Power Lunch - Welcome to the Party, and High Steaks 6/9/23

Episode Date: June 9, 2023

Small cap stocks are now coming along with what had been a big cap rally. Does this broader participation mean the party on Wall Street can last? We’ll explore.And, just in time for grilling season: soaring beef prices. We’ll explain why it’s happening, and what it means for both inflation and the restaurant stocks.Plus, we have a power player joining for the entire hour – Tim Seymour is in studio to weigh in on these stories and much more. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to a Friday edition of Power Lunch, everybody. Alongside Kelly Evans, I'm Tyler Matheson. Glad you could join us. As Bruce Willis said in Die Hard, welcome to the party, pal. Small caps, now coming along with what had really been a big cap rally. So does this broader participation mean the party on Wall Street can last longer? Plus, just in time for grilling season, soaring beef prices, why it's happening, what it means for inflation and for restaurant stocks. We have a power player joining us for the hour.

Tim Seymour here to weigh in on those stories, Kelly, and more welcome Tim. Gotta ask him for his barbecue tips and tricks. First, let's get a check on the markets, though, where the Dow's up 55 points, still not at the morning session highs, but the S&P is back above 4,300 to 4307. We are above these levels for the first time since August, I should add. The NASDAQ up half a percent and likely to post a seventh straight week of gains. Tesla shares getting a jolt today after GM now says they will, will also adopt Tesla's charging standard.

It means GM EV owners can use the supercharger network. It's hurting shares of other charging companies like ChargePoint and EV go, down 13 to 14%. Tesla up 5% though, and it's on an 11-day winning streak. Almost a record. We'll have more on this coming up. Netflix also hired today and up 25% over the past month. A report shows subscriptions are growing after that crackdown on password sharing, almost a 4% pop for Netflix time.

All right. So has the S&P 500 really entered a new bull market, or is this just sort of basically an AI bubble? Piper Sandler pointing out some similarities this morning to the recent run-up in stocks and the infamous dot-com bubble, specifically in regard to the narrow market that we're seeing these days, saying that fewer stocks in the S&P 500 are actually beating the overall market now than they were, even back during the bubble around the turn of the century? My next guess says a bubble may be forming, but we're definitely not. not there yet. With us now, CNBC contributor Ron Insana, co-CEO of contrast capital partners. Ron, welcome. Tim, welcome. You're at the desk as well. Kelly, welcome. They'll get you a chair, Kelly.

I'm happy to stand. Anyhow, Ron, let me say you make a very persuasive case in an article you wrote that while there are some similarities to the bubble that formed during the internet period back 20 some years ago, that we're really not there yet. at all. Tell me why. Well, Tyler, in many ways, we're not even close. When you go back and look at what transpired from 1995 through 2000, you saw not just companies go up on the prospects of the internet being a transformational technology, but also you saw stocks go up en masse, and then you saw huge IPO issuance, you saw huge public participation, the Fed was in an easy money mode, and ultimately you saw price earnings ratios. When you take out the five biggest stocks from the NASDAQ 100 in

1999, 2000, the PE was 3,666. And of the nearly 500 companies that went public in 1999, 77% had no profits. It was a wildly different environment. The stocks that are benefiting from AI right now are big household names, albeit they've gone up a lot, huge market caps, but we're just simply not there yet. And these, as you point out, these stocks that have gone up, whether it is Invidia or Google or Microsoft or, or you've, name it, these are stocks that, oh, by the way, do have lots of profits. Yeah, and there's only seven of them right now that are really benefiting from all this. Or eight. You know, it's not the same environment yet. And, you know, listen, you remember when we'd go to cocktail parties

in 1999 and 2000 and everybody and his brother, mother, sister, you know, uncle, cousin would be asking you how to get in on this. You know, where do I put my money? At that cocktail party. Yeah, it was a different era. It was 30 pounds ago for me. Many pounds that go for me as well. I will never forget going to a Chinese restaurant in Ashboro, North Carolina, and the waiter asking me about CMGI. Remember that one? What was CMGI?

That was David Weatherell, who had a holding company for a number of different internet entities, none of which had revenues or profits, except for Lycos, which was an internet service provider at the time. I also mentioned KTEL. David Favre talked about this earlier in the week. You remember KTel, a company that sold horrible sales. 70s music on the TV in infomercials after midnight. They said they were going to use an internet strategy. The stock went from 5 to 30 and then zero. Or Zapata Corporation, which was a fishmeal

and bone meal company that put dot comtee after the name, and they rocketed as well. I remember Joe Kernan talking about that one. This is a very, very different environment. It's still early days. A little CMGI with your Kung Pow Chicken, I guess is what we had. Tim, what do you think? I think I still have some K-Tale eight-track tapes on the best of the 70s. Yeah, exactly. I think the market has had a disproportionate kind of response to who they're going to reward. And I think about, you know, Ron's talking about the profitability of the mega caps here. There's no question about it. And the question is, are we going to see a massive cap-ex spend around AI, especially when you look at the across the semi-space? I realize Nvidia kind of told you

when they blew those numbers and they gave the guide for the two Q. But I think that's the real question. And I think if you, if you think about the, you know, on some level we start talking about those retail companies that have sprinkled some AI pixie dust into their story, it's still kind of a zero-sum game in terms of the retail dollar. I think about somebody like meta, and I actually think that this may be a Tam expander for them. So there are those companies that I think are winners. I think there's still a net-net zero-sum of the entire marketplace that they can go after, but we've priced a lot in. So to answer the question about are we in a bubble, you think what's going on with some of the semianames, maybe some of the meta-like stuff is fundamentally justified?

It's fundamentally justified, and again, I look at meta and Google in the context of the market we're in, and companies that have not hit relative all-time highs against the SEPP have not hit absolute fresh new highs like a Microsoft, like an Nvidia, and I think they're a lot more interesting. They're also a lot more defendable on valuation. What do you make of the fact this is something that Michael Cantowitz has pointed out that there are some parallels to 2000, like Ron was just drawing anecdotally, but for instance, breadth has recently been below the levels of March, to the point about a few stocks leading the way. So even if you like those stocks, Are you worried about the rest of the market? So I think there's been a lot of debate, and in the last few days we've had this broadening of markets.

And I've also heard from a lot of folks that this is just people bringing down gross. By the way, that's people selling popular longs and covering popular shorts. There's different explanations here. So let me wrap with Ron, if I might. Sort of the same question here. Even if we're not in a bubble, does it concern you that the market has been as narrowly focused as it is? Is that not a good sign of market health overall? Yeah, typically, typically, yes, Tyler, but don't forget, in 1999, every major average went to a new all-time high.

The NASDAQ was up 85% in 1999. Money was easy. It was a different environment. In that case, the entire market was going up too much. In this case, a handful of stocks, arguably, are going up too much. So there really no exact parallels to be drawn, certainly quite yet. Well, by the way, apparently CMGI bought the naming rights for the Patriot Stadium. Did CMGI Stadium.

Was that right? It was CMGI Stadium. Yeah. That indicator strikes again. Death now every time. Spending money they didn't have. Crypto.com. Yeah.

FtX. That's right. Pets.com? They had what petco? They might have. Not the same thing. Not the same thing. Enron Field.

Enron Field. There you go. All right, Ron, thanks. Thank you. Small caps had been left behind in this AI-driven mega-cap tech rally. But so far in June, things have changed. And unless Dom, they're changing again today. All right, so one of the things that we want to kind of keep a close eye on right now, guys,

and by the way, I still remember what happened these days. But a relatively strong start overall for these small caps, and really, if you take a look at some of the moves that we've seen so far, they might be slightly lower today overall, but it's been a relatively strong start for the month for those smaller cap indices. If you take a look at one of the ETS that tracks the S&P MidCap 400 index, the MDIY, it's firmly in positive territory so far in June, that same goes for another ETF that tracks,

Axel Russell 2000, the ticker is IWM. We know that one. Within both, there's a wide range of names and industries that are leading the way higher. So we want to bring your attention to some of the few notable brand recognition type names that we'll have. We start with Bank United, which is one of the many regionals that hit 52-week lows last month, but have since ralled, other regional banks like Cenova's Financial, also Fulton Financial, fall into that category as well. There's also, though, a basket of primarily mall-based retailers that have been jumping this month. Think of names. like Coles, also Gap, Macy's, Nordstrom. All of those stocks help lead the pack up around 25% or so just in the month so far for Nordstrom. And we'll end on a pair of recreational names. It's Thor Industries. It's been fueled by the higher demand for RVs recreational vehicles in Europe, though the company does warn that macroeconomic pressures are impacting its business. And then there's a small arrival, Rev Group, which is firmly hired this month after posting upbeat results of its own. So RVs, retail, regional banks, guys, keeping on some of those big moves and small and mid-cap names. And I'll start to lick my wounds from the Internet Capital Group trade I had back in the day as well.

Dom Choo, thank you very much. Whether small or large lead to the rally, can the rally continue? And do we need earnings growth to keep it going? With 497 now of the FSM reporting, we now know that earnings growth for the first quarter just turned positive. Michael O'Roney is chief investment strategist at State Street Global Advisors. They've got over $3 trillion in assets under management. Tim Seymour is here with us as well. Michael, what do you say about the market?

Stick with it? I do think you stick with it. Kelly, we were caught in a range. That ceiling was $4,200. And I think we needed three things to break that ceiling. We got one of them last week, and that was the debt ceiling resolution. I think next week we're going to get more clarity on the future path of monetary policy. And I think if we do get that pause, I think markets will respond favorably to that.

And the third is this kind of notion of the timing and the depth of the recession. But this week, it seems like investors believe that a softest landing is possible. And I think those have allowed us to break that 4300 level and hit highs in the S&P for the year. And new highs in the S&P for the year. Do you worry it all about the macro, Michael? I certainly do worry about the macro. But I've been saying since August that the economy isn't the market and vice versa. So if we think about it, last year the economy expanded, earnings grew, and the labor market was the best in 54 years.

Yet we have the first dual bear market and stocks and bonds in history. And the 6040 portfolio was terrible. This year, all those things are going to get worse, yet stocks and bonds are rallying. So I think investors are already looking ahead and pricing in that this will probably be a mild recession. if we get one at all, and ultimately that earnings will rebound in the second half of 2024. And I think that, you know, I may have a little bit of rose-colored glasses on here, but I think that they're going to price in a recovery far before the economy earnings in the labor market bar. Yeah, an earnings recovery in the second half of 2024 is a long way away,

but you do not think it is too early to start beginning to buy the kinds of equities that benefit from early stage recovery, and what are they? So Tyler, the time is always such a challenge, as we know. But here's the thing. I would prefer to be buying those parts of the market that are trading at 10 and 11 times forward earnings. So again, if we want to just do a simple earnings yield, with the S&P being brought up by those five large companies at 19 times has their earnings yield about 5%. Well, I can buy a money market instrument for 5%.

But a lot of small caps are trading at 5 and 6 times earnings. So their earnings yields much bigger. So I like value stocks, small cap stock, cyclicals, and if we want to get real specific, things like deer, caterpillar. So if you like industrials, for example, I think that's a great place to be in this marketplace. Tim, how does this strike you? Well, the things that worry me are more right now positioning and where we are and where we've come from. The complacency that seems to be in the market as evidenced by the VIX, I believe in mean reversions. I believe that when people were so on one side of the boat in terms of either, you know, you look at those bullbear AI indices, you look at the name in,

so active managers, we're basically at a 15-year average year. People are not underweight necessarily. You had these record kind of shorts in e-minis, and there's some misinformation on that, too. I think positioning right now says, despite the technicals taking us higher, that maybe it's going to be harder to make that next move, having said that, I think we're going to see 400 on the queues. I think we're going to see 160 on the SMH, which are basically getting to those old highs. And I think we've made relative highs in the leaders.

I think we're going there. And I think back to small caps, if you think about if we're in a bull market, you tend to see that growth leads value. And so small caps have really underperformed. In fact, it was SVB that knocked them down 22%. And they're just kind of catching up. So I think, you know, if you're looking at small caps and just playing the IWM, I think there's a little room to run here.

The macro and where we are in the economy and the leading indicators, we've all chronicled this. It's not rosy. But this is one of the greatest trading markets we've ever had. We've had three moves this year alone of either, you know, we went up about 14, we went down about nine and a half, we're up about 12.35 from the SVB low. So as someone that's been in emerging markets my whole career, they often, well, it feels a little bit like one. They often track each other. So you tend to hedge the EM with the IWM, and we're actually seeing both of them start to break out here, high correlation.

All right. Fascinating. Gentlemen, thank you very much. Michael, we appreciate your time today. Thank you. All right. Tim's going to stick around. I don't have to say about you.

Awesome. Thank you. Coming up, the commercial real estate space, getting so bad that developers are starting to pull out of deals and properties. The most recent example, park hotels abandoning San Francisco. But actions like that could leave lenders holding the bag. Is a commercial real estate crash looming? We'll speak to the CEO of Marcus and Milichop. Power lunch to be right back.

Welcome back to Power Lunch. The challenges in commercial real estate are very much front and center for investors. Just this week, real estate firm Knight Frank said half of large firms planned to cut office space. And worries about San Francisco in particular continue. Wells Fargo saying it'll take a $60 million loss on a 13-story office tower there. Park hotels and resorts said it stopped making payments on a $725 million loan tied to two prominent hotels in that city. Earlier this week, Treasury Secretary Janet Yellen weighed in on the troubles facing the industry. I do think that there will be issues with respect to commercial real estate. Certainly the demand for office space since we've seen such a big change in attitudes and behavior toward remote work that has changed. And especially in an environment of higher interest rates, I think banks are broadly preparing for some restructs.

structuring and difficulties going ahead. Well, Hassam Naji is president and CEO of Marcus and Milachap. They're a publicly traded real estate investment services firm. He joins us with some context on what's happening with commercial real estate. Our Tim Seymour is here with us on set as well. Hissom, I'll start with you. And you say Seattle is some of those vacancy rates are nearly, maybe not nearly as bad as San Francisco, but probably second worst.

Good afternoon. Thanks for having me on the program. This issue is not unique to San Francisco or Seattle. We're seeing the pressure on office space across the industry, but particularly in urban areas because they were affected so much by the pandemic and the post-pandemic hybrid work environment. Having said that, it's really important to zoom out and not judge commercial real estate only because of what's happening in the office market. Retail has recovered. Apartment rentals are doing very well. Self-storage properties are doing well.

Even hospitality is doing well. And, of course, where it has been real strong. Within office, though, the older properties are the ones that are hurting the most. And as those loans mature, the Wells Fargo example is a good one of an older property. They suffer most competitively because the higher quality properties are now attracting the tenant demand. And hybrid space has lowered overall demand pretty significantly. And I was sort of surprised or amused, I guess, to read that in the case of park hotels, if I'm not mistaken, those loans were non-recourse, which correct me if I'm wrong, means they can just

hand it back. So who's left holding the bag? And you point out that office property, CMBS debt distress is still only in the 4% range. What happens if that spikes to 20%? The delinquencies for office are going to rise. Delinquencies in some select urban, other property types are going to rise. There's no question about it because of this divide between urban America and suburban America. But the banks, in particular, having exposure to this, are so much better capitalized today than they were going into the 08-09 recession, which created a much bigger point of stress on the entire credit system. Back then, going into the turn in 2007, banks had about $100 billion of cash on hand

versus $1.7 trillion in February of 2020 before the lockdown and currently over $3 trillion. So we don't really have, as Janet Yellen mentioned, a banking system problem lurking, but there are individual bank issues, individual property issues, and really profoundly in the older office product. Sure. Hassam, it's Tim speaking. And I guess as you look at some of the second derivative data in terms of where the leases are being either pulled back, cut, vacated, are there any sector specifically?

We're talking about the hotel sector. Certainly you could get into travel and leisure, but are there places that we can drill down further to see either where they're being opportunistic or where there's even that much more weakness? I'm really glad you brought that up because a lot of our clients are actually taking a big bet on office space, on maybe some quasi-distressed hospitality, because they believe that in the next two to four years, there will be more return to office. Certainly business travel will recover more than it has already. Consumer travel has recovered very well, and the overall hospitality sector is doing great. But there are unique opportunities for either converting office to other uses, and in some cases, actual replacement of older obsolete office space because the land has a lot of value. A great page that can be taken out of a book is retail.

Over the last 10 years, shopping centers have gone through a massive dislocation because of e-commerce. They're coming out of it incredibly well in this particular cycle because the obsolescence has been dealt with to a large extent. there's been no overbuilding of new product. And in many ways, ironically, retail is the darling of the commercial roadside industry, while office has become the new retail in some ways. All right, Hassam, thank you very much. We appreciate your time today. Thanks for having me on.

Hassam Najee. The chatter around Twitter, first Elon Musk, holding another Twitter Spaces event, this time with Mary Barra of GM, opening up Tesla charges to GM vehicles moving stocks in that space, plus meta looking to take aim at Twitter with its own platform. We will discuss that in today's tech check. We'll be right back. Welcome back, everybody. The price of beef has already gone up this year due to ongoing cattle shortages,

and now live cattle prices continue to hit new highs, up about 30% in 12 months, and quite substantially since January. We could be approaching record highs. Let's get to Kate Rogers with more for us. Hi, Kate. Hi, Kelly. Ground beef prices are also flying high, hitting pandemics, levels in recent weeks. Take a look at this chart showing that spike for the average price per pound hovering around $5. Now, could this help to bolster prices for plant-based meats like Beyondmeat,

which tend to be a bit pricier than traditional offerings? The company said in its most recent earnings report that it's dropped prices by about 9% year-on-year-on-year-per-pound. Achieving price parity, remember, is a long-term goal and Beyond wants to underprice in one category of its meat versus animal meats by 2024. Analyst Peter Saleh at BTIG tells me that, While prices matter in terms of getting customers to buy more beyond meat, it's about other things as well, including taste and health perception for consumers. One thing is for sure, though, these beef prices are hitting restaurant operators' heart. Take a listen to Skeeter Miller who owns barbecue chain county line across the south.

Our menu costs have gone up probably about 30%. And that means that each menu item that I have has gone anywhere from $3 to $5 increase, which is, you know, we're a protein-based menu, so that's really a huge jump. Now, for beef and brisket alone, he's calculating an extra $1 million in cost this year. So he says he just can't raise prices again for consumers because he doesn't want to push them away. Back over to you. Kate, thank you very much, Kate Rogers. For more on what else is driving these high food prices, our next guest says it might be the summer of pork.

As beef prices could stay high for the rest of this year, he also highlights how the drive. Grout conditions are leaving a mark on the industry. For more, Peter Galbo, research analyst at Bank of America and Tim Seymour back on set with us. Also, we welcome Laura Ray, Dickie, CEO of Dickie's barbecue for more on food inflation's impact in the restaurant business. Let me talk to you first, Laura Ray, if I might, and ask you how the comment of that other restaurateur in the piece that Kate just showed us resonates with you. Are you seeing the same kinds of increase in input costs, and how much of that are you passing on to consumers? And can you keep doing it? Absolutely.

We're seeing very similar. What we have certainly seen is that we have about 6.5 million pounds of brisket annually that we purchase. We're one of the largest restaurant purchasers of beef brisket. And so certainly that impacts us. Similarly, we're a completely protein-based menu on most of our core items. And so it certainly is affecting us. We have seen about a 22% across our menu in the past 24 months of food inflation alone. Our brisket price, for example, from May to June, our price per pound was $3.33.

In May, it has jumped to $3.45 in June. And we even have purchasing power and protection that a lot of restaurateurs don't enjoy just because we have over 550 restaurants in the U.S. And so even with that amount of purchasing power, we're still seeing quite a huge impact. We've certainly reached the point that, no, I don't think that restaurants can pass this on to consumers any longer. Well, that's what I want. I'll come back and ask you that. But Peter, let me just turn to you with a quick question.

Why is this happening? Yeah, it's a great question. So, look, it's a beef cycle. And the beef cycle tends to be relatively long. It's about 10 years in length. We're actually on the downside of that cycle. So fewer cattle means higher prices. compounding that, you've had a drought issue.

Why are there fewer cattle? So the cattle ranchers, right, so the cow calf operators, they're the ones who are actually raising the cattle and selling it to the Tysons and the JBSs of the world who then sell it on to restaurants and the retailers. Those ranchers have actually been losing money for every cattle they've been selling because the cattle price has been so low over the past few years. That incentivizes them to take the size of the cattle herd down, which is now why we're starting to see cattle price increase to compensate them for that.

But until that happens in a more material fashion, we think that beef prices are probably going to stay higher until the herd of re-expans. And those low prices were a pandemic effect back when the economy was weak? So it's a couple of things. Yeah, it's a couple of things. So first, you know, the beef cycle tends to be more tied to the economic cycle, more so than pork or chicken. But on top of that, beef was kind of outsized hit during COVID. A lot of the manufacturing capacity in the U.S. was shut down for periods of time. So that forced cattle prices lower while beef prices went higher.

And for a guy like Tyson, who earns the spread, kind of that blew out. And that's one reason you can remain underweight on them. There's a smaller market and obviously profit-machers under pressure. I just didn't want to make one kind of macro point about this. Let's talk about it. We went and heard comments from Costco in their last call where they said, we are starting to see recessionary behavior from the consumer. They're trading down from beef to pork to chicken to even canned foods.

And I wonder, so we all reacted to that and said, well, the consumer's acting as if they're in recession. Are they or is there actually just a beef problem? In which cases, comments wouldn't necessarily be indicative of consumer so much as just the extra high price of beef right now. I think you've got two or three factors here. First of all, Costco is seeing probably a trade down. People are shopping for their beef at Costco for the first time. I think you have a dynamic where you're having disinflation in food prices. And at some level, that's going to hurt people like Costco and Walmart and Target.

And I think Target's probably feeling it more, especially those that had disproportion on the way up. But I think you're in a place where the consumer is, first of all, I recommend it folks, buy humble cuts of meat and smoke them over 20 hours and they're going to taste great. You think I'm going to go home and smoke meat for 20 hours? You're out. So buy yourself a green egg and you can put it on and walk away. By the way, that is kind of green eggs cheating. This isn't a barbecue.

Me too. Yes, please. You're not wrong, Tim, by the way. You're absolutely right. But I can see why the consumer just reaches for that convenient. So Laura, wait, let me come back to the to the consumer's response to rising price. I think you said that your menu ticket price is going up like 22% maybe. Did I hear you correctly?

Over the past, that's correct. Over the course of the year, about 22% of cost into us that we can't pass on all of that. And how are consumers responding to that? Are they buying less? Are they staying away more? Are they just swallowing hard, so to speak, and taking it? You know, it's also a combination of factors. What we're seeing is certainly very traditional recessionary purchasing from guests.

So they have gone from individual meals for the family, for example, to family packs. So we've seen an increase in bulk items where there are leftovers, where they can stretch one meal purchase into two. We've also seen a huge increase in coupon usage, which is certainly an indicator of across the board. We always have guests that are coupon oriented. But now we're seeing that across non-traditional coupon guests. We've seen a huge spike in loyalty. Members, again, those folks that are trying to bank points to just defray any of the cost of their meals. We're seeing folks forego add-ons, less desserts, less additional sides. So they're really staying more to the core of what they're able to feed or say, feed their family with because those prices are just creeping up. And that's without passing on all of the costs that we're seeing as an increase to the guest because there just isn't a tolerance.

Is your profitability down or up? So our sales are up. Our checks counts are up. Our profitability is the same, but part of what we did to combat that, and you're absolutely right about the summer of pork, we had kind of seen this coming. So our summer LTO is a pulled pork sandwich, for example. And because we have different proteins, we have eight different proteins across the menu. We can put different emphasis on different proteins at the luxury that we have.

But we also have been able to reduce our core menu. We have been in business since 1941. And we took the largest reduction in our core menu in our brand's history within the past year. And we reduced our skews, our menu items by 40% in order to drop anything that wasn't potentially profitable. Because we are doing everything we can to continue to serve folks. We want to serve for another 81 years. But it is definitely a pinch right now. Peter, what will need to change for beef prices to begin to come back down?

Yeah, it's a long. Is this cycle? You talk about a long cycle? How quickly? Yeah, so if you were to start today, and we talk in the note about something called heifer retention, the female cattle, right, you need to retain the female cattle in order to expand the herd. It's about a, you know, one year type period before you can have new cows, and then they take another year and a half before they're ready to be kind of at a full weight. So you're talking about, even if today, drought conditions improved, profitability for the rancher improved, it would probably be about two of. and a half years before you saw material expansion

and that beef supply to bring price down. Tim, you got a bold pork recipe? Go to pork pot. Wait till I tell my kids in summer pork, by the way. They're going to be fired up. It sounds like something out of Washington normally. What's interesting about the Tyson's and the JBS who's the largest meat processor in the world,

the problem is the lack of visibility in the cycle is a big problem. And Tyson went from 850 a share last year in earnings, and they're going to go to 150 for the next couple of years. So it explains why they're at five-year lows. 850 to 1-50. That's right, more or less.

Yikes. All right. Laura Ray, thank you. Good luck. Lots of protein. Thank you. And Peter, thank you. Thanks, guys.

Appreciate it. The cloud computing ETF is on pace for its fifth positive week in six. Coming up, we'll hear from the CEO of a startup trying to help automate the cloud space. That's right. We'll be back. Dow's up 49. Venture capital, a lot harder to come by these days. Wall Street Journal today reports that many startups are running out of money.

Today, John Ford brings us up close with the CEO of a data-focused. startup that just raised $125 million debt round to continue to drive growth. John. Yeah, Tyler. George Frazier is co-founder and CEO of Fivtran, whose software reliably moves customers' enterprise data into and across cloud platforms. A few days ago, the company announced that debt raised from Vista Capital Partners, which is interesting since Fivtran lasted an equity round back in 2021 at a $5.6 billion valuation. George told me he didn't need the cash at the moment. this was like opening up a home equity line of credit so he'd have access to cash. That sounds smart.

Well, George has a Ph.D. in neurobiology and originally got into software mainly to help his study of the brain. Not because the brain is like a computer. It isn't. But because the brain is exceedingly difficult to study. It's a hideously needlessly complex instrument. And in order to tackle a lot of that, you need to use code and you need to analyze data in very complex ways in order to make progress. And so the tools of computer science are very important for making progress in neuroscience. Now he's working on more lowbrow things, like providing pathways for data that will eventually feed artificial intelligence systems.

But George gave me a valuable perspective on that. for most enterprise software companies and their customers, AI is still just a small piece of today's revenue picture. The bread and butter now is basic cloud-driven operations, analytics, and migrations, not the AI hype. So it's affecting us, but I think, you know, in terms of broader adoption, we're still just looking at the tip of the iceberg. But like I said, we are seeing it probably primarily in workloads that are being generated by AI tools and in workloads. going into Databricks. It's harder to tell, I think, to see a change with some of other destinations just because

there's so much data going in. This new stream is not yet big enough to notice it in the larger picture. Notice he mentioned data bricks there, a major customer. We had a working lunch with CEO Ali Godsi back in April. Bottom line here is that while AI is important, investors can't get tricked into thinking it's everything right now or even in the next three years. There are some powerful trends adjacent to it and preceding it, guys, like data migration. Wow, I'm almost choked up.

I mean, he's very impressive, and he's been at this for a long time. He has. Originally, was working on something different and kind of stumbled on the data migration problem. Why is this so hard? Right now, he's trying to amp up the reliability of data migration, recently moved it to 4-9. So 99.99% being able to get that data moved in the correct way. You know, we like the chat GPT and the AI and talk about companies using it. We don't think about you got to actually get the right data into the right place

and have it there before you can mess with it. John, thank you. Have a good weekend, sir. You too. All righty. Still ahead, Netflix's password sharing crackdown. It's bearing fruit here at home and the generation carrying the biggest share of America's record credit card debt. All that and more when Power Lunch returns. As we head to break, June is probably.

Pride Month and CNBC is celebrating all month long. Sharing stories of corporate leaders. Here is George Erison, CEO of Grindr. We know there's so much attack and hate at the community today happening from lots of places in that context. Grindr going public in November, I think speaks to a lot of very positive things. The extent to which we were celebrated on Wall Street when we went public and the amount of support with gardens since being public, I think is really fantastic.

Here's a company built by gay people for gay people, where, you know, the CEO is gay, married, and with children. Grinders board has nine members in total, six of whom are gay or lesbian or trans, and to have a board like that. I think it's a really powerful testament. Welcome back, everybody. About four minutes left in the show and a lot more stories that you need to know. So let's get right to it. Starting with after weeks of uncertainty over whether Netflix's password crackdown, add or chase away subscribers or make no difference, we may have an answer. According to new data

from streaming analysis firm Antenna, Netflix gained subscribers in the days after the announcement was made. We're showing the stock chart there. And Tim, I think it was climbing on this idea. It was climbing already. J.P. Morgan put out note recently says they're going to monetize 60 million of those 100 million subs. It translates to free cash flow, 8 billion by 25. It's a mover. It's a mover. You like the stock here? I'm long the stock. And again, just on the charts relative to other mega-cap tech. Netflix has more plumbing to do on a relative high basis, but I think it's the only stream that's profitable 25 times. It's not expensive, certainly not to itself. And one of the best performers of the year so far, right, or over the

past year, I can't remember which, but 42% higher year to date. New data show Americans now owe a record $98 billion in credit card debt, and according to TransUnion, Gen X, is carrying more of it than any other generation, holding $7,600 per person on average. that compares with $2,900 for the average American aged 18 to 29. At some point, doesn't the music have to stop here? I think it does. We're starting to see it feed on down. We're seeing it not alones.

We're seeing some of those delinquencies increase. I think the impact is on discretionary spend. You can only pull forward so much. We're seeing what's happening in the grocery store, and there's no relief there. And so there's just only so much wallet. And I wonder whether you raise a very interesting point, because 20 years ago, People didn't use typically their credit cards at the grocery store. Right.

Now they do. Yeah. No, in fact, it's one way to actually not realize how much you're paying at the time or so it seems. But there's not, you know, food inflation is something that, again, we'll talk about probably for the next couple of years. I think the pull forward to me in some discretionary. I'm not short Lulu, but I am short Nike, and I love the company and I will be long again, but I just think we've pulled forward a lot of sales. That consumer is under some pressure.

The only thing I'll say is that household does. So you always need to compare this number to something. Yes. And the household debt levels are still overall pretty good by historical standards. So I'm sure there's some segments of the population. Obviously, they're over-extended, but you're not seeing it like you were in 08. No, make no mistake. The lower-income consumer is facing this head-on.

And disproportionate when you think about interest expense on a credit card relative to income, especially with APRs going where they are. I mean, this is where it's going to be felt. Yeah. Speaking of retail, City is downgrading shares of target to neutral from buy, saying sales for the retail giant have likely peaked. They also cut their price target by more than 40 to 130 per share, saying the risk is more to the downside short term.

I don't know if this is macro or still on those boycott issues. Well, look, I think it's a combination, I think mostly of the wallet share. Again, going more towards grocery. Remember, 51% of their sales is merchandise, general merchandise. This is kind of like the Tarjeet story, right? And I think, you know, that's part of the story. The stock has corrected so much. And on a relative, you know, the Walmart target pairs trade,

I think still favors Walmart. But again, you know, 120 major support on target. Valuation significantly discounted to Walmart. And I think at some point you start looking at that. A month ago, it was what, in the 140s, 160? Yeah, it's been getting crushed. Yeah. Speaking about getting crushed, how about some crushed avocados?

The avocado giant mission produce, however, up about 7% today on a second quarter beat, that despite revenue dropping 20% year over year, thanks in part to a more normal pricing environment, it says right here. Avocado prices surged to record highs last year amid robust demand, supply chain constraints, and a temporary stoppage of Mexican imports because of drug cartel violence. But apparently that has turned around. Production is up a little bit. I ate Mexican last night, actually, and was a watcher on the sidelines as the guacamole thing was mixed up in the big thing. I love that. I'm a seller of guac. I'm sorry. I know I'm going to get a lot of hate mail here. What do you mean you don't like it? I don't. There's something like the texture of avocado.

Again, this is wildly unpopular opinion. So I'm not putting upward pressure. I'm not putting upward pressure on avocado prices. I'm actually keeping prices. They got an opinion on this. Toronto, the Ottawa senator. Yeah, I don't have any. Ryan Reynolds is going to buy him, but apparently he can't bail him out.

Well, first of all, Ryan Reynolds is busy and a lot of other stuff. Doing very, very well, including winning the stock draft on CNBC recently. So, like, sports franchises going through the roof. Tim, thanks for your time today. It's been a pleasure. Good to have you with us. And thanks for your time today for watching. Have a luck.

Closing bell starts right now.