Power Lunch - The Bear Case for Nvidia, the True Cost of Campaign Promises 8/28/24

Episode Date: August 28, 2024

The world’s 2nd-biggest company by market value reports results after the bell. And while Nvidia’s stock has been an AI winner, the question remains: can it keep this up? We’ll discuss.Plus, there are a lot of promises made by politicians on the campaign trail. But how much would they actually cost taxpayers if put into action? We’ve got a new report comparing Trump vs. Harris policies. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody, and welcome to Power Lunch, alongside Contessa Brewer. I am Tyler Matheson, and it is Invidia Day. The world's second biggest company by Market Value after Apple, ahead of Microsoft for now. Reports results after the bell. The stock has been the AI Darling up 750% since the beginning of last year. But the question, as always is, can it possibly keep it up? And check out shares of Super Micro down 23%. The company says it will delay filing its annual report with the SEC, adding to losses from yesterday when short-seller Hindenberg research warned of glaring accounting red flags at the company. And NVIDIA isn't the only company reporting earnings. Several retailers out with numbers, Nordstrom and Chewy higher on their

results, Foot Locker and Abercrombie and Fitch getting hit hard. Look at that. You've got Abercrombie off almost 20%. Wow. And here, there you look at the broader markets. They are down as well across the board. The NASDAQ down 1.5% as we do wait for NVIDIA. And while expectations for that company are high, some are worried that it won't match the height. Sima Modi joins us now with a look at the possible negatives. I guess the bare case for this company. Yeah, exactly. There isn't a big bear case. But the most pressing question, Tyler and contested that investors want it in answer to is the size and magnitude

of Nvidia's blackwell delay. That's the next generation AI chip. Wall Street is currently modeling in three months, anything longer would be seen as a negative. That's why guidance will be key, as well as any comments from CEO Jensen Wong on supply, given its heavy reliance on supplier Taiwan Semi. Beyond that, an update on gaming. City analysts write that competition in gaming could drive NVIDIA stock lower if it shows a loss in market share. Earlier this quarter, NVIDIA competitor, AMD posted a 59% year-over-year drop in second quarter gaming sales. Overall, its weakest division, executives there pointing to lower. chip sales for game consoles and PCs.

As we've been discussing, the bar is high, even with today's pullback, NVIDIA, is trading at 42 times forward earnings, much higher than the entire sector's valuation of 28. As to how the stock could react, CNBC analyzed the performance of NVIDIA following the past six earnings reports and found that the average one-week return is nearly 12% up.

We'll wait for the results out at 4.20 p.m. So the past, if the past is the future, it looks like a nice little week for NVIDIA. It could be. We'll see. Stay right there, Seema. With no sales on Wall Street for Nvidia and 48 buy or overweight ratings, most are bullish on the chipmaker, including our next guest who has an outperform rating in $150 share price target. Chris Casso, Wolf Research, Managing Director and Senior Analyst, Chris, welcome. Good to have you with us. Thank you.

Seema mentioned the issue in the report today, and that is the launch of Blackwell and whatever the company says about that, Blackwell being a next generation chip. What do you expect here? what would be good news, what would be less good news? Well, Nvidia typically doesn't give very granular detail on the earnings report. What they've said in the past is Blackwell starts the ship in the second half of this year. And the most important flavor of Blackwell, if you will, is what they call the GB200, which is the most powerful version that's going to go to hyperscalers in the beginning of next year. there's been all sorts of discussion rumors within the supply chain of that being potentially

delayed. But our view on that is these are very complex product ramps. They're coming out with new products every year. We've kind of talked about that a little bit of the sausage making of semiconductors where not everything goes absolutely flawlessly. But in video, guided for that product to be out in the first quarter of the year. And we still think it's on track for that. And we we expect NVIDIA to basically reiterate what they've said before with respect to that. Let me ask you a question that's a little more sort of philosophical than anything else. Does VINDIIA have a lead or a moat or does it have both? I think it has both.

And, you know, certainly they've established a lead within, you know, overall AI. Where their biggest moat is actually one in software, where especially for training model, Most of the models are trained using basically proprietary InVIDIA software. And then on top of that, the networking part of the business, which NVIDIA got in part by their acquisition of Melanox many years ago, also provides a competitive moat because networking is now becoming a much bigger driver performance within AI. And Vidi is the only company that has that in-house. But even with NVIDIA's leadership, Chris, we're expecting, yes, a big driver.

jump in revenue and earnings, but we're expecting gross margins to decelerate. Why do you think that is, and is that because of expenses attached to Blackwell? Well, it's really a function of mix and, you know, with Blackwell coming out and some of the costs associated with the launch of that new product. But, you know, at this point, I think if people see a good revenue number, if they see good progress on Blackwell into next year, that's what's really important for the stock. And the important thing is Blackwell, we believe, drives as much as a 50% year-on-year content gain next year. And Invidia's business model has been we charge more for the product because the product costs more, but we give you multiples of that in terms of performance.

And so it's a little bit of a win-win. The customers get much better performance, and Nvidia is getting higher revenue. And, you know, that's what's been exciting about this stock. And that is what played out over the last, you know, year and a half, two years or so where, you know, the biggest driver of Vivido revenue has been the content per chip going up. And that goes up by even more with Blackwell next year. So assuming that launch goes well, you know,

that's why we're bullish on the stock into next year. Chris Goldman Sachs has done some analysis that indicates that hedge funds and some big institutional investors are selling out of big tech and AI. I'm just curious with those outflows, does NVIDIA have a lower bar to reporting its earnings? I mean, is any good news going to be outsized? Or because this is seen as the bellwether for not just other AI or other chips or other tech, but the markets as a whole, are investors going to be nitpicking any nitty-gritty detail, any little speed bump ahead to focus on?

Yeah, and it's obviously a very well-watch stock now. The stock is going into the report pretty close to its size. So I think people will, you know, will be looking at that pretty closely. Listen, in terms of, you know, people selling out, it's been a great stock over the last two years, when one of our favorite stocks last two years, I can understand why some folks would choose to take some money off the table. And that's happened in the past, too. The stock kind of plateaus for a little bit as you get visibility into what's coming next. But really, What's important is that what's coming next? You know, Blackwell coming. And then just as importantly, will the hypers still continue to spend on AI as they have? And I'll say with the July earning season, we heard from folks like Google and Amazon and Meta, the clear consensus is that they will continue to spend. And as long as that's the case, I think that's what provides a good setup for the stock into next year. And, Seema, the vast majority of analysts have an outperform or buy rating right now. now on the stock. What are you looking for in the color commentary? That's a great point because it's

not just about the numbers contest. I think the tone of CEO Jensen Wong on the call, how he describes a delay of Blackwell. Does he show a lot of confidence around Hopper being able to offset any future delays in Blackwell? That will be key. Seema, thank you very much. Chris Casso. Thank you for joining us as well. So as the clock ticks down to the much anticipated results from Invidia, we want to dig a bit deeper into what these results could mean for the broader market as stock slide to session lows right now. You can see the Dow Jones Industrials off 348 points. Let's bring in Jack Ablin, chief investment officer at Crescent Capital. Jack, good to see you today. For you and for your clients, how much is writing on what NVIDIA has to say about its future? Yeah, I mean, the fact is that

And Invidia has become essentially a bell weather for the S&P 500. But at the same time, Contessa, I think what we're hoping for and what we expect is once the Fed starts to ease, that should pave the way for more of a broadening in the market. You know, keep in mind that Nvidia and the Mag 7 led the S&P dramatically higher in the first half of the year. but really since the middle of June till now, it's really been a market performer as more and more investors are anticipating rate cuts. And how are you positioning your strategy for tomorrow, depending on what happens with NVIDI? I mean, is this a story that you're already telling clients that the rotation away from MAG7, away from AI and big tech has already begun and should continue? Yeah, that's really the narrative. I mean, we're not going to position the portfolio day to day.

I mean, $55 billion, it's really tough to do. But I will say that if you look at the big drivers of return over the last two years, it's really purely and simply debt to EBITDA. The higher the debt you have to the cash flow that you generate every year, the worst you are. So, for example, if you look at large-cap stocks, they're going to be between four and five times their ebidavis. in terms of debt. Small caps, four to six times that. The MAG 7, less than one time. In other words, these companies generate so much cash they could pay off their debt in less than a year. And that's really been a benefit to those companies as rates are high. Once the Fed starts to ease

and virtually every time the Fed eases, the 10-year Treasury moves down in sympathy, financing costs start to free up. going to benefit those higher levered markets, sectors, and companies. So, Jack, what is spooking the market today? Is it Invidia? Is it something more fundamental than that? Because it's not just the tech stocks like Super Micro that are down. It's the Lulu lemons. It's the retailers that are down.

They all have specific reasons, I suppose, behind them. But what's spooking the market? And specifically, I'm looking at a chart of the Dow there, down 8 tenths of a percent now. It happened at 11 o'clock. Boom. Things turned. Yeah, I've been watching, you know, my screen, really the only sectors that are up as the dollar and tips and some of the bonds, a portion of the bond sector. But I did notice that tips, for example, is outperforming fixed, which would suggest to me that inflation expectations perhaps are rising, even though real rates that the underpinnings are still pretty high.

So perhaps there is some indication. I know that, you know, consumer confidence has come in a little bit stronger than expected some of the other things. So perhaps there's some inference of strength that is causing some concern, particularly on the spending and inflation fraud. It's so interesting that you mentioned that consumer confidence because we got reports today from Bath and Body Works and from Foot Locker. What we were hearing from a lot of these retailers is choppiness in the economic macro environment. We're hearing about customers searching out for value. And in fact, this is why Nordstrom's, which beat expectations, said, look, we're doing really well at Nordstrom Rack, where we have an off-price brand. How much is the consumer, one, is this a solid story or is this a retailer company by company story?

And two, as we head into fall and pass the back-to-school shopping, how much does consumer spending have to do with the overall story? I think consumer spending is really key to the overall story. But let's look at it this way. You know, the highest quintile of income earners in this country account for roughly 40% of all spending. So that's, you know, many more than, you know, essentially double its constituency, right? And if you look at it in terms of discretionary spending, I'm going to say it's more than half. So what drives discretionary spending among high income earners? It's housing prices and equities.

Well, you know, we're at equity nearly all-time high. So there's certainly a lot going there. Walmart, for example, beat expectations, not because their average consumer can. came in and bought more goods. What's going on is high-income earners are starting to move into that category and shopping at Walmart, perhaps, you know, avoiding grocery stores like Publix. Let's talk a little bit about the interest rate scenario, and I was reading in the notes that you point out that during 11 interest rate cut cycles, the six that were associated with recessions were associated also with declining stock prices.

In cases where the rate cuts were not associated with recessions, you had a rising market. What do you expect this time? I don't see a recession, not from our perspective. Yet the economy is growing at 2 plus percent, and yes, the unemployment rate at 4.3 still remains in the 15th percentile of its historical range. So very good solid jobs market. that to me doesn't seem like the ingredients of a recession. And so obviously we're going to be on the lookout for any kind of weakness. But from this perspective, our conclusion is this is a rate cut cycle that stock and bond markets should feast on.

All right. That sounds, we'll leave it on that note happily. Jack Ablin, thank you very much, my friend. All right, after the break, lots of promises are made on the campaign trail. But how much would they cost taxpayers like you if they're put into action? One new report says comparing the Trump plan to the Harris plan details will show you the difference in dollars next. Welcome back to Power Lunch, everybody. Turning now to the presidential race, while other networks focus on different aspects of the campaign at CNBC, we focus, of course, on the economy.

And today there's a new analysis of both campaign's economic plans. Megan Kinsella joins us now with the details. Hi, Megan. Hey, Tyler. So that's exactly right. the Trump and Harris economic plans will both add to the deficit, but for Trump, the numbers are far larger. New analysis from the Penn Wharton budget model shows the full cost of Trump's economic plans would be $5.8 trillion over the next decade. That's nearly five times more than the cost of Harris's plans, which they say would add about $1.2 trillion to the deficit.

But when it comes to the economic impact, Harris's plans come with the higher cost. GDP falls under both scenarios compared to baseline because of the weight of the debt here, But for Trump, it's only a 0.4% drop over a decade. And for Harris, it's 1.3%. Now, the cost is so high for Trump, partly because he has not endorsed any pay-for's to offset his tax cuts, which he's proposing for individuals, for Social Security, and for corporations. Now, Trump talks about using tariffs to raise revenue, but the Wharton economists say that retaliation could outweigh any benefit.

So they left them out of the analysis. Now, for Harris, there are substantial costs, the biggest one being expanding the child tax credit, which alone would cost one point. $1.7 trillion, but raising the corporate tax rate back to 28% would raise about $1.1 trillion, so much more even there. Now, all of this, of course, is contingent on Congress, which controls the purse strings. So if Congress blocks Harris' attempts to raise taxes but approves her spending, then costs, of course, here would rise.

But it does show us that Harris, at least so far, has the plan with a smaller impact on the deficit. But it's interesting because the analysis probably carries less weight than the promises to what it means for individual voters. When it comes to corporate America, listen, I was covering a lot of earnings calls after the Trump tax cuts were put in. And what I heard was a lot of cheering from corporate leaders talking about

how it improved their bottom lines. When Harris is trying to win over the nation's companies, it seems to me like raising the tax rate is not going to be a big winner for her. Certainly not. Trump definitely wins on that issue. And I do think what's interesting here is that you can see the impact of that in sort of the economic impact section. On the GDP, within the first decade, Trump actually sees a slight rise,

but then because he has no pay for us here, the size of the debt becomes so much that then it weighs down, it outweighs any stimulative impact of that. So Harris is sort of banking on a longer game here. She's not trying to win over companies. She's not doing much that they really want to see, especially in terms of tax cuts. But she is playing this longer game in saying that the economy perhaps is going to be a little bit better because the debt is smaller. Megan, great to see you.

Thank you for the great reporting. Up next, navigating volatility in the oil market. Power Lunch is back right after this. Welcome back to Power Lunch. A quick check on the markets here. We're seeing the Dow industrials off by almost a full percentage point. S&P 500 has dropped a percent.

And the NASDAQ is down by a percent and a half. It's a turnaround from what we saw when the markets open this morning. In today's market navigator, crude oil prices declining for a second day in a row after a sharp rally earlier in the week. Now, the initial spike was on potential for a large disruption in Libyan supplies. There's been this big political dispute happening there, and we saw some oil rise. Now, as you can see, it's coming down. What's next for the much more volatile commodity? Joining us is Jeff Kilberg, founder and CEO of KKM Financial.

Jeff is also a CNBC pro contributor, and it's great to see you today. All right, so talk to me a little bit about how you're navigating the ups and downs, the swings that we're seeing, especially in WTI. Well, Contessa, you're absolutely right. There's a lot of inputs right now to really measure Crudell, WTI. And if you look at the October contract, it has had a range bound month, but at the end of the day, we're at the lower end of the range. I think you're absolutely right to bring up Libya, the disruptions.

That should move Crudell higher. However, the Chinese demand or lack of demand. I should say, seems to be way on the market, and there is a correlation to the equity market today as we all await in video earnings. But what I see right here is the opportunity to potentially be a buyer here. So I actually bought crude oil futures this morning, Contessa, in the October contract, I bought at $74. And I want to see this move back higher up to $79. That's my short-term target. But I want to be mindful. If we do see equities way upon the correlation to crude oil, you could get stopped out in this trade at $72. So I'm risking $2,000,

Contessa, to make $5,000. Why do you like going with the futures instead of, I don't know, going with the XLE? Well, I cut my teeth trading futures in Chicago. But when you talk about XLE, which is a great ETS, up about 8% year to date, when you look at the futures contract, it's more of a high-powered tool. And if you think of like a high-power tool, an electric drill or whatnot, this is a sophisticated tool that institutional investors use for decades upon decades. Well, now the average investor, the retail investor, has access.

to utilize futures. It's 24-hour access Contessa. So if there is a move and you have an order in, like my offer up at $79, we do see something come out of Libya and we do see a price moving higher. I will get filled on that potential sell order wading in the market versus hoping to be able to get out of an ETF during the middle of days. So they all work together, but this is just more of a sophisticated tool which allows investors to mitigate risk and also speculate to the upside of crude oil. And Jeff, you're risking essentially $2,000 in order to make $5,000. Back to some of the movement in this upside or what you see is upside. One, you've got Middle East tensions certainly persisting.

The issue of Libya and whether it's going to cut back is not over. And then the Chinese demand is a big factor here. In fact, I heard commentary today about the economy in China and whether consumers are pulling back in their own spending. So why are you bullish on oil and the demand factor? You're absolutely right. The overarching theme all year in 2024 has been China in that question mark. But let's remember OPEC, very big OPEC, the cartel, the oil cartel. They have predicated all their budgets on Crudell being in between $80 and $90.

So I don't think Crudell has the ability to stay down at the lower end of the range for much longer. That's why I want to be a buyer. That's why I see the move higher back up to $79, Contessa. All right, Jeff. It's good to have you today. We appreciate that. Thank you, Jeff Kilberg. Always a pleasure. Thank you. Ahead on Power Lunch, our Powerhouse Road Trip continues. We're heading to St. Louis, where houses are flying off the market in an average of six days.

It feels like there should be a song that goes along with us. We'll be right back. Welcome back, everybody. We've already hit Miami. We went to Syracuse yesterday on our Powerhouse Road Trip, and today's stop is all the way out in St. Louis, Missouri. One of my favorite towns, by the way. My friend Ben Clark lives there in Kirkwood, beautiful. According to Zillow, St. Louis is one of the hottest real estate markets in the country.

with many houses flying off the market in less than a week. Let's go to St. Louis. In fact, it's tied for first for fewest days pending at six, and the median sale price is just under $275,000. Affordability is at the forefront for buyers in the St. Louis market. Let's bring in Kelly Lasseter, a real estate agent for Gateway Realty Group to help us understand the state of the market in St. Louis. As I said, I love St. Louis.

It is a really, really livable city. house inventory, and is that, is it low, and is that why houses are just are selling so quickly? So, yes. Currently, we're running on average about two months inventory. So that makes our market definitely a seller's market. That is why houses that are on the market are flying off so quickly and many of them at overless price. What is the average? Well, I guess we listed the median What is the change in median sale price over the past 12, 18 months? How much more would you get today? You know, it's probably pretty stable because we've been in an extremely hot market here for the last two or three years.

I would say in the last couple weeks, though, there has been just a bit of a slowdown. And I think that's just the natural cycle of the real estate market where we slow down just a little bit when it's back to school time. Yeah, August is kind of a slow month because people either want to be where they are, they don't want to be where they are. be closing in that, if they have children, for example, they don't want to be closing after the school year starts. Let's look at a listing. We always ask people to say, what does a million dollars buy? Show us what roughly a million dollars would buy in the St. Louis environs. And it's a big, it's got a lot of diversity in terms of housing stock. You can live downtown in a loft, you can live out in the country. This one is on a golf course. Tell us about it. This is. So when you

talk about affordability and what you get for the money, I watched your show the other day where you Miami in and it was 1,600 square feet for a million dollar house. Here you see 4,600 plus square feet, four bed, four and a half bath. This house is spectacular. It's fully updated, hardwood floor is a chef's kitchen. Oh, my, look at that. It's stunning. And it sits on the second pool of a very prestigious private golf course in St. Charles County, which is a western suburb of the St. Louis metropolitan area. Okay, so but in this suburb, let's say you had to work in downtown St. Louis. How long would it take you to drive from that house downtown? So that house to downtown actually is probably only about 25 minutes because it sits right off of,

so what's really cool about the St. Louis metropolitan area is it's a very, very drivable area. So that house is probably five minutes from Highway 40, which is a straight shot to downtown. I thought you were going to tell me an hour and a half. And I would have believed that. And you know, like, you can find that. It's a beautiful house. What else is the draw to St. Louis? Like if people are looking for other options, what's the big draw?

So I think, Contessa, honestly, there are, I would say the top two draws of our area. number one, far and away is affordability. So we've helped people move here from all across the country. We've had clients from Arizona, Texas, Florida, West Virginia, as far away as Hawaii. And to a person, they are blown away with how much house they can get for the money. I think second to your point is the diversity of styles that we offer. And I think you touched on this earlier in a segment, you can get a loft in downtown and you're living in the middle of an urban, upbeat, fun, active area. And then you can come a little

bit west and you can get a house on acreage, a private country estate. We have 55 plus communities. We have lake communities. We have golf communities. St. Louis just has so much to offer. Kelly, let me ask you about the new changes to the way agents are compensated and the fact that buyers now have to compensate their agents, as the sellers always have. Are you seeing an impact? Not really, because the St. Louis market and the Missouri market, I should say, as a whole, we don't really have to change the way that we do business. It's just a disclosure issue. So, typically, in our area, the seller would sign a listing agreement and they would agree to pay 6%. part of that 6% was disclosed in the listing contract would go to a co-op agent if there was.

So the only thing that we really have to do different now is we have to be sure that we are educating our sellers. One, that there's a potential that they would have to share some of the commission that we charge to a buyer's agent, but we're not charging the seller more. We would just potentially have to share or pay a buyer's agent. The second part of that is buyers have to enter into an agency contract with a buyer's agent. their buyer's agent that clearly states the amount of compensation that agent expects to get when they sell apps. That's great.

Kelly, how many Cardinals games do you go to per year? Not enough. My son plays baseball, so I spend more time watching him play than the Cardinals. How old is he? How old is he? He's 18, so he just graduated from high school, and he's going to be playing baseball at the St. Louis Community College. That's all.

My son is 18, just graduated, played baseball. for Montclair High. He's at Indiana University, and I'm going to miss those games like you have no idea. I'm sure you will miss them, too. I'm going to go watch as many as I can, to be honest with you. I'm so thrilled that he's going to be local for at least two more years because I don't know what I'll do and I don't have baseball games to watch in the summer. Yeah, right? It's a real lot. But man, those games can go a long time. I'm telling you. Kelly, good to see you. Kelly, last year. You too. Thank you guys so much for having me. It was a pleasure. Good luck to your son. Thank you. I appreciate that. Let's get right to Kate Rooney now for a CNBC news update.

Hi, Kate. Hi, Contessa. The man who attempted to kill former President Trump last month searched for information on both the Republican and Democratic conventions, as well as campaign events for President Biden and Trump, before ultimately opening fire at that rally in Butler, Pennsylvania. FBI officials told reporters today that suggests the Trump event was a, quote, target of opportunity. The Bureau also says it found no evidence that the shooter had any co-conspirators or was directed by a foreign entity.

Japanese authorities issued an emergency warning today as typhoon Shan Shan comes ashore dumping large amounts of rain and triggering a landslide that left one person dead and several others injured. Forecasters say that storm is expected to bring high winds and up to two feet of rain in some areas over the next 24 hours. And according to a new study published today, it has never been safer to donate a kidney. say the risk of death from donation has dropped by more than half in the last 10 years, while the risks of death have always been low.

The study points to advances in surgery and care that have reduced the risks even more. Back over to you. Well, that's great for those on the waiting list. All right, Kate, thanks. Shares of Chinese EV makers are lower across the board after Canada is set to slap a 100% tariff on all-electric vehicle in ports from Beijing. We will get a live report when Power Lunch returns. Shares of China's Lee Auto just tumbling today, down 17% on pace for its biggest drop in nearly two years after reporting a profit decline on higher expenses. Phil Levoix joins us now with a look at the struggles of what we're seeing from these Chinese EV makers, Phil.

Well, it's what I think a lot of people expected when you take a look at the quarterly results. And we're going to talk about B.D and Lee in just a little bit. Let's start first off with BYD, which also reported quarterly as well as first half results. and you look at this, you say, wow, net profit of $1.9 billion. That's up 24% compared to last year. Revenue increasing by 16%. But it's not growing as quickly as it has been in previous quarters. So perhaps that's a little bit of why people are maybe pulling back just a little bit on B.D.

You see, the stock is down just under 3% on the day. First half sales, by the way, up 27% year on year. They are not number one worldwide in terms of pure electric vehicle deliveries. Tesla remains number one worldwide and take a look at who the leaders are. We're going to show you the first half stats. We're still updating the first quarter stats. The first half stats we're still updating. But generally speaking, these are the leaders when you're looking at global EV sales, pure EV sales, which, by the way, we're up 20% this year in the first half compared to 2023.

Quickly want to talk about Lee. It's Q2 net profit, $154.4 million when you take the Chinese Juan and the Chinese Juan and the and you convert it over into dollars with revenue increasing 11%. What you're going to see from all of the Chinese automakers, they are growing, but their market is slowing down at home, which makes it a little tricky for them. They are increasingly depending on sales in foreign markets. Europe has been red hot for them. Southeast Asia is an area that is growing, not just for Li, but BYD, all of the Chinese

EV companies. And that's going to be an important focus for them as the Chinese market, becomes not just saturated, but it's just generally slowing down in terms of EV demand, in terms the pace of growth, still growing, just not growing as quickly as it has been in previous years. I mentioned it earlier with my oil guests, Phil, but the concerns over Chinese demand, consumer spending, is percolating in a lot of different industries right now? Is there a reason why that might hit the Chinese EV makers harder than it is Tesla or some of the other EV makers?

I think it's going to hit them all equally, Contessa, if you want to know the truth. And when you look at the Chinese market, you talk with the people who spent a lot of time in that market studying the various companies, talking with the executives there. Remember, a big part of the demand in China. When it comes to electric vehicles, it's been fueled by government incentives. And whenever the government pulls back on those incentives, you see it, the demand slowed out. It's no different there than it is in other markets. You pull back on the incentives, people are not going to be as likely to buy them.

Now, granted, China's further ahead in terms of EV adoption than almost every other market in the world, but it still is dependent to a large extent on whether or not there are government incentives. Phil LeBow, thank you, Phil. All right, a quick check on the markets now, as stocks are lower across the board. The NASDAQ, the worst of the major averages, down more than 1.5%. The industrial is off 353. They were off more than 400 a few moments ago at the lows of the day. Let's turn to the bond market now, and Rick Santelli standing by in Chicago.

Rick. Yes, Tyler. You know, we had another very successful auction. Today's $70 billion, five-year notes. Yesterday, if you recall, it was $69 billion two-year notes, and both auctions won quite well. There's good demand. And one of the reasons, of course, is September 17th and 18th. Basically, the Fed flagging that they're definitely going to be lowering rates.

And the market is very sensitive. to that. Now something interesting happens when you have auctions. Look at the two-year and three-year securities on a two-day chart. Yesterday, of course, as I mentioned, we auctioned off two-year. And the issue is, is that yesterday we had an old two-year, today we have a brand-new one called the on-the-run. And the difference between those two is four basis points. So you see on that chart the way two-year note yields drop, but they really didn't drop. The current on-the-run is hovering about one basis point up like all the other maturities. That rollover is something that we need to pay attention to because what it did was,

if you look at the 2's 10 spread, it pushed at about four basis points more towards unchanged, towards flat, less inverted, as you see on that chart. Now, Phil was talking about China and demand and EVs. Well, everybody seems to be looking at China lately for a variety of reasons. Let's look at their onshore you want. It's hovering at the lows of the year. And one of the main reasons is the Chinese tenure, which was created in 2002. Look at the chart.

It's not on its all-time lows. It's only about four basis points away. And the Chinese aren't really happy about it. As a matter of fact, those yields are dropping because many investors believe China's economy is slowing rather dramatically. So we want to pay very close attention to that, along with the peso. Remember, there's political issues in Mexico in this country. We also may have a lame duck president soon, and we want to pay attention to how markets respond to activity of politicians that are basically on their way out. Tyler, back to you.

All right, Rick, thank you very much. Let's talk about the shares of online pet retailer Chewy surging on some big earnings. It's net income up 1,380 percent from a year ago. We will trade it in three-stock lunch next. Welcome back, everybody. Time for today's three-stock lunch. There's been a lot of talk about Invidio. but as we await those results, let's take a look at some of the other names reporting today.

And here with our trades is Eva Otto's chief investment strategist at ER shares. Up first, Ava is Salesforce, which could also offer insight into the IT spending environment, as well as the AI appetite. Critical report for the company after the stock tumbled 20% following its previous earnings results, reporting a challenging economic environment. What do you say about Salesforce, Ava? So we have it as a whole. interesting to see what's going to happen today with their earnings announcement. I think most

investors, including us, are focused on their AI, their very high AI growth expectations built in. We'll see if the company delivers. But most importantly, this is a company that has been flat in terms of stock performance year-to-date, but their fundamentals have been nowhere like flat. And I think the company is not receiving the respected should. Their revenues have increased by five times since the pre-COVID levels, and their profits have increased 15 times since pre-COVID level. So these are great statistics. And from a valuation point of view,

their valuation metrics are half their peers. For example, their enterprise value to EBITDA is 25 compared to 50. We'll see what happens today with have it as a holder until today's earnings announcement, which can be a catalyst to move the stock up or down. It's going to be a significant day for them. Okay, Ava, next up we have Chewy stock, which is just soaring after beating profit estimates,

beat them by a wide margin here. The company's also offering upbeat guidance shares up 77% in just three months and up 15% today almost. Eva, what's your view on Chewy? We have it as a buy. We actually own the stock and we really like them. The company turned the corner in terms of profitability last year. They used to lose up to $300 million.

They're now making $125 million. and it's always very exciting for us as investors to see a company move from being unprofitable to being profitable. We believe their business model has been verified. There's proof of concept here. The revenue growth is averaging 11% per year, and it's five times the rest of the category. And they have widened their margins by an extraordinary 9% from 20% to 29%. It's also a bargain in terms of valuation with their enterprise value to revenue, which is 0.9, compared to 10%. compared to 1.3 for the rest of the category. And I think there's a proof of concept here.

The value proposition has been verified as people are buying more and more pets. And we see things continuing this way in the future. Very interesting. All right, our final name is Coles. Also out this morning. Sales miss here, however, forward guidance was strong. It's been a mixed bag for retail amid a weaker consumer environment. Coals down 30% this year. Your trade on Coles is now time to buy it? No, we have it as a sell. The revenue growth has been negative in five out of the last six years and their earnings from continuing operations, and that's the most important statistic, has been on a steady decline in the last 10 years. The revenue outlook was updated from a range of negative 2 to negative 4% to a new range of negative 4 to negative 6%. So management is

pessimistic in terms of the growth outlook going forward. And I think the core business model here is flawed. We see other retailers also going through the same issues as e-commerce is getting bigger and bigger. We are not optimistic in terms of the long-term future for the company. If it's a buy, it will be a very short-term buy, but we have it as a sell. Ava, we thank you. As always, you know your stuff and you deliver it in a fun way. Ava Ato's, we appreciate it. Coming up, joining the trillion dollar club, Warren Buffett's Berkshire Hathaway, briefly becoming the first American company outside the tech sector to hit the $1 trillion market cap. We'll be right back. Welcome back, quick check of the markets now. Stocks off the worst levels of the day. The Dow Jones down now, 255 points. We'll keep our eye on that throughout the day. A big turnaround from what we saw earlier.

All right, do we got about two minutes left in the program, a little less than that. Several more stories we'd like to tell you about. Warren Buffett's Berkshire. Hathaway, briefly reaching the trillion-dollar market value today before pulling back just a bit. It's the first American company outside of the technology sector to do so. You got Apple, Microsoft, Nvidia, maybe a couple of others, Facebook or meta. Six firms have met that level before. Amazon, also among them. Berkshire known for its old economy focus as the owner of companies like Geico Insurance, Dairy Queen, big railroads as well. But, of course, that cash pilot sitting on $277 billion at the end of June,

sparking worries among some investors that Buffett might see something coming down the pike. Some key retailers plummeting after earnings reports, despite posting decent results, Abercrombie and Fitch saw revenue grow 21% year-on-year. But the CEO warned of an increasingly uncertain economic environment. Those shares off 18% on the day. Foot Locker, its first same-store sales growth in six quarters. It reported an adjusted quarterly loss, but still beat expectations. Bath and Body Works trimmed its full year forecast due to economic uncertainty.

And there you're seeing those shares down 7%. Really a lot of sort of plummeting stocks in retail. Additionally, what you see is even with Nordstrom, which stock went up. And it had good report. But it says that customers are looking for value. All right, folks. Great to be with you, contest. Nice to be with you. All right. Thank you for watching Power Lunch.

Closing bell starts right now. Thank you.