Power Lunch - Tesla’s Takeover, and News You Can Use! 2/8/23

Episode Date: February 8, 2023

Tesla’s Model Y has officially become the best-selling car in California, passing the Toyota Camry. We’ll explore what that means for the future of nationwide EV adoption.Plus, there’s so much news today, that we’ve got team coverage to tackle it all. We’ll discuss the market implications from the AI push, Disney’s earnings & global reaction to last night’s State of the Union address.  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. I'm Tyler Matheson, alongside Kelly Evans, coming up a Tesla takeover, the Model Y, becoming the best-selling car in the car capital of America, California, passing the Toyota Camry, what it tells us about nationwide EV adoption. A big milestone. Plus, so much news today, we've got a reporter Roundup to tackle it all. Market implications from the AI push, Disney earnings on deck, and what they're saying in China after last night's state of the Union, will hit all those angles with our. team. But first, a check on the market says stocks are sliding with the NASDAQ taking the worst of it on that Google weakness. We see the NASDAQ down 1.5% and the Dow down 139. Let's get over to Dom Choo for the details and the movers. Hey, Dom. All right, so outside that mega-cap technology, AI trade, the headlines of the day, three big earnings movers are catching some attention. We're going to start off with CVS Health, which is up nearly 5% holding right now to your session highs. The pharmacy benefits, health care retail giant reporting better than expected results also gave better

than expected full year guidance helped along by amongst other things, sales growth in non-prescription drug-related goods, so those shares up 4.5%. Then you've got Under Armour down around 11% in near session lows after the athletic apparel and footwear maker managed to beat expectations for profits and revenues, but did trigger some worries among some investors after reporting that inventory levels had swelled by 50% over the same time last year. Those concerns leading to a 10 to 11% drop in that stock. And let's finish off. with our earnings trifecta and shares of CME group, which are up about 5% right now near session highs.

The futures exchange operator top profit forecast and reported that average daily volumes for trading grew by 6% over the same time last year, driven in part, Kelly Tyler by guess what? Surging demand for interest rate related futures and options products. Keep an eye on that CME group trade, up 5%. A higher rates play or a volatile rate player both. Dom, thank you.

Now to the AI. War is developing between Microsoft and Google. If you haven't seen it, Alphabet shares are down about 8% today after a glitch this morning. Steve Govac is here to explain. Hey there, Kelly. Yeah, Apple shares are taking today after revealing more details about its upcoming AI search product just a day after the AI Bing announcement from Microsoft. Boy, did they mess up. And one demo shared on Twitter, Google's AI said the new James Webb Telescope took the first picture of an exoplanet. Well, that's not true. the first exoplanet was found in 1992. I found that answer on the regular Google, by the way.

Google also didn't say when its new search product would launch, and its barred chatbot is still in a very limited preview right now. Meanwhile, you have Microsoft rolling out its new Bing product right now. Our own Jordan Novet from CNBC.com tried it and called it, quote, supercharged and provides a lot more information than traditional search. It's still early, though, Kelly, and it can be anyone's game. So I can now try the... Remember I tried yesterday?

It wasn't ready yet. You can sign up and try it right now. It's ready for you. Sign up. I can't. You got to apply to try it first. I know it's annoying. Okay.

Let's get back to the AI. Well, this is the AI thing, but how does Microsoft take advantage of this? And why do you think investors reacted so skittishly? I mean, to put Google shares down 8% on what was a pretty small piece of this promo that they were running tells you what about how important this is right now? Here's what everybody missed yesterday. After everything went down, there was. was their earnings call with CFO, Amy Hood from Microsoft,

and she laid out the money side of this. They are going for Google's lunch. They're going for Google's core search business. A couple years ago, they got bought this company called Xander and Ad Tech company, which they're using to do the Netflix partnership right now for the AdSupported Netflix version. They're saying we're gonna use this Xander product

and really supercharge at Kelly. And this is our revenue opportunity. We see a huge addressable market that we can finally get in on by differentiating our Bing product from Google and other search engines. So they're really not only trying to take a slice of Google's pie here in the digital advertising network, but they're also trying to get in on the growth that they still see ahead.

That's very interesting. And what do you think Google's answer is going to be to this now? And also, I mean, how much they already had the public perception and probably reality of chasing from behind, trying to throw all the resources at this to catch up. Now they've kind of botched the rollout because this is a massive drawdown in the shares. What are they going to do now? That's why everyone's scratching their head right now and why you see shares down so low. why did they rush this out today, or this week, rather, to get ahead of that Microsoft

events, and they whiffed on it. It got it wrong. So instead of waiting until it was right, they did it as soon as they could, and this is the result of it. I'm expecting to hear more at Google I.O., which is in May. That's their big developer conference where they roll out new products. So maybe we'll get a clearer picture of how good or how it compares to what we're seeing on the Microsoft of being side.

But for now, it feels like being ahead, and investors are talking that way. Great. Well said. Steve, thank you very much. All right, folks. The AI push has investors running to any company that they think might be involved. Christina Parson-Evelas is looking at some of the chip names to watch for. Christina. Thank you, Ty. So the race to provide chatbots in search engines means companies are competing for even higher levels of AI. You take volumes of data, you run highly complex models that I don't really understand, that allow the program to quickly generate human-like conversational output, which means

data centers will now face increased power requirements, and many firms are going to have to upgrade in order to compete. And that's going to be a boom for certain chip names, which is why we've seen a lot of price action in these stocks as of late just over the last few weeks or so. So let's start with the obvious player, the first one on there, Nvidia, because Nvidia is known to dominate the AI market. The stock is already up, what, 53% year to date, up 15% just in the past week or so. It's set to release a super chip that includes center. processing units as well as graphic processing units capabilities, and that's possibly going to come in the second quarter of this year. Wall, another competitor, AMD, for example, plans to release a very similar chip two by year's end.

And I know I've just named some two really popular as we talk about all the time, but what about Terradine? Another name that these are chip names that help with automation and test logic. You can see that the share price is down today, but just over the last little while has climbed higher as well as Ambrella. that helps with video compression. And both stocks are a double digit just this year alone, Ty. You know, so the question is there's been a lot of some softness in the chip area. Demand is low for PCs and things like this. Will AI boost demand for some of these companies for chips?

Not in the near term. Because you think about these data centers. It's very, very expensive to implement, right? So if they're going to put these orders in, it's probably going to come in a few quarters from now because we're facing the softness everywhere. AWS, Microsoft, and I'm naming Big Tech, because those are the ones we often talk about. They've all talked about revenue declines. And we've been a little bit concerned, too, about cloud weakness as well.

And so that plays a big role on the chip sector, which is why many chip names have said that they're seeing weakness in the first half of this year. And even if we're talking all the time about chat GPT, it's not expected to offset that demand weakness that we're seeing. It's not going to bail them out. Exactly. So that's what you saw the roughly. up in the stocks in the near term. And now, you know, investors are starting to digest the information and realize, hey, okay, yes, it's going to come, but it's not going to come overnight. All right, Christina, thanks very much. Christina, parts of nevelas.

And let's turn from AI now to the big earnings report out after the bell today. Disney, let's bring in Julia Borson for a look at what to expect at a very high stakes moment here, Julia. A high stakes moment, indeed, Kelly, because of course Disney is reckoning with so many of the macroeconomic issues that we've seen impact other media companies. The most important thing in today's earnings is actually what CEO Bob Eiger says about his plan to reorganize the company and cut costs. Of course, this comes amid a proxy battle with activist Nelson Peltz. Now, some key topics in the spotlight, content spending and streaming costs, his plans around buying out the remaining stake of Hulu and how the company will prioritize ESPN

and spending on sports rights. Now, Disney's revenue is projected to grow about 7% bolstered by the parks, while earnings per share are expected to decline by 26%. Disney's streaming subscriber base, analysts expected to shrink slightly on price hikes in December. Analyst projecting Disney Plus subscribers will fall by $3 million to $161 million, with $1 million fewer total streaming subs of $234.5 million. So we're going to be watching and listening to see what update Iger gives on streaming targets. Kelly? It's a good reminder, Julia, that they are kind of choosing to do higher price at the expense of higher subscriber ads. We saw a great response to what Netflix said in its quarter. And I just wonder if investors will reward this idea. And Nelson

Peltz's involvement in particular, is he pushing them towards more of this higher price, even if it means less growth? Or would he like to see that equation flipped around a little bit? Well, I think the focus is increasingly on profitability, not growth at any cost and making sure that you have profitable subscribers. There are two pieces of that. One piece is pricing, but the other piece is how much you're spending on content. So that's a key area to watch there, whether he says they're going to be more due dishes about how much they're investing in content

and also whether they're going to start up against selling some of their content to other streamers. Disney has been very much focused on putting all of its own content on Disney Plus and on its own streamers. So that's an area to watch. And then, Kelly, I just have to point out when it comes to profitability,

the Parks Division did so well last quarter. It'll be really interesting to see whether it can maintain that kind of momentum him in the final quarter of the year. Yeah, we don't focus as much on it, but I'm sure it helps when it's not hurting anyway. Julia, thank you very much. You look forward to that after the bell, our Julia Borsden. Ty?

All right, and now to China, where they're reacting to the President's State of the Union addressed last evening. President Biden saying he is committed to work with China, but referencing that balloon incident, saying the U.S. will act to protect the country. Eunice, joins us now. Eunice, how is all this being received in China? Well, in a much more muted way than you would expect, Tai, the Chinese have been downplaying President Biden's critical remarks. The foreign ministry today called on the U.S. to be objective and rational, they say, while arguing that a responsible country would see this relationship as one of opportunity.

Now, there's been some speculation that the Chinese may be reluctant to be seen as personally attacking President Biden because of his relationship, with President Xi. Now, this more muted response comes amid the row over the balloon, which the U.S. alleges is for spying. Of course, the Chinese deny that, but that President Biden has described as a threat to U.S. sovereignty. And that description really hits a sore spot for the Chinese who have been striving to present themselves as the one that upholds international rules and is a champion for state sovereignty globally, as opposed to what the Chinese have hinted at is a U.S. that interferes and imposes Western values. Now, the Chinese have not, in response to President Biden's speech, referenced the balloon, but did say that they would defend firmly Chinese sovereignty. guys. Yunus, quick question, changing gears just a little bit. It's obviously early, early,

in the morning there in Beijing right now. But now that Chinese, the Lunar New Year is over, what are you seeing and sensing about the vitality, the reopening, the economic activity in Beijing and elsewhere in China? Well, based on my impressions, first impressions, and after just coming back recently to China, there is definitely more economic activity. compared to the zero COVID period. I have seen traffic jams, which I have not seen in the past couple of months so when I, before I left.

And also there are restaurants that are open late, stores that are staying open as well, so people are out there shopping. There is still a concern about catching COVID, though I'm not as bad from what I understand here in Beijing as compared to a couple of months ago when there was a massive surge. So that has subsided here.

Very difficult to see. say what's going on around the country where the pandemic is still going on and we don't have a whole lot of clear data. But at the same time, what's interesting, I think, is that there has been a lot of discussion about economic recovery, but there's also a lot of discussion about the years of loss income from zero COVID. So that's affecting spending, and I think it's being borne out in some of the numbers that we're seeing. You mentioned the Lunar New Year. The travel numbers looked pretty good. The government said that it was about 90% of pre-pendemic levels, but the consumption numbers haven't been as great. And you can even see that in smartphone sales, the lowest in a decade.

And in fact, not a lot of discussion about a recent discount by Apple for its iPhone Pro series, $100 off, but people aren't really talking about it that much. So I think that tells us something about the way the consumers are thinking here. And finally, Eunice, as we get more reports about Chinese spy balloons making their way around the world, What is the narrative there about this issue? Well, the narrative is that it's pretty much the U.S. overreacting and that the Chinese are in the right and that this is just a weather balloon. All of them are just weather balloons? That's what they're saying.

Yep. All right. Have to ask. Eunice, thanks so much. It's good to see you again. We appreciate your reporting today. Eunice, Yume. All right, coming up, stocks falling today with the NASDAQ leading the way lower.

Up next, we will discuss the earnings picture. and if the numbers have now become more important, those earnings numbers, even than the Fed. Tesla in the green today, up 60 percent so far this year. And now the Model Y is the new King of the Road in California. More on this milestone coming up on Power Lunch. Welcome back to Power Lunch, everybody. Stock's taking a leg lower today as fears pick up over the profit outlook, and the Fed policy remains in focus. Let's bring in Jack Ablin, Crescent Capital Founding Partner and CIO.

Jack, welcome. Good to have you with us. You know, Chair Powell has been talking about some incipient disinflation, but you don't think that inflation is going to bottom out until well into next year or maybe even, do I have you right? 2026? Yeah, I mean, if you look at history as a guide, look at Fed Fund peaks versus subsequent inflation troughs, you know, that range can be anywhere from 18 months to over 36 months.

And so to suggest that we're going to get to 2% inflation by the end of the year is not just wistful thinking. It's really going against history. So if the Fed, go ahead. No, please, finish your thought. I'm sorry. If the Fed is just hellbent on getting a 2% number by the end of the year, then they will likely keep rates higher for longer, not on. recognizing that it really does take time.

How close do you think the Fed is to that terminal Fed funds rate? Is it one more hike? Is it two more? Do you, what's your guess? Yeah. So, you know, I'm going with Fed Fund's futures. It's right now somewhere between one and two. I would hope it's only one.

I think that, you know, this is a Fed that, you know, wants to, you know, make sure that they quash inflation and they're willing to risk on substantial earnings decline in the process. And that's the weird thing. So while inflation takes 18 months to three years to play out, earnings between Fed Fund peaks and earnings drop is only nine months. And so we could see substantial earnings decline while we're waiting for inflation to come down. Which makes a lot of sense, Jack.

How do you, what's the playbook then? Are you involved with equities during this period? So we thankfully still have a fair amount of gold that we put in the portfolio beginning of last year. In fact, late in 2021, we have not redeployed it. I like the fact that the dollar is declining. I think that is an indication that perhaps most of the Fed tightening is behind us. So I think if we start to redeploy, we're going to look at non-dollar equities, particularly in the developed markets, as a decent entry point, but we're not there yet.

Let's underscore that, though. You're worried about a big profits decline in the next nine months or so. Glad that you're in gold and saying if you have to be inequities, go overseas, right? Yeah, overseas. And then because of this persistent inflation, we want to own U.S. companies, high quality, decent dividends that have a fair amount of pricing power, too. You mentioned three, Chevron, which is on a lot of people's list, two of them are in Energy Next Era and McCormick, the Spice Company.

But you say, you know, the profit picture argues for investing in overseas stocks. Isn't doesn't a lot of the same, won't a lot of the same profit headwinds affect stocks in Europe or stocks elsewhere in the world? Yeah, I think that's certainly a concern. And part of the reason why we're still reticent about jumping in overseas. But I will say relative to earnings, prices of international equities are trading at a substantial discount to those in the U.S., particularly in the large caps. And again, we're not looking for an earnings collapse.

Typically, earnings coupled with, or earnings coupled with recessions declined between 15 and 30 percent. We're looking for maybe a 10 percent pullback in equities. But that is a far cry from the 5 percent plus that analysts have penciled in so far this here. All right, Jack, thanks very much. Always great to see you, sir. Thank you, Tyler. Jack Ablin, Cressett. Speaking of energy, solar flares, then fades. End phase delivering a strong earnings and revenue beat announcing plans to add U.S. manufacturing capacity. But despite all that news, the stock is down almost 4%. We'll talk about why. Plus, over the past few years,

companies have made a lot of promises regarding diversity in hiring had they held up their end of the deal. Power Lunch will be right back. All right, welcome back to Power Lunch, everybody. Now for a check on the bond market. And for that, we go to Rick Santelli in Chicago. Rick. Hi, Tyler. Well, we had another one of those auctions that was off the charts in terms of strength. There's been a lot of them lately. As you look at a 24-hour chart of tens, you can clearly see how yields dropped around 1 o'clock Eastern. Also notice how we've been trading right around that 366 level. Many traders are using that as a pivot. I'll tell you what, last Friday's jobs report really changed much in the marketplace. Remember, new information. and markets are pretty good at assimilating it. As you look at this chart, which goes in front and behind, of course, what's been going on since non-farm payrolls was over $500,000. Boy, the directions change.

It's pretty simple. You could see it right on that chart. And Tuesdays right now is trading minus 80 on the spread. December 7th of last year, Pearl Harbor Day, it closed at minus 84, which was the lowest close going all the way back to 1981 at minus 84. It's currently trading minus 80, so it's getting very close. We need to pay attention to those inversions. And finally, August Fed Fund Futures.

You know, we talked about the fulcrum, which means if you look at all the contracts and the Fed Fund futures that are going down in price, once they start going up, that last one going down is the fulcrum. It was June for many months. Post the jobs report, it's now August. And August is on pace for a new,

low close today at 9484, which means it has the most fed tightening built in of that contract ever. Need to pay attention to these new information, markets assimilate, investors adjust. Kelly, back to you. Wow, yeah, everyone's seeing that low close. And what you're saying, Rick, because it means expectations for higher rates are at and high. Let's see how it's playing out across the rest of the market. Now, shares of N-phase are down 3% right now. But everything seemed so positive, Pippa.

A big turnaround from where we were last night, too, after those results. Pippa Stevens is here with more on what seemed like a strong quarter. Yeah, it was a very big turnaround because overnight the stock was up more than 10% at one point. Wow. And there's been a lot of interest today. The volume is nearly triple the 30-day average. So a lot of investor interest here. Now, looking at the quarter, they did report record revenue.

They also had improving margins. And they also gave upbeat Q1 guidance. However, they did say that they think the U.S. business will be a little bit soft in Q1 relative to Q4. And so that really is what appears to be weighing on the stock here. Now, I did speak to CEO, Badja Kthandaraman last night, and he told me that their European business is, and this is a direct quote, literally on fire. Wow. And so because of the growth, yeah.

Yeah, exactly. But because of the growth there, they were able to issue that upbeat guidance, despite a possible slowdown in the U.S., revenue more than doubled in Europe during 2022. But it is still only about 29% of the company's business is international. 71% is the U.S. So the U.S. is still the primary market here. But Europe is seen as a key driver. Are we right to think about these as kind of key components

in industrial scale solar? Or is this a lot of residential too? It's a lot of residential. They are expanding to commercial. But they have this idea of whole home electrification. So their key product is that microinverter, which is kind of the brains of a solar system. It converts the current from D.C. to AC.

And then once they have that product in your home, there's so many more capabilities. There's EV charging. There's, you know, management systems. You can see how your demand is tracked. There's batteries. There's just endless products. Is the war in Ukraine the reason Europe is so hot for these products? Exactly. A lot of people are switching over to solar. They have similar incentives in Europe to switch over. And it's, again, people want to make sure that they'll have power, that they can, you know, be protected. They want to get off the grid. Yeah. And they want to be protected from crazy prices. I mean, when we saw Nat Gas, the TTF futures over the summer, nobody wants to pay those bills. So Europe is definitely a key driver. All right, Pippa, thanks very much. Pippa Stevens. Now to Christina Ponce in Avelas for the CNBC News Update. Christina. Thank you, Tyler.

Here's what's happening at this hour. Russian diplomats are warning Britain not to send fighter jets to Ukraine. Russia's task news agency quotes diplomats, diplomats saying there would be military and political consequences for Europe in the entire world. Those remarks coming after Britain's prime minister said he is considering fighter planes as part of a new support for Ukraine. Paris officials are calling for Russia to be banned from next year's Olympics in their city. Paris's deputy mayor calls it a push for peace that they are taking to the International Olympic Committee, which will make its final decision on Russia's participation in the Paris Games shortly.

And another act of vandalism at a major zoo. The Houston Zoo says it found a four-inch hole cut into the mesh fence of the brown pelican habitat. Zookeepers say no animals were harmed and all have been accounted for. It's the latest incident at American zoos, including monkeys taken from the Dallas Zoo and another in Louisiana. Ty, there's a joke somewhere there. And I believe there was an owl that was loosed from the Bronx Zoo here in New York. We don't know who did that. We don't know.

The owl has so far eluded recapture. Oh. Christina, thank you. All right. Want to know details about our next segment? The who, Tesla, the where, California, and the Y, the Model Y. After the break, we'll discuss the EV's growing popularity in the Golden State. Power lunch will be right back.

Welcome back. In the country's largest auto market, one brand is reigning supreme. The Tesla Model Y becoming the best-selling vehicle in California. Phila Bo is here with the headlines and the implications, Phil. You know, Kelly, I think this is a stat that when I mention it to people, more than anything, what I hear from folks is, really? The entire state, this is the most popular vehicle. and then they step back and they say, well, I realize that California is more of an early adoption state when it comes to EVs. So I shouldn't be surprised. And look, the Model Y hits in the heart of the most popular segment,

which is that small SUV crossover utility vehicle segment, very popular across the board, not just if you want to go electric, but if you were going to internal combustion engine vehicles. So the Model Y is now the number one selling vehicle in California. By the way, by a wide margin, I think they sold 87,000 last year. Next closest, the Model 3 at 78,000. Then you've got to go all the way down to the RAV4, which is at like 59,000. So they're way, way ahead of everybody in the state. I have heard also that that Model Y is extremely top selling in Europe. Do you know any details there?

Mm-hmm, yeah. Look, the Model Y is the vehicle that drives sales more than anything else for Tesla. whether it's here in the U.S., in particular in California or in Europe, that is the segment where people want a vehicle right now in that crossover small SUV segment. It's not large SUVs. It's certainly not within sedans. And look at your choices, Tyler, in that segment. What other choices do you have? You can mention the Mustang Mach E, which some people look at and they go, really, is that a crossover? Yes, it technically is a crossover. But other than that, there are not a whole lot of choices that plays into the popularity of the why. Phil, what are the prospects for them achieving the status in other states like Texas, another big market, for instance? Very good. Very good. It's just it's a matter of when does the competition come in for that segment of vehicle.

Now, in Texas or in Florida or in other states, you've got a number of other factors that play in. You don't have the type of EV adoption that you do in California. In California, one out of every 10 vehicles sold is a Tesla. People in California, they've gravitated to EVs long before the people in Texas started to or in Florida. Those are the two other top five states when it comes to EV adoption. So will the Y ultimately be number one selling in Texas or Florida? Long ways to go. I'm not sure that that happens.

That's simply because there's just not the great adoption of EVs in those states as there is out in California. My eye check around the New York area is that if Tesla is not the top brand, and I'm talking about all models, not just the Y. If it's not the top brand, it's number two or three. You just see an awful lot of them. Where do they stand with respect to a pickup truck, Tesla? You mean in terms of the model Y relative to sales or Tesla overall? Is Tesla talking about do they have a pickup coming out? The cyber truck?

The cyber truck. Well, they've got the cyber truck that's coming out. later this year in terms of production, goes into production later this year. Right. Do we see them in large numbers until mid, late 24? That's probably when we do. And by the way, that should help them in California. Why?

The cyber truck is not a truck that you're going to sell to a guy who owns a ranch in the middle of Kansas. You are, however, going to sell it to somebody in Southern California looking for a lifestyle vehicle, looking to make a statement. And by the way, Southern California, largest pickup truck market in the country. Larger than Dallas, larger than Houston. for the farmer. Why wouldn't it work for the farmer in Kansas or Texas? Because I was thinking that a pickup truck would be the kind of vehicle segment that would work. Have you seen the cyber truck? I have, but I don't remember. Well, the cyber trucks, yeah, it's not a traditional

looking pickup truck. That's the main reason. That's the main reason. And also the other thing to keep in mind, rural America, Tyler, extremely, extremely brand loyal when it comes to pickup trucks. My daddy had a Ford. I'll drive a Ford. He had a Chevy. I'll drive a Chevy. Yeah, they stick with their brands and you've got the lightning and you've got other electric pickups on the wave in those brains. And obviously Rivian has their series, which has been quite popular. But does the Tesla, does Cybersruck have any towing capacity to speak of? Because the whole problem with obviously electrifying cars or trucks like that is that it takes incredible battery capacity to be able to move things in any sustained way, you know, big loads like that that would make it more functional. It will have towing capacity.

Have they released the specs yet? not to a point where you could sit there and say, well, I can definitely compare it to model X, Y, Z in terms of pickup trucks. But yes, it will have the towing capacity. I will be honest. I kind of, I kind of want to drive this. I'm going to show you. A truck? The cyber truck.

This is the craziest looking. If it's really out later this year, Phil, I can't wait to see them on the streets. But their ability to get it to market remains. Hold your breath, Kelly. How long have we been hearing about the cyber truck? Supposed to go into production later this year. If it goes into production, you'll really start to see. numbers where you can say, oh, there's a cyber truck, mid to late 24.

It's kind of why I got lost track of it because it's been talked about for so long. I couldn't remember whether it's out. I've not seen one, but it's not. Obviously, I haven't seen one because it hadn't been produced. Anyhow, Phil, thanks. Appreciate it. Milestone in California. All right, paying the way, credit card and payment stocks surging this year. This is following a rough 2022, especially for buy now, pay later names.

But with consumer credit worries growing, will the gains stop? We're back in two. at those year-to-date games. When I think about the significance of Black History Month for all Americans, and we think about the role that blacks have played in making the United States the most powerful, most significant, most productive country in the world, we have to understand the role that blacks have played from the agricultural revolution, the industrial revolution, the manufacturing revolution, the armed forces, and on.

And I think it's critical that all Americans understand what we have meant to this country. I think it's particularly critical that young blacks understand where they come from, where their people come from, the sacrifices that were made. That was Loop Capital Chairman and CEO James Reynolds. During February, we are celebrating Black Heritage through the stories of some of our CNBC teammates, contributors and leaders in business. And given that focus and reflection, we want to be. want to check in to see whether corporate America is living up to its promises of more equity and inclusion in hiring. Our Frank Holland has more. Frank. Hey there, Tyler. We're here in Atlanta where more than a quarter of tech talent is black. That equates to just about the same number

as in San Francisco, New York, and Austin combined. Last year, many companies announced plans for Atlanta offices and they committed to hiring black and diverse employees. We've confirmed with Walmart, Cisco, T-Mobile, Moderna, Fandall, and Airbnb. They are moving forward with those plans. And so was Visa. We're actually right now here in the new Atlanta office where they hope to have 1,000 employees with a focus on hiring black workers. And I'm joined by Visa Executive Chair, Al, thank you so much for being here. Frank, pleasure to be with you. All right, we've all seen the headlines over recent months, so much belt tightening in tech, so many layoffs, tens of thousands of people laid off. However, Visa is still hiring. How important is hiring

diverse people and also the opening of this office for your vision of the company. Well, Frank, we operate in 240 countries and territories around the world, and I want our workforce to look like the world's population, and it's very important to us. And when we looked at our footprint in the United States and our desire to increase the number of blacks and Latinx people who worked for us, frankly, we look at California versus Georgia. There's five times higher black population than Georgia.

than it is in California. So this looked like a great destination. And then when we started talking to Fulton County and the state and the city of Atlanta, we realized that it was a fantastic place to come. And we're having great early success. And we will be continuing to hire and we're looking for good talent to join our team in Atlanta and around the world. Yeah, we spoke to your chief diversity officer yesterday. She mentioned that the city has a pipeline of talent at the colleges and universities,

including HBCUs, in general. it comes to big businesses, that's been an untapped pipeline. How do you see yourself and the company, of course, tapping into that resource? Well, I think we're already forming relationships with many of the colleges and universities here in the greater Atlanta area. And we want to do things to help them. We want to become good partners. We want to go onto their campuses and help educate their students, but we also ultimately want their students to come and work for us. So there's this incredible number of schools here, and we plan on being partners with as many of them as we possibly can. All right. I have to also ask you about a lot of these headlines when it comes

to artificial intelligence or AI. A lot of talk about the use of AI when it comes to search and for cloud. I know that Visa uses AI when it comes to fraud detection and cybersecurity last year. You prevented about $27 billion in fraud with AI. Are there other functions with payments in AI that you plan to explore? And will Visa join this AI arms race through M&A or some other way? Well, believe it or not, we've been involved in AI for 30 years. Our first AI application was in 1993, so it's something that we're quite familiar with. And obviously, the trust in the ecosystem of payments is so important. So our focus is to try to reduce the risk throughout the payments ecosystem,

both at Visa and in the greater industry of the movement of funds for commerce or for any other reason. And AI plays a very, very important role in that, and has been a proven commodity, a proven capability to reduce it. to reduce the amount of risk and fraud in the system. Critical, though, is being responsible in using AI. And I chair the Technology Committee at the Business Roundtable, and this is something where we developed a set of principles around the responsible use of AI.

And two things I learned in that process. One is there are an incredible amount of industries, cross-section of industries that are using AI in amazing ways that are helping advance the world. And corporations are very serious about the fact that we need to be very, very, very, very, responsible when we're using AI. And that's certainly what we're tempted to do at Visa every single day. Al, if I could jump in. It's Kelly here back in the studio. And thanks again for joining us today.

I have a question about sort of Visa as a tell on the economy right now. If you go back and look at 2008, as late as April, executives at the time were saying they didn't see a slowdown, even though we'd already been in recession. Can you talk to us about what you're seeing now? Obviously, we saw the latest quarter very strong in terms of payment trends. Is there anything now similarities or differences that tell you about whether the economy is slowing down and possibly heading towards recession? Well, thank you, Kelly. First thing I'd say is Visa is an incredibly different company in 2023 than we were in 2008.

We have many, many more debit cards, which tend to get used more in tougher economic situations. We're much more focused on everyday spending, which tends to continue to hold up quite well. in many, many economic cycles. We, in fact, are seeing travel come back after this. We've never had a situation where a three-year pandemic tied people down, and I think that people are still very, very anxious to get out and see relatives and check things off their bucket list that they weren't able to do over the last three years. So I said last week that the consumer looks boringly consistent,

and I believe that continues to be the case. we're watching very, very closely, Kelly, and we don't see anything in our data in the United States or in any other big market around the world indicating that the consumer is softening. But it's something that will continue to watch very carefully. We know that there is some movement away from brands to generics. We know that in some cases people are spending more on the day-to-day needs and therefore spending less on discretionary items. But we've had things like fuel bounce back now as the prices come back down.

So it's far less burden on consumers to buy gasoline than it was, say, four or five months ago. So so far, we continue to feel quite good about how well the consumer around the world is holding up, Kelly. So we'll let you go. One quick follow-up. You didn't answer this one part. Is Visa exploring M&A to expand your AI capabilities? M&A is very much on our radar screen. We're looking at companies all the time. we're never going to comment on very specific things that we will look at, but growth through acquiring both people and resources and technology

is something that we've proven to do over the course of the last five years in a fairly big way. And it's something that certainly is on our radar screen as we continue to look at capabilities that will make our clients better and smarter and will help protect consumers. Visa Executive Chairman Al Kelly, thank you so much for joining us. Tyler and Kelly, back over to you. All right, Frank, thank you. Thanks for bringing that to us. We really appreciated our own Frank Holland. Is Chipotle losing pricing power? After months of bucking inflationary slowdowns,

the company seeing customers wind back potentially. We'll trade that and other key names in today's three-stock lunch next. Welcome back. Time for today's three-stock lunch. We've got some big earnings movers, including Chipotle, moving lower on a rare earnings miss. The CFOs saying they didn't see a pop in consumer spending like they normally do over the holiday period. We've also got Uber going the other way up more than five. percent today after an earnings beat and a jump in revenue and Fortinet. A nice story there as well. The software company leading the S&P by about 10 percent bounce after a beat on and raise on strong customer demand for cybersecurity products. Let's bring in Scott Nation's president of nation's indexes to trade these names. Welcome Scott. And we got to start with Chipotle. What's the story

there? What do you do with the stock? The worst is first. It's a sell. They missed on every important metric. Revenue EPS, same store sales. And they are in the bolz. when it comes to both wage and price inflation. The company says they want to add 15,000 employees by June, and all that's going to do is increase labor costs for them across the board. Forward PE of 39 means that they have to grow way too much to be worthy of that PE. It's one and a half times the value or one and a half times the valuation of both McDonald's and Wendy's. It's a sell.

Scott says pass on the guac. How about Uber? Yeah, Uber is a buy, which is a buy, which is a, a switch from me. They've now been able to raise prices and get the profitability. They beat on both earnings and on revenue. Trips are up 19% since this time a year ago. It's not cheap by any measure. The forward PE is in triple digits. And the chart's not particularly impressive, but it's a really fascinating, intriguing company in a growing space. All right. So far you're going with the market here, Scott. Surprise us on this last one. What would you do with

important in that? No, no, I'm not going to go against the market on this one either. As you pointed out, biggest gainer in the S&P today, up over 10% beat on both EPS and on revenues and guided higher. Market loves it. Cybersecurity is a great business to be in. It's not cheap as well, 43 times forward PE, but the growth has been fantastic. It's deserving of that forward PE. Revenue growth over the past five years has been 23% a year. Even Dock growth over that last five-year period, 40% a year. So you're paying a growth multiple, but you're getting the growth. All right. Scott Nations, thank you very much for joining us today, changing his mind on Uber. We appreciate it. All righty, let the traders hit the floor, at least the enter button.

Retail trading getting an all-time high. That's quite a different take than we heard a couple of days ago from the Wall Street Journal. We'll take a look under the microscope next. All right. New numbers on some retail trading activity. Dom Chu, putting that one under the microscope. Mr. Chu. All right, so Tyler Kelly, the retail trader and investor has never been more active, and that's the conclusion that the global quant and derivative strategy team at J.P. Morgan has reached, and here's exactly what they're looking at. In a note to clients, they point out that retail participation hit an all-time high in January of this year,

as measured by the amount of retail trade order flow as a percentage of total market trading volumes. Now, of course, this is all happening amid a bearer. backdrop where stocks had their worst year since the great financial crisis in 2008, led to the downside by many of the most well-known mega-cap stock names in tech, media, and telecom. Perhaps not coincidentally, though, some of those beaten-up names are the ones that are the best performers in 2023. So what does that all mean? Retail traders and investors are now putting their shopping list to work to buy some of these stocks on sale. That could be it. Or there could also be this FOMO trade, this fear of missing out, that may have some market participants guys worried

with stock market volatility, kind of languishing it near lows for the year. So we've been saying, is this about trading as a number of shares or versus dollars also about? You're showing a percentage there. Correct. Could it just be the institutions are, I mean, are other players pulling back because they don't want to be in the market leaving retail? If you look at the numbers, it's still roughly 23% of total volume. So it's not like retail is overwhelming the market. Institutions still have a lot of it there. Right. What's more curious, though, is that that Retail buying has been tilted more towards names like Amazon and Apple. That's where the retail order imbalances are.

Curiously, though, amid the rise in the stock so far this year to date, Tesla has been a net sale among retail investors. So something to watch out for. Even as they're buying the cars, especially in California. Thank you, Dom. We always appreciate it. And the stock is doing well. You can almost afford a car on the price of the stock. If you were in.

Thanks for watching, Power Lunch. Closing bells starts right now. Thank you.