Power Lunch - Stocks fall as Nvidia dips before earnings report 11/20/24

Episode Date: November 20, 2024

Stocks are falling today, with Nvidia shares sliding 2% ahead of its highly-anticipated earnings report. Investors are also digesting disappointing results from Target. We’ll cover all of the angles for you. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Hi, everybody, and welcome to Power Lunch alongside Kelly Evans. I'm Tyler Matheson. Glad you could join us on, what is this? Wednesday? Yes, Wednesday. Two big earning stories today. Target losing 20% of its value after a rough report. Invidia on deck after the bell. Those are the big ones. The Target one, we're going to talk a little bit more, but that is a major. 20% drop, ouch, especially a day after Walmart did so well at grocery and general merchandise.

That's a tough one for them. A little bit easier go for Bitcoin today, hitting an old-time high around 95,000. just shy. Jan Vanek, remember a couple of weeks ago, said 300,000 was a reasonable target. Well, no, he's raised. He's raised that target. Beat and raise. That's what you call right there. Beat and raise. He's going to 400,000. He will join us, Jan Van Eck. And shares of Comcast are slightly higher after making official what was announced in the last earnings call, and that is that the company will spin off most of its cable networks, including this one, into a new standalone spin-co company. That does include CNBC along with MSNBC, USA, and E.

I need like some deep thoughts on this, you know, critical juncture for this company. Well, it's a reflection of the changing dynamics, obviously, in the media business and the fact that a lot of the cable networks are depending on, have depended, on subscription revenues for a very large, the majority of their revenues, and that number is coming down. And so, you know, this will probably buy, sort of scale, put those networks back together in a way that may hopefully be profitable for it. I was also interested that Comcare shares only rose half a percent on the news of the spinoff. And they're keeping Bravo.

They're keeping... They're keeping... They're holding on to Bravo. It's a juggernaut. Yeah, the Housewives. That's why they're keeping Bravo. CNBC is also releasing our list of NHL franchise valuations. And the Toronto Maple Leaves are the most valuable at $4 billion.

We'll talk to the owner of the Washington Capitals, which themselves, or around 2.1 billion about a lot of those increases and changes that they're benefiting from. Yeah. Well, I was a little surprised at the Maple Leafs who have not won a playoff series in, I forget how many decades are the number one most valuable. I would have guessed. It must be a real estate thing. Who knows? I would have guessed the Rangers or maybe the Canadians in Montreal would have been, but who knows? We'll talk a little bit more about that. Michael will know and we will find out. Let's dig deeper into targets big drop today. Courtney Reagan is here with more details. Courtney, where do we begin? Yeah. Okay. So this quarter came up much, much worse than expected. Following the prior's quarter report, which was better than expected, so really inconsistent performance here. Target executive explained to reporters it missed earnings expectations by a wide margin because of two reasons. Sales of more discretionary goods like clothing were softer than expected, combined with higher costs to reroute and rush inventory to navigate the port strike, which ended up to only be a couple days. Now, C.O. Michael Fidelke explained to reporters, quote, it meant we were a

fuller a little bit earlier in the quarter than we would like to be, and we're never quite as efficient when our buildings are full, but we felt like it was the right decision. Now, comparable store sales were marginally positive, with negative store sales but then nearly 11% growth online. Contrast that with Walmart to Kelly's earlier point, which saw much stronger than expected comparable sales on the quarter. Interestingly, Walmart said general merchandise sales did grow in the quarter for that retailer for the second quarter in a row. While Target struggled in that category, and the majority of Target sales are in those categories, while 60% of Walmart sales are food, to be fair, and only about a fifth of Target sales are, and those were positive

for Target. But again, smaller part of the business. Still, many analysts think the issues are target-specific, not a reflection of the U.S. consumer. Target executives said consumers are spending, but being choiceful. A lot of executives using that word, pointing to a quieter sales week before October's Circle Week, when it actually, it being Target, saw sales hit a record. So saying, customers are buying, but they're waiting for key moments. They're watching the prices. And when we drop those prices, then we see them buy. Walk me through the inventory issue again.

So what Target was trying to do was when there was rumblings that there was going to be this port strike. Long port strike. The long port strike. They loaded up. They loaded up, right? So they paid to reroute merchandise, which cost more because then it went to different destinations than originally planned. they paid to hurry it up, rush it, come at maybe bring it in on planes or do something with boats that were faster, so that costs more. Then they had more inventory, and the more times you have to

touch inventory in the system, whether it's a distribution center, back in the back office, in the aisles, it costs them more money. So they had more goods that they paid more to get, and then those goods that they had didn't really sell very well. There was just softer demand for customers buying those discretionary categories, and those are categories that target over indexes in compared to Walmart. And Walmart did say they did better with general merchandise this quarter. The percentage of their sales there are just smaller than targets. And so now, or in the most recent quarter, they had a lot of things that they had brought in that weren't selling quite as well. Exactly. And target executives are trying to say, look, you know, we

think things are going to get better. There was a lot of quarter-specific issues here, but they had to take down their guidance pretty substantially. Guidance, by the way, that they just raised this last quarter. So analysts are kind of shaking their head saying, what's going on here, guys? You know, like, do you have your stuff together or do you not? Just this inconsistent performance quarter to quarter. And I'm also a little surprised that it was such a surprise. So whenever that was last summer, the one before when they had all those issues with the woke inventory mix, I mean, that was well publicized. It was a huge talking point. Everyone knew about it and had an opinion. This time around the past, I mean, why weren't the analysts, were there, were there channel

checks to be done to pick up on soft traffic or the wrong product mix or was there a seasonal? Was it too Like, why was it such a surprise? So that's a good question. And some of it Kelly could have been, quite frankly, just inventory we couldn't see, meaning it wasn't on the shelves, right? It was in a store room or it was in a distribution center because they hurried it up to get it to the shore, but they weren't necessarily stuffing the shelves, if that makes any sense. So that could have been part of it.

But I agree. You would think perhaps some of the company might have started to signal to investors, to Wall Street, to analysts, that things were not quite looking as rosy as those forecasts, because clearly their missiles wide and they're paying for it and their share price now hitting 52-week lows here. today. All right. Cort, thanks very much. Thank you. Courtney Reagan. All right, jumping to another of the key market stories we're following today. That would be Nvidia shares trading slightly

lower ahead of company's third quarter earnings report. That is expected after the bell this afternoon. Some investors eyeing the report as a potential catalyst to re-accelerate the market for the rest of the year following a fade in the big post-election rally in recent days. Our next guest has an overweight rating on Nvidia along with a $165 price target from $100. 43 right now. Aaron Rakers is with Wells Fargo. He's a managing director there and a technology analyst.

Aaron Rakers, not Aaron Rogers. We welcome you. Glad to have you with us. Let's talk about NVIDIA. You've got a $165 price target, which for NVIDIA is a fairly modest move higher compared with what we've seen in the past. What are you trying to say by placing the price target at that rather more modest level compared with prior performance? Yeah, look, we'll re-evaluate that, you know, as we get out of this earnings tonight. But, you know, at the end of the day, you know, our view on Nvidia has been unchanged. It's a platform story. They're competing at a different level in this whole AI buildout.

We just came out of a supercomputing and AI conference yesterday where the excitement around Blackwell continues to be very strong, talking to the system vendors such as Dell and various others. And so, you know, our thesis continues to be, in our opinion, well intact. in NVIDIA and it continues to be our top pick. I would point out that, you know, if you look at the valuation, the stock is trading at less than a 30 multiple on calendar 26 numbers. It's historically over the last three years traded north of 40. So we don't think we're stretched from an evaluation perspective. We think it's just all about, you know, what's the pace to a $5

plus earnings power? And we continue to see the stock working higher. You say that the Blackwell cycle is going to be the key, key focus here. Are there issues with the Blackwell chip? either their ability to get it into the system fast enough. And some talks about overheating. Explain that to me. What's going on? Yeah. So our opinion is that, you know, if you went back a month or two ago, there was a lot of

discussion. Even they highlighted the fact that they had to do a remask on some of the Blackwell chips. I think some of these recent issues are more related to that. So it's more or less old news. Based on our discussions at the conference that we attended yesterday, we think Blackwell's you know, progressing well. Even Invidia had noted that in a special address yesterday at this conference, talking with Dell, which also announced that they've shipped the first Blackwell NVL 72 platform to a core weave over the weekend. We think we're going to see strong commentary

on a forward basis on the Blackwell product cycle. And really at the end of the day, I think what investors need to see and hear is, you know, this durability of demand, can a data center business for Nvidia continue to grow sequentially as we move, not just into this next quarter, but into fiscal 26 or rather calendar 25 for the company. Aaron, what are you expecting for the guide? And where do you kind of fall when it comes to the results tonight at gross margins? I mean, what is kind of most important for you? Yeah, I mean, first and foremost is data center. So our call, our preview going into this print was that we thought that they can do 30 billion plus of data center revenue. So that was at the

point in time, it was about a billion, a billion and a half or so higher than where consensus was. I should point out that consensus estimates have continued to move higher into this print. Actually, out-year numbers have moved up about six or seven percent since the beginning of this month. So we've definitely seen some build of expectations higher into this print. You know, I think on the margin discussion, you know, we think the company can sustain a 70% plus gross margin. That will be a topic of discussion. but I think the bigger driver of the story continues to be this data center of business. And emphasis is on Blackwell, but it's really a platform, right?

They're selling networking. They're selling GPUs. They're selling their internal interconnect called NVLink. It's a true platform story. Even software monetization, we think, is still additive to the Nvidia story. How deep and how wide is Nvidia's moat, as they say? In other words, how long can it maintain this primacy? in this ecosystem?

Yeah, so our opinion, and we do cover AMD, is that, you know, AMD can participate in what is a very large market. You know, so we are constructive on AMD, but at the end of the day, we think, you know, AMD is in a market where I think they can maybe be a high single-digit market share player. So we still think, you know, that, you know, durability of this competitive positioning strong. They're executing on what is now a yearly product cycle cadence. and we think through our forecast, you know, through calendar 26 and even in the 27 and beyond, NVIDIA is in the dominant driver's position in this whole AI buildout.

We will continue to watch a competitive landscape, not just AMD, but also internal silicon efforts, but we still very much believe in VD, again, I keep saying it, is a platform story, which is very different than the competitors that they see. I want to come back to where we sort of began, and that was the discussion of price target, We're 143 on the stock now. You have a price target of 165. And you said, well, we'll take a look at the end of the day here today, based on what the numbers say and what they say, at whether we would change that.

What would make you change that 165 and move it up? What would you be looking for specifically? Yeah, I think it's a great question. So, again, I think it's consistent messaging. They're not going to guide beyond this current quarter, but just the durability. of demand on a sequential basis as we move into calendar 25. We're at the early innings, extremely early innings of this Blackwell product cycle. So that's one point. I've continued to believe that the software monetization side of this, you know, is very supportive of what we think

can be a mid-30, you know, plus multiple on shares of Nvidia. And then the final thing is I think a lot of investors are trying to gauge the pace or the path to a $5 plus earnings power. So we've already penciled that out to calendar 26, to the extent that that starts to look more like a calendar 25 story, that that would obviously be reflective in our updated valuation thoughts. All right, Aaron, thank you so much for your time today, and we'll all be watching, as you will, at 4 o'clock or thereabouts today, for the report from Nvidia. Aaron is with Wells Fargo. He's a managing director and technology analyst there.

Going to be a fun afternoon. Up next, a bullish Bitcoin target. The cryptocurrency almost hit 95K today. some say 100,000 could be next, our guest sees it hitting 400,000 by 2030. And we can't laugh anymore because it's up 35% in two weeks. We'll explore that when Power Lunch comes right back. Welcome back to Power Lunch and take a look at Bitcoin, which hit almost 95,000 today. It was certainly past 94,000 and change. This in part after the Financial Times reported that President-elect Trump's social media company, Truth Social, is in advanced talks to buy the

crypto trading platform backed, boosting hopes of a crypto-friendly environment under his administration. Bitcoin is up 35 percent since Election Day, and my next guest sees it going much higher from here, hitting 400,000 by the end of this decade, reaching half the market cap of gold. Joining us is John Vanek. He's CEO of Vanek Associates, and it's great to have you back. Thanks. For a deeper diet, I mean, the headlines are fast and furious. Now I hear Trump might be naming a crypto czar and so forth. I saw a research report today about whether the Federal Reserve would be buying Bitcoin. I'm not sure it can get any more bullish from here.

In a way, you're right. I don't think people are kind of thinking things through. We had Senator Lummis on a Twitter space yesterday, and, you know, it takes time to get stuff done in Washington. And, you know, she said, we said, could you get your bill passed? And she said, oh, 2025. And I think you're right, crypto enthusiast. You're like, I want it tonight, right? And so it's not going to happen.

So I think you have to think about what policies can happen maybe day one through administrative action. It's almost like executive orders. Obviously, the SEC will be cutting back on enforcement actions and things like that. But then, you know, when can you get legislation done? Not for a while. What would the nature of a day one executive order that would be beneficial to crypto look like or legislation that would be beneficial to crypto? What would be included in that that would then fuel further growth in the price?

I think an SEC chair, right, and Gensler hasn't even resigned yet. So there's a lot of things to happen first. But they could do something like a safe harbor. So several safe harbors around digital currencies have been proposed, both in legislation and at the SEC. Safe harbor meaning. Meaning if you want to do a software project, here are the three things you need to do so that you won't get prosecuted. And that will be giving a green light to software developers that use cryptocurrencies. And those proposals have been out since 2020, I think.

So you can just say, listen, that's going to be our information. enforcement action and we're going to do rulemaking at the SEC to kind of put that in place. That doesn't require legislation. It would be great to have bipartisan support around legislation, but that's the kind of stuff that could happen. The industry would love that. Yeah, I mean, there. More all-time highs.

So the interesting thing about Bitcoin is that its supply is fixed. There's 21 million. Where are we now in terms of the mining? 19 yet? Yeah, you're close to almost, you know, approaching 90%, right? Michael Saylor yesterday said the next happenings, right, which are don't even matter because you're already so much of us out there in supply. I thought that was interesting. Do you think this is an important national industry? Is it even a national industry? I mean, do we need a strategic reserve of Bitcoin? Well, there's been a lot of chatter about that. I'll tell you, listen, I think the big elephant in the room is that U.S. fiscal policy is unbelievable and unsustainable.

If we continue at this rate, every other country that's been doing this stuff has gone bankrupt. And so I think Bitcoin is... Debt to GDP, fiscal deficit as a percent of GDP. I mean, it's crazy. We're setting records when we have full employment. So under Trump 2.0, fiscal policy is going to be very different than 1.0, right? And so here are the two scenarios. One is no cuts.

We're not going to have tax cuts anyway, right? So no cuts in spending. or we cut what Vivek is talking about, which is half a trillion dollars, $500 billion in spending. That would be, you know, slow down the economy, right? Whenever you cut government spending, that's not good. It would have to be offset with deregulation, maybe lower interest rates, wink, wink from the Fed, things like that. So it's just going to be a very different policy dynamic.

And frankly, I think there's going to put a little uncertainty into the markets going into the new year. I think that's a great warning point for what you. it's been a lot of aboliance around you. Do you take the movements in gold as a bit of a, is telling us something. In other words, the moment Trump got elected, gold started to sell off. And I kind of read gold as a proxy for dollar devaluation.

And I know there's a lot of different theories on this, but gold had really ramped up this year. And it seems to me that's in large part as it's sort of saying your dollar goes less far than it used to. If Bitcoin is a digital version of that, then despite the excitement over what's going to happen on the regulatory front, If the dollar is now strengthening in real terms because we are going to make changes that you're mentioning,

could it turn out to be more of a headwin for Bitcoin under the Trump administration? I 100% agree with you. And I think everyone before the election was sort of saying both candidates are bad for spending, right? And that was driving this bull market in gold, all-time highs on a regular basis. And I think, you know, they haven't been focusing on Elon Musk and Vivek Varmu's Swami, right? You were saying, no, we're going to be serious about cutting spending. No one mentioned that during the election, you know, this. Totally.

But suddenly, you know, suddenly on the acceptance speech, you know, he's talking all about Elon, and he's, I call it the Trump-Musk, you know, administration. So it's seriously on the table. But Congress controls spending. It's not the White House. Yes. 100%. And I think the Senate will be a dampener, which is why I don't think Trump's going to get a lot of tax cuts. You know, maybe they won't tax wages or something not so financially significant like that.

but symbolically important. So, you know, a quick question, if I might. What is the catalyst or the main driver that takes it from, well, we've just seen it go up 35% in three weeks

Bitcoin to 93,000 or whatever it is right at this moment? What is the catalyst that takes it to 400,000 by the end of the decade? It's just additional buyers, right? So right now, even this year... Just acceptance.

Yeah, this year, it's really been individual investors that have been buying the Bitcoin ETFs. I mean, there are some institutions, but really, in talking to them, everyone has been very shy to talk about crypto before the election. And now that's changed a little bit. But we still don't have wealth management firms approving this or allocating to it in any manner. Institutions haven't barely been changing.

And you see that changing so that they become bigger players. Absolutely. Do you have a Bitcoin ATF? First of file in 2017. And yes, we do. Thanks for mentioning and Ethereum. but so wealth managers, institutional investors, and sovereign countries, right? There's only six countries now involved in owning or mining Bitcoin,

and we think that's what this Bitcoin Strategic Reserve is all about. It's sort of saying, listen, we want financial discipline in this country, and kind of it's symbolic, right? Owning some Bitcoin is the modern way of owning some gold. I'd love to have you come back and talk more about this, be our guru on Bitcoin. It'd be great. Jan, thank you. Thanks.

All right, as we're going to head to break here, a quick power check on the positive side of the S&P. You've got key site technologies higher on earnings, negative sides, super micros. Recent string of declines continue after yesterday's brief gain. The company filing plans to avoid a NASDAQ delisting. That's your power check. We'll be right back. Welcome back, everybody, to power lunch. Stocks lower across the board.

The Dow down now for the fifth straight day, just a little bit, but down. Let's get a check on action in the bond market. Always busy there. Rick Santelli standing by in Chicago. Hey, Rick. Hi, Tyler. Well, everything changed at 1 o'clock Eastern. What happened? Well, look at the chart. That's an intraday of 20-year bonds. And as you can see, at 1 o'clock Eastern, they shot up. That's because 16 billion of 20-year bonds that were auctioned off didn't find home very easily. It seems as though the odd man on the yield curve didn't find the type of demand it has in the past. I gave the auction a D-minus, and it affected all maturities, pushing them all up on the session.

But what's interesting, look at a two-day of tenure, and what I want you to pay attention to is the right side is higher than the left side. All treasury yields, even before the auction, had a higher high yield than yesterday's highs. That's called stacking. Usually builds momentum, especially after yesterday was supposedly a flight to safety day. It certainly didn't seem to last long. And another issue with that 20 year is the fact that it has the highest yield on the yield curve and it still couldn't pull down strong demand. The dollar index, though, right now as it sits, it's up 5 and a third percent on the year and it's looking at a fresh one-year high close. Don't see anything on the dollar index changing its strength meter, especially with long-dated treasury yields being so firm.

Kelly, back to you. Rick, thank you very much. Look at that 106. Rick Santelli. Appreciate it. To Bertha Coombs now for a CNBC news update. Bertha? Hi, Kelly. Susan Smith, the mother who pushed her car into a South Carolina lake in 1994 with her two young boys inside, was denied parole this afternoon. The board's decision unanimous, following emotional pleas from her family and friends to keep her behind bars. It's not enough. So I'm asking that you please.

Do not hurt parole today. Smith, who gave a tear-filled apology during the hearing, has served 30 years and is now eligible to apply for parole every two years. President alike Donald Trump named former acting Attorney General Matt Whitaker as his pick for the next NATO ambassador. Trump, who has long criticized the military alliance, called Whitaker a strong warrior in the announcement. And New York's mayor appointed the city's second ever female New York Police Department Commissioner today. Jessica Tisch, the current Department of Sanitation Commissioner and 12-year NYPD veteran will assume the role starting Monday. She is part of the prominent New York Tish family that owns the Lowe's Corporation. Kelly, back over here.

TISCH. She's great. The family's great, and we wish her all the best. Bertha, thanks very much. Coming up, red-hot valuations, the average NHL team is now worth $1.92 billion. Recent transactions, rivaling deals done in Major League Baseball. We will lay out all the numbers and how we got there next. Welcome back. CNBC Sport is out with its official list of the most valuable NHL teams. You can find it right now on CNBC.com, and the Toronto Maple Leaves snacked the top spot worth $4 billion. The New York Rangers, Montreal Canadiens, L.A., as I say that right, Canadians, L.A. Kings, the Boston Bruins, all round out the top five.

Joining us today is Michael O'Anne. The man, the brains behind our valuations, really. Mike, it's great to have you demystify for Tyler and I. Why Toronto is the number one team here? Biggest city in Canada, number one, Kelly, and number two is tremendous, passionate fan base. They haven't won the Stanley Cubs since 1967, but look at it this way. They also control their arena, which is key. Nearly a hundred million dollars in sponsorship revenue last season, 15% more than the next closest. Why bother winning if you can do this well, losing, I mean, not losing every season, but, you know, without making it all the way? Maybe this will be their year. You don't know. They're a playoff contender, so we'll see. How do the values of the hockey

teams compare with five years ago, let's say, 10 years ago, and how do they compare with the values and other, the three other, what I would call major American sports, football, basketball, baseball. Yeah, great question, Tyler. They're catching up is the best thing I would say about the NHL. Four or five years ago, you only had bottom rung teams that were financially doing very poorly being sold in NHL, like out in Arizona, Carolina.

You look at recently the Tampa Bay Lightning, which is sort of a mid-level NHL team, just sold for a record $1.8 billion, $600 million more than the cut. Cioties were sold to be moved to Utah. So the valuations are going up. And I know you guys are economic experts, so you like to look at things on multiples of revenue.

The Lightning were a little over eight times revenue. That's sort of on par with the multiples of revenue NFL teams are being sold for. That was an own, what's that owned by a guy? He used to be a Fidelity guy? Bennett. Yeah, yeah, yeah. Jeff Vinick. Jeff Vinick.

So you're right, Tyler. And he's still staying on as a minority owner is actually going to, you know, be heavily involved. He really turned that franchise around. I mean, they want some. Back-to-back Stanley Cups. You know, he's helped revive, bring the NHL to Florida. Very successful. Now, last season, the Florida Panthers won the Cup.

Yes. So this is great for the NHL. And just quickly, in terms of the TV revenue, which is what a lot of these valuations are predicated off of, to some extent, right? I mean, what's that like in the NHL versus other leagues? It's less, but increasing rapidly. So the current U.S. TV deal is worth more than three times what the previous deal was worth. In two years, the next Canadian deal will start.

And my reporting is showing that that deal will also have a huge increase. So that's really important for the health of the league because that money is shared equally among all 32 teams. All right, Mike, stick around as we bring in our next guest for more on the business of hockey and sport. The changing sport media landscape included. We want to bring in one of the big power players in the sports worlds, Ted Leonsis, founder and chairman, CEO of monumental sports and entertainment. Monumental owns the Washington Capitals, the Washington Whizons. The Washington Mystics and the Monumental Sports Network. Mr. Leonis, welcome.

Good to have you with us. Always good to see you, sir. Thank you so much and see Arlington, Virginia, University of Virginia. That's great. Well, Arlington is my hometown and UVA, my alma mater and I love them both dearly. Let's talk a little bit about your business and what is the real flywheel of your business? Is it the television, the sports network? Is it the teams?

No, I would say from a business standpoint, and I noted this 25 years ago when I got into the industry, it looks like a software services business. We have reoccurring revenues that raise almost programmatically every year 3 to 5%. And about 80% of our revenues are contracted. on a long-term basis, be it our media business from national, you know, that the leagues negotiate. Those are 10, 20-year deals. Locally, if we do a naming rights deal, our deal is with Capital One. They'll sign 10-15-year deals, and they increase 3 to 5 percent every year.

the most variable part of our deal is our season tickets. And you can look at the data. You know, on a bad year we renew it 80%, on a great year when you're on a good run. You have a championship contending team. It's 90, 95%. And the customers, the season ticket holders, they bet on you, if you will, because they then buy their season tickets and then they test the market. to sell five, ten games a year to the secondary market.

And the profit they make off of that, those ten games, pays for the rest of their games. So we have a very unique business. And to be the only hockey team or the only NBA basketball team in a 10 million person market, our media market goes from Richmond, Virginia. Richmond to Baltimore. Or Wilmington, yes, exactly. Yeah, it goes to Delaware. And so it's a very unique business.

It looks like a SaaS business. And if you look at SaaS companies and the best ones, the oracles, the Salesforce.coms, they have a growing base of Fortune 500,000 customers, and they renew kind of automatically at higher rates every year. So that's the business. If I might, Mr. Leonis, I'd like to bear down on something I believe I heard you say a moment ago, that if your team is doing really well, your season ticket holders renew at 90, 95%.

You've had great success with your hockey team in Ovechkin, who's closing in on Gretzky's scoring record. You've not had such great success with the Washington Wizards. But do you still make money with the Wizards, even though they have been? a bottom dweller for a long time. And does it, I mean, if you're still resigning 70% of your season ticket holders, I don't mean to be flip here. What do you care if they win or not? Oh, well, if you're in this for the money, you're not going to be successful.

And I mean that. Yeah, no. Also, using the SaaS software model, a lot of SaaS companies are not profitable in that moment in time because they're spending a lot of money in R&D. Thankfully, the way the CBAs are written, that if you spend to the, in the, the, in the, the, the HL, there's a hard cap at the NBA, there's this apron. If you spend to the apron, you don't pass it so that you're not taxed, and you're generating revenues that are average for the league, you can break even. And that's how most people look at this business.

You're trying to be competitive. You're trying, you go into the tax in the NBA when you have a really competitive team and you think you can win a championship. If you can win a championship, you're constantly trying, as we are now, with the Wizards to invest in player development, use the draft, make trades to get young players and draft picks so that you can kind of step up at each step of the process. And so, you know, we're unique as a business. We have like the Coca-Cola company that's the NBA and the NHL.

And then we're the local franchise. and the better that the brand and the league does, the better that you do locally. And we are a unique asset in that we own the teams and the venue and the network and all in the same geography. We think that our strategy and platform has a lot of fidelity, a lot of margin increase, because I have one CFO. We have one chief revenue officer. And now we can be selling, especially to the big partners,

inventory and promotional programs that's on the jersey of the player. Yeah. The arena on the ice, on the court, on our network. And, you know, now we're rebuilding our building in partnership with the city. and now we're expanding so that we have more of an entertainment district kind of feel. Yeah. Was that one of the reasons you were considering, was that one of the reasons you were considering leaving and going to Virginia, was the idea that there wasn't an entertainment district, which is what you wanted to create.

I need a quick answer, Ted. I'm sorry. Yes, the answer is they were 70 acres available, and we were going to get 12 of them, and today we have four acres. Yeah. So I know you know my friend, Scott Wadner, he and his son are huge capital. I am a less, I'm a capital's fan, believe me, but we wish you and Ovechkin all the best as he pursues. Well, that's very nice of you. And Mike, congratulations. It's great to have someone as serious as Mike and CNBC covering us. It's totally good the Forbes does it and Sportico because as an asset class, the more, if you will, buying sell side analysts that are really getting deep into the economics of it.

I think that's great. I certainly have that. I'm long on that kind of coverage on our wins and losses, so it's great to have it on their business side down. Mr. Leonis, thank you so much, as always. It's good to see you, sir. Thanks, everyone. Good to see, Mike. Good to see you. And speaking of hockey, don't miss former NHL star Wayne Gretzky, who will be on Squawk Box tomorrow. We just mentioned him tomorrow morning at 8.15 a.m. The great one, Gretzky. skate to where the puck is going. Yes. The market's metaphor, bar none. Goldman Sachs is hosting a huge tech conference in Las Vegas this week,

bringing together industry leaders to talk innovations around AI software and more. We will get the key highlights from the event next with Goldman shares up 50% this year. Stay with us. Welcome back to Power Lunch. Shares of Goldman Sachs are up 10% since Donald Trump was elected two weeks ago. One reason for the optimism, increased hopes for dealmaking. Our Leslie Picker is in Las Vegas at a Goldman event where they've been talking about another big potential influence on dealmaking. AI is the catalyst perhaps, Leslie. Good to see you.

Hey, Kelly, good to see you, too. I think it's a combination of both, as everybody has been telling me here. The animal spirits are alive and well. We are, of course, here at Goldman Sachs' Private Innovative Companies Conference in Las Vegas. And I sat down with two of the firm's top technology investment bankers and asked them how AI is changing dealmaking. strategy. They said in certain pockets, the need to spend on AI is actually diverting capital way that would have otherwise gone toward acquisitions. Arguably, for Megatech at least, CAPX may be the new M&A. We've seen that shift in terms of the divergence of cap-and-x spending versus M&A spending for Megatep really expand to the widest gap that we've ever seen. And I think that reflects the fact that in AI infrastructure is a key competitive moat right now where people

are very comfortable investing. M&A spend is estimated to go down essentially in half, 56% for big tech by the end of the year, while Cappex spend is projected to nearly triple by the end of next year, according to Goldman. AI is equally in the middle of the IPO and private fundraising process as well. Pretty much any company that is seeking new funds needs to have an answer for how AI impacts their business. A year ago, it was aspirational product market fit. today, we have a public and a private market that's incredibly focused on ROI, that's incredibly focused on incremental revenue generation, and incredibly focused on cost saving. So a more demanding

specific market for all companies as AI transforms how they operate. Now, they both do expect to see a more vibrant tech capital markets environment in 2025, guys. It's interesting, Leslie, because shares of the investment banks have really run up this year. But we talked to Klarna last hour, so there's one IPO candidate, and there's just not a lot of other ones. floating around out there. Yeah, a lot of the activities surrounding the investment banks and the hope for next year is continued strength in debt capital markets as well as mergers and acquisitions. IPOs are expected to be much bigger next year, and that's something that I talk with both

of those bankers about, just the potential pipeline and the various mandates. And they say the mandates are very strong. And all of the contours of the macro environment are contributing to a lot of C-suite confidence that will encourage them to actually take. that step next year. But in terms of the key drivers of revenue for these banks, it's still the debt capital markets and M&A at this point in time. All right, Leslie, thanks very much. Leslie Picker reporting for us. Meantime, shares of Target, as we mentioned earlier in the broadcast, plunging after its biggest earnings miss in two years. On pace now for its worst day since May of 2022.

We brought you the story now. We'll get the trade in three-stock lunch. That and more when we return. Welcome back, everybody. Time for today's three-stock lunch and here with our trades. Bill Strasulo, Chief Market Strategist at Bell Curve Trading. First up, we got your target. The shares plunging more than 20 percent today after posting its biggest earnings miss in two years, posting just a slight uptick in customer traffic in the third quarter, despite making deep price cuts on thousands of items, also hosting an early holiday sale, doing it all, cutting full-year profit guidance as a result, just three months after hiking that same forecast. What do we think of Target here, Bill?

I'm a sell it, Tyler, all day long. Look, the bottom line is the sales of flattened out. Their customer base is, you know, in this mode where they just want to buy what's essential. And I don't think that behavior is going to change anytime soon. They could have had a decent quarter. They had the opportunity with the discounts, the promotions, Halloween. But the customer base just isn't there. The customer base is buying what is essential.

to them. That's not going to change anytime soon. I'm a seller. What I'd like to do here is sell anywhere in the mid-130s. If we get any kind of bonds, which we might, a technical balance, 135 to 140, I think the stock goes to at least 110, 105, and maybe as deep as 905. All right. That's a big drop. Let's move along to William Sonoma, which is hitting an all-time high. We say no one's spending discretionary, but they just posted a beaten raise quarter in our on pace for their best day in nearly 16 years bill, the stock is up 27%. Yeah, I'm a buyer here, Kelly. Look, I mean, very good earnings report.

They beat estimates for revenue sales, earnings per share. The year over year revenue number was not great. It was down 2.7%, but they operated the business more efficiently. They increased margins. Earnings per share were better this quarter than last. And I think the most important thing here is they're getting much more aggressive on shared buybacks. They bought a little bit more than a half billion in stock back very recently, which was a record for them. They just announced a new plan to buy a billion

dollars worth of stock back. I think the stock goes to 215. I'm a buyer from 165 to 150 with a closing stop below 140. But I like it here, and I still think there's this good upside even from here. All right. Fantastic. Let's get on to our final one, Palo Alto Network, cybersecurity firm, after the bill this afternoon. What do you think of this one? Yeah, I'm a buyer, Tyler. Look, one of the biggest cybersecurity firms in the world. They've done a really good job integrating AI with their products and services, and they've had a really nice bump in annual recurring revenue. I think this stock is potentially a $500 share stock. We'll see what happens with the earnings after the close.

But I'd be a buyer here, $375 to $350 on any weakness. And I think the stock goes back to 400, $400, maybe as high as $500, and I'd have a closing stock below $315 a share. All right, fantastic. Clear answer there. So you like to, didn't like Target. Bill Struzzullo, thank you so much for being with us. We appreciate it.

All right. The Dow is down about 40 points now. Modest loss, but continuing a string of losses. Thanks for watching Power Lunch, everybody. Hit a bit of a soft patch here lately.