came back down to 113. now you have a 5.5% yield, same thing i paid for it last june. but they always had an 8% growth rate. they're getting back closer to that. >> joe snmplt >> marathon petroleum. once again this year, one of the leading energy names. >> brenda? >> stryker. had a great year this past year, but poised for another great year. that should improve the adoption of their robotic systems. >> abvie. a lot of us talked about health care coming back this year. they have led for some time. >> that is it for us. "the exchange" starts right now. have a great weekend. ♪ ♪ thank you very much. i'm tyler mathisen in for kelly evans. here's what's ahead this hour. encouraging signs on the inflation front. the market now seeing an 80%

probability of a rate cut in march. but our market guest doesn't see that happening. he does see plenty of opportunities, and he will tell us where. tesla disruption disrupted because of red sea turmoil. the united states responding with yikstrikes in yemen. what happens next? and to the intersection of ai and real estate. investors can take advantage of what our guest calls massive opportunities ahead. but we begin with today's markets and dom chu with the numbers. hi, dom. >> a fresh 52-week high for the s&p 500, tyler. that's the big story today. we have backed off those levels. at those highs of the session, the s&p 500 with at 4802. at the lows, 4768. so, again, tilting towards maybe the lower end of that range, just about flat. the dow down about one half of 1% here.

and the nasdaq composite just about flat, as well. if you take a look at the s&p, yes, fresh highs for the year. we have back from some of those levels. we'll see if that changes in the afternoon. another place to keep a close eye on what's happening with the oil complex overall. u.s. benchmark west texas is still up 1% to $72.61. but as things stand right now, we are at just about the lows of the session. we were up north of $75, just around $75.25 at the highs of the session so far. so significantly below those levels on some of the tensions in the middle east tied to those strikes on houthi targets in yemen by the u.s. and uk and allies. so, again, wti crude is down about 24% from the highs we saw over the course of the past year. then if you look at some of the individual stories making names, making moves here, it's got to be about the big banks kicking off earnings season. just to give you a check on what's happening, we have seen broader moves lower across the

board except for citi group, holding on to three quarters of 1% gains here. wells fargo down 3.5%. again, banks are a big story. we have more coming up next week. back over to you. >> dom, i'll see you in a little bit. thank you very much. today's economic data has investors focused on the march fed meeting when they price in a rate cut. steve liesman has the details. as i look at today's inflation number, i guess it's a little more encouraging than yesterday's, which another network characterized this as skyrocketing inflation. i didn't see it that way. did you? >> no, it was a miss to the upside, but it was interesting to see the way the market traded. a little spooky yesterday after the 8:30 number. then it calmed down. i wonder if it was sort of looking forward to this. now, if you look at the story, the price index came in below

expectations. why all the focus on it? it suggests little inflationary pressure on the supply chain. it prompts economists to estimate the core pce -- 1.5%, that is, it would hit the inflation's target. the core ppi, probability of a march cut was 69% and shot up to 80%, where it's trading about now. pantheon answers tyler's questions and says -- >> you saw yields decline by up to -- what do you want to call it? 15 basis points at one point. now down about, oh, i don't know, 13 or 14 from where it started before the number. there's still two pce numbers,

two pic numbers, two ppi reports to come, and there should be or could be some upside risk to inflation. you have supply interruptions, but it's going to be hard for the fed to either not cut in march or guide in march towards a rate cut that would be coming in a future meeting. >> what is the incentive for the fed to cut in march if the economy is doing well, employment is fine, inflation is okay but still maybe a little above the target range of 2%, what's the real incentive? >> i think that's a good question. i think, tyler, there is a window for the fed to pivot and get this right rather than remain too restrictive for too long. i think you're right, that there is some momentum to the economy that gives the fed some time here, but there is a whole lot

of loans out there and refinancing in corporate america that are going to be coming due. and companies are going to be laying off people shutting down, otherwise having to sell, if they have to refinance into the highest possible rates. the fed has an opportunity to offer some relief to the economy. think about it. if you consider that there's a long-run funds rate of 2.5%, and the fed is at 5.38 or 5.40, it is very restrictive right now. so there is room for the fed to offer some relief and secure that soft landing, because that's not a given either. >> steve, thank you very much. have a great weekend. appreciate it, my friend. >> pleasure. our next guest says the fed is unlikely to deliver the cuts the market is hoping for, but that doesn't mean there is not opportunity to be had. he's bullish on two sectors in particular. we'll get to them in a moment, both in the news today, energy and banks. joining us now, cole smeed. cole, welcome. good to have you with us. >> good to see you, tyler. thank you. >> you heard what steve just

said, that there is a -- the market is pricing in a rather high probability of a rate cut in march. you say that the fed looks unlikely to be able to cut the way the markets are hoping. i don't know whether that means throughout 2024 or just that march number, why don't you explain your position and why you feel the way you do. >> it's a great question, tyler. to steve's point, he was just mentioning, say refinancings are coming up, okay? what kind of businesses would be impacted from those refinancings at higher rates? so let's just use commercial office as an example. are there commercial office buildings that will not be able to go through that process, hand the keys back to the banks? no question about that. but there's not many employees tied to those businesses. they're not labor based businesses, so the idea that the tight rates are going to restrict the u.s. chi in a major way, i think we have proven for about 18 months that, to your point, what is the incentive that the fed has? we're running very tight rates

and the economy is peaking and moving along. so i think the interesting part really for this whole dialogue is, if tight rates can't stop the economy, should the fed be backing off at all? should they have uncomfortability to not lower rates quicker? if you look back the last 18 months, the fool has been the one praying for lower rates. 2022 and 2023 had catches of gosh, we're going to go to lower rates. that crowd has been foolish for 18 months. so when is that idea going to change? when is the idea the economy is going to have a precipitous problem, when is that going to change? until that does, you can see where the bias is across equity investors, but bond investors, as well. >> i guess steve's retort might be, based on what he just said to me is the idea that what the fed doesn't want to do is wait too long and keep rates too high for too long, and therefore,

miss that window, that landing slot that leads to the so-called soft landing. >> yeah. it's a good point by steve. you've got to remember, the problem wasn't created by the fed. in other words, the fed was late to deal with it, and therefore is going to want to prove themself, i'll say both politically, as well as an academic perspective, that they're not going to do something foolish. but it's like we opened pandora's box in federal spending. how do you put that back in? spending is popular on the left and right side of the aisle. i'm not talking about spending like in ukraine. i'm talking about federal transfers, social security, medicare, medicaid. the big spending categories where we run our biggest deficits. >> let's fast forward to a couple of stock sectors that you like. you point out quite accurately that a lot of lastier's movement in the markets was not so much

earnings driven as it was valuation driven, pe ratios. but a couple of sectors of the market that did not take part last year are banking and energy. tell us why those are two areas that you have your eye on this year and what specific stocks you like in those sectors. >> great question. to start out with energy, it's weird. you've been in this business for a long time, tyler. usually when stocks go on great two or three-year tears like the energy stocks did in 2020, usually an investor figures out a way to own it. that's just the nature of the stock market. even though they've done really well and underperformed last year, we really haven't had that movement where large institutional investors all decide that they want more capital in tact. so i think the reason why is because the index doesn't. the benchmark hugging in the index world hasn't fallen in love with it. therefore, the active investors have not. so the factthat we can wake up in a world today where we can

make say 20%, 25% return on equity, and these businesses pay low pe multiples versus the market, which is making in many cases, maybe somewhat higher return equity, but far higher multiples for that return equity. it's a great place to be. and use the houthi -- you were talking about the houthi rebels this morning. you get a hedge on geopolitical risks that you don't get in other parts of the market. as we wake up, what is this new world where a major former power like russia can do direct don fl -- conflict, not proxy wars. that's a different world. >> let's get to the banks. i think it's interesting that you are -- we're going to talk about the bigger banks in a moment, but you highlight some of the more mid-sized regional banks. why? >> yeah. because there's catastrophe that's taken place there. in other words, the idea that every regional bank had trouble

is just not true. obviously, we know who already disappeared. it doesn't mean every regional bank is going to deal with the circumstances appropriately going forward. there's going to be commercial buildings that will go empty and need a new owner and the wbank will be olding that. -- holding that. we bought western alliance, which was really at the heart and center of that bank run back in the spring. what we think they have is a history of producing great return capital in a bank, and they're not a retail bank. it's a commercial bank, dealing with commercial customers. so we come to people and say, we're going to lose a third of the banks in the united states over the next decade. but what that produced in the past was higher returns, and this environment looks good for banks, because they can just charge more for the risk versus the lower rates they got paid less for risk. >> cole, thank you. see you soon.

big banks under pressure after some very, i guess they call it noisy earnings today. most of them taking a hit on one-time charges related to special assessments from the fdic and other areas following the collapse of silicon valley bank and signature bank. my next guest still sees opportunities in financials this year. joining us now is a senior research analyst at oppenheimier. chris, good to have you with us. why of the four banks that reported today, why is citi the only one that's higher and it is the only one that reported loss? the others all had profits. explain. >> well, the citi loss was driven primarily by some of those special items that you highlighted, the fdic charge, and then they also had some kind of one-off charges on russia and argentina that they disclosed earlier in the day. you know, overall i would say the core fundamentals for the --

for all the banks that reported today, for the fourth quarter were pretty close to what we were expecting certainly. so i don't think there were any real fundamental surprises. >> any disappointments here that would explain why these four banks, with the exception of citi, are all trading lower today? not by a ton, but a little. >> yeah. i guess i would say there was a range. i would say jpmorgan's guidance on net interest income for the year ahead was slightly better than previously expected. wells fargo's was slightly worse. and then if i look at citi's guidance specifically, they have given very vague guidance about '24 previously. what they have been telling people is that oh, the expense curve is going to bend late in 2024. but how much is it going to bend, from what baseline is it going to bend and stuff like that was unanswered before.

you know, the guidance they gave for '24 today was kind of -- our estimates are slightly above consensus, and the guidance they gave today was that, you know, our revenue estimates were kind of at the low end of their range, and our expense estimates are at the high end of the range. so they're giving pretty good guidance compared to consensus. and then there's also further guidance that in 2025, expenses should be down a bit further. so i think the -- what the street is taking away from all that is they're having confidence that during '24 and '25, you're going to see kind of step wise progress to their intermediate term goals of 11% to 12% return on equity. >> what's going -- >> that's roughly $10 a share.

>> what is going to get investors excited about these banks? here, you see a company like jpmorgan chase, record profits, up 32% to nearly $50 billion for the year last year. and yet these stocks don't seem to be moving, even though the companies are doing really relatively well. >> yeah. that's what creates the opportunity. >> right. >> it's interesting, you know, i cover two different groups. i cover the alternative asset managers and the banks, all engaged in wholesale finance. you know, a lot of the regulatory pressures, they have been putting -- pushing assets out of the banking system and over towards the alternatives. we can debate all day whether that's right or wrong, good or bad. but what it has done is made the banks less risky. it's created a lot of opportunities for the alternative asset managers. what's interesting is that last

year, the average of the alternative asset managers were up roughly by 50%. the banks were down 8%, 10% on average in a market that was generally up. so, you know, it's -- with your prior guest, you know, you have to be sensitive to valuation. these stocks are an extraordinary value relative to the market multiples. and, again, they've been de-risked. but i will tell you, i think there are a lot of institutional investors that just don't want to hear about banks. they just don't. and that's kind of what creates the opportunity. but, you know, there's so many times when i've gone into a meeting with institutional investors and in our sales person comes to me and says, you

know, here's their exposure to financials. you look at it, and it's mastercard and visa and schwab and blackstone, companies like that. and the upshot is, oh, gee, they don't own any banks. and there are more and more accounts that have fallen into that category. >> we shall see what 2024 holds. thank you for your insights today, chris. >> thank you. don't miss our exclusive interview with bank of america's ceo at 2:00 p.m. eastern today on "power lunch." coming up, from the red sea to yemen, and this weekend's presidential election in taiwan, geopolitical events are front and center for investors. up next, we'll ask our panel of experts what those geopolitical items mean for the u.s. and the approval of spot coin bit sefs. we'll have new numbers on their popularity with robin hood

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welcome back to "the exchange," everybody. geopolitics front and center today as houthi forces vow to retaliate for last night's u.s. coalition strikes in yemen. it's not the only geopolitical

event investors are watching. tomorrow's presidential election in taiwan is another and could become a key test not just for relations in the region, but for u.s./china relations, as well. here to discuss is former nato admiral james debritas. let's begin with the strike last night which sent oil prices higher by 3% overnight. so this was something, by the way, that you, admiral, called for about a week ago in an op-ed. so tell us why this was the way to go now. >> yeah, it's a bad pair of choices, right? but door number one is just allow the houthis, backed by iran, to continue to take down merchant ships, shoot at our warships, at merchant ships, take mariners hostage. that's a pretty bad door, considering they are shutting

down the red sea, and about 15% of world shipping passes through there. door number one, bad, just to let them keep going. your other choice is, create some deterrence. we tried defending those ships, hasn't really worked. it's like trying to patrol the state of california, the red sea is the size of california with ten police cars, those are the destroyers out there. you're going to have to go ashore and strike some of the houthi maritime infrastructure, send them a signal, reduce their capability. i think the administration is on the right page, even recognizing the chance that this could escalate further. >> what do these strikes say to or about iran? >> first of all, they are a direct signal to tehran. and by the way, it's notjust the houthis, but all of the hs. it's hamas, hezbollah, and

houthis. they all have different agendas, different gegeographies. what they have in common, they're all creatures of iran. so striking significant houthi maritime infrastructure is proportion al to these maritime attacks, well within the range of international law. it sends a signal to iran that we're going to start at the low rung of this ladder of escalation. pay attention. let's hope tehran is listening. >> what if these attacks don't do the trick and the houthis come back and keep misdebehavin in the read sea, what is the next step up? >> you can go up that ladder still in houthi land, if you will, in the country of yemen, which they own about half of. they're in the middle of a civil war. they have land assets. their tanks, armored personnel carriers, their fuel,

ammunition. we could go after the means by which they're fighting this civil war. if that doesn't work, which would be your next question, then i think you need to look at going after some iranian assets, but let's hope we don't get there. because don't that path, a wider conflict exists. i think at this point, the houthis will come back another couple of times. then they'll probably stop. that's what happened last time when we went through this cycle in 2016. we struck houthi targets ashore. they backed down. let's hope we see that again. >> let's pivot to taiwan and the elections there this weekend and get your quick thought on what may happen there. if particularly, i guess the more -- i would say confrontational candidate william ly is elected as president there, what does that portend not just for taiwan/china relations but for

u.s./china relations? >> we're all absorbed with the middle east. this the end those are likely to be tactical. this is the big geostrategic amphitheater, the arena, u.s. and china. i think william ly will be elected. he's a follow-on to the current president. their policies are not act si anti-china, but they are further away from china than the other two candidates. the thing to watch as investors is, immediately after the election, if he's the candidate, how high, how hard does china go after taiwan? they're not going to attack, of course, but are they going to put in a partial blockade? are they going to open up additional maritime capability around taiwan? are they going to shoot missiles that just miss taiwan? are they going to send aircraft across the taiwanese strait? >> so look for a variety

potentially of provocative actions on the part of beijing. admiral, thank you for joining us today. >> you bet, tyler. as we are waiting for that election in taiwan, we got more data out of china on its economy. the country's exports dropped for the first time in seven years, as shipments in december beat expectations. the consumer price index in china declined, down 0.3%. that was less than half a percent the fall scene in november. for more here, let's turn to derek scissors. good to have you with us. how healthy is the chinese commit based on what you see out of these numbers? first time exports have fallen in seven years. >> yeah. it's not healthy. i want to start by saying there's no crisis here. people have been uses that word a little loosely. there's no crisis. but that doesn't mean that china's economy is healthy.

you have disinflation, meaning that you have falling inflation to the point people are starting to worry, are we going to get outright deflation? so that are that's only this the property sector, but if it spreads, that's harm to chinese g.o.a.t. a little bit of a nerdy statistic. it's really hard to have fast growth with that kind of narrow money growth. that suggests when china announced 5% gdp growth, it's an exaggeration. on the trade side, i think the thing to look for is china's exports fell, but they ran an $800 billion goods/trade deficit. if they push that for the sake of their own growth, they'll get foreign retaliation. that is a risk for the market. they haven't done it yet, but $800 billion should be as high as they go. if they try to stimulate exports, the u.s. and other countries will respond. >> let's talk about whether there is stimulus in the pipe -- you sort of hinted at it right there, that they can't push

their export economy because of the risk of retaliation from the u.s. and others, but what about trying to simulate the domestic economy in one way or the other, is that in the pipeline and what form might that stimulation take? >> they have two -- if they don't just target exports, and i don't think they will, they have two basic kinds of stimulus, fiscal and monetary. on the monetary side, they tried. they cut borrowing costs. it just hasn't worked. loan growth is slowing, still pretty fast, over 10%. as i said, narrow money m1 is very slow. so you would have to try out sort of bigger monetary bazooka, which is something they haven't want to do. and china has never had a fiscal stimulus. so that would be an experiment. i think you might get an experiment in fiscal stimulus, and there the challenges are you stimulating consumers, or just

stimulating companies? that just means no production that nobody wants. >> exactly. if there's no buyers, they're not going to profit. could we turn back to what we talked with the admiral about, that is your perspective on these taiwan elections over the weekend. what are you watching there? >> well, i just, you know, this is maybe a little bit too optimistic on my side. this is -- the most likely outcome is a continuation of the current government under the democratic -- the dpp. china knows that. xi jinping has been a force in power for 11 years. we know there are going to be threats and demonstrations of force. but we have seen this movie before, and i don't think you're going to get an escalation by china, because they've spent the past few weeks really

emphasizing that there was a new understanding between xi jinping and joe biden in the san francisco meetings. it would be very odd if they took an expected political toy wan in taiwan and upset that new understanding they have been emphasizing by going beyond what they have done bf. they're going to act. it's going to make people nervous, but it's not setting up right now for the chinese to go to take a big step further and really scare markets and everyone in the region. >> derek, thank you so much for being with us. have a good weekend. >> you too. coming up, nvidia trading at a record high. and on pace for its best week since march. with shares up 230% over the past year, should investors expect a repeat rally? we'll debate nvidia. everybody is debating nvidia, on "the exchange." we'll be right back after this. let's check it out. says here it gets plenty of light.

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welcome back to "the exchange." i'm kate rogers with your news update. prosecutors will seek the death penalty against the white gunman who killed ten people in buffalo in 2022. the justice department said the shooter's intentional killing was enough justification to warrant the death penalty. the shooter was already sentenced to life in prison in a new york state court last year. nasa says to 23 was the warmest year on record. the earth was about 2.5 degrees last year than when recordkeeping began in the late 1800s. the extreme temperatures set off costly weather events for the year, as nasa's administrator said it's the latest evidence

the world is facing a climate crisis. the canopy that hangs over the altar in st. peters basilica is being restored, to be completed for the 2025 jubilee, and the church will use the expertise of the restorers and will be the first work on the canopy in 250 years. tyler, back to you. >> kate, thank you very much. coming up, robinhood benefitted from bitcoin's prices last year. we'll get the latest trading data, next. and then we head back to break. here's a look at the worst performers in the s&p 500. united, american, delta airlines all down almost 8%. maybe even more. after delta trimmed its full-year earnings forecast, citing supply chain challenges and fuel costs. "the exchange" is back after this.

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welcome back to "the exchange," everybody. bitcoin etfs had a big first day. more than $4.6 billion of trades were made yesterday across almost a dozen u.s. bitcoin etfs, marking a historical first day of trade. but gary gensler reminding investors today to be cautious. >> well, look, bitcoin itself we did not approve, we do not endorse. this is a product called an

ex-change traded product, a way that investors can invest in that underlying, non-security commodity called bitcoin. but, yes, investors i think should be aware that this, the underlying asset, is a highly speculative, volatile asset. >> for more here, let's bring in robinhood's chief brokerage officer with kate rooney. kate? >> great to see you here. i want to start on those comments you just heard about bitcoin etfs, that they don't align with a balanced portfolio. do you have any of those same fears around investor protection? >> we are always making -- we always want to ensure that whatever we're offering our customers is suitable. but i think they've made it very clear that they think there is a segment of our customers that

feel that this is an important technology and asset class that has a future and as a result they want it to be a portion of their portfolio and have expressed that. >> sorry to cut you off, steve. maybe this is more of a philosophical question, but is there a time and place for a brokerage firm to step in? is there a role for a brokerage firm to step in and say this might be too risky, we're just not going to allow it, would you ever do that? >> i think if something is not suitable for a person, you know, we will make that determination, and they will make that determination. but i think our place largely is, as a self-corrected platform for investors, is to provide them the choice, to make the investment decisions that they choose to do. provided that they're suitable to them, it's their money, after all. so i think they have the latitude to make those decisions

if assuming that it's a suitable investment. >> steve, what does demand look like so far? can you share the statistics you are seeing around these etfs so far? >> it's been really interesting, and kind of exciting. look, the approval of these is, i think very beneficial for not only retail customers and traders, but also for the industry as a whole. if i can generalize what our customer base looks like, a third of the people are very passionate and very invested in crypto, whether directly or through etfs. a third are curious, and they continue to dabble in crypto po portfolio. and a third they might not have a portion of their portfolio in this. so what this does for our customers is gives them an avenue to be able to do it in a way that they're more comfortable ith, an exchange

traded product, in an etf format, something that is the most popular instruments in the world trading and investing in instruments in the world. so it gives them some comfort, and if they can do it in a very costic, efficient manner, which is exactly what they're looking for. and so from a behavioral stand point, here's what we saw. a third of the people that participated in buying one of these 11 new etfs, actually sold some equity. so they rebalanced their portfolio. 20% of these purchases or sales happened in a retirement account. we think that's quite interesting. finally, the other thing that was quite interesting was the grade scale one, was -- it was a net sell across robinhood, both in retirement and self-directed. and what those people did was rolled into one of the other

ones, and i believe that was just a direct result of just trying to be more cost efficient, because from an overall cost standpoint, like the other ten are probably much more cost efficient and they have a better tracking record. >> so steve, i want to come back to the word that you used several times in your answer to kate's first couple of questions, that was "suitable," whether they think this investment is suitable for your customer base or for individuals. clearly, you just believe it is suitable for retirement accounts, because you said, i believe, 20% of people's trades in these etfs were in retirement accounts. so you see it as a suitable name. my question is, how do you determine suitability? who determines it? do you? does the customer by sort of self-definitionally, this is suitable for me. i'm good, man. let me add it.

how does suitability work in the real world? >> well, i mean, obviously suitability amongst different asset classes is different. you know, like suitability among equities, options, crypto is very different. but in the case of crypto, the suitability there is determined by the user. so they determine whether this investment is something that they have the confidence in making part of their portfolio. whether that's self-directed or in a retirement account. >> so it's basically a self-test? >> exactly. >> all right. steve, thank you very much. appreciate it. kate rooney, thank you, as well, for bringing steve to us. coming up, nvidia, up 12% this week. just another week for nvidia shrugging off china concerns. could the stock and the rest of mega tap cap deliver another big year? that's the topic wn rur t minutes.

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welcome back to "the exchange," everybody. shares of nitdvidia soaring aft its 240% gain last year. is this a sign the stock could see another banner year? diedra bosa has that angle. >> hey, tyler. quite a change from the first week of the year when tech was under pressure. it was short, though, but part of that sort of deflation air coming out was coming out of the nvidia story. reports that chinese consumers didn't want to downgrade at silicon. that's still in the backdrop, but this morning, nvidia is just nvidia. and by one measure, you could argue that the stock itself is cheap. consider nvidia versus amazon. amazon trades at 41 times its projected earnings, and nvidia just 26 times. both are ai beneficiaries, but one undisputably dominates the mark. put another way, yes, nvidia

shares tripled last year, but that lagged fundamental growth of the business. earnings nearly quadrupled. the tech rally this week is broader than just nvidia. other chip names, marvell and broadcom getting some buzz, and helping to push up the semi. software too, settling into that new normal we talked about this week. and new opportunities emerging. the ibg software etf up 6% since monday. and the deal chatter that continues to roll in, we had hpe and juniper, that was an unexpected deal. and there's now reports of private equity looking into docu sign. we've got to mention earnings. that could derail this optimism from this week. 2024 guide, they will be key. that is where worries could come in and investors could take a hard look at some of these early gains. one name that i'll end on, apple. after perhaps the roughest start to the year involved in the mega

caps. goldman naming it a top pick into earnings. we broke down the ai proposition in our weekly deep dive. catch that at cnbc.com/techcheck. coming up, our next guest calls it one of the most transformational moments in time. she's talking about ai and the impact on commercial real estate. this is one of the names she sees positioned for big gains in that area and she has two more. we'll give them to you, next. ♪ ♪ every day, businesses everywhere are asking: is it possible? with comcast business... it is. is it possible to help keep our online platform safe from cyberthreats? absolutely. can we provide health care virtually anywhere? we can help with that. is it possible to use predictive monitoring to address operations issues? we can help with that, too. with the advanced connectivity

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get over here kids. can help you build time for today's lesson. wow. -whoa. what are those? these are humans. they rely on something called the internet to survive. huh, powers out. [ gasp ] are they gonna to die? worse, they are gonna get bored. [ gasp ] wait look! they figured out a way to keep the internet on. yeah! -nature finds a way.

[ grunt ] stay connected when the power goes out, with storm ready wifi from xfinity. welcome back to the and see migration in theaters now. exchange everybody. there are about 2500 data centers in the u.s. powering the internet and enabling digital communication right now, but with the rise of a.i., that number's expected to grow significantly, and there is a way to train it. digital realty and equinox, i hope i am saying that right, the two biggest players in the space right now, but our next guest is going to tell me if that's right, says others and commercial real estate are poised to benefit, and she is here to tell us which ones. let's bring in laurel dorky, head of real assets at morgan stanley investment management. laurel, welcome. >> nice to be here. >> of commercial real estate, all of it, is this the place to be? data centers? >> this is absolutely the place to be. when you think about the trends that are unfolding within

artificial intelligence and the impact that is going to have on demand for data centers, the growth is going to be more robust than anything that we have seen over the past two decades. >> so how much, quantify that for me? how much growth are we going to see if we are at x now, we are going to be at x times by when? >> over the next five years, i think you are going to begin to see what i will call it transformational moment for data center demand for. this is ultimately going to require billions and billions of dollars of new capital investment into this space that will transform the market and really grow the cash flows of these companies and the way that we haven't seen before. >> and this is being driven by a.i.. so for the big players in this area, and which ones do you favor?

>> so pure play data center company that really isn't the eye of our artificial intelligence development for data centers is digital realty. ticker d l r. digital has grown significantly over the past 20 years. they ipo back in 2004, and since their period, since their ipo, they have grown at about 18 to 20% tucker. >> whoa. >> that is significantly in excess of other reits and even an axis of the broader s&p. so this is a country that now, at a moment in time, has a refreshed management team, new ceo, new cfo. they have new chairman of the board, they have new joint venture relationships that they have been able to raise additional capital to develop these data centers. >> is this kind of all that

they do, digital data centers? this is a pure play? >> this is a pure play, and they have the bull's-eye of hyper scale the demand, which is exactly the type of data center that the artificial intelligence service need to be and. >> you just told me something fascinating when we were on the break. i guess the broader question is, are there constraints to growth, and you point to one, and that is that in northern virginia, mild stomping grounds, the largest cluster of data centers in the country, dominion power, or dominion electric, the country that supplies power there says that we don't have enough power to -- you can't build any more data centers. >> that's right, that's right. so what you are seeing is that demand is growing at a significantly robust clip, but new supply is challenge right now. those challenges are stunning from this power availability issue, which is why the underlying need for infrastructure and transmission of power is so important when thinking about really

delivering upon these a.i. goals. >> how do you measure scale in these facilities? is it by the number of gigawatts, or by square footage, or what is? it >> it really is about megawatts, right? megawatts. >> mega, giga--- >> what you have seen happen over the past call it 10 to 20 years is the power densities that are required in these data centers are increasing significantly and so the megawatts that you need and a data center is significantly more than they have been historically. just this year, or last year in 2023, we saw one of the first 200 megawatt deployments for a data center, the largest data centers used to be 20, 30 megawatts. now we are talking about 2 to 500 megawatt data centers. >> that's crazy. >> this power availability challenge is absolutely going to be an issue that we need to address and solve going forward.

>> you mentioned digital realty as the pure play here. are there other players that are on your radar? >> there are. another one that is very interesting that i'm sure you are aware of, and all of the viewers here are aware of is iron mountain. >> oh yes, i think of them as a paper company, paper shredders. >> record management is what i like to say. but what they have done is evolve their business and really capitalize on their core competencies to get into digital storage, to get into data centers. and so right now, iron mountain has about 10% of their revenues that are tied to data centers, and it is growing. and the most interesting part about that is that they trade at about a 6 to 7 turn multiple discount versus that of a pure play data center company. the cash flow growth is going to be really good. >> interesting conversation, we will have you back, laurel durkay, thank you so. much >> thank. you >> that does it for the exchange. coming up on power lunch,

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