have with the state is outstanding. And for us, the most important thing is getting this vehicle into the market as fast as we can, and leveraging what we have in Illinois is really an important. enabling that. And in the process, conserving some liquidity. Yeah, yeah. I mean, what we've said is it saves us over $2.25 billion. When you look at building this in Illinois, first half of 26 is when you expected to come out. You said you're bringing it forward as much as possible. How much time will you save by building it at your existing facility in Illinois? We haven't said exactly when in early 2026, but it's important that we get it in the market. One, because you see from this room, there's a lot of excitement around the product. But it's also important for us from a business point.

of you as we scale what this represents for us and really growing the number of addressable customers we have. You're expecting to start it about 45,000 base price. Things can change as you get a little bit closer as you go through development. Is that low enough for what the market is looking for right now? Because you know that everybody wants an EV even lower. They want it under 40,000. Yeah, well, there's a few things to know here. This, this vehicle in terms of its size, its package, we think fits the market where you see the most popular segments, the most popular size, mid-size SUV, beautiful, comfortable package on the inside, but it also qualifies for the federal tax credit. So there's a $7,500 tax credit, which means the

end price to a consumer, the starting price would be $37.5. We think that's a really nice package. Confident that you can hold $45,000 over the next couple of years, given what's happened in this market? Every single thing we do within the business is focused on driving costs on this, and how it's manufactured, how it's built. So that is the number one priority as we look at development vehicle. You had a bit of a surprise up your sleeve here with the R3 and the R3X. Explain this. Now, you don't have a date for when these will be manufactured, but we're talking about a crossover utility vehicle at a lower price point than the $45,000 expected for the R2, right? Yeah, so R2 represents not just a vehicle, but a platform. And on that

platform, we have its sibling product, R3. And R3 is, as you said, it's a crossover, it's a really unique form factor, but the price point in that will be lower and it'll come out and sequence after R2. And when you say that lower price point, what have you heard back from your customers in terms of you've got to come in lower? Well, I think, you know, leveraging what we do on R2, that platform, but then really taking the vehicle making

a little smaller, allowing us to take cost out of the battery pack, and then meaningfully take price down below that 45 that we're starting with an R2, that we think really opens up a large cross-section of customers that are looking at everything from, you know, cars to crossovers to SUVs to hatchback. So the R3 really fits such a broad spectrum of buyers. RJ, Tyler Matheson has a question for you. Tyler, go ahead. RJ, if I might, you cite the range on this R2 as 300 miles. I'm curious as to how you

calculate that range and will the driver in the real world really get anything close to 300 miles of range. My skepticism comes as an owner of an RV, not one of you, excuse me, of an EV, not one of yours. And I just don't believe that the sighted mileage is what I experience. Yeah, it's a great question. So when we cite the 300 miles, we think of that as real world range. There's the EPA standard, which drives what's tested. But it's really important from a customer expectation point of view for us,

for the vehicle to achieve that EPA rated range. And so we've spent a lot of time on that. We've seen that with our R1 products, that the stated range actually matches what you see in the real world. But I think this is a big part of how, you know, when we talk about being authentic with our customers, being authentic with our owners, a big part of what we focus on. So you seem to acknowledge the possibility that there is a discrepancy between what the EPA test is and what the real world range is. But I'm hearing you say that in this case, when you say 300 miles of range on a charge, you're going to get 300 miles. Yes, some vehicles certainly you see that discrepancy.

With Ruby and there's lots of people that do these independent tests, we've really focused to make sure we achieve. the range that we talk about in terms of EPA. RJ, you're talking about this latest decision in terms of pausing in Georgia, a savings near term of 2.25 billion. And I'm not expecting you to give guidance, but as you've gone through what's really been a crushing six months,

how comfortable are you with your liquidity right now? Well, being able to launch R2 both earlier and being able to launch it with a lot less capital is really important for us to take the capital we have and take that through the launch of R2. And it really allows us to have a lot more flexibility and control our destiny in that regard and not having to be subject to some of the the volatility of the capital markets.

Well, you see what's happening in the EV market. Your shares are getting crushed. Almost all EV shares and EV companies shares are getting crushed. What's your thought? I think ultimately what we can say here is the world will electrify. Every car sold in the United States and for that matter all markets will eventually be electric. Now the question we can debate is when that happens. But key to that is getting great choices.

customers need choices that are deeply compelling. And that's how we see R2. We see it as something that's going to take the success we've had with R1, translate that into a lower price point, smaller form factor. So I've never been this excited about a product as I'm about R2. RJ Scorringe, founder and CEO of Rivian, on a big day here in Laguna Beach where they unveiled the R2 and the R3. Guys, back to you.

All right, Phil, RJ, thank you very much. We appreciate that. All right, still ahead. The CEO of Rvian just gave it an inside look at the brand's new R2 SUV. What does Wall Street's take on this vehicle and this company? We'll get a quick reaction from RBC's Tom Narayan right after this break. Welcome back to Power Lunch. We just heard from Rivian's CEO following the unveil of its smaller and more affordable SUV.

There are two, also releasing R3 and R3X. So let's get some reaction from a top analyst on whether the new vehicle will give Rivian a boost. Tom and Ryan is Global Auto's analyst at RBC. He's had a hold rating on the stock since he downgraded it from outperform last April. Tom, what do you make of what you heard today? Does anything make you want to move that, that I guess you're rating from either a sell to a buyer, you feel hold is appropriate after what we know now? Yeah, I think hold is appropriate given the uncertainty on the profitability of this product. But I do want to say the products this company creates are very impressive

for the consumer. The question investors have to know is, are these products really good for investors. And so far, you know, Rivian produces his cars at a loss. So, and that's at a higher price point, the R1, right? So the R2 now at a lower price point, the question on a lot of folks' minds is how will they be able to produce this car that's so compelling, 300 plus miles of range as he found out profitably. And that is, there's some uncertainty there. Yeah, I mean, obviously the hope I assume was they would pick up in some volume, but in that interview, which I believe you heard, he was talking about the cost, as our own Philibault was interviewing him and asking him about the price. And he says, everything we do has cost in mind.

So now that you know the price, I don't know, you've been able to update your model so quickly, but you know that it's $45,000. Does that help at all with understanding how much closer they may be able to get to that profitability standard? I think this was largely the expected price. I have modeled in R2 in my model. But with profitability, it's a question of how big is this battery? What are they paying for battery costs? We just don't know that.

They've told us that the R1 will be break-even on gross profit by the end of 2024. We have to see evidence of it. Now, if they were able to achieve that, that would be tremendous. And that would give people more freedom to believe. believe they can get that for R3, but until we see that evidence, it's just difficult to get really constructive in our view. Does Rivian have to get this one right? Yes, definitely, right? There's R1. We saw what happened a couple of weeks ago when they gave production guidance for 2024 for the R1 and is essentially flat. Surprised a lot of folks.

You saw what happened with the stock as a result. R2 is really where the volumes are supposed to come from. Recall, Tesla did the same playbook. It started out with the S and the X, very expensive, low-volume cars, created this brand, and then came out with the three and the Y, right? And those are high-volume cars today. That's what makes the profit center for Tesla. Here, that's what R-2 and R3 become the profit center. They build on the brand that they've created and really get the volume here and the scale needed for profitability. But ultimately, come down to demand, and that's where we have some concerns about, especially giving the competition we're seeing from G, from Ford, from GM.

Remember, Tesla didn't have any of that competition. Rivian's going to be coming out with these vehicles in a very competitive subset, also with an EV slowdown. So let me just, you answered really what was going to be my next question, and that is, are there lessons from Tesla's experience that Rivian could apply here? And you just nailed it because where they started to get progress, is when they came in to the market with lower priced items, the Model Y and the Model 3.

Let's turn to the question of range. Range is the high anxiety factor for most EV buyers and owners. Is 300 miles sufficient? What is the breakthrough point where people, do you believe, where people are going to go, I want an EV because I don't have to worry about the range issue? anymore? Great question. This is the number one issue that folks say is why the EB slowdowns is happening with consumers, especially in the U.S.'s range. I will say that 300 miles should be sufficient. And with Rivian, they've proven that when they say the mileage range, it is actually

accurate. That's interesting. Okay. Yeah. Yeah. The bigger issue, though, is consumer demand for EVs in general. And that, I think, is something that needs to be kind of explored first. What about the R3 and the R3X? Those were, I guess, a little bit more unexpected today. Do you have any immediate reaction to that? Yeah, I think we had heard this has been speculating in the press that there's going to be a crossover. I guess it was a surprise that it came out today, although I did read some things. I mean, it's definitely something that we were expecting them to come out with a crossover at some point. Probably going to be a very competitive product. I don't think that's ever been the issue. These guys make beautiful products that are very compelling for

consumers. Consumers will get a great product, probably, but ultimately it comes down to the question of profitability for Rivian. And also, it's a competitive market right now. So, you know, they're going to have to bring that price to a level that consumers will be willing to spend. Tom, always great to see you. Thank you for your insights. Got it. Tom and Ryan. All right, still ahead. Strong Q4 results just push Kroger to a new 52-week high. Questions still remain about the grocer's pursuit of Albertsons, however. A three-stock monster will tell us how he's playing this name and more. All righty, the NASDAQ is up more than one and a half percent. Chipstock's leading the way. Let's get to Christina Parts in Evelas at NASDAQ for a market flex.

Christina. You think with every passing day, you didn't think that they can climb higher. but today is another day. You're seeing the SMH up almost 4%. There's a note I just read from Missouho saying that chips are nearing a frenzy and he's actually a little worried with sell-side targets going higher and higher. I'll start with Micron, for example. Micron getting loved from two analysts, Goldman Sachs,

saying it's an underappreciated AI beneficiary. They're saying there's two reasons for that. High bandwidth memory is going to drive the stock. That's memory that's used more so in AI systems. And then you also have all this spending on wafer fab equipment. think people are building locally in their countries. They're spending money on equipment. That means more memory. And you can see the stock up is 4% on this news year-to-date as well. It's not as high compared to other chipmakers.

Stiefel also believes the stock boosted or could be boosted by a cycle recovery among electronics. Think that Micron also, you know, caters to the legacy chips and legacy memory moments as well. And let's talk about Intel also higher. There was rumors about a $3.5 billion amount of government aid for the Chips Act and with the March 7th State of the Union coming tonight, you thought maybe that Intel would be getting that money. It has not been confirmed yet. Intel telling me that they're not going to be commenting on this. Maybe there'll be some word in there, but the reaction in the stock almost 4%. We keep talking about this, and it makes me think that maybe it's already priced in and might be a little bit exaggerated. And then I'll end

with Invidia because we've got to talk about it. Mizuho thinks it could hit. What, $1,000. We're not far off that a mark. $924 today. And all of this has to do with its valuation because estimates from analysts have come up. That's lowered the valuation. And that's why they argue it is still a buy. Wow. Chips, chips, chips. Makes me hungry on power lunch. Thank you very much, Christina. Well, time for today's three stock lunch where we take a look at three stocks, making moves here with our trades today, Scott Nations. He's founder of Nations indexes. Excuse me, at first, broadcom, speaking of chips, shares rising a house. head of reporting quarterly results after the close today. Investor's anxious to hear more on

what else broadcom's AI related revenues. Scott, what's your trade on this one? Rodcom's a short-term buy. It's going to enjoy the reflected glory from AI, even though the company is a little bit less focused on that. But expectations are relatively modest, forward PE of just 30. But the reason to be worried here is the fact that revenue expectations are for an increase of 30% year over year. And of the 50 biggest names in the S&P, Broadcom has the most bullish option pricing world going on right now. So enjoy the ride, but don't get married to it.

Okay, fair enough. Up next, Kroger shares with the supermarket chain surging today, hitting highs after reporting better than expected earnings. Revenue came in below expectations, and merger uncertainty still lingers with that Albertson's deal or if no deal. Who knows, right? Scott, what's your trade on this one and how does that factor in? I would buy this on a pullback.

It's up nearly 10% right now. And I'd buy it on a pullback only because of the business they're in. It's tough to step up and pay nine or 10% more than the close yesterday's closing price for a company like Kroger. Yes, it beat. It beat for the 17th quarter in a row, which is impressive, but it's up 23% over the past month. Another reason to wait for a pullback. PE is very reasonable. 12.3, much lower than, say, Target or Walmart.

Seems like they've beat inflation. But again, this has really gotten ahead of itself. And the Albertsons deal now really seems to be in trouble. And up almost 10% here on the session. And finally, Costco, the company also reporting results after the bell today. Scott, what's your take? I mean, is the time to take some profits on this one? This is more of a consumer staple, but it's actually had a decent run here.

It's had a wonderful run, and that's why it's time to sell. It's up 61% over the last 12 months, forward PE 48.6. That's nearly 50. And this is a retailer. Right. And I'm old enough to remember when we were waiting from 2000 to 2015 for Walmart to grow into its valuation. I don't want to wait around like that for Costco. They may not be raising the price of their hot dogs, but they're going to have to raise the price of their memberships. And we'll see what that does. So it's a neat company, but it's a sell at this level. We have been waiting for them to raise the prices in those memberships. They've held that for longer than anticipated. Scott Nations, thank you very much for our three-stock lunch today.

And stay right there, everyone. Power Lunch is back with more coming up. All right, welcome back with the two minutes to go now. Robin Hood is partnering with Clutch Sport Group, LeBron James' agent, Rich Paul's firm, as it looks to expand its reach into sports and entertainment and media. As part of the deal, Paul will join as a street. strategic advisor to Robin Hood, working closely with CEO Vlad Tenive to identify new partnership opportunities in the sports and entrepreneurship space. Here's what Tennev told us about the deal.

We're big sports fans at Robin Hood. We know our customers love sports as well. And we're really proud to be partnering more seriously with Clutch and Rich Paul. And it's really a way to get the Robin Hood brand out there to a wider audience and partner with athletes and organizations such as the Washington Wizards that are aligned with our customers' interests. It's kind of an interesting, it's an interesting concept. I don't see the fit naturally here between a brokerage platform, a trading platform and a sports agency and entertainment firm. No, the first thing that I was starting to think of was some of the famous athletes sort of deals with different crypto funds, like Tom Brady and others. Didn't end up well for several of them. Didn't end up.

Well, I know it's not the exact same thing, but obviously Robin Hood was embroiled in some controversy over those meme trading stocks. Yeah. Not all that long ago, if you remember. You've seen dumb money? I have. Yeah. It's a very compelling story. And David Faber was great at it.

David Faber was all over it. He was so good. He lived his reality. He really did. All right, folks, the Dow and NASDAQ moving much higher today. Chip stocks obviously hoping there. There's the S&P.

It is up as well by 1%. Thanks for watching, power line.