All The Latest AI News… Plus The Port Strike’s Impact on Commodities 10/3/24

0:03Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast Money. Here's what's on tap tonight. Changing the game. An AI move from Google could have major consequences for the digital advertising space, how it impacts all the players in the AI race and digital media. We'll get thoughts from perplexing CEO Aravind Srinivas. And trading poorly. That's the chart master's assessment of one financial heavyweight. What is causing concern and where the traders see this stock going from here? Plus, we're counting down to tomorrow's September jobs report. The stars dim for Constellation brands as consumers pass on a second glass of Chardonnay.

0:36And a weighty move by the FDA has shares of him and hers shedding some pounds. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Karen Feinemann, Dan Nathan, and Guy Adami. We start off with a new development that could transform the digital advertising landscape. Google announcing several ways it is going to integrate ads into their AI search engines. CNBC's Deidre Bosa's got all the details. Deidre. Hey, Melissa. So this has always been the multi-billion dollar question for Google. How can it, on one hand, protect its existing search business, which is still its bread and butter, while keeping up in a new generative AI world that gives you answers in a very different way?

1:16So today, Google rolled out ads on AI overviews. Here's what it looks like. Search how to get a grass stain out of jeans, and you'll get a step-by-step chatbot answer. Below that, you get sponsored links. Now, this is Google's playbook, leveraging its dominance in search to roll out AI features to a broader public and give marketers and merchants a way to still reach that audience. Got to note, though, guys, in this format, they're reaching users below the fold, meaning that users will have to scroll down to get to sponsored content. Is that as valuable as one of the 10 blue links at the top of a traditional search query?

1:53Still an open question. And as you said at the top, Melissa, competitors are coming fast perplexity, which I know you're going to talk to Arvind shortly. He's also looking to sell ads alongside its chatbot engine. Google, though, still has the distribution. And at the same time, it's making search more compelling by powering its lens application with video and audio capability, the multimodality that AI, generative AI is moving into. That means that you can put your camera at something, take a video and ask something about it. So again, this is classic Google Playbook. It's got the technology.

2:26It's got the distribution. It's got the merchants to potentially be able to pull this off. Critics, though, might say it looks a little cluttered. What is behind the decision, do you think, of going below the fold as opposed to side by side where the sponsored links would be seen right away? Yeah, I mean, that's a different proposition for the advertisers, right? Are they going to pay? And that was actually one of the complaints, even before ChatGPT arrived on the scene, is that people complained that Google search wasn't as useful anymore because you had to sort through those 10 blue links and that sponsored content.

3:00So, you know, I know people who are searching Google search plus Reddit to try and get the answer that they were looking for. So Google's kind of listening to that and it's compromising somewhat. But by putting the advertisers below the fold, that's a very big move. This is Google now. This is mobile now. We'll see how this evolves. We don't know what it's going to look like on desktop. But what is notable is Google's experimenting a lot more with its gen AI of applications.

3:29So we don't have any sense of the pricing. You bring up the point, OK, this, you know, if you're below the fold, but still the highest placement. Do we have any sense of that relative pricing? We don't have a sense of the relative pricing. But what we have been asking Google, myself and many other journalists is, is usage the same, right? Do people use AI overviews as much as they use generative, as much as they use traditional search? And there was this thinking that as more people move to chat GPTs or perplexities, that sort of cost per click would go down anyways. Google says that they're seeing more usage than ever.

4:05And the ways in which they're making search more compelling by adding multimodility like lenses through video and audio, they say that more people than ever are doing these searches. And they're bringing in the generative AI. So that might be a compelling proposition for advertisers as well. Debo, thank you. Deidre Bosa in San Francisco for us. And so, you know, at the very beginning when we talked about AI, we always thought about AI being a threat existentially to Google in terms of its business model. Do you think that this replaces that? It could. I mean, here's the difference, right? So 80 % of their revenues are from advertising, right?

4:42Digital advertising. And, you know, a lot of folks would say this is like the best business model that's ever, you know, been invented. It's got like 75 % gross margins. And, you know, you think about this, they're defending a huge moat. I guess the big question, and you hear this again and again, they're so dependent on that advertising revenue. At what point does advertising revenue kind of influence the sort of answers that you're getting? Right. So you would have those sponsored links, the 10 blue links below it. And, you know, most people would click on one of those top links and just kind of accept that.

5:10Right. And so I think your point about below the fold is really interesting. I think they're going to see some degradation in their, you know, in that advertising business. So it really is defending their moat. I suspect they're going to keep, you know, kind of tweaking it and probably get it to a point that makes some sense for both the advertisers, the users and Google ultimately. Two companies that have seemingly figured this out. We've talked about it. Facebook, absolutely. And Walmart on the other side. No reason to think that Google can't either. And, you know, a lot of stocks made their recent law on August 5th.

5:39Look at Google, if we could throw up a quick chart. It wasn't August 5th. It was actually September 10th. So the cascade move, we saw almost a 30 percent move from the all time high in July, I think, gets you a really nice setup in the earnings a couple weeks from now. So Karen can speak to this, but Google at less than a market multiple here with their balance sheet and the potential for them to leverage this, I think is pretty interesting. I think it's an announcement that, again, if you look at the stock today, it wasn't necessarily something that people responded to. Ultimately, we have had this conjecture all along.

6:11Where are they going to be? And I don't think today tells you at all. I think we're trying to understand how people are going to be searching in the future. You get back to the stock and you can make an argument that the stock has really outperformed all expectations in terms of those that have been disappointed. So I kind of agree. I mean, I look at the stock. I look at mega cap tech overall. And I'm seeing the triple Q's. So the S &P, excuse me, the Nasdaq 100 is outperforming the S &P over the last two weeks. And certainly since the Fed, you've seen an environment where if we think we have a little bit less growth, this is absolutely an environment where I want to own Google.

6:43I understand the existential stuff we're talking about here is a lot more important. But right now, Google, the stock, is one I want to own. So it's a big position for me, very big position. I think this is good that they're doing something right. We know with the stock at 20 times earnings for a company like this, that there is fear priced in about their monopoly. Maybe you don't want to call it that, but very secure position in search. And so I do think there are some things that I mean, Deirdre said a lot of that I think is relevant. Google Lens is actually a really, I don't know if you use it.

7:15I use it all the time. I think that's really interesting. I'm not sure on the monetization how that works. Like I asked her and you were asking, sort of getting at the same question, what's the pricing on this new, right? We know that those blue links, that's become a very muddled response that often is not quite what you want. And so you've got to do it again or it's frustrating. And so I like that they're proactively doing something. We'll see. I don't know how to think about the government hangover of when and how that will change things. But I like that they're doing something. And I think at 20 times earnings, you're not really paying that much to see what they can do.

7:56So we spent so much time talking about this ad model. You know, Google has seven, eight properties with over a billion users. They probably have four with two billion users. And, you know, Deirdre uses this example all the time or suggests that, you know, Gemini might be AI for all of us. Because if you think about how it's going to be embedded across all of those properties, I mean, that makes some sense to me. And so maybe that helps that kind of notion that they're going to lose some market share in advertising. Maybe they figure it out how to do better with enterprise or some of their productivity tools and the like.

8:25So, again, I'm with you guys. I wouldn't count Google out. I think that's probably been a mistake for anybody who's done that over the last 20 years or so. But, again, there's definitely some trepidation about some of these folks kind of, you know, nipping at their heels a little bit. Meantime, OpenAI securing a$4 billion revolving credit line on top of the$6.6 billion capital raise that closed yesterday. CNBC's Kate Rooney speaking with OpenAI's CFO earlier today about all these moves. Kate. Hey, Mel. Yeah, so OpenAI's deal was the biggest venture and debt round in Silicon Valley history. NVIDIA was a new investor.

8:57SoftBank got in on this round. Microsoft also doubled down on previous investments. I spoke to CFO Sarah Fryer earlier about just how capital intensive. This business is she compared it to building out railroad or telephone infrastructure back in the day. She says that the next model is going to be, quote, an order of magnitude bigger. As she said, though, as CFO, she's really trying to strike a balance here. You want to go fast, and that means investment. That said, you want to make sure you're growing wisely so that you're not overextending in places you shouldn't be extending. To me, we are here to build a business model, and that means creating free cash flows so that we can continue to invest in the technology that we're bringing to the world.

9:39We want to make sure everyone has access to this human level intelligence to solve difficult problems. So think of profitability in the spirit of how do we continue to grow that investment piece rather than just profitability for profitability's sake. Sarah Fryer is a familiar face on Wall Street. She's taken multiple companies public, was the CEO of Nextdoor. But she said on an IPO, give him a little bit of time not to expect any sort of public debut soon, Mel. Back to you. Why go public when the money's pouring in? Kate, thank you. No need. Kate Rooney. For more on the future of AI and advertising, let's bring in Perplexity's CEO and co-founder Aravind Srinivas.

10:14Perplexity is an AI answer engine backed by Jeff Bezos and NVIDIA, just to name a few. Aravind, great to have you with us. Welcome back to the show. Thank you for having me here. Excited to be here. You are also thinking about introducing advertising in the U.S. sometime soon. So when you see what Google's rolling out, how do you sort of think about how you sell ads and where you place them? Yeah, so our advertising has been fundamentally designed to not corrupt the answer quality because someone else is paying for being part of those links. from the beginning figured out that, okay, people allow perplexity because people are tired of sponsored links.

10:59They just don't want to keep seeing that anymore. And whether you show sponsored links in the 10 blue links format or AI overview format doesn't matter. It still advertises bidding to just get you to click on their links, clickbait basically. Instead, what we said is like, let's keep the answers accurate and truthful and let's incentivize users to learn more about brands through suggested questions suggested sponsored questions so in perplexity after every question you get an answer and below that you see a bunch of suggested questions to ask and one or two out of those five suggested questions could be sponsored questions only on queries where the commercial intent is very clear so for example your original query could be i'm looking to play tennis and i want to buy a racket i'm a beginner and i want to know like what i should be considering about like you know the uh head the surface area or the power the spin and things like that and you get an analysis and you get a bunch of uh potential brands and then like brands like wilson or head could be like a sponsored question for that kind of query right and this way you're not like losing the trust of the user yet you're actually allowing advertisers to get some eyeballs and potentially for users to learn more about very relevant brands where the intent is like super high.

12:19That's the model we're going to try, very different from Google. So in that model, you would make the money from the advertising. Would you also get a cut of sales? Well, we first want to start with just like the advertising business. I think we're very interested in trying like direct transactions on perplexity and seeing if we can get a cut of the sales too. But that's something for the future. But this year, we just plan to test out simple display advertising and see how it works. Arvind, last time you were on with us six months ago, we were talking about what your business model is. You focused on the subscriptions, and we all get that.

12:53We've looked at other models here, and that's obviously a very consumer-facing product. Now you're talking about ads. You kind of hinted to that back then. What are some of the other revenue streams you guys are focused on? I've heard you say that Google's issue, and they've had this issue for years, is that they're so dependent on advertising. So what are some other sources of revenue you guys are focused on? Yeah, I mean, we have a subscription model for consumers and like people who pay us$20 a month and hundreds of thousands of people in the world are paying for that today. And obviously, right now we have the unique feature and perplexity called the pro search, where it's able to break down a complex query into smaller parts and they go and do it through our research on anything you ask.

13:35and we offer unlimited pro searches, multimodal search capabilities and people are using the product. But in future, I can totally see more agentic capabilities being part of the product too. For example, you are doing research on what to buy and you just ask the AI to buy it for you or you ask the AI to book your flight or you're doing your research on planning your next vacation. You can take the help of the AI to actually do the execution of booking hotels and things like that. And those are all utility ads for the user that completely lends itself well to the subscription model. At the same time, it's also a good way for connecting businesses and users together in the advertising model, too.

14:14So we are trying to merge the two together in one simple, clean way without having to change the correctness of the answers. Arvind, it's Karen Feinerman. Thanks for being on today. So I understand you have the subscription, which is a different business, and the search. How many players is there room for in search? Yeah, so I almost think about it as the evolution of search, right? Like search as we knew it a couple of years ago until then was just like helping you navigate to different parts of the web. And so you charge people based on like, oh, like, am I paying for a keyword and getting the user to like get to my website?

14:52But now, like, I mean, think about it five years from now, 10 years from now, we're all going to be interacting a lot more with AI services, where we're going to ask questions for We're going to give tasks. And in such a world, like the advertising model is completely going to be very different. And that behavior is growing, right? Like the behavior of consumers, like learning to ask questions, learning to keep asking more questions and like giving AIs like actual instructions to like go do stuff for them. That's like a new behavior that's just like beginning to grow right now. On the other hand, the consumer behavior, like just typing in Amazon, Netflix, Reddit, TikTok, Instagram, just like one or two words on Google and just going to that site.

15:37That's like a behavior that's been ingrained in all of us, like billions of people. It's no longer growing anymore. That's why they have to slap in more ads to keep the share price going up. So I can clearly see us doing really well in the next generation behavior and not having to worry about the previous generation. In terms of the next generation behavior, though, I mean, Arvind, you mentioned how we all go to search engine. We type in something and it leads us to different places. We go probably to Google. We go probably to maybe to Bing, maybe to Yahoo. We don't go to Ask Jeeves or DuckDuckGo.

16:14I mean, just to think of all the search engines that existed way back when, when the Internet was still the Wild West. And so how should we think about all the competitors out there now and how that whittles down? Because that slope from what we have now to that moment in time is probably a lot faster than what we witnessed with the original Internet search players. Right. So I think you will still be continuing to navigate to different parts of the Web, even as Perplexity or ChatGPT and all these other services continue to grow and are being used by people to answer hard questions. or like write stuff or like finish writing past stuff like that um but i think the real like like like uh change is going to happen once the need to go to like all these websites also like goes down um for example like you go to amazon to actually go shop something you go to you go to like uh a website to fill up your online forms or like enter your details to like pay back your credit card bills or like book of flight.

17:17If these kind of fundamental consumer utility aspects are part of an AI app where you just have to tell the AI to go do these things for you and it'll like break it down to pieces and keep you informed along the way so that like you can correct its mistakes. If all that's happening in a completely different form factor, especially through voice, that sort of earlier navigational behavior is also going to take a dent, right? Like it's definitely not going to be the fundamental way people navigate the web anymore. But in the short term, it's still going to continue to be the case. So that's why our success doesn't rely on Google's failure or anything like that.

17:58Just the core behavior of people asking questions and doing their research, that can succeed while people continue to navigate the web. But as the agent era of AI takes over, I think that's when you're going to see very interesting dynamics. Okay. Well, we've been asking questions, Arvind. And so before we let you go, we thought it would be fun to ask perplexity, what is the most ridiculous question you can ask CEO Arvind Srinivas on Fast Money? And it actually gave us a lot of... Or did we do it already? We did it. We want to make sure everything was safe for family viewing. We got a lot of interesting answers.

18:30One of our favorites was this one. Why not just be more like Google? That came from your search engine, Arvind. Are you going to go back and scrub that? I mean, by the way, there are like lots of things we take inspiration from Google and how they build all these amazing custom UIs for so many different query types. Like for finance, you just get a graph. It's a stock graph. Like for weather, you get a nice like weather, like across the week. Sports, you get a live score. You can track the elections across like, you know, a heat map of the country. they've done amazing work on these things that we are actually taking a lot of inspiration from and doing a lot of things of similar nature here.

19:14But the thing we don't want to do like them is to keep wasting your time by showing five sponsored links. In fact, sponsored links on top of the 10 blue links and wasting your time sifting through links and reading stuff. I think that's the part we want to fundamentally not be like them and be different. So maybe that wasn't such a stupid question. Arvin, thanks so much for joining us. Great to speak with you again. Thank you for having me. Arvin Srinivas of Perplexity. That was a smart question, I thought. You should have seen some of the other ones. If Perplexity were a superpower, what would it be?

19:52Something like that. Here, superhero, what would it be? I like Perplexity. I do. I think it's an interesting product. Are you worried? Am I worried as a Google shareholder? I'm a little concerned. I'm always concerned. I feel like there is some concern priced in, though. But why can't Google ultimately switch to a similar model? I mean, it doesn't mean that the technology is the same. But, I mean, we're talking, Arvind is explaining a fundamental difference and why he believes passionately about the consumer-centric model. And that's, I'm sure consumers love it, too. But it gets back to our conversation on has Google responded to the competitive threat?

20:28And every time we've at least started to draw that threat out there and the risk in the stock, the stock's rallied back. What he described in terms of agent AI sounds exactly like what Apple should be doing on Apple intelligence. What Google wants to be doing. And what Google wants to be doing, right. Dan Nathan has said a number of times, right, the bolt-on of a company like this for an Apple makes a lot. You know, we'll see. I mean, this is obviously for somebody that still has maps in his glove compartment. This is just not my thing. You are the guy who uses DuckDuckGo. And you say that like, you know, it's an indictment.

21:03How's James doing, Guy? Doing extraordinarily well, Tim. I've learned a lot. Well, I would just say it's so early right now. I was out in San Francisco. I was an event with him. There was 50 people in there. There was, you know, VCs. There were founders. And they all know what perplexity is. They're all using it. If we put 50 Wall Street people, though, in a room right here, I'll bet you three people are using it. So I think they have lots of runway here, and I think that they're carving out a different place than that of Google and where they live. Coming up, a not-so-hot streak for Amazon. The e-commerce giant on a seven-day losing streak.

21:33But is it primed to break its bad luck? We'll debate that. And one too many for Constellation Brands, a spirit maker dropping despite an earnings beat where they're seeing a pullback. Don't go anywhere. Fast Money is back in two.

21:51Welcome back to Fast Money. Amazon shares on their longest losing streak since last September following seven straight days. The tech and e-commerce giant down more than 6 percent over that period. The weakness comes ahead of its big Prime Deals Day sales, which kick off on Tuesday. That's the time you want to buy all your charging cords and Tupperware. Tim, what do you make of these losses? Well, I think it's a combination of people being concerned maybe more on the AWS side. I mean, that's really where the valuation, I think, is being driven. And so supply demand dynamics with AWS, I think, are things that at least for the near term are still in question.

22:26I mean, we've gotten a turn. We saw that inflection two quarters ago. I, you know, I think it's range bound, but I am not believing that that, you know, this is the day that is going to determine the fate of Amazon. So, yeah, I agree. I think about that. I mean, if you look at Walmart, Walmart is near its highs. and, you know, the Amazon retail business is doing very well. So that should be a good valuation. I agree if you think about it. Lately, Microsoft hasn't done great. Google hasn't done great. So none of the cloud providers right now are doing, they've sort of sold off a bit. Is the port thing good for Amazon or does it mean anything for Amazon?

23:05I mean, I think the market's probably struggling with that because I think you can make a case either way. With that said, like a lot of these stocks, They made their highs late June, early July. They've been sort of treading water since. I think it probably continues to sort of lackluster in their earnings, but we've seen it before. Earnings on the 23rd or the 24th, and this is a stock that could easily go up 8 % to 10%. There's a lot more Fast Funding to come. Here's what's coming up next. A bottle of red, a bottle of white. Maybe not. Why consumers are pulling back on the Pinot and how it impacted Constellation Brand's quarter.

23:39Plus, all eyes on the jobs report, what tomorrow's data could mean for the Fed's next move. You're watching Fast Money, live from the Nasdaq market site in Times Square. We're back right after this.

24:00Welcome back to Fast Money. Shares of Constellation brand slumping despite the Corona and Modelo parent beating second quarter Refinitive estimates on the top and bottom line. The beverage company also reaffirming full year guidance. Here to take us inside the numbers, CNBC's Brandon Gomez. Brandon. Yeah. Hey, Melissa. Look, you said it. The company had a positive quarter. So what made the stock give up almost all its gains for the year? Well, let's crack into it. The company posted its$2.25 billion non-cash goodwill impairment loss for its wine and spirits business. We knew that was coming. The category continued to be down for the quarter.