Power Lunch - Tech Turnaround, Musk Goes To China 4/29/24

Episode Date: April 29, 2024

Stocks are building on Friday’s rally and getting a boost big from Apple, which is contributing to gains for all the major averages. We’ll discuss what it means for markets.Plus, shares of Tesla are surging on news of Elon Musk’s surprise visit to China, and a deal to get approval for full self-driving there. We’ll get the key details. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch, everybody, alongside Leslie Picker. I'm Tyler Matheson. Welcome everyone to a Monday. Stocks slightly higher today. Building on Friday's rally, NASDAQ, S&P, could make it five winning sessions out of the last six. And despite a big early morning drop on Thursday, all the major averages are just a few percentage points from record high. Apple contributing to the gains for the averages, Bernstein's Tony Sakanagi upgrading the stock ahead of its results later this week. Tony will join us on Friday to react to Apple's numbers. Apple stock still down nearly 9% so far this year. But the big stock mover of the day is Tesla up 15% today, more than 15% today, more than 35% in the last week. This latest game fueled by Elon Musk's surprise visit to China and a deal to get approval for full self-driving in that region. Udus Yunn covering the China side of this story, Philibo, on what it means for Tesla. Yunus, please give us a sense of what we know about this deal so far. Well, Leslie, these are the three main takeaways so far.

First, after Musk visited with the Chinese premiere, Tesla flagged that Beijing deemed it compliant with the country's new data security regulations. This, as a result, the statement says, said that local governments that had restricted where Tesla cars were allowed to go are lifting those restrictions. Second, official media Tsailien said that its reporter confirmed with China Tesla that its full self-driving software could be launched in China in what they said as, quote, soon. And finally, a source close to the matter told CNBC that Baidu, the tech giant here, would partner with Tesla on lane level navigation and mapping services.

Now, we're still waiting, though, to see whether or not reports that Musk is looking to get approval for the data to be transferred to overseas. We're still waiting to see whether or not those reports become confirmed. All right. Thank you very much. Eunice, Eunice Yun, Yun, reporting for us from Beijing. Let's turn now to Phil LeBow. Phil, how important is full self-driving to the future of Tesla, not just in China, but in the United States and globally?

It's huge, Tyler, because the holy grail within the auto industry has long been monthly subscription, that revenue that you can bring in every month. It's not just the one-time sale of the vehicle. It's how much you can get people to pay you month after month after month for a particular service. And full self-driving has huge potential in that area. When you look at full self-driving, even though the prices come down considerably from where it was a year or two ago, right now, and we're just looking at the U.S. price here. You can buy it in full for $8,000, or you can do a monthly subscription of $99 a month, but the take rate is unclear. There have been some like Ben Callow at Baird who has said, look, I think it's about 10% of the Tesla customers who actually buy full self-driving technology or do the subscription. But we've never seen any kind of disclosure from Tesla.

full self-driving has been bought, according to the company, and this was in a regulatory filing earlier this year by approximately 400,000 Tesla owners. Now, that's all time. We don't know how many of those people bought it, then said, I don't want it anymore, then they sold their vehicle or their monthly subscribers. That kind of granularity is not clear, so we don't know what type of revenue Tesla gets from its full self-driving software. But Elon Musk said on the conference call last week when they had their quarterly results,

he believes that the growth potential when it comes for full self-driving, it can grow overseas. And yes, there are markets in Europe that have full self-driving technology, but he believes it can grow rapidly in other markets. And obviously, China would be a huge market to do that. Keep in mind, this is separate. Full self-driving is separate from the Robotaxi discussion. It plays a role in it, obviously, because if you can develop truly autonomous driving technology, playing off the full self-driving technology,

well, then you'd have the Robotaxie, and they said they were going to be unveiling that on August 8th, but no other details in terms of what does that mean when they say they're going to be unveiling it. And guys, I can't stress this enough. Even though the name is full self-driving, it is not autonomous. It is driver-assist technology. There are a lot of people who sit there and say,

well, I never have to put my hands on the wheel with full self-driving. That's not true. So it's impressive when you, You've been in a car that has it. It is impressive, but it is not fully autonomous. It is impressive, as I've said on this broadcast many a time. I own one. I signed up for the subscription because I wanted to try it out. It is impressive. How many people will take it up? I don't know. But how much better it gets is really the key here, because it is good. It is impressive and it is not perfect. Phil, let me leave you for just a minute and go back to Eunice,

if I might. Unis, I believe at the top of your report, you said that one of the things that was cleared away between this meeting between Mr. Musk and the Chinese Premier was the idea that now Tesla's have no restrictions on where they can go in China. Did I hear you correctly and where could they not go if I did hear you correctly? Well, yeah, no, that was an interesting admission by Tesla because there have been several unofficial reports that, that Tesla cars were not allowed to go around certain sensitive areas that were usually government-related. So that wasn't explicitly said in the notice, but I think it highlights some of the challenges that both the Chinese and the Americans face about each other's cars and concerns about privacy for a lot of that data.

Phil makes a very good point. This is not complete autonomous driving, this full-service, full self-drive option. You have to still keep your hands in contact with or proximity to the steering wheel. But in congested areas, like many cities in China, where street markings and lights and signage maybe aren't at Western standards, this could be troublesome for these cars. No? It could be troublesome, but because China is so focused on trying to become a leader in EVs, in autonomous driving, and in AI more generally, the feeling is that they might not necessarily look so heavily scrutinized every little less thing that, say, Tesla does. So, you know, from the Chinese perspective, Tesla and Elon Musk could really help them reach their longer-term goals. And their longer-term goals have been to become tech dominant players globally in a lot of those same technologies that he currently is leading in. And to that point, Phil, is there a sense of any U.S. guardrails on this technology wanting to keep it, you know, at least kind of proprietary for?

a U.S. company to have and market from. I only ask because there have been instances in the past where other countries have sought to maybe kind of re-engineer the technology with their own kind of companies that are based in those regions. Is there a sense that the U.S. has kind of clued into this and hoping to ring fence this technology so that it's proprietary for?

You can bet the U.S., you can bet the U.S. is watching these developments very closely. Now, what are the details, what are the particular of this agreement with China in terms of access to data and what Tesla is doing, that hasn't come out yet. So it's unclear at this point. But let's not fool of anybody to think that the U.S. is not watching any of this in saying, oh, it's just Tesla doing business over there.

They're watching all of this as they are with any company over there, whether it's Apple, whether it's Tesla, whoever it is, you know that they are watching these developments closely. And then in terms of just the stock price reaction today, Phil, Obviously, this comes on the heels of their earnings from, I believe it was last week, where just the prospect of kind of these newer technologies clearly got investors' attention. How do analysts kind of look at today's moves up 15% and think about how this will ultimately filter into their models and the revenue potential and all of that? Look, most of the analyst notes today have been positive. from this perspective, this is an important moment for Tesla in the world's largest EV market. That cannot be disputed. And so you have analysts who are saying, look, this is fantastic.

We're not sure exactly how much this is going to unlock in terms of revenue potential, but this is what you want. And it also is another example playing off of last week's analyst call where you have Elon Musk actively engaged in the next development with Tesla. Remember, that was some of the narrative. As the stock was trending lower, people were saying, where is he? Is he fully engaged with this company, or is he busy doing a myriad of other things? And now you've had two instances here, the analyst call as well as over the weekend with China, where it's very clear. He is focused on the growth and the development of Tesla. And that's why you see that I wouldn't call it positive as much as encouraging is the tone that you've heard from analysts when they've

written about this today. Yeah, certainly the momentum is there. Phil and Eunice, thank you both very much. Turning back to the markets, which are higher across the board after back-to-back weekly wins for the Dow, it's a huge week of earnings with one-third of the S&P 500 companies reporting, including tech giants, Amazon and Apple, plus a Fed decision on Wednesday and a jobs report on Friday. Here with more on how to position and what to watch is Lara Hassleton, U.S. head of portfolio construction and strategy at Janice Henderson investor. She's also a new face to CNBC. Welcome. Thank you for being here all the way from Colorado. Yes. Thank you for having me. It's lovely to be here.

So obviously a really big week. How much do you reconstruct your portfolio or how much shifting do you do of positions during earnings season? And what do you make of what we've seen in Q1 so far? That's a great question. We would always advise our clients to try to take that longer term approach. but this week is really the trifecta of what we've been watching for a long time. And so seeing what comes out of this week is going to take hold of which narrative is going to end up winning out over time. So first, if we start with earnings, we have said for a long time valuations are a little bit elevated. But if companies can continue to deliver on earnings, then those could be justified. And that's, I think, what you're seeing the strength behind the market this week is that earnings are coming in broadly strong.

So we're definitely focused on earnings. But one of the big decisions is the Fed on Wednesday. We don't anticipate them to cut. Market is not anticipating that, but it is the commentary that comes out of the Fed. Are they going to be a lot more hawkish? And are we going to see that one to two basis point, one to two Fed cut eliminated completely for this year? So that will be something to watch. And then the biggest thing is jobs.

Jobs have come in and surprised to the upside this year. And that has really bought the Fed some time in terms of not having to cut because of a growth stretch in the economy. So if jobs come in weaker, then that could be something to watch longer term as well. So given all of those events and this very important week, would you say that this market is more macro-driven, as Morgan Stanley's analyst noted this morning, or do you think it still is very much a stock picker's market fundamentally driven? Investors should really prioritize what's going on with earnings over some of the macro development. That's a great question. The macro environment is definitely driving the narrative. However, the way to succeed in this

environment, we believe, is firmly on the fundamentals. So looking at companies that can do well if inflation continues to stick around like we're seeing, or if the Fed eliminates all rate cuts this year. We need companies that have good balance sheets and good fundamentals that can do well no matter what is going to come in the environment. So we firmly believe that fundamentals are one of the most crucial things to look at today. It's not that you don't like tech, but two of the sectors that you do like are health care and utilities. These are not sexy sectors at all. Or they haven't been. Utilities is not yet. Utilities, energy.

What did I say? Health care. I said health care. So tell me why you like those. And in health care particularly, I think I get utilities, okay? But in health care, health care is a big sprawly thing. It can be pharma. It can be biotech.

It can be the insurers. It can be medical device companies. Where in health care? So we like- Why unsexy? And why? Where in health care? So actually, the reason we like health care is because it can balance

the defensive, but with some of the sexier stuff as well with biotech. And so people have abandoned health care because all they want is the AI trend. And so health care has broadly not done very well for a long time. But there's a couple of things going for it. One is just cheaper valuation. So back to fundamentals, it matters what you pay for things in this environment when rates are higher and inflation is higher. And it is broadly cheap as a sector.

Now, the benefit of that is as well, if something were to happen and growth starts to slow, if the economy does turn over as the sector broadly, It tends to be more defensive, but then it has this really exciting component of biotech. And if you're looking for innovation and sexiness, absolutely you get that with AI. But the amount of innovation happening within biotech or robotic surgery, there's a ton of growth opportunities within that. I agree with that. I think AI can be really transformative in health care. I think it can be transformative in health insurance where right now there is not much, frankly, intelligence that I can perceive.

I mean, the intelligence seems to me to be directed at obfuscation. And if perhaps artificial intelligence can be used to improve customer service, you've got a real breakthrough for those health care companies. Absolutely. And one of the biggest macro, like long-term driving things we've been talking about is demographic shifts. One in six individuals are over the age of 65. And when you're over the age of 65, you spend three times the amount on health care. So as of just long-term trend, it is going to continue to be a really nice secular. theme going forward. And then I do think AI has a lot of implications, especially within robotic

surgery. How about GLP1 drugs? Is there opportunity outside of that within biotech? Because obviously that's gotten so much attention lately. I wonder if the same capital is kind of filtering into areas that don't have anything to do with weight loss drugs. Yeah, our portfolio managers on our Global Life Sciences Fund think that is one of the biggest opportunities within health care. That is being underrepresented over the long term. It's having massive implications for individuals and just a ton of innovation in that space that we're really excited about. Laura, thanks for being with us. We appreciate it.

Thank you so much. Mark Aston, we appreciate your time today. All right, coming up, the IPO market showing signs of life. We will talk to one banker behind the blockbuster debut of Astera and Reddit. That is in today's tech check when we return. Shares of rubric falling today, but still higher than its IPO pricing of $32 a share. So what could it and other recent listing signal about the? the IPO window. Deirdre Bosa spoke exclusively to Morgan Stanley Banker, a banker who led the listings

of Reddit and Astara Labs. What did you find out, Dee? Well, Tyler, that would be Colin Stewart, and he has led some of the biggest debuts of the last three decades. So this was a rare, and actually his first broadcast appearance, given the IPO drought of the last few years, he did sound relieved, saying first that the market is back. But he was more nuanced around valuations, noting that the bonanza of 2021 was exhausting. And here's where he said, we are now. We're back at valuations that are very similar to 2018, 2019 for most companies in technology. And so particularly for software companies, the valuations are almost similar. You know, the top companies in software trade at similar valuations as they did about five,

six years ago. Those are good valuations on a relative basis. And so I think that's why I think people are starting to look again. Now, will we get some of those big companies public? I'd love to take them public. I think unfortunately they're so, they've got scale. they've got growth. Investors are giving them lots of capital. And they're also in such dynamic markets that they're investing very aggressively for the future. They've got large opportunities.

They want to be set for it. So right now, the IEPO is not on their near-term horizon. And Tyler, those big names, those are the kind of blockbuster IPOs that would be around a stripe or a data bricks or even a bite dance. So he said that it's going to take longer for them to go public,

especially because they can really raise money in the private markets for now. He said that we're seeing more companies list this year, but it's going to take time for them to get up and going. And he also noted that the presidential election this year, that could cap the number that go public this year. But by 2025, he says, that will be even better for listings if this trajectory continues. One thing I thought was interesting, Dee, is that rubric went public on kind of a downmarket day, which suggested that there was still risk appetite, despite some of the broader macro-consumption. with rates and other factors.

And so I wonder if that was kind of a seminal moment for companies that have been preparing and are waiting for the wings and are hoping to strike while the iron is hot. On a day like that, when you see that kind of aftermarket price activity, does that signal, you know, water is warm, might as well come now. It's a great point. And he would say that sort of that risk appetite has increased. You also look at the profile of a rubric, lastly, which I know you know well. And they've got losses, right?

And you're seeing these software companies go public with losses. And so I think that also indicates that there's more of a risk on appetite. Look at Reddit as well. It's continued to perform well, the volatile since its IPO. One public, what, around $5 billion? It's trading at more than $7 billion now as Sterer Labs. Even the IPOs that we covered last September, right, except for Clavio. But Arm and Instacart have held up pretty well.

Yeah, and that's such a flywheel effect. It's important to remind viewers as you just did because investors, who make money on recent deals are more apt to put that money to work, or put more money to work in future deals. So it does have this kind of cyclical effect. And you know what, Leslie, I know you and I, we love those big blockbuster IPOs that are already household names, but you could argue that this market now, where you're seeing sort of the sub $10 billion valuation companies go public,

that it's a little more boring, but maybe a little healthier as well, because it is sort of getting that appetite up and testing the waters before you potentially see the big ones. question is, when do those big ones actually want to go? Or are they comfortable being private? A lot of the CEOs and founders will say that they're able to do more in private if they need to grow. And they're at this important growth phase. So there's not as much as that draw for that big marketing event that is an IPO as maybe there was in previous years. Yeah, I guess you and me covering it, not enough of a draw, but maybe one day that will change. Dear Dr. Thank you.

Coming up with Amazon earnings on deck, AI and e-commerce capture most of the attention of But advertising could be the company's actual key to success that's ahead. Welcome back to Power Lunch. Bond yields lower today to start off a week, which includes a Fed meeting on Wednesday, a jobs report on Friday. Rick Santelli tracking the bond market action for us from Chicago looks like bigger, bigger declines on the longer end of that curve, Rick. Yes, it certainly seems as though last week, stronger than extremely. expected GDP and the pricing components in that report and the following report income and spending showed warmer, if not much progress made inflation. But investors seem to be pretty easy on the

data points. You see three days there since last Thursday, yields have slipped, just like Leslie pointed out. And if you look at a two-year note, and I find this very fascinating, we've had a couple it closes at 4.995, 4.998, but we have not closed really above 5%, as you see on this year-to-date chart. Why does that matter? It does matter. It shows that there's some inertia here. We're sitting on levels in front of the big reports coming out at the end of the week. Well, Wednesday we get ADP as well. That shows that the markets are in a decision-making mode. Certainly, if we get hotter than expected job reports on Friday, I would certainly look to jump over these areas, whether it's 5% in a two-year or on a 10-year, the four-and-three-quarters mark.

If we look at the dollar yen, everybody's talking about it today. Look at the intradate chart. It traded over 160. Very briefly, did they intervene? Didn't they intervene? To me, that's not the big question. The big question is, does intervention ever work on a wide basis? No, that's why it was given up years ago. And if you look at the last time we actually closed above 160, it was 38 years ago, December of 1986. Tyler, back to you. Wow, hard to imagine that. Rick Santelli, thanks very much.

We've seen a lot of dealmaking and consolidation in energy so far this year. And Pippa Stevens is looking at names. It could be winners or losers, if that trend continues. A lot has been going on. Oxy, Exxon, Chevron. They've all been involved in big deals over the last 12 months. Yeah, M&A has been really the key theme over the last year. There was record 192 billion worth of U.S.

Upstream Deal. last year. And so far this year, things are already off to the races with about $51 billion, according to a new report out from Enveris. And as we've talked about, this is really being driven by the desire to secure prime acreage and secure your long-term future if you're an E&P. But one group this might not be so good for is the services companies. And that's because if there are fewer upstream players looking for your services, then pricing might not be quite as competitive. Also, as size can come synergy. So as one person described it, if you're a landlord and you own all the houses on one block. If you're doing something like leaf removal in the fall,

you can do it for a discount versus every player doing it individually. And so that's the same thing with the services companies. And we've seen this. In the performance this year, you can see the OIH, which tracks the industry, has lagged the upstream, the downstream, as well as the broader energy ecosystem. Although one thing on the flip side of this is that if there are fewer upstream drillers, then maybe they'll be less sensitive to commodity prices. And so if they aren't ramping up and ramping down as frequently based on the move in oil, maybe the services companies can then see their future and also be able to be more efficient. But they've underperformed this year so far. Lithium stocks gaining today, why? Yeah, so a couple of things going on, huge moves today.

So on the back of Tesla, as I know you talked about earlier this hour, which is surging, lithium companies do tend to track those. But maybe more importantly, as we saw an uptick in prices in lithium prices in China over the weekend, which then does ultimately filter through to the future market because of this new sub-examination. in China. And so now if you trade in an older vehicle, you can get cash back. And if you go for an EV or a plug-in hybrid, you get more than if you go for an ICE vehicle. And so the thought there is that that will boost demand for EV. And after we saw this massive downturn in lithium prices, we've seen the higher cost producers bring production offline. So the market is tighter.

And so some momentum there in what's been a very depressed market. Huh. As a hybrid owner, I didn't know that about the trade in value. But in China. Well, I guess that would be a little bit. You've got to take your car over there to China. A little difficult. Yeah. Not impossible, just may diminish the gains from it. Thank you.

Let's get over to Courtney Reagan for a CNBC News update. Hey, court. Hi, Leslie. Will Columbia University students are chanting and encircling their pro-Palestinian encampment this afternoon? As they reach university deadline to break up their demonstration or face suspension, students under suspension will not be able to access school facilities and will have their ID card deactivated. The university issued the ultimatum more than a week after students started camping on grounds, calling for the university to divest from Israel amid its war with Gaza.

Secretary of State, Anthony Blinken, met with the Saudi Crown Prince today in Riyadh. It came after he met with other regional leaders earlier today to discuss the humanitarian crisis in Gaza and a future governing plan for the enclave. And House and Senate lawmakers say they've agreed on one $105 billion bill that aims to make air travel safer. It focuses on increasing air traffic controller staffing following a series of close call incidents at airports across the U.S. The Senate is set to vote on the measure this week. Leslie, back over to you. Sounds like an important measure.

Court, thank you. Up next, the FTC banning non-compete clauses. What impact could this have on the labor market? We'll discuss next. All right, welcome back to Power Lunch, everybody. The Federal Trade Commission issued a ban on so-called worker non-compete clauses. set to go into effect in the early fall, rallying praise from labor organizers

and lawsuits from business groups. This comes as the Biden administration finalizes a rule to expand eligibility for overtime pay. Who can get it? Here to discuss the ever-changing state of labor is Alan Guarino. He's a vice chairman at Corn Ferry. Alan, welcome. Good to have you with us. Thank you, Ted.

Let's talk first about this non-compete ruling of the FTC. It is hard for me to understand who it affects and who it affects, it doesn't affect where and in what industries or markets the FTC has authority to apply this rule and where it doesn't. So the basic question is, how sweeping is this declaration? Well, the data is that about 37 percent of all jobs are covered with the FTC ruling. So the majority of jobs are not. That doesn't mean there aren't going to be other efforts to, you know, approach this through legislation. So what large areas of the economy are not covered by this?

Well, two, financial markets, financial services industry, and physicians, medical industry. Those are two that don't fall under the FTC. So if I'm a banker at Chase, they can still enforce on me a non-compete agreement. Depends if you live in nine states in the country, a little more difficult than if you live in the other 41. Because state laws supersede or already exist. They address the non-compete. So there's all kinds of ways that the non-compete dynamic can be. let's say, taken away from the free market through some sort of legislative or governmental action.

So non-competes became more prevalent with the kind of diminishing role of unions in history. And so I'm curious now that we have seen more of a movement toward unions, does this rule need to take place? Or do you think that unions will ultimately be able to resolve some of the issues with non-competes? Or is this not necessarily at the top of the list for most unions as it pertains to their own collective agreements in their industries? Sure. So you think about the unions, you know, it ranges everything from pilots in the airline industry to labor unions doing construction. So with that, you have different strata of employment, right? So certain employees are exposed to more insight, more trade secret, more information than others. And so one would argue that in jobs where you might have that kind of,

insight, your company ought to have the opportunity to protect itself from you leaving and taking that information to a competitor. Now, if you're in positions that, let's say, are lower in the strata of work where you're not exposed to that, then you'd ask the question, why should a non-compete exist, right? So I think many of the, let's call it, labor union type of coverage is not really threatened very much by having to fight to protect their members from non-competes. But as you move to the more professionalized or higher administrative jobs, then yes, those jobs can be, let's say, fall under the jurisdiction of a non-compete if the employer wants to do that. If I've got a non-compete agreement in an employment contract today, does this ruling change that? In other words, does it abrogate that and take it out?

Does it take it out of play for some workers, but not for highly compensated workers who might have access to trade secrets? Sure. So we'll know when case law, you know, steps in, right? So this has been put forth. There's legal action to try to block it. As soon as someone decides that they are going to take a new job, they are an FTC regulated industry, and they go to that new company. We'll see what happens, right? Because arguably their old employer could say, oh, no, and that'll test this FTC ruling. But, you know, obviously better for legal opinion. How long do most non-compete agreements last? In other words, if I'm a performer in television, is a six-month non-compete fair? Is a three-year non-compete? Unfair, what? Yeah, totally ranges, absolutely, based on the role and the level. But by and large, non-competes for executive ranks. And by the way, only about, I think, less than 1% of executive-level jobs technically fall into an area where the non-compete is,

pretty irrefutable. And then as you work down, there's more wiggle room. So basically, six months is about the norm. Twelve months is the norm when you get into the C-suite of the Fortune 500. For CEOs, could be two years. But remember, there's consideration that goes with it. If I'm your employer and I'm going to ask you to sign a non-compete, as an employee, free market dynamics in play, I'm going to ask you for some consideration in return for that. So if I'm going to give you a one-year non-compete, I am going to look for a year's salary while I'm, quote, on the beach or in the garden, or I'm going to look for a year's salary and the equivalent of last year's bonus or some range of remuneration so that while I am not competing and I'm not working, I'm also being compensated for that fact. Garden Leaf, yeah. Absolutely, garden leaf.

One should always aspire for garden lease. Exactly. I don't know if anyone could take complaint with that. But I'm curious because another part of the non-compete also has to do with geographic location, right? So how has kind of this transformation toward more of a hybrid workplace, work from home, how does that kind of factor into maybe in the lower levels ability to abide by the non-compete while maybe just working from somewhere else? Yeah, great. So there's a couple components to that. Typically, there's a good reason clause that allows you to quit your job if your employer requires you to move a certain

distance from the original agreed upon location, and then all bets are off and your non-compete doesn't apply. And as you said, if you're a lower-level employee who now can do remote work coding from Wyoming instead of New Jersey, you've relocated on your own. So again, I'm not a lawyer, but I suspect the non-compete provision would still be there as long as your employer didn't require you to do that relocation. So that's probably how it works. Interesting. So fascinating. Alan of Corn Ferry, thank you very much for breaking it all down for us. Great to be here. Appreciate it. Appreciate it.

Still ahead. Most investors think of AI or e-commerce when it comes to Amazon's success, but there's an under-the-radar segment which could fuel the stocks next leg higher. We're back in two. Welcome back, shares of Amazon slightly higher today ahead of its earnings tomorrow. And while its cloud business and artificial intelligence have been a major focus, advertising is a key part of the bulls. case. Kate Rooney is drilling down on that part of the business ahead of earnings. Kate. Hey, Leslie. Yeah, so the advertising story tends to grab fewer headlines than AI, for example, but it is an essential part of the bullcase for Amazon stock. The bar heading into tomorrow's earnings.

It's even higher after Snap, Microsoft, and Alphabet all saw strong demand for digital ads. Investors are watching Amazon's move into TV-style commercials and a paid ad tier for Prime, $299 to go ad free on Prime, and then sports are also in focus. video will stream its first NFL playoff game exclusively next season, and Bloomberg's reporting Amazon is close to a deal to bring NBA games to Prime, and there is expected to be more ad-spending out of the election. You probably notice this, too, if you're a shopper on Amazon, they've got ads embedded into Amazon's e-commerce platform as well, keywords and sponsored shopping on that side of it.

And then in its last report, in Q4, ad revenue soared at 26%. That was year-over-year, double the growth of the North America and 8-0. sales segments, Wolf Research says Amazon now makes up about 8% of total global ad spending. They expect it to outgrow the broader industry by 2X. UBS upping its price target on the stock last week, citing that high margin revenue potential around prime video ads looking for ad revenue to come in around $11 billion for the quarter that's pretty much in line with street estimates. Other things the street is watching too, you can't forget about AWS growth expectations.

There are 14.7% growth. beat and then North American retail margins as well, guys. Back over to you. All right, Kate, thanks very much. Kate Rooney reporting. Coming up, some tasty results. Domino's higher, but a big first quarter beat on a big first quarter beat, thanks to strengthen its loyalty program and new partnership with Uber Eats. We'll trade it in today's three-stock lunch next. All right, welcome back, everybody. Time for today's three-stock lunch. We're going to take a look at some of the movers of the day. And here with our trades is Quint Taitro, founder and president at Jewell Financial. First up, Quint, is Domino's Pizza. The stock's shooting up 5% earlier

today. First quarter earnings beat. The pizza giant reported a rise, like the dough in same store sales, increasing more than 5% year over year. Your take on Domino's. Yeah, Tyler, thanks for having me. First of all, I'm a fan of the pizza. I'm not a fan of the stock. I think you do take this rise and you do sell into this strength. Look, they hit on a lot of metrics, 5. 5.6% increase. in same store sales, revenue up 5.9. Income from operations 18.6 and then net income over 20. Those look great, except if you dig in, you'll see that a lot of that is due to the increase in U.S. franchise and royalty fees. Also, they had a little bit of increase due to the better than expected supply chain issues that they've seen in the past. But our big reason for staying

away from this name is the debt, $5 billion in debt, $2 billion in total assets. And then it looks like they've got about 700 million looking to roll in 2025. It's also not cheap, 28 times forward earnings, and we're talking low double-digit growth. So if you're in it, enjoy it, but I think you sell into this strength here. Wow, 28 times for pizza. Next up, SoFi Technologies. That one, despite posting a better than expected earnings for the first quarter, shares tumbling, oh gosh, more than 10% today after a disappointing outlook for the second quarter. Quentin, what do you of SoFi here. Yeah, Leslie, this is a tough one because I really would love to get behind this company.

We've traded it in the past, and I've tried to really buy into the idea that it's more than a bank. But at the end of the day, today's price action tells you all you need to know. They beat on top and bottom, and they raised guidance. But the bottom line is it's still a bank, and it trades pretty rich, 1.3 times book, which is traditionally the way banks will trade. I'll give them the extra value due to having some increased technologically. and growing their user base. But at the end of the day, it's still a bank. And unfortunately,

at these levels, it's just not for me. So I'm not a SOFI owner, and I would, I'd sell the stock, unfortunately. All right. Let's move on. Let's see if we can find one you like here. Carrier Global shares up 3% today. The company reported a beat on earnings last week. Is this one, Quint, a buy for you? Yeah. In fact, Tyler, we bought this one today. As a matter of fact, this morning. Carrier is a traditional, as know a stodgy name, and it's not that cheap trading 21 times forward. They did increase revenue 17% year over year, which was a good hurdle. They also reiterated guidance, which in this environment, I think, speaks volumes. But it looks like the Veson acquisition is, if Vesman acquisition is really coming together and providing a lot to the top and the bottom line, which we like quite a bit.

73% of their overall revenue was from HVAC, which I think speaks volumes of people staying in their home, doing work in their home, and not a lot of mortgage transactions or real estate transactions. The technical people out there, you'll like this breakout to blue skies, a breakout not seen since 2021, and a stop at 53 gives this one an excellent risk reward. We're long here. All right, Quint, thank you very much. Quint Taitro. We're going to take a quick break. See right back. Welcome back, everybody.

The AI Gold Rush has sent chip stocks, solar. Voring NVIDIA up 200% in the past year, Super Micro, 750%, but don't worry if you miss the boat on those. There may be other AI opportunities far removed from chips and Simomodi's been looking at some of the industrial names that could benefit Sima. Tyler and Leslie, to make big tech's AI ambitions a reality, one of the most vital tasks is preventing data centers from overheating, which can result in damage and stress on the system. That's where cooling technologies manufactured by Carrier Global, who Quint just mentioned, trained technologies and Johnson Controls play a role. Analyst's research also pointed their topic, Parker Hannafin, which specializes in a fluid connector. Dover's industrial-style pumps used in liquid cooling. You'll see both stocks are up.

Double digits this year. Jeffrey's analysts point to Caterpillar and Commons backup power engines that nearly all data center players use. While GE-Vernova, CEO Scott Strazak, shared with me its smart grid business is also benefiting from the AI craze. Just in the past quarter, the recently spun-off company saw increased demand for high-voltage switchge gear equipment and transformers both in the U.S. and in Europe. And keep an eye on TE connectivity. It expects to double its AI revenues to $400 million next year. Their products transport electric signals to servers. So there's a lot of names here playing a very supportive role.

is pricing factor into this? Have they been able to raise their prices and also supply chain? Are they able to meet the demand that kind of has come about in the last year or so? This is a key question. Because they're raising their sales projections, the hope is that they still have enough supply. They've got their raw materials in place to meet this surge in demand that they're seeing from their big tech clients. But this is going to be a key talking point in the coming quarters if demand stays high. Fascinating.

It's almost like a third derivative to the whole AI trend. Yes, exactly. Seema, thank you. Thanks, Sima. The first bank failure of 2024 took place late on Friday. The FDIC seized Republic first and sold it to Fulton Financial. Those shares jumping today, you can see at more than 8%. Republic had about $6 billion in assets, making it the sixth largest bank failure since the crisis, since the financial crisis.

However, it's less than 3% of the size of similarly named First Republic when that bank went under almost exactly a year ago. Rising interest rates boosted the unreliable. losses on Republic's balance sheet and profitability was on the decline. However, Republic didn't file year-end financials for 2022 and 2023, causing it to be delisted last year, Tyler. The lesson here is don't have Republic in your name. And first maybe. And first, maybe you just want to avoid that. But this is a small bank. This is not systemically as the scale of First Republic or of Silicon Valley or not even close. And you can see that with the reaction of the KRE today. other regional players not moving really at all on this news.

It was widely expected. Like I mentioned, they had a lot of idiosyncratic issues. The delisting, they had some activist investors. So it has been a tricky name for a while. And obviously they faced some of the same issues that we saw last year. But much, much smaller scale doesn't appear to be systemic at this time. Well, good to have you with us today, Leslie. Thank you, Tyler.

Soon. Thanks for watching. Power Lunch, everybody. Closing bell starts right now.