Power Lunch - Tesla’s Troubles, Morningstar Winner 5/8/24

Episode Date: May 8, 2024

Regulators are reportedly investigating Tesla’s self-driving claims, including whether it committed securities fraud or wire fraud during that criminal investigation. We’ll bring you the latest details.Plus, Morningstar’s Outstanding Portfolio Manager of the Year, JPMorgan’s Clare Hart, joins us to discuss her 20-year run as the head of the one of Wall Street’s most under-appreciated funds. 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. Oh my God, it feels so good. Alongside Kelly Evans, who it just feels right. Such a joy. It is such a good place to be right next to you. I'm Dominic Chu. Coming up on the show, we've got Tesla's troubles, a reported investigation into its self-driving claims and whether it committed securities and or wire fraud during that criminal investigation. That's coming up. Looking forward to that. Plus Morning Stars Outstanding Portfolio Manager of the Year. She runs a fund, focus. on established and often underappreciated companies which pay a reliable dividend. Does she have FOMO over the hot tech names? We'll find out. Let's check on the markets first.

As Dom just mentioned, we're moving towards session highs. The Dow's up 122. Look at the others. Still in the red, the S&P down two points. The NASDAQ down about a quarter percent right now. And a lot of stocks are on the move following earnings. Teva is jumping on an earnings beat and success for its schizophrenia drug in a free phase three trial. Reddit is higher after its first report as a public company. Kramer said it was the report.

he thought he'd get a year from now. He got it already. And Trip Advisor getting crushed on that lowered guidance and the rejection of a takeout offer shares are down 29%. We'll trade more earnings movers in coming and three stock lunch coming up. All right, but first, let's start with Tesla. As that stock is falling, as you can see, they're down by about 2% off of its worst levels of the day so far. I'm looking at Phil Leboe right now. It's so nice to have him in studio right here. He's doing well. He's getting his microphone sorted out. It's going to be fine. It's going to be fine. We can hear you loud and clear. Well, this is because you guys have like a three-ring circus out here.

Stand over here, move in at this time. It's a lot of movement. We like to see movement around it. You want me to go first over what's happening with Tesla? Let's talk about Phil and what's happening here with Tesla. Okay, so let's start first off with the news this morning that pushed the stock lower. And it all revolves around a couple of probes that have been reported by Reuters. By the way, we have reached out to the SEC and the DOJ to see if we can get some confirmation on this. We have not heard back. Here's what Reuters is reporting that both the SEC and the DOJ are looking into full self-driving and autopilot systems.

The question is, did Elon Musk misrepresent the capabilities of those systems? Possible securities fraud, possible wire fraud charges, depending on what they come up with. Keep in mind a couple of things. First of all, Tesla autopilot is different from full self-driving. This is basically advanced driver assist. and it is not fully autonomous. Neither system is. And Tesla has told drivers stay alert.

You have to stay aware. Though some people sit there and say, well, when you call it autopilot, you're pretty much implying that you don't have to pay attention. Then there's the question of what happens with full self-driving. And full self-driving basically comes down to this. You've got a camera-based system using AI and Tesla's neural net. Put that all together,

and they believe that they're making huge progress in terms of the ability of Tesla vehicles, to maneuver themselves through traffic, even complicated situations. Having said that, the price has been coming down. It's now $8,000 here in the United States or $99 a month, depending on which system you go for. And at the last report regarding how many people had bought full self-driving over the life of Tesla, it's about $400,000.

Unclear how many of those are still subscribers. If that is what the current number, they have never broken that out, nor have they broken out the revenue that they get from full self-driving. Put all this together and it raises the question, what can we expect from Robotaxie when Tesla makes an announcement on August 8th, which is what Elon Musk has said. That's the announcement. But we don't know what that announcement means. Is it going to be showing us a vehicle with no steering wheel?

Is it going to be announcing plans for future rollout of a robo taxi? A lot of questions at this point in terms of what that means. By the way, just a few minutes ago, Elon tweeted out. or X-out that he plans to roll out or Tesla plans to roll out the next version of FSD for those who are on the beta system. 12.4 is the next version. And by the way, I forgot to mention, Adam Jonas is one of those who has said, look, I've tried this.

And there are a lot of advantages to this system. It greatly reduced my overall fatigue level. This is from a note just a couple of weeks ago. But there's still a long ways to go to remove the steering wheel, in my opinion. So that's for what it's worth. That's one analyst's view of full self-draud. And I appreciate the way that this comes down, because we've all heard some of the, this has been brewing for a couple of years, said that prosecutors will need to demonstrate the Tesla's claims crossed a line from legal salesmanship to material and knowingly false statements that unlawfully harmed consumers or investors. And so that, you know, Musk has been in the middle of these kinds of moments before. I have listened to almost every one of their conference calls when they do their quarterly reports. And when he has asked him a full, self-driving, he will clarify that you do need to pay attention as a driver. And it says in the Tesla language that you do need to pay attention. Having said that, I've heard from people today saying, why are you defending Elon Musk? Not defending him. I'm simply pointing out. He has made that clear.

His statements are out there. But there are also people who will sit there and say, yeah, but he said you could drive without any hands on the steering wheel at various times in the past and gave the impression that it's 100% autonomous. Right. I mean, this is a sharp contract. I think to the company remind me the name where we saw them putting out a video, claiming that the truck was driving itself. And it was rolling down to hell. So that would be a great example of materially false statement, misleading people intentionally. Which is why there was a conviction there.

Exactly. And how many years? Several years, he ended up getting in prison for that. So will Tesla's claims marketing rise to the same level? Stay there while Tesla's full self-driving is facing scrutiny in the U.S. They are apparently moving forward with a plan to launch those robotaxies. Phil was talking about in China. Eunice Yuniune, joining us with that side of the story.

Hi, Eunice. Hey, Kelly. It's great to hear your voice. The state-backed media to China Daily was citing sources today saying that Chinese officials had told Elon Musk during his recent trip here that, quote, China welcomes Tesla to do some robotaxy tests in the country and hopes it will, quote, set a good example. Now, Tesla wouldn't comment on this report, but if this does happen, then the move could potentially be very beneficial for Tesla because it'd be able to experiment with its

robo-taxie in a more conducive regulatory environment compared to the United States. At the same time, the state paper had flagged that the full rollout and a broader rollout of the FSD software in Tesla's cars was not currently on the cards saying that a Tesla still had to get approval for a data collection as well as data transfers and it also played down the announcement of a deal that it that between Tesla and Baidu on on mapping it says that it was just about accuracy for maps but not necessarily related to FSD so the messaging here from Beijing is that on the one hand they're quite happy to have Tesla here because it currently fits in to to the national agenda of becoming a tech dominant player worldwide.

At the same time, looking a bit cautious about Tesla. You know, it's an international player. And at the same time, we have seen China approve similar driver assistance technology for its Chinese rivals. Anything like this currently exists in China? Because to their credit, a lot of the Chinese EV makers have, you know, sort of leading-edge technology right now. now, but when it comes to the idea of robotaxies, is there anything like that currently in development or in trial? Yeah, definitely.

There are zones that have been designated in different cities where various Chinese companies from the technology space as well as in the car industry have been rolling out and experimenting with robotaxies. One that really stands out is Baidu. Baidu has been actually has a robo taxi fa. fleet of 300 in the city of Wuhan, where you could literally have a 24-7 service where people will call the taxis and have them pick them up and just drive them around the city. I mean, it's still limited because it's not, it's in designated areas, but it's something

that the government is pushing. All right, Eunice, this is interesting only because you've both mentioned robotaxies. Now, and Phil, I want to bring this and give you the last word here. over the last several years, arguably five to ten, China has made no secret of the fact that they want to dominate in a couple of key parts of the world economy. That's electric vehicles, and that's artificial intelligence slash supercomputing. Do they have the environment in China with less restrictions,

I hate to say that about a communist country, but less restrictions there to allow this kind of development more so than we will have here, because of the types of legal wrangling that we may have to go through for things like full self-driving, robotaxies, and everything else. Yes. Yes.

In my opinion, yes. I think that if the Chinese government wants to make sure that robotaxy can truly work, they will, in my opinion, and I could be wrong, Unis might have a better sense of this being there. They will say, whether it's a restricted zone or a city, a town, whatever it might be,

you're going to go to work there. And look, there are going to be some messy outcomes when robotaxies start to develop. That's just that that's the reality. You're not going to eliminate deaths and accidents completely. And so the question becomes, who can withstand that messy, messy transition? If the Chinese government wants to make it happen, they will make it happen. And the question is, could they advance it quicker than here in the United States? Probably. Because here in the United States, all it's going to take, look what happened with one accident with Cruz in San Francisco. And what did the regulators do?

shut it down. Now, Cruz will ultimately come back in some fashion, but it's going to be a much more cautious approach. And I think here in America, we would be much more reluctant to allow a computer accident, let's say it runs over somebody, than you would in other areas. And I think the Chinese really want this to happen. I think that's right. It's a much bigger conversation. One will have to have way more often, I think. Phil LeBow, Eunice Yun, Yun, thank you both very much for the conversation. All right, shares of Uber are continuing to sync throughout the course the day, now down about 9% or so after the ride-sharing company reported an unexpected net loss for the quarter. Here, Trabosa has more in today's tech check. And D, we've been talking about

the Tesla robotaxies with Phil and Eunice. Could that be a threat to Uber and or lift? Well, investors, they're divided on how far off or not far off this threat is, but certainly anxiety has been rising. It was a question, the question of robotaxis on both earnings calls. In fact, It was the first question on the Uber call. And the anxiety really began in earnest when shares of Lyft and Uber fell after Tesla's earnings call just a few weeks ago. Elon Musk said on that call of his Robotaxi ambitions, Tesla will be operating the fleet so you can think of Tesla, like some combination of Airbnb and Uber, meaning Tesla intends to operate their own fleet like a ride-hailing network, potentially displacing the existing ones. And the Airbnb side, he means let users lend out their vehicles for a fee like they might lend out a room or their home on Airbnb.

Now, both Uber and Lyft CEOs, as I mentioned, they were asked about it over the last 24 hours, both essentially shrugged it off, though, saying that they see robotaxies not as a threat, but as an opportunity. And they believe adamantly that they will be key partners in whatever shape or form it takes. Krashti told Squawk this morning that he never underestimate Musk, but that Uber shouldn't be underestimated either. And guys, the Tesla Robotaxi, still an idea, it's still far off. You have Waymo operating in San Francisco where I am.

You see them on the road all the time, and they're already partnering with Uber. So that's something that Khazer Shahi would point to as well. Deirdre, I want to bring it back to kind of just the here and now and talk a little bit about the bullishness that both Uber and Lyft expressed about the U.S. consumer. I mean, Dara Khazer Shahi basically said we're seeing no evidence of a slowdown, and you would absolutely think that they would be one of the first to feel it if we were. And then Lyft CEO basically said not only we're not seeing a slowdown, and we might be seeing the opposite.

That's right. And, you know, the Lyft CEO, he said that they even saw an event bump over the last few months. They said that Taylor Swift concerts continued to push growth up. They also said they saw a huge eclipse bump that pushed up schedule rides by some 20% year over year, said more premium rides. And you called it, like Dara Khosra Shah. He also said that they're not seeing any evidence of a slowdown. That's probably a good sign if you're not seeing it at the ride hailing level.

Tonight we're going to get another important indication from some gig economy companies with Airbnb and Instacart as well, slightly different categories, but help us kind of paint that picture. Yeah, I thought it was also interesting how he talked about the Instacart partnership, kind of, you know, kind of, I don't want to say elbow DoorDash out, but he said DoorDash and Instacard have a lot of overlap. And isn't it beneficial for Uber to come into the middle of that? Anyway, Deirdre, thank you for now. We appreciate it.

Dear Chibosa. Coming up on Power Lunch, Morning Star, revealing its outstanding portfolio manager award. This year, it's the JP Morgan Equity Income Fund, which focuses on yield-rich value-leaning sectors. We will speak to the winner next. All right, welcome back to Power Lunch. Morningstar just announced its 2024 Outstanding Portfolio Manager Award winner. And this year's Victor is J.P. Morgan's Claire Hart. Now, Claire has been the lead PM on the JPMorgan Equity Income Fund since 2004.

It's up nearly 10% over the past year and has continuously outperformed the large value category and the Russell 1000 Index value index overall. We now have Claire joining us for an exclusive interview. And Claire, thank you very much and congratulations. First of all, not just on the performance, but also on your tenure at the fund as well. It's not often you see some kind of manager tenures of that size. Can you take us through just in the beginning from a big picture perspective? What's been the key to your success over that big run over two decades?

Well, thanks so much for having me. You know, I think what's really important is we actually keep it pretty simple. So what we're looking for are quality companies at a reasonable valuation that pay a dividend yield, and for us that's a minimum of two percent dividend yield at time of inception for names to go into the fund. And we don't deviate from that. And I think what's important is, you know, we have a great team that works with me, co-pMs and dedicated analysts. And everyone really believes in the strategy and everyone is confident and they're talented

investors. And we go to market every day looking for names that sort of, you know, that fit that category. And we try and make as much money as possible. And we don't change that. You know, obviously in the past, you know, timeframes or growth might be in favor. Certain names might be in favor. But we really stick to doing what we tell people we're going to do. And I think that makes a difference over time.

Claire, we always put these caveats on there, just like people in the industry do, that past performance doesn't guarantee future results. Future results. We know that you've had a lot of success in the past. But might you be able to shed some light on what you and your team are doing in the future to position this particular portfolio? And for listeners who are listening on Sirius XM,

what you didn't see on the screen is that Claire is actually going to step down from this role later on this year. so she's going to cap this career off. So, Claire, as you hand the reins over, where's the next big value dividend trade for the next 12 to 24 months? Well, I think what's really important is, again, the team that's in place,

so Andy Brand and Dave, someone two co-pms that are sort of, I'm handing the baton off to, everyone believes in this approach. So you're not going to see a flip or a change or a different approach. And I think in terms of what we're seeing from here, go forward, is a couple of areas.

So for us, you know, the consumer. So the consumer, obviously, you know, people are talking about sort of inflation fatigue. The consumers absorb so much cost increases. So we're kind of focused on areas of the market where we see some value, companies creating value for consumers. That might be a sort of a TJ, that could be, I would say, a McDonald's, that would be a Walmart. I would say, you know, consumer names that innovate so that consumers will continue to stay interested in their companies and their brands. It's like a proctor. That's like a Philip Morris. I would say within insurance, for example, we like the brokers.

You know, again, they've got a capital-light business model. So we definitely like the brokers here. I would say, you know, beyond that, in health care, I would say, you know, managed care. And I know people might say, you know, if you look at some of the stocks the way it's been pretty treacherous year to date, you know, the dislocation with Medicare Advantage has been, you know, in terms of utilization and the pricing, that sort of thing, has been difficult. But what it means is there's opportunity there. So that's an area that we're looking at as well. And then, you know, last but not least, I would say the financials, broadly speaking. And there's so many different ways you can slice and dice that. But I would say, you know, the banks, for example, with obviously year over year, have had great performance because of the near-death experience that some banks had back in

March of last year. But at this point, you know, they're super well capitalized. We're seeing things like net interest income and fees, sort of, we see a bottoming process in place. Expenses really well controlled. They're capitalized in terms of Basel 3 endgame, but that could even be revised. a little bit potentially in the bank's favor. So lots of different sort of categories and subcategories that we're interested in. Claire, I'm curious who you think your investors might be, because this is

still a steady, eddy kind of approach. Maybe people are interested in the income, although we know reinvesting those dividends is kind of how you get the most bang for your buck typically. And I ask because this is sort of slightly unfair way, even as well as you've done outperforming by about a point over the last couple of decades annually, you know, do people still go, well, that's great, but I'd still rather own Nvidia, for example, or I'd still rather that. only S&P 500, or I don't want to not be in there with the growth stocks. I'm curious. So I would say, you know, when I think about our, you know, we, again, we have this sort of straightforward approach, quality company, risk valuation, pays a dividend in yield, and we stick

to that. So I would say, you know, we're pretty upfront about what we're going to do for people in the market. And I do firmly believe there's lots of different ways to make money in the market. So if someone looks at this approach and says, oh, that's fascinating, but I really want this chip company or a growth approach, there's lots of people, James Morgan, and lots of people in the market that are going to do that for you. But what's important to us is when we talk to our management teams and we spent a lot of time talking to them, they do what they say they're going to do because that's the barometer by which we're going to judge them, and that's the barometer by which we can trust them with capital. So we hold ourselves to the same standard. And so you're

right. If people are saying, I want growth instead, we're pretty clear about parts of the market we can shop for you, where we think we're going to make you the most money possible following our mandate. But people might decide they're going to split the, you know, split their investment, buy some of this, by some of that. And that, you know, I want investors to be happy. Do you, yeah, I know we have to go, but do you, do most of your investors actually kind of use that dividend income or do they reinvested, do you know? I do know. I would say, you know, there's that spot where you can take the box to reinvest and the large percent is reinvested. Interesting. Yeah. It's just so curious to me that people love dividends, but then reinvest them

anyway. And I'm like, what's the point, you know, they just own the stock without, you know, But, you know, but dividends, I'm a big fan of dividends. For me, you know, it's about the pay me now and pay me later. It's not even about the money that you get up front as the dividend. Because, again, some people, especially in the mutual money, they take that money. And to your point, as an investor, I assume they're taking that money to go grocery shopping. They need that money, right? So we're careful investors in that way.

But it's about the pay me later, too, to force this capital disciplines on company. If they're going to pay out, you know, dividend, we're trusting them to reinvest the money that we leave behind. So I could see why people want to continue to, you know, invest, reinvest the dividend. That's fast. No, I love that. It really forces companies. I think for a lot of investors. You invest early for some and then take the payouts later in life when you want the passive. That too, that too. Claire, congratulations on quite a career, obviously. Glad to see this be the capstone. And thanks for joining us today. Kind of you to have me. Thank you very much.

Of course, Claire Hart, JPMorgan. As we head to break, let's get a quick power check. On the positive side today is Arista Networks. They're higher after a strong earnings beat. shares are up above in the range of 6%. On the negative side is electronic arts. They're lower after disappointing results. A couple of earning splits today. We'll have more on that name further ahead in three-stock lunch. That's your power check.

We'll be right back. Welcome back to Power Lunch. Let's get a check on those bond yields right now. And for that, we go over to Chicago and Rick Santelli. Rick, over to you. Well, thank you, Dom. Of course, we had the second leg of our May refunding in terms of the long coupon maturities.

Today's tenure was a mediocre auction. If you look at the intraday chart, starting early this morning, you can see that we have moved a bit higher in yield since the auction buttoned up at 1 o'clock Eastern, only by a basis point or so. But it is important because as you look at a one-month chart, yesterday's settlement, yesterday's close was the lowest yield close going back a month to the 9th of April. So we are coming up a bit. 4.5% isn't a huge technical level, but it has technical levels.

significance because it's around psychological level. Last night, about 3.30 a.m. Rick's Bank, the Swedish Central Bank, lowered rates from 4% to 3 and 3 quarters. This is important. That's the first time they've lowered rates in eight years and they now have had four consecutive quarters of contraction. So technically they're definitely in a recession. Back in the old days, we call four quarters of contraction, depression. And their inflation rate, their most recent March CPI, was 4.1% year over year. And even though that's a two-year low, you could do the math. There's definitely his propensity to lower rates by central banks. The one difference between theirs and ours is their contractionary mode with regard to their recession. Kelly, back to you. Rick,

thank you very much, Rick Santelli. Solar stocks are falling after weak results from a company, which could be a kind of leading indicator of demand. Pippa Stevens here with that story. We are talking about Shoal Technologies down 15 percent last I checked. They had a really disappointing quarter. They missed on revenue, and they also cut their outlook for the full gear. And of course, the headwinds for solar are well known here. And so the expectations heading into this quarter were already very low. And so the fact that they missed is really does not bode well here. They chalked it up to project delays and then also some cancellations. They said that there's a shortage of parts, key parts, like transformers and switch gears. They did say that international

and commercials holding up better. But it does beg the question of, can these projects be built on the timelines that have been given? There's so much momentum behind solar, particularly on the utility scale, but then there's the nitty-gritty problems and the realities of if you have a part shortage.

But you think a shortage would be a good thing in the long run. You'd rather, look at EVs, you rather have too little than too much. Yeah, but if you can't, if you don't have that visibility and if you can't get those parts, then everything gets delayed behind it.

And so then if your current project is delayed, then your next second project will also be delayed. And so that's why we're seeing stocks like NextTracker and Array Technologies also sell off today. We hear from a raid tomorrow and the next tracker next week. And they do have visibility into that utility scale. So we'll be listening for commentary on that. All right, big moves for sure.

All right, Pippa Stevens, thank you very much for the update there. Let's now get over to Bertha Coombs for a CNBC News update. Good afternoon, Bertha. Good afternoon, Dom. The U.S. is reviewing other weapons packages for Israel after pausing a large shipment of bombs. The State Department said this afternoon that the White House remains concerned over Israel, possible ground invasion of Rafa, where tens of thousands of people have fled seeking shelter. Pause comms as the State Department gets ready to deliver a report to Congress on whether Israel has used U.S. ship weapons in line with international humanitarian law.

The former chief of Spanish soccer is headed to trial over his unwelcome kiss of a national team player at the Women's World Cup last year. Prosecutors of charge, Luis Riedalis with sexual assault and coercion and are seeking a two-and-a-half-year prison sentence against him. He has insisted that the kiss was consensual. General Motors is ending production of the gas-powered Chevy Malibu. The automaker announced the news today and said it would instead focus on building Chevy Bolt electric vehicles at its Kansas City, or Kansas, rather, assembly plant. GM has sold more than 10 million Malibu's worldwide since the model debuted 60 years ago back in 1964. My mom had the larger version of that, the Impala, and that one has gone out of favor and come back. So we'll see, Dom, whether maybe they bring this back in an electric version.

The Impala is a classic in many people's minds, but the Malibu is also a staple of fleet rental cars across the country. so we'll see what happens there. Bertha Coombs, thank you very much for that. Coming up on the show, Spruce Point Capital Management's shorting. Yes, shorting, boot barn. Criticizing the executive team saying boots are a fading trend. But remember, as we had to break, Neve Shulman picked that name in this year's stock trap,

and he said people will always need boots. I'm very excited to choose Boot Barn for my pick. Whoa. And why? You like their boots? You know, I'll tell you why. You know, with climate change, obviously a major factor. Inclement weather is on the rise. So we're going to need boots. And, you know, companies come and go, trends come and go. But feet and hard work are here to stay.

Simple reasoning, we need boots. Welcome back to Power Lunch. We've got a news story involving Facebook and parent company meta platforms, Amon Javors in Washington, D.C. with that story, Aiman. Hey there, Domit, a news conference this afternoon. New Mexico Attorney General Raul Torres said authorities there have arrested three alleged child sexual offenders in an ongoing investigation of predator-related activity on meta platforms, including Facebook and Instagram. And he had some tough words for meta's CEO. Mark Zuckerberg is responsible for this. The meta executives are responsible for this. And while we can do what we are able to as law enforcement professionals to try and safeguard the community. Ultimately, it is their responsibility to make sure that the products that they are putting out into the world are safe for everyone to use.

The Attorney General said the alleged sexual predators approached avatars set up online by authorities and initiated sexual conversations. Two of the three men were arrested at a motel six where they thought they were meeting up with children. New Mexico sued META in December, alleging that the company proactively served and directed the underage users a stream of egregious sexually explicit images, even when the child has expressed no interest in this content and enabled dozens of adults to find and contact children for sexual purposes. A spokesperson from META has not immediately responded to our request

for comment. Back over to you guys. And Aeman, if I'm not mistaken, haven't they taken a different tack than the other states and their approach against META here in general? Yeah, I mean, this is an ongoing lawsuit now, and so we'll see how they're able to resolve this issue. And what they're saying was particularly egregious about this conduct is that they set up these avatars online. They said they're not reaching out to anybody with these avatars, but people are finding and contacting the avatars. And that's what they say is so alarming, is that even by just sharing the existence of these avatars online, they're able to attract this kind of conduct. All right, Amon, thank you very much. Amon Javr's reporting.

Meanwhile, shares of Boot Barn are up about 2% today, despite initially dropping 4% pre-market, as Spruce Point Capital released its short report on the stock. They actually see 40 to 50% downside risk in the company. In the report, they point to concerns about management credibility, viability of the company's strategy, accuracy of its financial reporting, and its share price sustainability. We have reached out to Boot Barn for a response if we get one, we'll bring it to you as soon as we can.

But joining us in the meantime is the man behind the call, Spruce Point Capital founder and chief investment officer Ben Axler. It's good to see you again. Welcome to see you. Such an unpacking, if you're joking really about you, shorting stocks and a business. bull market and also going after, you know, companies and calling out people in particular is always a difficult business. And in this case, you think there are legitimate concerns that should be raised about what's going on here. That's right. So we have problems with the business strategy and

model. This is a specialty retailer that focuses on Westernware and is making a national movement. And in that process, we think that the store economics are declining. We think that they've alienated their core customer, which is traditionally a male farm worker, cowboy. Now they're taking on much more fashion risk, moving into geographies where they're just as less demand for Western wear. So here in New Jersey, in Cherry Hill, for example, there's one near Ross stores. They cater to more, you know, value treasure hunting female customer. That's not their core customer. And as a result, inventories piling up, same store sales are declining,

unity economics are declining, and the stock prices up 40% on some belief that a turnaround is going to happen. We don't think so. Now, Ben, a lot of this may have to do with some of these overarching trends that we are seeing in pop culture right now. I think about Beyonce. I think about her new album out. That's kind of more of a country Western themed approach to things and how they could be bringing more people into that particular fold. What exactly does that mean for a company like Boot Barn? And maybe this is something where management is saying this is a strategy. We are going to

take pop culture and this move towards that kind of yellowstone kind of feel and go right after those folks over there who are on the fringe. Right. So, yes, I think Western, to a degree, ebbs and flows. Right now, we're seeing a little of an uplift because of Taylor Swift. We think that may have helped them a little bit last year, which is going to create a comp issue going forward. Then you have the Beyonce and the Texas Holden. That, we think they're off trend. They missed, so they don't have a firm partnership with Beyonce. If you look at the website and the product, the sort of, it doesn't match what Beyonce's wearing. So we think that Mark gets kind of a little ahead of itself in terms of the Beyonce issue. And the Yellowknife series, that's good. going to be winding down. And so that's going to be an issue. But ultimately, the problem here for Boot Barn is you can get boots anywhere. You can get it online on Amazon. There's companies like tractor supply where if you're a worker, you can buy boots there. Direct from Tocovus. Direct from Tocovus. And, you know, we don't think they have any natural advantage. In fact, we think their Omni marketing is pretty behind par. And so ultimately, this is a company

that sells boots, accessories, commodity-type product with very little edge, very little advantage. The stock's up 35% this year. It's priced at 104. What do you think the price should be? And what are, you know, so the people who love it and must think, hey, this is going to be the next, you know, T.J. Max or whatever. And you think it could be more like the next what. Well, it could be a zero, right? I mean, retail, especially ones that overstuffed their boundaries, have proven to be problematic.

Particularly boot barn. Their stores are large format, 10,000 to 14,000 square feet. Go in there. Look at the assortment. The shelves are stock. We think the inventory is piling up. They just announced a 60% discounting strategy on Sunday. So they're having problems moving the inventory.

And if that inventory can't move, they're going to have to mark it down, which is going to hurt margins and ultimately bottom line. All right. We'll see. There's the case. Ben, thanks for joining us. We'll hear back from Boot Barn at some point, I'm sure, about this particular call. Ben, thank you very much for joining us.

Thank you. All right. Coming up on the show, we'll get a live report from Service Now's Knowledge 2024 conference in Las Vegas, with words of wisdom from some of the biggest names in technology. That's coming up. We're back into. Welcome back to Power Lunch. InVIDIA shares are lower today, but still higher for the week overall.

Stanley Drucken Miller telling CNBC yesterday he cut his invidious stake. Today, the company's CEO, Jensen Huang, sitting down with our own John Fort from the Knowledge 2024 event in Las Vegas. John, believe it or not, joins us now live to share what they discussed. And John, there's probably no more visible. CEO when it comes to artificial intelligence than Jensen these days. What was the conversation like? Very visible. I actually sat down with Jensen here at ServiceNow's Knowledge 2024 event was with him and Service Now CEO Bill McDermott. And the companies today demoed a technology that combines

invidious software for AI avatars with Service Now's AI-driven Now assist for customer service. I asked Jensen why that sort of realistic avatar for customer service is important. Of course, the technology of creating a digital human is not easy. The technology of having an AI that understands intention and be able to access tools and help you solve problems and all of the things that we use ServiceNow for. That technology insanely hard, of course. but ultimately at that intersection where you interact with the computer is going to become more and more human as well. And so there are a lot of different applications for health care, customer service, you know, all kinds of stuff.

Yeah, much more from Bill McDermott and Jensen Wong coming up in overtime, having to do with the growth potential from here and the industries that are taking advantage, guys. So I guess the larger question about the stock, John, is not so much about whether they can, you know, mimic a human perfectly with AI, but just about whether there will continue to be this insatiable demand for their chips, or is competition eating away at that? Yeah, part of what we talked about is how right after the feds shut down the arm acquisition, OpenAI came in and alerted everyone to the potential of AI. And now there are these fresh questions about, are we getting ahead of ourselves? And so companies in the ecosystem seeking to answer that, maybe on overtime investors,

had a better idea whether those answers are good enough. Bill McDermen's going to join me live close to the top of the show, first half of the show. We also got more from Jensen Wong coming. Nice. Looking forward to it. John, thanks for joining us with a preview. We appreciate it. John Ford. Coming up, shop till you drop, Shopify shares are plunging on downbeat guidance for the second quarter, shedding nearly $20 billion of value just in the session today. We'll get the trade in three-stock lunch next. Welcome back. It's time for today's three-stock lunch, and today it's all about earnings. with our trades is Ava Ados. She's chief investment strategist with ER shares. Eva, welcome to you.

Let's start with Shopify. I mean, its earnings topped estimates, but the shares are down nearly 20% on weak guidance for a company that usually beats and raises, post your child of growth stock, at least up until now. Ava, what's the trade? Well, it's a hold. We actually own the stock. This was a great company, great growth story during COVID. The revenue growth was 85%. The company is coming down to Earth now. So they're important, slower growth. going forward. Their margins are expected to drop by 0.5%. But let's face it, this is a company that has a revenue growth, which is double their peers. And if you have taken the 20% hit, I think you should hold on to it. All right. So there's the trade on Shopify.

Let's talk about beverage alcohol, because it's five o'clock somewhere, Kelly. Anheuser-Busch in Bev's shares. They're higher after topping first quarter earnings estimates. As you can see, they're up about 4%. Still, though, this is the maker of Bud, That's the question here. They're seeing a decline in demand from the boycott that started in April of last year. There's still a carry over there. Ava, it's not just Bud Light. There's positivity elsewhere in the portfolio.

But what's the trade overall for AB and Bev? It is a hold. I agree with you. It's not everything bad about it. Let's face it. This is Bud Light. And their beer sales came down 1%. Their U.S. revenue came down by 9%.

That was mostly attributed to the controversial commercial, bad light commercial, which had a significant conservative backlash. Now, the company is putting that in the rearview mirror. The focus now is the Summer Olympics, where Mikalob Ultra will be the exclusive sponsor of Team USA. That's expected to boost sales. It's creating a lot of excitement. I would say, given the fact that their margins are double their peers and the company has great potential going forward, I would continue to hold. It's a solid hold. They see them pushing Mc Ultra all the time. Athletes beer.

Exactly, the athletes beer. Finally, electronic arts forecast full year bookings below estimates as gamers cut spending. Shares are down more than 2% today. Ava, what would you do with a name like this? I would sell it. It's been dead money for many years. The company has come down 10% in six years. You have actually lost money if you owned it in the last six years.

So the future does not look bright either. The company is reporting that they will have fewer games released in the future that's coupled with the fact of their relatively high valuation, which is two times peers on a P.E. basis and the revenue growth that's half peers. So when you enter a market where GDP growth is coming down, we have a significantly higher relative valuation. And also revenue growth that's half your peers. It doesn't look that good. It's a sell. I wonder what should they have been doing the past six? years. I mean, this has been a long time that this, that this has been in the works.

Eva, thanks. We appreciate it. Thanks for your time today. Good to see you. Eva Ados. Good to. All right. Remember, you can always hear Power Lunch, yes, audio, on our podcast. Be sure to follow and listen to Power Lunch on your favorite streaming service or podcast platform, Power Lunch and audio format. We'll be right back. All right, less than three minutes left of the show and several more stories that you need to know about. So let's talk first about Collapse Crypto Exchange FTX. It says, most customers will eventually get all their money back, according to a new court filing. FTX estimates it owes creditors around $11.2 billion and claims to have between $14.5 to $16 billion in total to distribute.

The company's funds have been frozen since it filed for bankruptcy protection back in November 2020, after former CEO Sam Bankman Freed's fraud came to light. This is probably welcome news if you were part of the FDX ecosystem. It's impressive. One of the strangest, the corporate theft stories, because it seems so there's not high-profile victims. Now a lot of people are going to be made whole. Nevertheless, it's like you said, at least they're able to do something. And kudos to those who are able to reclaim those. Bitcoin's rally has obviously helped. Okay, so we've talked about the brisk sales of gold bars at Costco, but it's not just Costco anymore. It's not just the U.S. A convenience store chain in

South Korea is selling tiny fingernail-sized gold bars for the equivalent of $165. You can get about two grams worth of gold fingernail size. Why are more people doing that? This is a sign, right? I don't know if some people will say if you're going to start like like the vending machines or the attention silver's getting now oh the that was a ketchup trade is they yeah yeah you know how many years we've had to hear about silver being every cycle with precious metals there's a gold cycle and then then there's the silver guys you know and now here we are we're at that point of the cycle the big apple is officially home to the highest concentration of millionaires in the world officially now data from henley and partners says there are 350 000 of them in new york city today and that's a 48%

increased from a decade ago. One in every 24 residents has at least a seven-figure net worth. Walk around New York City. I can count at least 100 people I walk across the street. Yeah. And three of them. I thought this was true. Speaking of New York, the strong playoff runs of the Knicks and Rangers are expected to be a boon for Madison Square Garden. The stock, Madison Square Garden Entertainment, owns the venue. MSG sports, ticker MSGS, owns the teams. Analysts are positive on both stocks. Today, Bank of America, raising price targets and earnings numbers from MSG. or MSGE,

thanks to strong regular season attendance late yesterday, Guggenheim upping up its estimates as well, thanks to a robust start to the playoffs for the Knicks. They now expect 14

playoff games between the two teams as opposed to the previous estimate of five. Way to go, New York Sports. And people are talking about the Orioles and the success Rubenstein has had with them. So we need to check in

with Charlie. There you go. For Brinskoy. Thanks for watching Power Lunch. It's been a pleasure. Closing Bell starts right now.