Power Lunch - The Fight over Banks Redlining, The Future of Retail & The Fed's Next Moves 2/16/24

Episode Date: February 16, 2024

CNBC’s Tyler Mathisen and Kelly Evans take you through the heart of the business day bringing you the latest developments and instant analysis on the stocks and stories driving the day’s agenda. “Power Lunch” delves into the economy, markets, politics, real estate, media, technology and more. The show sits at the intersection of power and money. “Power Lunch” gives viewers a full plate of CNBC’s award-winning business news coverage, plus a healthy dose of personality from the show’s anchors and the network’s top-notch roster of reporters and digital journalists. 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 Lodge, everybody. Alongside Leslie Picker, I'm Tyler Maths. Glad you can be with us. Inflation, consternation once again. This time it is the producer prices, hitting, coming in hotter than expected compared with last month and last year. But markets seem to be taking this upside pressure in stride, Leslie. Plus, stubborn inflation could lead the Fed to leave rates higher for longer, which means borrowing costs stay elevated. Americans are buying more expensive cars, financing them paying higher insurance, too. We'll look at how that trickles down into the economy. But first, let's get a check on the markets. Look at that, Tyler. The Dow turned positive. I think the second I sat down up about 20 points. So we'll take that. For the week, the NASDAQ likely to close lower, but the Dow might be able to eke out again. If so, that would be 15 out of the past 16 weeks. Only one down week since the end of October. That seems like forever ago. There's still leaves on the trees. That's right. We've got a host of stocks making big moves following their earnings. Coinbase rising as Bitcoin's jump helped the company turn a profit. it. Roku's results seem to match what Wall Street was looking for, but Oppenheimer's Jason

Helstein downgrading that stock, and it is tumbling today, as you see there, by 23%. Dropbox dropping. Maybe it's worst day ever on weak guidance and concerns about slowing growth. That one off 22%. We start today with that hot inflation report, and the impact on the market says the markets try to figure out what the Fed will do and when. Here's what Atlanta Fed President Rafael Bostick told Sarah eyes and earlier on money movers. My outlook is to start the normalization, start returning our product policy stance to a more neutral stance in the summertime. And I'll have to say a year ago, six months ago, I was in the fourth quarter. So we've seen tremendous progress. And I'm hopeful that

continues. If that continues, I'll be willing to pull it forward even further. But I want to see it continue before making that judgment. You still think three rate cuts this year? Well, that's what was in the dot plot. I was one of the two rate cut increases. So I'm still at two, but if I pull it forward, if the data comes in more positively, I could move to three for sure. All right, joining us now to talk markets, the Fed, inflation, Hugh Johnson, Chairman and Chief Economist with Hugh Johnson Economics. Also with us, Ron Insana, CNBC Senior Analyst and Commentator, also Chief Market Strategist at Dynasty Financial Partners. Ron, let me start with you. What do you? I mean, obviously the inflation number is a little hotter than expected, but coming down toward the target.

I mean, they're lower than they were. Well, I think the market's probably doing this, looking through the producer price report, 2.2% increase in outpatient hospital services is not exactly something the Fed controls from an inflation perspective. So I think some of the data, particularly for January, both for CPI and PPI might be outliers. And it seems, certainly the stock market is more calm about it. Interest rates are up a little bit. But I don't think one month changes the assumption that we're going to see inflation continue to fall throughout the year. Hugh, the markets seem to, apart from stumbling earlier in the week on that consumer price number, the markets seem to be motoring along quite nicely with interest rates right where they are.

We heard an impassioned argument an hour or so ago from Mark Zandi that the Fed needs to move now sooner rather than later, or it risks damaging the economy, and hence the markets. Do you agree with that? Or why not just leave rates where they are if the desired effects are being felt? In other words, full employment is here or close, and low inflation is here or very close. Why change anything? Well, Mark's got a pretty good point. He's got a pretty good point if you take a look at the numbers this week, particularly if you take a look at the retail sales and the production numbers this week.

And what he's seeing, which I think a number of us are seeing, is that, look, we've kind of ruled out a hard landing. And I think it's a little bit early to dismiss that, particularly when you look at the numbers this week. And the second thing is a soft landing. That's very hard to rule out. And I think the consensus right now you'll find is that the expectation is we're going to see some pretty low numbers, first quarter, second quarter, first and second for sure in 2024, down from those numbers like four. 4.9 and 3.3% that we saw in the fourth quarter. So Mark's got a good point. He's saying that the Fed's got to start to move now or that the higher interest rates that we've been, quote, living with for quite some time now might have a more serious effect on the economy than we, than most of us

have in the consensus. It might be a might be, I don't want to say a hard landing, but there is that possibility you can't dismiss it. Ron, meantime, you know, obviously those hotter than expected CPI and PPI prints are out there, but we've gotten some disinflationary indications from the Q4 earnings number. So, you know, if you're an investor, how do you kind of square those two together? I know Q4 earnings are kind of backward looking, but as you assess guidance and various color from the calls and so forth, I mean, do you put more stock in that? Yeah, I mean, to Hugh's point, I mean, we're seeing numbers that are softening up. And if you look at Atlanta Fed GDP now numbers, we've gone from 3-4 to 2-9 in the latest estimate.

So we're starting to see things soften a little bit. Now, 2-9 still a good growth rate, you know, clearly. But, yeah, the companies are in many instances, you know, kind of not having as much confidence that growth will continue at the same pace that we saw in the last year's economy. So, like, I'm still comfortable that this is going to be an abnormally normal year as far as the economy and markets go, you know, barring any huge external shocks that we are not anticipating. And it just seems to me that we're kind of settling in. And I would agree with both Mark and Hugh.

The Fed, they don't have to go in March, but, you know, May would probably be a good time for them to start thinking about at least dialing back QT, if not starting lower rates. Hugh, how should I think about some of the stocks that we've taken to calling the Magnificent Seven, maybe now Magnificent Six? But how should I think about them and the role they play in our portfolio? Is it time, for example, to start taking some profits if they have become too large as an individual holding in your portfolio? Yeah, I own them, and I've got to be careful what I say. But the truth is, is I wish I had a nickel for every time I was told to cut back on NVIDIA, for example, or Apple over the years, not just months. And we're continuously warned, and I instinctively, just common sense alone, look at the performance of, say, NVIDIA or Apple, or any one of the magnificent seven. And you ask yourself the question, does this really make a lot of really good common sense?

And the answer is, I don't know the answer to the question, quite frankly. But one thing you pay attention to in this business, and I've learned for a long time, is you pay attention to relative performance. And when the relative performance is good, quite frankly, the idea is to stay with it. Now, I think it's a really good idea when you're putting new money to work now that you, well, you take it easy on the Magnificent Seven, because they've had such a run. You know that's 70% run that we had last year and start to broaden out. I think this market will broaden out. This bull market is a bull market. And as all bull markets go, they generally tend to broaden out.

And I think this will broaden out. But I don't think I would sell or reduce significantly my so-called Magnificent 7, especially because they're caught up in probably the most dynamic part of this economic growth, productivity issue, which is, of course, artificial intelligence, particularly NVIDIA. But again, I own some of these. I love them. I'm going to stay with them, but I'm going to try to broaden out. I love them.

I love them. And we love you, Hugh. And we have for like 40 years, right? Yeah, right? We all go back a long time here, right? Absolutely. Sounds like Hugh doesn't need any nickels. No, he knows.

All those times, people told him sell Nvidia. If he is currently in some of those MagSever names, Hugh Johnson, Ron and Sana, thank you both very much. Thank you. Now let's get to the bond market reaction to this latest inflation data. Rick Santelli is on the floor with the traders in Chicago. Hey, Rick. Hi, Leslie.

Well, let's look back. See, on Tuesday, we had CPI, hotter than expected. Ah, it's probably seasonality. It's probably January. Today we have hotter and expected PPI. Probably sunspots, right? Listen, we can make a lot of excuses and maybe next month they'll moderate. But right now, they're both hotter than expected.

And guess what? Two-year yields, they're higher on the week by a lot. They settled under 4.5% last week. Not only that, we've taken out CPI high yield today with PPI. Here's tens. haven't quite done it, but you see how high they're going. They settled under 420 last week. Now, maybe the most interesting. Look at the S&P 500. On track for another record high close. What's going on? Let's talk to Chim. Hi, Jim. Good. All right. It's an easy one today.

I want to explain how we see inflation going up, we see growth going down, we see rates going up, and stocks are partying like it's 1999. It makes sense. You and I've talked about the word stagflation. Nobody else was talking about a little bit ago, but guess what? We're starting to see stickier and stick your inflation. How can you get that into us potential cyclical slowdown? It's structural inflation. We're seeing populism, more de-globalization, costs are increasing, more labor, you know, rights that are increasing the cost of labor. All of these things create inflation, right? At the same time, you can get a slowdown in a cyclical things. We haven't seen that for 40 years. Yeah, well, you're going from Volker to burns on that. So what you're saying is with that type of outlook on inflation with regard to the markets and stagflation, maybe we're going to have a lot more green in the equity space. Well, at the end of the day, the Fed has to choose. They have to choose a stagflationary environment. They're in a box.

Do they choose to fight inflation like Volker? Or do they choose to be burns and choose growth? And it's an election year. So they're choosing growth. What does that mean? That means liquidity to the market. So does it surprise you that you're seeing kind of all-time highs again? No.

You're going to see that liquidity pumping into the system until they choose to fight inflation. And you're going to see a steepening of the curve higher yields in the back of the curve as they continue to stimulate. Now, even though we don't necessarily see the steepening yet, I couldn't agree with you more. Right now, it's all about short maturity's trying to define what this is going to do to the Fed. And there is this bias they're going to ease. Your final thought, do you think that the Fed is going to ease more than five times this year? No, not more than five, but they're going to try at every turn. They've tried to say the word transitory again and again, and they keep getting called on it.

They want to stimulate. They want to choose growth, but they're kind of stuck in a box, and I think that puts them at a lower number than five. I'm sure it's an lecture here has nothing to do with it. Chim, thank you for joining me today. Leslie Picker, back to you and have a good weekend. Thank you so much, Rick. Have a great long weekend as well. Speaking of rising prices, Tyler, how about we talk about some compensation numbers that we're getting? Goldman Sachs revealing 2023 compensation details. For CEO David Solomon today, the board approved $31 million for Solomon up 24% from last year, although it's below his comp from 2021.

The package comprises $2 million in base salary and $29 million worth of discretionary bonus. 70% of that is performance-based stock units and the rest is cash. The 24% jump is the largest change among the big bank CEOs whose 2023 compensation has been disclosed so far. but the total package amount is the second smallest. In that 8K filing from today, Goldman says the board's compensation committee made its determination based on Solomon's, decisive leadership in reorganizing the need to clarify

and simplify the firm's forward strategy and, quote, progress on strategic priorities in the firm's core franchises, which include global banking and markets and asset and wealth management. The firm's pivot, narrowing its consumer ambitions and selling off some of its unbalance sheet investments came at a cost in

2023, though, as Goldman sold off various assets and marked others lower. Goldman shares gained about 12% in 2023, and the company's net revenue declined 2% as the capital markets and dealmaking remained dormant. Return on tangible equity was 8.1%

for 23, down from 11% the year prior, and the company recorded about $2.8 billion impact to earnings in the year from a slew of special items, Tyler. So they've been really captive to what's been going on in the deal-making markets. Yes. Oh, absolutely. And that's why you saw revenue tick down 2%,

because deals just aren't getting done in the same way they were, say, in 21. And what are they doing in that direct-to-consumer space with the Apple Credit Card and the banking business that they own a bank in? Where is it? Utah? I can't remember. So that's the business that they're narrowing their ambitions in. So they've, you know, they basically moved that Apple Card business kind of outside of their ambitions. the GM card, same thing. That's just not a key strategic focus for them anymore. They're really kind of doubling.

And that was a Solomon initiative, wasn't it? Or am I wrong about that? It was that fair? Kind of a holdover from Blink Fine, but Solomon really took it to the next level when he took that seat. Obviously, you know, since then kind of pulled that back a bit. And that's kind of the big transition, the big pivot that we saw in 23. That led to a bunch of, you know, impairment charges, things put in available for sales.

So I hear you say that of the, of the, of the, The CEOs whose pay we have heard about, while the pay package was, I think you said, higher than last year, lower than two years ago. But is the second smallest among the major bank? Second smallest. Yeah, $31 million. Who's got the biggest? The biggest, I believe, is James Gorman of Morgan Stanley. Oh, yeah.

The outgoing. That was, yeah, outgoing. Although from a percentage increase, I believe, if we could get that full screen up there, I believe, if my numbers, if my memory serves, it's about a 17% increase. from the year prior. Didn't mean to catch you off guard there. No, that's okay. Yeah, great stuff. That's okay. All righty, coming up. The ever-changing retail landscape, the industry has seen an unprecedented upheaval over the past few years. So what will the next five look like? We'll talk about retail next. Plus, the cost of owning a car is getting a little bit painful, higher insurance

rates and pricier vehicles have left Americans fumbling, stumbling forward. We will discuss what these car costs are doing to Americans' budgets when power lunch returns right here. Welcome back. The retail sector has seen unprecedented upheaval over the last several years, with even more changes likely coming in the coming year. CNBC spoke with industry executives on the state of retail and what they predict the retail landscape will be like five years from now. Current and former CEOs weighed in on a number of topics and challenges currently facing the industry. Joining us on set are the authors of that article, CNBC's own Melissa Repco and Gabrielle Fren Rouge. Thank you both so much for being here.

Melissa, let's start with you because it feels like in this kind of post-pandemic era, we look back. And there was so much change that took place from supply chain to technology adoption to just the way that consumers are purchasing things. You know, adopting more e-commerce habits and online shopping habits, for example, when, you know, you know, you're stuck at home. How did that time period really reshape retail? And how are CEOs kind of looking at that as maybe accelerating some trends that could have happened, you know, five years from now or three years from now? One of the resounding takeaways, Leslie, when we spoke to CEOs,

is they talked about the importance of the store. I think during the pandemic, a lot of us thought they would fade from relevance. But now those stores are playing a critical part of the business by serving as fulfillment centers. So they're not just helping a company show off their product. They're helping pack and pick and deliver orders and get closer to that end customer to bring down costs. Because people have embraced online shopping, the two have to be combining and working together. So obviously the store very important and shockingly ubiquitous, especially since I think if we were having this discussion maybe 10 years ago, looking ahead to what five years would be. Everyone would say, oh, complete, you know, Amazon's taking over the world.

E-commerce is the way of the future. but I think we learn that people do enjoy that in-store experience. And Gabby, one thing that really struck me from your piece is just kind of what these CEOs are expecting in terms of technology and how it's not necessarily a replacement for brick and mortar, but something that is additive to that experience. You're absolutely right. This idea that retail is dead, that physical retail is dead, is completely false. I mean, we even spoke with CEOs of digitally native companies that are talking about the importance of stores as a tool for customer acquisition. And then there's so much technology that you can have in the store now.

You know, something that the CEO of Neiman Marcus mentioned to me when it comes to luxury, that's an opportunity to bring in a full sensory experience with that smell and sound and visuals and having that opportunity to kind of have a 360 experience with the product. And then even something as simple as fitting room technology, how that can incorporate between online shopping and in-store shopping, getting that fit correctly with a mirror that knows you better than you do. And what they said is, you know, that's going to lower returns. it's going to increase customer satisfaction.

So much fun things to come. A mirror that knows you. I don't know if I want that mirror. She thought of this got a little bit like, okay, not sure. So one of the people you spoke to said that the search engine is going to be like the cassette tape. What was that person driving at? Yes, so that was Mark Lorry, formerly of Walmart. He ran Walmart's e-commerce business after Walmart made a very big acquisition of Jet.com.

And his point there was that with artificial intelligence, The intent of a customer is going to be much more understood. So you're not going to be going to Amazon.com or Walmart.com and typing in red sweater. There's going to be a better understanding of what you want based on your shopping history and your engagement through maybe a chat bot, through how you use the mobile app of a company. So it's going to know you much better. And there's not going to be this kind of like he was kind of describing search engines are going to look really dumb in the future. They won't know what you want.

They won't know you at all. Instead, we're going to move to a world where retailers, if they do it right, will serve almost as a digital assistant. They're going to be providing that almost like a best friend who knows exactly the kind of sweater you might want, that you're living in a climate, that you might not need a sweater, you might need a short sleeve shirt for Valentine's Day, for example.

So kind of getting to know you better and being more sophisticated in customizing that experience. That's almost a little creepy too. I kind of like the mirror. Absolutely. Gabby, how are you seeing, based on kind of the prognostications of what these executives see for the next five years?

How are you seeing investments today taking place at these retailers? Do you think that they're making kind of the appropriate investments to be ready for, you know, five years from now? Or do you think there are some significant gaps out there? So it's a great question because COVID really accelerated this timeline. You know, like you would kind of touch on the beginning of this conversation. These were changes that were coming, but that COVID made so much faster. So there was a lot of reactiveness over the last three years. And now as we're entering into 2024, retailers are in a position where they're trying to be a bit

more proactive and getting to the right place, investing in the right technologies. Everybody always says, though, that the retail industry is so far behind when it comes to technology. So there's absolutely a lot of gaps. We are seeing a lot of retailers lean into AI. They're doing some things with it now. It's nothing super cool and exciting. I'm yet to be wowed. But in the next five years from now, I mean, if they really focus on those operations,

focus on those investments, get the right vendors in their pocket, we could see some cool stuff. Gabrielle Fon Rouge, Melissa Rupco. Thank you, both very much. As we had to a break, a quick power check on the positive side applied materials, fresh 52-week highs, thanks to a Q1 earnings beat. Shares are up 8%. Negative side, digital realty trust we had the CEO on earlier. Shares are down 8% as Q4 projections came up a little short. We'll be right back.

Welcome back. In the fall, regulators finalized new rules surrounding the Community Reinvestment Act. That's first passed in 1977 to reverse policies. that had been depriving lower income and inner city neighborhoods of credit. Originally, the rules were tied to a physical bank branch, encouraging banks in those areas to lend in communities where they were also taking deposits. But in this new iteration, updated for the modern age, it takes into account declining branches in lieu of digital banking

and evaluates banks for lending they do on a nationwide basis. Last week, a slew of trade associations, including the American Bankers Association, and U.S. Chamber of Commerce filed a complaint in the Northern District of Texas against the Fed, the FDIC, and the OCC. The plaintiffs say the new rules went too far, and they're seeking to vacate them. The Fed, the FDIC, and the OCC declined to comment on the lawsuit, but others say the modernization is necessary to bring access to credit to underserved communities. Bill Bynum leads a credit union and advocacy group down in the south. He said discriminating lending practices

are, quote, still unfortunately rampant and strong modern rules that account for the ubiquity of mobile banking are needed to close that gap. Bynum said he found the lawsuit, quote, hard to reconcile. CRA is designed to make sure the banks reinvest in communities where they extract profit. Historically, it was based on where you have a branch. Well, if branches are not no longer the primary way people access the financial system, then you have to modernate CRA. And I think the regulators have done a reasonable job of doing that.

The banking groups say to comply with the final rules in the first 12 months, that cost could exceed $600 million, Tyler. It's interesting how the change in the way we bank is changing this kind of regulation. I mean, in other words, people aren't, the branches are closing everywhere. Yep, they are. And in closing, it kind of created this gap in the system. The CRA, when it was first passed, in the 70s, it was directly tied to, and the way that regulators kind of monitored things was based on physical bank branches. So if those branches disappear, that regulatory oversight ensuring there's still access to credit in those areas also disappear.

So the intent of these new modernization rules, which, by the way, were updated for the first time in earnest in 25 years, was to kind of fill in that gap and close that gap. But then the banks are saying, you know, this is putting way too much pressure on us because now we have to comply with what is a 650-page amendment to this act. So very long, complicated rules. And we're kind of held responsible for the lending we do on a nationwide basis. As opposed to historically, it was just kind of based on where you had bank branches and they could kind of monitor things that way. A lot of. I mean, a lot don't. Some do, but, you know.

Or they don't do it nationwide, but they do it over kind of a large. Swath of the southeast or Midwest. Exactly. All righty, let's get over to Kate Rogers, shall we, for a CNBC news update. Kate? Hi there, Tyler. President Biden is traveling to East Palestine, Ohio this afternoon as he faces criticism for not going there sooner.

It's been just over a year since a train derailed in the small village and spilled toxic chemicals. The White House plans to use the visit to urge lawmakers to pass federal railway safety legislation that stalled in Congress following that derailment. Prosecutors dropped a domestic violence charge against Boston Bruins star Milan Luccik this afternoon. They said the decision by his wife to invoke spousal privilege and refused to testify made it impossible for them to prove their case beyond a reasonable doubt. It also came after a judge also ruled her 911 call following the alleged assault was inadmissible in court. A stolen bass guitar that belongs to Paul McCartney has been found following a five-decade search.

A campaign called The Lost Bass Project, tracked the iconic guitar which someone stole from a van in 1972 to a family in Southern Hastings, England. McCartney used the guitar in countless live shows and the first Beatles, the Beatles, rather, first two albums. What a story, Tyler. Back over to you guys. Really? Rather antique right now compared with what the musicians used today.

Thanks, Kate. Appreciate it. Thanks. Beautiful guitar, indeed. Still ahead. Auto loan delinquencies just hit their highest level in 13. years, but one expert says Americans can give back on track when it comes to owning a car. She'll share her tips next.

All right, welcome back to Power Lunch, everybody. High interest rates, not just making it challenging for prospective homebuyers. Car owners are experiencing sticker shock, and it is squeezing budgets for them as well. According to Coxota Motive, the average new car price is up 30 percent since 2019 to just over $48,000. Car insurance rates nationally rose 20 percent at the end of last year from the prior year. and the average new car loan is up 50% from 2021. Here to discuss rising costs of owning a car

and what this is doing to Americans' budgets is Jade Worshaw, a TikTok influencer and co-host of the Ramsey show. Jade, nice to have you back. Welcome. Well, thanks for having me. So everybody knows that cars are more expensive, interest rates are higher. I think many people know that insurance is up.

So how are they able to buy so many cars? You're exactly right. We've seen car insurance go up 20 to 20.8 percent. And Americans are feeling it. You know, the average American pay somewhere around $212 a month just for their car insurance. So that bump in insurance, they're going to be paying an extra $42 to $45. That along with an average car payment of over $700. No wonder Americans are feeling that squeeze. And if they want to stop feeling that squeeze, they're going to have to make some changes. And that starts with their budget. What do they have to do? You know, I always recommend people buy cars in cash. And the moment I say that, people go, what are you saying, Jade? I'm just going to walk out and buy a $35,000 car in cash. Not at all. Most of us just get fed up with our car payment.

We sell the car. If we're not able to pay it off in two years or less, I recommend selling that car and really buying a car in cash somewhere around $8,000 or $10,000. And you can always upgrade as time goes on. I think you're right about that, by the way. I think I've always sort of been told that the most economical way to buy a car is to buy for cash because you don't in a lease, you've got financing costs are built into the lease, or if you take a loan, you've got financing costs there. So it is. But then that means that I'm not getting the hot, sweet ride that I want. That's right. But, you know, my buddy, Dr. John Deloney says all the time, we've got to choose reality and we've got to live in the reality of what our finances will allow. And I always tell people, you've got to look at the opportunity cost.

When you've got a $700 a month car payment, you could either use that on a sweet ride, as you so eloquently said, or you could invest that money. And over the next 25 to 30 years, have yourself one, $1.1 million. So the choice is up to the consumer. Is our gas prices giving consumers any relief, especially after what we saw a year or two ago? They're probably feeling some relief there, but I feel like it's just been counteract. by this insurance going up. And so at the end of the day, we've just got to be on top of our personal budgets. Every single month, we're making a completely new budget because every month our money is different and what's required of our money changes. So I always recommend a good,

detailed, realistic, flexible budget that is going to solve that problem for Americans. So I guess there's no way I can, well, are there ways I can reduce my insurance costs? Absolutely. You know, obviously the model of vehicle that you drive does matter. If you drive a Tesla, there's more technology in that vehicle. And so it's going to cost more to replace it or repair it if something were to happen. And I always like to tell people, think about where you live. If you live in an area where there's a lot of natural disasters, hailstorms, tornadoes, fires, your insurance can go up. Obviously, if you live in a place where there's a lot of uninsured motorists on the road or an area where auto theft is high, unfortunately, all of those things, do drive up the cost of your insurance. And I'm not suggesting that we all up and move our homes, but we can do something as simple as deciding that we're going to drive a less expensive vehicle and pay for it in cash. All right. Jade, thanks very much. Good advice. Jade Warshaw. Thank you. Thanks for having me. Coming up, OpenAI's mind-blowing tool. The brand behind ShotGBT just unveiled some examples of

its new text to video tech, and it's leaving the internet and myself bewildered. Julia Borsden, we'll share the details next. Open AI, the company behind ChatGPT, expanding into AI video generation, and its text-to-video tool is creating some jaw-dropping videos. Let's head out to Julia Borsten for today's tech check. Hi, Julia. Hi, Tyler. Well, Open AI's new tool called SORA is a text-to-video generative AI tool which can turn

a descriptive sentence or two into a video clip that's as long as a minute. So it can also turn still images into video and can extend videos or fill in missing frames. Take a look at this example. The text prompt is this, reflections in the window of the train traveling through the Tokyo suburbs. Take a look at the reflection. Everything looks pretty real to me. Now, OpenAI's expansion beyond text and images raises some concerns about the potential for realistic-looking fake videos to manipulate consumers, especially ahead of the election.

OpenAI saying, quote, will be engaging policy. policymakers, educators, and artists around the world to understand their concerns and to identify positive use cases for this new technology. Just earlier today, 20 tech companies announced a commitment to combating misinformation in this year's election around the world with AI. OpenAI also saying is working to make sure that AI generated content can be identified. They're building a detection classifier to identify Sora generated clips and also including metadata to tag Sora created videos. Now, there's another potential issue here, which is concerns that AI generated video could infringe on copyrighted work.

But OpenAI says it's only training on licensed or publicly available content. And while this new technology may not be threatening the livelihood of filmmakers just yet, graphic designers and animators may be concerned. Looks pretty good to me, guys. So let me ask a couple questions here. Are those videos that we just saw, were they all digital videos? Or was it real video? It's generative AI videos. Those are not videos that are taken by a person with a camera or with a phone.

This is generated based on a prompt. So it's trained on, you know, obviously on other images. But this, the video we showed earlier today of a bunch of golden retriever puppies. I mean, it looks so real to me. I could swear it was actually a video, but it was just generated based on this prompt. It's incredibly real. It's incredibly real. If you're looking at this here, you can't see the people's faces. You're seeing them from behind. Maybe not everything about this path makes sense. How are they going to get out of that path there? But it does feel very realistic. But that probably was generated based on a prompt from someone who said, show me a video of a walking path in this district in Tokyo after a snow has fallen.

Yeah, the combination of cherry blossoms and snowflakes. So it's going to capture what the prompt. says, but it's not going to necessarily be a real street. So it's about generating something new, but remarkably lifelike, if you ask me. It's remarkable. And you've done one of these, haven't you where there was an imposter of you and your voice and everything? I remember this. We've been lucky to get to experiment with a lot of this cutting edge generative AI technology. Last year, we played around with a deep fake technology that allowed someone else to wear my face. We scanned my face and effectively put it on someone else and also sort of use this generative AI technology to turn me walking through a movie set into a robot or an alien. Just amazing how fast this technology is evolving.

Oh, there's the golden retrievers. These are digital golden retrievers. These are not real. That's not a video that's digitally generated using generative AI. Insane. So cute. There is only one Julia Borsen, and you are the real thing. All right.

For now, at least. Tyler, just for now. Thanks, Julia. All right, last year was Big Tech's year of efficiency. A big oil has been doing the same kind of thing, and it doesn't seem to be hurting productivity. Pipa Stevens has a look behind the numbers. Hi, Pippa. Hey, Tyler. So right now, the U.S. is producing a record 13.3 million barrels per day of oil. That is more than any country in history has ever produced.

So you can see here behind me, that is the blue line. You can see out of the Shale Revolution, the advent of hydraulic fracturing. Our production is now at a record 13.3 million barrels. But at the same time, the rig count, that's the orange line. has actually come down. Now, one important thing here is the RICount is a leading indicator of sorts, since it is the very first step in the drilling process.

It's before the well has been completed or fractons actually producing oil, but it does speak to the fact that energy companies have become much more efficient, meaning they are getting more oil out of the ground for every dollar spent. So what are some of these efficiencies? Well, if we advance to the next graphic,

as Alexander Ramos Pion from Ryside Energy told me, the first and foremost is longer, lateral wells. So of course, the first thing is you drill down vertically, then you go 90 degrees and you drill horizontally. So back in 2014, the average well length was about a mile long on the horizontal sense. That has now since risen to almost two miles, and some of the largest companies are actually drilling up to four miles horizontal, so that, of course, means that your well is yielding a lot more of the oil and the gas. Some other things include larger well pads. Think about all the infrastructure required to drill a well. You have all.

of that electricity, all that piping. If you can drill more wells per each pad, once again, efficiency goes up. Same with simul fracks. That's fracking two wells at the same time. That means that the personnel on site, their time goes down. Again, it means greater efficiency for you. And then just subsurface understanding. These companies collect a whole lot of data and are always crunching it.

So out of the pandemic, kind of the motto of oil and gas companies has been capital, discipline, and shareholder returns. So on the next graphic, what this, this really demonstrates that because this, This is the average live drilled, but uncompleted wells. So you can see back in the day, companies were drilling all over the place and maybe weren't even going to complete those wells. They were just drilling left, right, and center. But now they're being much more intentional. So you see the number of live drills but not yet completed wells has actually gone down.

And so all of this together means that this is now a very well-oiled machine. These companies are being very strategic in terms of where they're drilling and really focusing on the best acreage in order to keep their cost. but their production maintained and maybe even growing a little bit. Yeah, it's literally the epitome of a well-oiled machine. Pippa, thank you. Now we know why that exists. Still ahead, the strategy for semis. Our three-stock lunch trader will tell us which names she's feeling chipper about.

Next. And during February, we're celebrating Black Heritage here. Here is TIAA's chief institutional client officer, Courtney Gibson, sharing her story. 54% of black Americans do not have enough savings to maintain their current standard of living in retirement. So what can we do about that? One, ensure pay parity for black Americans. Two, ensure that they have access to guaranteed lifetime income as a part of their retirement

plan. And three, we all know that talent is created equally, but opportunity and access are not. All righty, welcome back, everybody. Time for today's three-stock lunch, where we look at three big movers. Today we focus on the chips here with our trades, Gina Sanchez, Lido Advisors, Chief Market Strategist, also a CNBC contributor. Up first, let's go, Gina, to Applied Materials, the company delivering an earnings beat yesterday. Positive Outlook. Shares of AMT up about 8% today. Your trade on that one, Applied Materials. So this is a buy for us. Applied Materials is doing extraordinarily well. You know, if you look at their market share and their revenue guidance, it suggests that this is a stock that can continue to deliver. And the big macro story here is true for all of the stocks we're going to talk about today. The demand to continue to process faster and more complex algorithms is only going to go up. AI is fueling that. But we think that this demand is a secular move, not a, cyclical move. Really feels like the year of the chips. Up next super micro-computer wild story here.

Investors have been betting big on AI demand shares of SMCI up over, I don't think this is a typo, 800% in one year, but down about 11% today after an analyst call said the AI boom is priced in. Gina, do you agree? Do you think the AI boom is priced in after an 800% increase? Actually, no, So this is a stock that has been sort of simmering and flat for a really long time. You know, these guys make servers, unlike AMT who is making chip design software and manufacturing stuff. These are the actual servers, and they just have really met their moment. And so you're seeing that their high-performance servers are the kinds of servers you need. They're, you know, their customers or people like data centers, folks who are running data centers,

cloud computing, AI, everything to do with this current moment is actually custom built for this server. And before now, nobody needed that kind of high power. So this was a very undervalued stock that is now reaching its moment. All right. Finally, let's go to your favorite name in the chip space. We asked you what it was, and you said advanced microdevices, AMD, and other stock that's ridden the AI wave up more than 100% in the past year. You love AMD.

We do love AMD, and to be fair, we have owned it for some time, so it has been the gift that keeps on giving. But it has yet to really achieve invidious status and the latest unveiling of their new microprocessor, which is the Risen 8,000 series for desktop processing, we think that's going to start to really sort of get into that space. And we should start to see, well, actually, we shouldn't start to see. We will continue to see really strong revenue off of that. And, you know, we think that the demand for this, like I said, this is a secular play, not a cyclical one. We think the demand is going to remain for some time. All right.

Gina Sanchez. Thank you. All right, coming up, a record-breaking night. The Iowa women's basketball star, Caitlin Clark, just broke the NCAA's all-time scoring record. We'll have that when Power Lunch returns. She did it almost from the logo. Three-point. Amazing.

Recovered by Gabby Marshall. Here comes Clark. How will she go for history? I love the reaction there. We have only about two minutes left in the show. That's all it took for Caitlin Clark to make history scoring. Eight quick points last night to set the division won women's scoring record. She finished the night with 49 points, a career high.

Hysteria had been surrounding Clark creating unprecedented attention and money for women's basketball. Many people paying hundreds or even thousands of dollars to watch her play in person and many more watching her break that record on Peacock. I just love the crowd reaction. Everybody knew what was going on. I mean, she is a phenomenon. Look at amazing form on her jump shot. I mean, just with the last wrist flick there. And that one was almost from the mid court. I mean, the record breaker.

I talk to investors all the time. You say women's sport is the next frontier of entertainment. that people are paying money to see women. It is compelling. And you watch some of those Big Ten women's volleyball games? Yes. They're fun, man. It's so fun.

It's got a lot of action. All right. We want to congratulate our line producer Joe T. on the birth of his son. We are thrilled to add this adorable little fellow to our Power Lunch family. There he is. Oh, he's cute. It's all good.

We're happy. Thanks for watching Power Lunch. Good to be with you, Leslie. Good to be with you, too, Ty. Thanks for coming. Thank you. Closing bell right now.