Power Lunch - The State of Regional Banks, DOJ's New AI Chief & Nvidia Earnings 2/22/24

Episode Date: February 22, 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.

All right, welcome to Power Lunch, everybody. I'm Tyler Matheson. There is one big market story overshadowing everything else. It is NVIDIA. After its results last night, the stock is up 15% today, 56% so far this year. It has cemented its place as the third biggest public company in the world, behind only Microsoft and Apple. Ahead now of Amazon and Alphabet, 1.92 trillion in market value. Causing a nearly 3% rally in the NASDAQ right now, propelling that index. closer to its all-time high. And the Dow and S&P also at records. The Dow over 39,000 at 39,33, a 1% move there. The S&P, 2% higher. You can see the impact NVIDIA's having on other chips. AMD up more than 10%, super micro, soaring another 30%. And let's bring in Christina Parts in Avelas, who follows chips for us.

Christina, what did NVIDIA say that was enough to spur this rally? Well, investors got exactly what they were looking for from NVIDIA's earnings. Confidence in the AI boom beyond next year. Or as Jensen Wong says, fundamentally the conditions are excellent for continued growth in calendar 2024 to calendar 2025 and beyond. The demand sustainability theme was, yes, driven by the 409% your jump in data center revenues, their bread and butter, but customers are actually moving beyond just cloud service providers to include auto, health care, finance.

firms. Management also saying their new line of chip products will be supply constrained, so that means demand holds out a little bit longer into 2025. And although China sales did drop significantly because of U.S. export controls, NVIDIA is still sending these workaround chips, let's call it that, that could mean even more growth in China once NVIDIA actually gets U.S. licenses to export to China. They're still waiting on that. Lastly, Nvidia said inferencing now contributes 40% of data center sales. So, NVIDIA is not only dominating the training part of the large language model, but also the part where you set up queries for the trained data, aka put the large language to work. That's the inference part.

All of these catalysts that you see on your screen actually point to demand sustainability, the theme. But, NVIDIA doesn't actually guide beyond the current quarter. So that means you have to trust what the CEO of NVIDIA, Jensen Wong, says about demand. There are also concerns about eventually competition catching up and earnings eventually peaking. But those concerns haven't stopped the stock from hitting an intraday high. And like you mentioned, Tyler, inching closer and closer to that $2 trillion market cap. $102 a share higher today, 15%. Christina, thank you very much.

Appreciate it. Thanks. Let's get an analyst take now on yesterday's Blockbuster earnings report from Nvidia. Our next guest just upped his price target today from $800 to $9.25, which means the stock can gain another 20% from where it is now. and that would put it well above $2 trillion in market value. Let's bring in Vivek Aria. He is the senior semiconductor analyst at Bank of America's Securities. Vivek, welcome.

Is there anything, anything, in the report that you saw yesterday that gives you any sort of pause here? Thank you, Tyler, for having me. I think that, you know, when you look at, there is a supply side on the demand side, I think they are working on the supply side very effectively. So the supply situation is gradually, getting better, but not so much so that it should be a cause of concern.

We don't see any oversupply. I think the supply demand balance should stay pretty strong. I think the more interesting thing is on the demand side, that only about 10 or 15% of servers today are accelerated. So that means they are deploying an AI-like workload. So over time, we think that number could be three or four times that amount. That's one aspect of it. The other aspect of it to keep in mind, though, is that, you know,

we are still in early stages of figuring out what generative AI can be, what applications can be monetized. So I do believe that every time, you know, there is a new year that people will ask the same questions. Again, what are the applications that can be monetized? And it's not that different from the early days of the internet, right? The internet started, commercial internet started in 1991. And it wasn't just straight up and to the right.

Every year, there were questions about, you know, what are the key applications that will drive it. But I think today, NVIDIA is in great shape to monetize what I think will be a multi-year growth trend for them. And to come back to what is a source of concern, you know, anytime the stock goes up by these large amounts, that is always something that we need to watch out for, the fact that a big part of the semiconductor industry, at almost two-thirds of the semiconductor market in our view, is exposed to this one trend. I think that there are risks that are associated with it. But I think as long as their customers find ways to monetize AI, the company is in very good shape.

Yeah, and you've just raised your price target on it up to the $900 range or thereabouts. You can correct me, put the precise number on it. Here to four, up to this point, Nvidia has really owned this area, this space for these high-end processing units. I wonder if there are any competitive risks that you see on the horizon for them. Right. No, that's a good question. One thing I would suggest is if you look at just the nature of technology, right, look at areas outside of AI chip, right, look at search, look at operating systems, look at social, look at e-commerce. What is common to each of those technology markets is that the early mover, the one with the scale, tends to control 70, 75% of the market unless they mess up. So as long as they are executing extremely well for the leading, in the market to continue to have that 70, 75, 80% market share is actually not that uncommon. And that's why our assumption is that, you know, in this accelerator market that was about $45 billion addressable last year, right, is probably going to grow another 60, 70%, 70% this year

and gets to somewhere close to $170 billion over the next few years. That Nvidia dominates with a 70, 75% share. You know, we think custom chips that are made for Google or Microsoft and others, that's another 10 or 15%. And then the remaining 10 of 15% is shared across the likes of AMD, you know, Intel, you know, the many startups who have interesting propositions. So you will see competition,

but I think it's pretty hard to dislodge Invidia from that 70, 75% leadership position. That's just amazing. That would be a market dominant position. How about margins as, you know, they're increasing sales immensely, you know, and margins look really good as well. So you increase sales, you got a margin.

Boy, you get a money machine. Right. You know, it's interesting. In the last year or so, their operating expenses increased, I think only 800 million or so, and their sales increased over $30 billion. So that's the leverage, Tyler, that you're speaking to in the model. And the reason for it is that their focus is on this one thing called the GPU.

And it's this one GPU or this parallel computing machine that they are taking into every, end market, whether it is the data center, whether it is automotive, whether it's workstations, whether it is omnivorce. So that creates, number one, it's a great source of, you know, focus from their engineering talent. Number two, it's also a great source of dependability that their customers have, that the same architecture will be supported, you know, backwards, forwards. They're not getting distracted and going after programmable chips or going after industrial markets or, you know, going after 15 or a foundry business, etc. They are focused. And then one last point I would also quickly mention, Tyler, is that not just operating margins,

look at cash flow generation. In the last quarter, they generated 11 billion of free cash flow in one quarter. And I think in the next two years, they probably generate over 100 billion. And the next three probably close to 200 billion in free cash flow. That's just astounding. This is one to watch. Vivek, always good to have you with us. We appreciate your time today.

Thanks very much. Vivek, Ariya. All right, the AI boom is the big story in Silicon Valley and on Wall Street today. And Capitol Hill as well, the Justice Department, naming an AI czar. And Eamon Javers, the czar, is here set to explain, Hey, but not a czar of AI, though. Yeah, the Department of Justice is naming this official. Jonathan Mayer is a professor of computer science at Princeton University.

He's got a Ph.D. in computer science from Stanford. And he is going to be the official, who will be the top AI official at the Department of Justice. And you ask, well, what does that position actually mean? It means something both internally and externally, I think. Internally, this is the person who's going to figure out how the Department of Justice uses AI, recruits AI talent, computer scientists who are, you know, fully aware and conversant in this technology, and also figures out all the sort of legal and practical ways that the Department of Justice can use AI. Because as you know, Tyler, AI sometimes spits out gobbledygook. So if you're using it to investigate crime, you don't want to come up with bad data that somehow infects your prosecution. So they've got to be very careful as they roll all this out.

And then in terms of externally, the Department of Justice has said that if crimes are committed with AI, they will seek enhanced sentences if the crime was magnified by AI. Although they do say they don't think we need an entire new AI legal regime here that crime is crime, whether it's committed with a computer or with AI or not. What do we know about his background other than that he looks like a quite young fellow? Quite young fellow. Well, like I said, Princeton, he's also a Stanford PhD. So he's a computer scientist, right? He's not a lawyer or? He also has a law degree, yeah. Wow. He has, let me go down here and figure out where it is. Yes, JD from Stanford Law.

So he has covered a lot of bases in his few years. But this is the person that the Department of Justice says is going to be responsible for figuring out. This really big problem, it's a big problem for government as well as, as you've been talking about all through the show, for businesses that are trying to adapt to AI. Companies like Nvidia benefiting enormously, but there are also challenges on the downside. And government is going through that same process as well. All right. Amen, thanks very much. We'll see you tonight on last call, right? That's right. Good. Seven o'clock. Seven o'clock. All right, coming up another bullfight, Moderna, reporting results, but both that name and rival Pfizer down significantly over the past year.

Which is the better by now? That's ahead. Plus, we're just a week away from the anniversary of the regional bank crisis. That makes me want to celebrate. What's been fixed and what issues are still lingering? We'll talk to the Valley Bank CEO, always look forward to hearing from him when Power Lunch returns. All right, welcome back to Power Lunch, everybody. As you see on your screen there, stocks are really surging right now. Look at the industrials, continuing to add. Now up 470 points, 39,000, almost pressing in on 39,100. S&P, Dow, all-time highs, NASDAQ, up close to 3%.

Best day in a year for NASDAQ so far. Big tech in the driver's seat of this market. Our next guest says pay attention to valuations. He says the stock market is really a tale of the halves and the haves. knots. He is Scott Clement's chief investment strategist with Brown Brothers Harriman. Take me through your argument, Scott. What do I need to be on the lookout for? Well, Tyler, it's becoming increasingly irrelevant to talk about the market as if it's one thing because this very small handful of stocks, of which Nvidia is the in the news over the past 36 hours or so, make up almost 30% of the market.

It's remarkable that last year, a year in which the S&P 500 was up 24%, about 35%, about 35%, of the names in the market. So not capitalization, but just names, had a negative sign in front of their return. So the haves and have-nots is true of earnings growth. It's true evaluations. It's true of market performance as well. And investors just need to be aware of that when they talk about the market as if it is one monolithic thing, because it's not. What does the, what does the macroeconomic background tell you about the potential in the market for further gains? Well, we're sort of living in the best of all possible worlds. And we've got an economy that surprisingly continues to grow. The big surprise last year was the recession that never happened.

It seems like economic activity in the first quarter of this year is coming at about two and a half or 3 percent. And of course, if you add to that at some point enough further improvement in inflation for the Fed to adjust interest rates downward, that's a really powerful combination. The pessimist in me knows that whereas the optimist believes this is the best of all possible worlds, the pessimists tends to agree and says that it can't get any better. So I think investors just need to invest with their eyes wide open. And really valuations, particularly in these technology stocks, is where I think more attention should be focused. So what will it take to get the market to broaden out from its, I mean, not that it's necessarily a bad thing that technology is leading

the market higher. It's been that way for a long, long time. Technology has been the most exciting, robust, growth-oriented sector of the American and maybe the global economy. But what What will be required for the market to broaden out so that other kinds of stocks take part? I think part of it is a broader participation of economic activity, and we're seeing that already. The economic growth we've seen over the past year is not really located in just one sector. It's pretty broad-based, coupled with the reality of the Federal Reserve beginning to lower interest rates. There's a lot of talk about that. The futures market is anticipating that.

The Fed is dancing the fine line about the time. of it and not wanting to be seen as too soft on inflation. But when we see that, I think you'll see the broader leadership take place. But in the meantime, you're absolutely right. Technology is the story of the day to day. Everything on my screen is green. It's really the story of the past two decades in the U.S. market. And we should celebrate that because that's innovation that benefits every aspect of economic activity. It's also innovation in which we, the United States, are the leaders in many, many ways. We're not necessarily always the endgame beneficiaries there, but be that as it may, we do pretty well there.

Let's come back to that question of valuations, which I know is a concern of yours. Talk me through that and the concern that the valuations are kind of melting up, and that's never a good thing. Well, no, but the saving grace here, and Invidia yesterday is probably a good example of this. The earnings are also melting up. Yes.

So as long as earnings are melting up while prices are melting up, then the valuation story is okay. And I think it largely is for right now. It's when investors begin to take that for granted or lose sight of the fundamentals that you wind into true bubble territory. I don't think we're there. I'm not using that word yet with these companies broadly defined. But I've been around long enough and have enough gray hairs to have seen that cycle happen enough to where I worry that somewhere out there in the future, that begins to take hold and prices begin to become disconnected from the underlying fundamentals. So far, that's not the case. And that's That gives me some confidence that this market rally, not just today, but the market rally so far this year, has legs.

We like guys with gray hairs. Keep it up, Scott. Thank you, my friend. Scott Clemens. All right, further ahead, an inside look at what measures the IRS is taking to find wealthy tax cheats. We will dig into that story when Power Lodge. Welcome back to Power Lunch, everybody. Stocks are higher today, as you see right there, nearly 500 points higher.

the Dow Industrials. 39108. We went through 39,000 like a breeze. Now 39100. All-time highs there. Money pouring into stocks coming out of bonds. Sending bond yields modestly higher. Let's get to Rick Santelli in Chicago for more.

Rick. Yes, Tyler, indeed. You know, yesterday we had the minutes to last Fed meeting didn't elicit a lot of market movement. This morning, the ECB minutes were released, and their topics were very similar. Don't want to be easy. too early. They have some wage

issues and we followed rates lower and then higher. We came in moving higher and it was basically because of the minute story. Then at 9.45 Eastern as you look at two year treasuries and two year boons on the same chart,

they start to diverge just a little bit and what happens at 845 Central 945 Eastern, very weak services PMI. Weaker than expected weaker than last month. And that indeed put yields to the downside. As a matter of fact, you could see there, we spiked lower. Now, if you look at a year-to-date of twos, we're on pace for another high yield close for 2024. As a matter of fact, let's push it back. We're looking at a fresh high-yield

close going back to December 12th on twos. And if you look at 10-year yields, going back to November. We'll call that three months on high yields. And we continue to be driven by the residuals of inflation, potentially a stagflation scenario, and, of course, still smarting a bit from a very weak 20-year bond auction yesterday. Tyler, back to you. All right, Rick, thank you very much. While the broader markets are rallying, solar stocks are getting hammered for the second straight day. Pippa Stevens here with the latest not-so-sunny story. We've got all this cheerfulness around us. We need some bad news. Bring it to us. Well, it is doom and gloom in the solar market right now. And today it's all about Sunrun and Sinova. We heard from them last

night, both companies missed top and bottom line estimates. And I feel like a little bit of a broken record here, but it does come back to higher rates. At the end of the day, these two companies, more so than your solar edge end phase for solar. Sunran and Sinova are consumer finance companies. They're the ones that provide the funding, the lending for consumers to install the panels. And so they have billions of dollars in debt. And so when rates go up, their cost of capital goes up, and it also slows demand for consumers to go solar. Yeah, consumers are going on. I'm not going to borrow at this rate to put this installation in. Exactly. And so what we heard from Sun Run, and they're the largest players, that they see growth this year could be negative 5% to positive 5% for their customer additions.

That was actually better than Wall Street was expecting. We also heard that there could be some recovery in California. And in an effort to combat that slow down in overall consumer demand, they've shifted more to a solar and storage company. Those batteries, in-home batteries are higher margin products. So they're focused on that. Now, Sunnova is down about 20% today, so almost double sunruns. And I think one of the reasons there could be just concerns around of capital and if they were going to have to raise capital. They did mention a $100 million at the market offering in the coming weeks. Now, they did say they have mentioned this before and they said they have no immediate need to use it and they don't expect to use it between now and their next earnings call. But still, spooking the market here.

All right, Pippa, thank you very much. Pippa Stevens reporting. Well, let's go over to Bertha Stevens now. Excuse me, Bertha Coombs now. Pippa Stevens, Bertha Coombs. It's confusing. We're both wearing plaid. I can see it. Yeah, I can see it. The FCC, FBI, and Homeland Security are investigating a widespread AT&T outage along with Cyberwatchdog SISA. The outage left customers unable to send text, make calls or even contact emergency services. It also affected some Verizon and T-Mobile customers. AT&T says it has now restored about three quarters. of its disrupted network. Opening statements began today in the trial of the weapons handler on the set of the film Rust.

Prosecutors laid out their case that Hannah Gutierrez was negligent when loading a live bullet into a prop gun that later went off, killing the film's cinematographer. But the defense said Baldwin violated basic gun rules, that's Alec Baldwin, the actor, and claimed that the evidence had been tampered. with. A judge ruled today that a Texas school did not violate state law prohibiting hair discrimination when it punished a black student over the length of his dreadlocks. Junior

Darrell George has been disciplined for much of the year because the school claimed his hair violated the dress code. School officials argued the state's Crown Act law does not address length. George vowed to fight back after today's decision. Tyler? All right, Bertha. Thank you very much, Bertha Coombs. Still to come, Moderna reporting a surprise profit, even with COVID vaccine sales plummeting. We've got more on that next.

That stock up 15% today alone. Welcome back to Power Lunch, everybody. Time now for our bull fight, Pfizer versus Moderna. In one corner, we have Pfizer, the company reporting mixed earnings results at the end of January and shares are down more than 30% over the past year. And in the other corner, we have Moderna. That stock up about 16% today on an earnings beat, but still down 36% over the past year.

So which should you carry in your portfolio? Here to make the bull case for Pfizer is Louise Chen, an analyst at Cantor Fitzgerald, and making the bull case for Moderna is Michael Yee, senior biotech analyst at Jeffreys. Welcome to both of you. Louise, why don't you go first and make the case for Pfizer? Both of these stocks, which of course rode the COVID vaccine and treatment wave to great riches,

have been hurt since that wave has seemingly crested. Louise, you first. Okay, so I really like Pfizer here. I think the expectations have now been right-sized. And I think the company has the potential to earn $5 per share in EPS, and that would be driven by top-line growth of new and existing products. They have a big operating margin expansion story. They're also going to be de-leveraging from the C-Gen deal and potentially do a sizable share buyback in 2025.

So I think the stock is undervalued at this point and poised to potentially recover from here. And how high do you think it could go? Do you have a price rate? Yeah. I have a $45 price target, but a $5 earnings per share historically is traded at about a 10 times forward PE multiple. So I think $50 and potentially even more. than that over time is definitely achievable. Yeah.

All right, Michael, why don't you take the case for Moderna and spell it out for us? A very nice day for Moderna today, by the way. Very good. Good to see you, Tyler. Yes, sir. Three very simple ones. First, you have significant negative sentiment on Moderna with a huge short position that I think is completely unwinding and could unwind this year.

We are in an AI-infused growth market. I'm definitely going to take a higher beta, higher growth, the turnaround story in Moderna out with that type of backdrop. The second is that there's actually a number of catalysts this year. So thinking about how bad it's been for the past 12 to 18 months on COVID, we have a RSV vaccine approval coming in May. We have revenues coming on from RSV this year. That's going to be interesting with the only pre-filled syringe versus anybody else. They also have data coming on another vaccine later this year for CMV. They've got cystic fibrosis data. We got a huge turnaround on modern i could see this thing rebound this year after three bad years so let's talk a little bit about

that rsv vaccine they will not own that market the way they and fiser owned the market for the covid vaccines because there are other players in there right there is fiser and g sk on the market each of them did about a billion uh for part of the year so it is a big and growing market moderna which is going to be likely approved in may so i'm looking for that catalyst we'll start to get some revenues later this year. Importantly, and was discussed on the call today, which I think people are catching onto because the stock was down on this a couple weeks ago, was that they held that the only pre-filled syringe, which if you actually go talk to CVS and a lot of the pharmacies can dose a lot more of that per day. And there's a lot of economics that I think could help Moderna on that

drive share on a low expectation store. Louise, what are the lines of business or the specific drugs that Pfizer can ride to the kind of earnings per share growth that you, that you forecast for, it and get out maybe of the shadow of some of the other drug companies like an Eli Lilly, which has the big weight loss drug, Munjaro and others in that area. What are the lines of business that can benefit Pfizer here? Okay. So in the short term, I think RSV is going to be big for Pfizer. They're already on the market.

They're going to do some contracting this year and really boost their market share of the retail market. They're already very high in the doctor channel. The other one here is NERTech ODT for migraine. And the last one, and the one that they're going to host a R&D day for next week, is their C-Gen deal. And they've basically really increased the size of their oncology franchise. And there's a lot to look forward there. They have that EV302 data that was better than anticipated.

ADCs have also become increasingly important as a part of the treatment regimen. And so I think that they've got a lot going here on the top line that could really drive growth 8 to 10 percent, I think, over the next couple of years for Pfizer. Who's the leader, Louise, in the cancer market right now? Is it Merck? I want to say Merck is the only one. Merck obviously has had a lot of success with Key Trudeau. I would put it this way. Yeah, Pfizer historically has not been seen as a leader in oncology. I think with the C-Gen deal, they could move into that pole position.

All right, Michael, why don't you respond to what Louise just talked about there? She's high on Pfizer in part because of its RSV present. You see Moderna being able to exploit perhaps partly at Pfizer's. expense the RSV market. Well, look, I'm happy that the expectations are very low on Moderna for RSV. Like I said, the stock was down. Pfizer had put up a billion already. I bet you're going to see market share lost there, market share gain for Moderna.

Again, reiterating about the pre-filled syringe and the fact that they're coming around from a zero share. I like that to the upside driver versus particularly guidance this year for Moderna, which is only a couple hundred million dollars. I think they're going to beat that number. and the expectations are very low. So, again, certainly from a stock perspective, I think RSV as a driver,

there's a whole lot of other things going on there with very low expectations, from cystic fibrosis to the cancer vaccine with Merck, which is ongoing in discussions with the FTA. And this is a hyper-infused growth market. Look at the performance today, Tyler. Big move on it today, just on an EPSP. This is the type of market,

I think you want to own the high-growth stock. Interesting. The case for Pfizer, the case for Moderna, expertly made. Louise Chen, Michael Yee, thank you very much. We appreciate it. And coming up, nearly one year has passed since the regional bank crisis. So how have smaller financial firms have been facing, faring since then? Valley Bank's CEO, Ira Wobbins, we love having him on. It will give us the view from the ground when power lunch returns.

We'll be back with Ira in a moment. Shares of Valley Bank have lost 20% in the past month, getting caught in the downdraft involving New York Community Bank. Now U.S. banking regulators are asking banks including Valley, if they face any fallout related to NYCB's troubles. And it comes as we approach the one-year anniversary of the collapse of Silicon Valley Bank. Joining us now to discuss the state of regional banks is the chairman and chief executive officer of Valley National Bank, Ira. Welcome back. Ira. Good to have you with us. Great to be here. Thank you, Tyler.

You know, I guess if I were sitting in your shoes, I would sit there and say, okay, well, we come through this rough year with Silicon Valley Bank, Republic, and others. and we thought we were coming out of this, and along comes New York Community Bank. This is the last damn thing I needed. Am I right? Yeah, I felt like, are we going to go through PTSD again, right, with what happened last March?

And it was hopeful that wasn't going to transpire this time. I think the real differences back in March, there was this, you know, concern about trust within the banking industry, right? We are in industry with a foundational perspective that our responsibility is to be a good steward of our depositors. And what happened last March was there was concern, if I put my money in any bank, what does that mean for me? I'm actually going to be to take my money out.

And I think there was then this correlation that said, does a bank stock price then associate with someone's ability to take their money out from an organization? And it's been a full year now that we've had to work through with our clients to assure them that not every bank is the same. Regional banks across the entire spectrum are largely on sound footing. These were really isolated incidents. And we are still a very safe and sound industry. And then we look what happens, about a month or so ago with New York Community Bank. And we go through the process again of just making sure our clients understand

that there is a difference between each individual bank. I think there's been some evolution over that last year where there really wasn't a lot of deposit flight at all and are much concerned regarding the overall deposit footings of the organization, which was very different from what it was about a year ago. How would you characterize it?

Has there been a difference in the nature or intensity or frequency of your interactions with regulators over the past year? I think at Valley, we've always really fundamentally said we need to have a strong regulatory relationship and make sure that our regulators understand who we are, where we're headed, what our strategic initiatives are across the organization, and how we focus on risk management. So for us, we've had a very important dialogue with our

regulators. We prioritize it across the organization. I think the regulatory agencies now have been very clear in outlining what the goals, what the goal posts are, to where each organization needs to look like. It's just making sure that we're communicating and prioritizing those initiatives and strategies moving forward. So we've definitely enhanced the conversations we've had with our regulatory agencies,

but that said, the goalpost haven't changed at all. When the news on New York Community Bank came up here in the last month or so, what kinds of conversations did you have with your direct reports or your board about this and what you as a bank and a banking executive might need to do to shore up confidence or protect the brand?

I think we are a relationship bank. Our focus is not so much just on the digital. Are we able to connect with our clients from a digital perspective? But do we really have a relationship with more from a human interaction perspective? So right off the bat, the conversations are how many times have we reached out to our clients?

How do we have the appropriate conversations with our clients conveying who we are as an organization? I think we had to make sure that they understood some of the differences between us in New York Community Bank, what the portfolio differences were, to make sure they were informed to be able to have appropriate conversations with their clients. I think that was really what the preemptive conversations were that we had with the board. I think, once again, it's just a similar dialogue that says, do they understand what those differences are?

What are the outcomes, potential risk exposures? If something does go down, okay, it's crazy to me when I think about sort of the operating environment that we're sitting in today. And we've been in an inverted curve, Tyler, for almost three years now, right? And I think about sort of a bell curve that says in a normal operating environment, the outcomes sit in the middle of that bell curve. In an inverted curve, we've been operating for the last three years on those tails, right? There's an outcome here that's on a tail. There's an outcome here that's on a tail.

And I think as a risk manager, we're really focused on how we not evolve or get rid of all those risks from the tail, but how do we lessen some of those influences that the tails do provide to us. Let's broaden out and talk a little bit about the business climate that you're operating in today. How's business and are your borrowers, your clients, are they taking out more loans? Are they bullish and expanding or what? I think let's break our clients into two different segments from a commercial real estate perspective. I think many of the clients are still sitting on the sidelines, hoping for a decline in the interest rate environment, and really trying to get an understanding of what the new behaviors are going to be for many of the commercial.

real estate properties that they either invest in or want to actually own. So I would say for many of those clients, definitely on the sideline now and very moderated as to what their growth is looking like. When we transition to many of the other businesses that were in, you know, we're a very large CNI lender as well, many of those businesses are still doing phenomenal. The P&Ls of those individual businesses are strong. You know, many of them are still having trouble hiring as we think about how they're thinking about growth within their individual footprint as well.

but I think a tale of two cities, to be honest with it with you. All right, fantastic. Ira Robbins, always good to see you, sir, of Valley National, where my son has an account, by the way. Still ahead. Etsy is the worst performing name in the S&P today following mixed Q4 results, but some Wall Street analysts say the stock still has room to run.

Our three-stock lunch trader will tell us why she disagrees next. And during February, we celebrate Black Heritage, and here is Scully founder, Christopher Gray, sharing his story. Sometimes, you know, the only way for a lot of African Americans to break probably is to go to college. I would be able to do that through scholarships. Then take that experience and create scholarly and have to help students buy money for college to help students raise over $100 million of scholarships.

I was able to get on Shark Tank and ultimately sell the company to Sally Mae recently and being one of the only black founders in history to sell their company to a major bank. All right, welcome back to Power Lunch, everybody. as we watch an invidia-fueled rally, the Dow and S&P 500 hitting record highs today. As you see there, the Dow up now 446 points above 39,000. Earlier today, above 39,100. Time now for three-stock launch, and today we focus on some stocks making moves off of earnings. And here with our trades, Victoria Green, founding partner and chief investment officer with G-squared private wealth.

First up, Victoria, Royal Caribbean, hiking its profit forecast on strong cruise demand. shares are jumping. What's your trade on that one? I love it. I think they're going to break out and they're challenging their 135 high and I see them pushing higher and hitting new records. Look, they've raised guidance three weeks after they released results. That's how confident they are. That's how well this wave season, what they call January through March where they have promotions and everybody's booking. They see such increased demand. I love it. And they're getting more out of their passengers. First off, passengers love some of their new ships, love their technology, The icon on the seas just launched in January, biggest cruise ship out there.

But they talk about how 70% of their passengers are pre-booking activities before they even embark, and then about a third of their passengers are using their app. So they're getting all of these captured purchases, all of these delightful upcharges, all of these ways to capture more revenue. And they've got happy cruisers and people are spending on travel. I see Royal Caribbean hitting new hots. Wow. Great endorsement there for that one.

Let's talk about Rivian automotive. that stock's sinking after it posted a loss, announced it's going to have to lay off 10% of its salaried workers. Your trade on this one, this is a company that is having a little trouble getting out of its own way. Exactly, and it's a sell for me. Just because it's down this much doesn't mean it can't leg down further to the 7-8 level because they're just not producing. And one of the things that's hindering them is their price point,

their higher vehicle price points. And only about two or three models, their base models, have to stay under ADK for even 50% of the EV credit this year. they don't qualify. None of their models qualify for the full EV credits. You have more price pressure. And they've even talked about in their earnings release, they touted the fact that their run rate in Q4 could have produced 70,000 vehicles annually. But they're forecasting flat production of 57,000. They're facing a soft EV market. It's not just high rates. It's not just the consumer. It's a soft EV market. And I just don't think they're going to have it to capture market share or to

grow next year. I see more struggles for them ahead. So I know it's painful here. I just think it could continue to push lower. All right. Let's move on to Etsy. The online marketplace reported a mixed fourth quarter. Earnings fell short. Revenue exceeded Wall Street expectation. Shares of Etsy, though, down today, as you see there, by $8 percent or $6. The trade on Etsy. It's a sell for me. Just because the stock is down 50 percent from its high, does not mean it can't push lower. For me, they're just facing so much stiffer competition. And they've talked about how difficult it had been for their market. They even said in their earnings presentation, they're expecting tepid to demand growth. And that's tough. Last two years, they haven't really able to

been able to grow their gross sales. And so they're facing headwinds, stiffer competition. Anybody that watched the Super Bowl saw, what, four ads for Temu? And you've got Sheen coming on. E-commerce continues to grow, but Etsy is lagging behind. And they're talking about maybe Q1 being a bottom, but they warned Q1 is already soft. I don't think Q1's going to be the bottom for them. I see more struggles ahead. They're going to have to spend more money on advertising. that could continue to drag on earnings. And I just, I think that they're facing a rapidly changing e-commerce environment that is tougher for them to grow in.

Spill some wisdom, if you don't mind, on the market at 39,000 on the Dow and records on the S&P. Dow 40K, absolutely. I think for here, you know, everybody collectively held their breath. I feel like you could have felt it, like visibly even in Texas. I felt the anxiety waiting on the video yesterday. It was the final piece in the puzzle. I think you're going to have a Fed that maybe doesn't cut rates as fast, but everybody now hopping back in on the AI trade, there's excitement,

there's so much cash on the sidelines. I think you could see this market continue to push higher, and there's some good fundamentals. Navidia's growth is there. They are justifying the price people want to pay. I think it's funny that the number of, what was it, 1,300 call, was the highest number of call volumes traded on Navidia pre-earnings, and that's 100% growth there.

So I think you have the potential, you get left behind. If you keep waiting and waiting and waiting for that dip, I'm not sure we're going to get a huge one because there's so many people waiting on that to come down and so much cash waiting to be deployed. All right, Victoria, we leave it there. Victoria Green, thank you as always. Good to see you. Thanks, Tyler. All right, he's still ahead. Inside the IRS crackdown, the agency says it's ready to double down on wealthy tax cheats and is expecting a big payday from the ramped up enforcement. Robert Frank is going to give us the details of his rare interview with IRS Commissioner Danny Werfel next.

Welcome back to power lunch. Robert Frank just finished a rare interview with the IRS Commissioner Danny Worfell about the campaign to crack down on wealthy tax cheats. He joins us now with the details. Robert. Well, Tyler, the commissioner telling me that millionaires and billionaires are evading more than $150 billion a year in taxes. They announced a crackdown yesterday on private jets. It's where they're using business deductions for personal trips. IRS has collected over $480 million for millionaire tax debtors, and they're targeting large partnerships of over $10 million. The IRS promising that no one making less than $400,000 a year will see audit rates going higher.

A lot of Americans that are middle, low income, make nowhere near $400,000 a year. And by setting that line at $400,000, they could even feel more secure that the goal of the IRS with the Inflation Reduction Act resources is not to increase audit scrutiny on them. So I think 400,000 is a safe distance away from where most taxpayers are, and they should know that when I get up in the morning and go to sleep at night, where my focus is, from an enforcement standpoint, is in those high-risk areas amongst the largest corporations, the largest complex partnerships, and millionaires and billionaires. Now, if you do make more than $400,000 and you're worried about being audited, the big red flags,

The IRS is now looking for our partnership income, offshore profits, and of course, those private jet deductions. So, Tyler, when you're taking your vacations on your Learjet, don't call them business. No, don't call them. So this was, these private jet deductions were people who were using them for personal trips and calling it business. Yeah, and taking it as a business deduction. And some of, you know, he says, may not seem like a lot of money, but he says some of the tax returns they're getting show tens of millions of dollars of deductions for people that, that own private jets. And by the way, just to mention, you can see the entire interview with the IRS Commissioner Danny Werfel on CNBC.com. Do you happen to know the overall audit rate? It's below 1%, isn't it?

For the broader population, it's about 0.2%. For those who make more than $5 million, it's about 2%. Now, for those who make above 10, right now it's 4%. It sounds like a lot, but it used to be, if you made more than $10 million, it used to be 20% chance of getting audited. And that's when they say we want to get those historical audit rates back to normal. That's where they're talking about. All right, Robert, thank you very much. Robert Frank, thanks for watching Power Watch, everybody.

We've got your closing bell starting right now. Dow 39, 26. See you tomorrow.