A Record High Two Years in the Making, and Can Semi Strength Continue to Rock the Market? 1/19/24

0:01Live 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. A new all-time high for the S &P. The Benchmark Index closing out a record for the first time in over two years. The group's leading the way back to these levels. Tech, communication services and industrials. But will the leaders keep leading? And can the red-hot semi-trade keep burning bright? Plus, believe the bounce shares of Spirit Airlines recouping some of their losses from this very turbulent week. But the bonds may be telling a much more troubling story about the company's viability.

0:30The chairwoman is digging into the debt details and later the return of your favorite fast money game. It's back. Earning season's about to kick into high gear, but should you trade or fade next week's big reports, the traders give their picks coming up. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Bono and Eisen, Karen Feinerman, Courtney Garcia, and Guy Adami. And we start off tonight with a record two years in the making. The S &P 500 up more than 1 % today, locking in both an intraday and closing all-time high. This has not happened since January 2022.

1:01The Dow also setting a new record up nearly 400 points today. The Nasdaq leading the gains on a percentage basis. The tech-heavy index just about 5 % from its all-time high. SEMI is playing a big role in today's rally. The chip ETF jumping almost 4%, notching its best week since last May. The sector accounting for 10 of the top 11 S &P stocks this week. So how much further can this bull run go? It seems to defy gravity, defy expectations, Guy. Well, if you've listened to me, I apologize, number one. This desk has been collectively bullish. I have not. I'll say this. So much of today, I think, was predicated on a couple things.

1:36Consumer sentiment, which came out much better than expected, on the back of interest rates going lower, which I think people view as a good thing, which I totally understand. Be careful about that, number one. And number two, a huge option next Friday that Karen can probably talk about as well. That probably fueled a lot of the late day, a lot of the entire day rally. With all that said, I mean, people are clearly pricing in the best case scenario known to mankind in terms of the stock market rally. And even the most ardent bulls, I think, have to be concerned when they see days like today. What about that options expiry?

2:07Well, actually, we do have a very specific option trader here. But, you know, this is over a trillion dollars plus, right, the largest expiry we've ever seen. And this melt up going into the even though the S &P options expire in the morning, right? So for the rest of the day, I'm not really sure. I've heard a lot of talk about gamma positioning and how that leaves people having to buy. And maybe that continues. I don't know. It did seem very melt-up-y. The whole, I mean, 4 % today in semis? Yeah. I don't know what happened today. So it's hard to say, oh, it should be priced here. I'm long. This is my sort of, you know, but I don't know what to do here.

2:52I'm looking at options. I got to take some money off the table. Although I do think, I do believe in the AI story. I do believe that there is several years of demand here. But this, I mean, if we are back to where we were January 2022, remember what happened after January 2022 to the market? That was a very vicious, you know, down cycle. So I can't explain it in a way that makes me think, oh, this is rational and we should continue to think this is going to continue. How much of this today was the technical aspect of the options expiration? I would allocate probably 50 percent. I mean, it's hard for me to say definitively.

3:30Right. But the thing is, December and January are going to be like your largest index and then the subsequent ETF expires. So if you do have all those options rolling off, you do either have to roll or replace them or deal with the short gamma, which is what they've alluded to. So it is going to lead to some significant price action there. In terms of the semis, I do think there is something to be said about what TSMC came out and said. We talked about them a few weeks ago in terms of some of the China overhang. But essentially, they're saying, listen, we're expecting the sector to grow by 10 percent and ourselves to grow by 20 percent in large part to GPU allocated and AI driven type of growth.

4:07And I think that that is essentially investors want to hear what they want to hear. And if there is one narrative that they want to hear, it is that along with the rate story. I think the rate situation has been somewhat mixed. Guy mentioned consumer sentiment. We've seen consumers continue to spend. I do agree that the very best Goldilocks situation has been priced in. But until we start to see some type of situation, even the banks allocating like the one time fees, it's still viewed through a positive lens. I do think we're getting to a point where so many people are bullish that the contra trend does need to be taken into account.

4:38We mentioned that in December when people started to capitulate and then buy. And I think this this the opposite situation is starting to take hold. I mean, Goldilocks does seem like the base case scenario at this point, that the Fed has gotten it right, that the data still indicates a strong economy. But we are slowing down enough and inflation is backing off enough for us to continue and look at the markets run off of this. Which if inflation does come down and interest rates do come down, that is the perfect backdrop to make the markets go higher. But I do think markets did get ahead of themselves with those six cuts for next year.

5:08And that's where I think you're going to start to see some of a pullback, which we started to see early this year. And now you're seeing again technology run up, which I really was of the mindset you're going to see this rotation happen, which we saw the end of last year. Now the question is, is that happening? I think you are just starting to see some of that. We never really got that euphoria in technology, and I think you're starting to see some of that come in. People are still very excited about artificial intelligence. So I think you're going to see some of that, but I think ultimately things are going to shift back more into that rotation as we look forward.

5:34Super microcomputer is a name we've talked about from time to time on this desk. I don't want to pretend we've been bullish bearish. We just talk about it in the context of what's going on. And this is not a knock on Susquehanna. They do extraordinary work. On December 11th, they downgraded that stock, put$140 price target on it from margin pressures, a number of different things. Today, it closed to 425, was up 20-something percent today on their guide last night, which, by the way, was very good. But I guess it just goes to show you, you know, how you can be so off sides in this entire space.

6:02With all that said, you know, when you see a move of these magnitudes, you have to say to yourself, there's something else going on right now. And this whole base case of soft landing, Goldilocks scenario, all the things you hear every single day, flies in the face of some of the other things you're saying. Bank lending has been contracting at a pretty alarming rate. Nobody seems to be talking about that. And I'm still of the belief that given the re-steepening of the yield curve, you're going to start to see the effects of the 20-something months of an inverted yield curve. Obviously, nobody wants to hear that, but I think it's coming to a theater near you.

6:33That super micro guide was nuts. I mean, as much as a billion dollars higher in revenue for the quarter. How can we be so off sides on that? I mean, how did the company guide be so low before and what changed? I mean, that's a separate question. Well, the last time they reported that was November, right? It was a different world then. Rates were peaking, right? And things felt very different. I don't know if that was a – I mean, it's obviously – we can't help but think it's very similar to NVIDIA-like when that revenue guide was just extraordinary off the charts. But a lot of good things have been priced into the space already.

7:10So I'm concerned. I mean, it's not the greatest setup going into earnings season to have the markets at a record high. And semis in particular with Intel next week on Friday for semis to be at these levels. Yeah, I tend to agree. So the situation is that we're getting very specific data that seems to lead the entire space higher. I think that's what we're all collectively saying here. And I do agree that the bubbling of that underneath the surface is a bit concerning. I think if Intel or anyone else next week comes out and essentially says, listen, the slowdown is more than just perhaps handheld devices.

7:45We've already seen some caution in terms of like the electronic, sorry, the electric vehicles. If there is anything that says, hey, actually, perhaps there is a hiccup in terms of this AI led boom. I do think, yes, that's the linchpin that's holding this whole thing together. So I think that if there is any kind of pullback in that space, you might start to see some weakness in NVIDIA and AMD because those are the natural pure plays. But I think the rest of the space takes a lot more pain because that's the one area of strength. Intel Thursday, I misspoke. I said Friday. Intel's out on Thursday.

8:19But in terms of the earnings next week, Court, what concerns you the most? I mean, we sort of have the first week, sort of a smattering of earnings. We've got a wide range. It is. I think the bar is essentially very high right now, right? Because if you look at the NASDAQ 100, it's trading at 25 times earnings, which every time it gets to that level, it really hasn't been able to get much higher than that. And I think the argument is that artificial intelligence will boost revenue enough that it actually justifies these higher earnings. I just don't know how much we're going to get there because that trade is already played out.

8:47Fund managers are already over allocated into technology. So where did the additional money come from to push it higher? So maybe it's the cash that's on the sidelines. We're close to$6 trillion that eventually needs to make its way in. But at the same time, that's safety. People are terrified of putting their money in the market. So is that going to come out and go into these high-flying techs? I doubt it. So I think that's the thing is what's going to bring it higher. It's got to be a pretty high bar. I'm sorry, Court. Yeah, I agree with you 100 percent. Netflix on Tuesday, fascinating, given that upgrade we just talked about, I think earlier this week.

9:14Obviously, that's one to watch. But American Express on Friday, I only mention that because obviously it's the premier franchise out there in terms of what they do. But one has to wonder. Now, Now, we understand. We talked about Discover last night. Completely different client. Understand customer base is different. With that said, does American Express start to see some of the things that DFS saw? That's going to be interesting to me. And American Express is within, I think, six or seven dollars of its prior all time high, probably made sometime in 2021. Or even if they see the business. Yes.

9:43Yes. Spend. It's not much of a credit story. Right. Right. But it'll be. Yes. The economy and how also businesses want to spend. All right, let's get more on the big run in semis. Bring in Bernstein Senior U.S. Semi Analyst Stacey Rasgen. Stacey, great to have you with us. Good to be here. You know, does this run make you nervous going into earnings season? Look, I guess any time you go into earnings, you'd prefer expectations to be lower rather than higher. And I think expectations clearly are going up. Some of it's also the general cyclical behavior. Like some, you have to remember, this cycle's been unusual.

10:20Last year was a downturn. Semis were down. The stocks were great, but the revenues were down. This year, revenues will grow broadly for semis. Things like PCs and smartphones, which drive probably 50 % of semiconductor demand overall, they've got a bottom. They've hit bottom. Then people are looking at least for those end markets to grow some this year. AI is clearly off the charts, as you were talking about. I think there's some nervousness in some sense around some of the lagging itself, automotive and industrial. And those are end markets that probably are not going to do so well this year for my revenue standpoint.

10:52But for a lot of the companies, they've already cut. And you get this sort of weird dynamic in semiconductors when people tend to want to buy earnings cuts, like if they're confident that things are bottomed. Now, that's a debate. Have numbers been cut enough? But in general, people have been buying some of these names on sort of the cyclical bottoming things. So you've kind of been winning in all ways across semis as we go into earnings. And now, you know, the rubble will hit the road, I guess, like as we start out next week and some of these prints start to come through. And we'll see where the chips land, I guess.

11:24Stacey, you watch all these, I know. Tuesday, Texas Instruments. You don't have to play stock market with me. But Friday, AMD. And I'll tell you, talk about people getting off sides. AMD's the following week. Oh, apologies. The following week. But with that said, my point is the following. AMD, the last two quarters, the prior quarter, the stock was 134. So everybody seemingly loved it. it cratered. This last quarter, 97, it closed. The knee jerk after earnings was to take it to 94. It's doubled since then. This is one of those names that people can't figure out. How does it set up in earnings effectively an all-time high?

12:01Yeah. AMD has been an interesting one last year. They've got to miss numbers every quarter last year. It almost didn't matter because they were able to create this AI narrative and backing it up in some sense, right? They've got a roadmap with products on it. They've got some clear demand. And they set up expectations for the AI piece of it very smartly. They set the number, I think they said they're going to do more than$2 billion in AI revenues this year. And that number is very small relative to the general scale of the industry. And so they probably left room to take it up. Now, I do worry somewhat about the rest of their business, just like we've been seeing for several quarters.

12:41We'll see about PCs. I think they're sort of the general data center, the traditional data center market has not been so great. Their embedded business is probably going to be down double digits this year. Gaming will probably be down 20%. It's entirely possible that the core business could still be weak. But as long as people can have comfort in that AI story, maybe it still gets bought. And that's what happened as we went through last year. I think the issue with AMD now is I think people are expecting that AI number to go up. And I know they said more than two. By the time we get to the end of this year, it better be a lot more than two, given where the stock is trading right now.

13:14But that interesting dynamic, that tradeoff between the AI story and the traditional story, that's going to be interesting how that plays out as they report and as we go through the rest of the year. Stacey, it's Karen. Thanks for being on. So big picture question for you. You've been doing this a long time. You're very good at it. What inning do you think we're in of the AI story as a business? And what inning do you think we are in in terms of valuation of the players in the AI business? Yeah, yeah. It actually depends on the player, right? So some of these, again, AMD is fairly expensive. You got others like Marvell and even Intel's valuation has gone up on some of this.

13:52NVIDIA's stock price has gone up a lot. But I've made this point on here before. The valuation for NVIDIA is actually not that bad because the earnings have gone up far faster than the stock price has gone up. And NVIDIA is actually one of the cheaper, actually, AI stocks, if you can believe it. I think what you're getting at, what winning are we in? I think there's the cyclical question and the structural question. Long term, we're clearly very early in the AI transition. You know, chat GPT and generative AI, it's only been around for a year, give or take. And the general trend toward accelerated computing in the data center, we're very early on that.

14:27I think the cyclical one is still open for debate. And part of the reason NVIDIA is trading where it is on a valuation standpoint is the numbers have gotten so big so quickly, people just worry about sustainability. And I think that's an open question for all of these guys. And I'm pretty convinced if I'm looking at five years or 10 years, we will be talking about numbers that are materially higher than what we're talking about today. What does it look like in two years? I don't know. I don't think anybody knows. I think that's where the debate is. last quick question Stacy you know in your coverage universe which stock are you most nervous about in terms of the setup relative to expectations which do you think will be which do you think will miss yeah yeah so in terms of expectations look clearly AMD expectations have been rising and again I've been getting people have been throwing larger and larger numbers at me for AI and so so clearly that is something that they will have to deal with and like the stock especially in the last like week or two So it's just ripped, right?

15:23And you never really want to see that sort of thing as you go into earnings. So that makes me a little nervous. It does. I think with some of the analog stocks, it's going to be interesting because most of them have actually cut numbers very materially, which is a good thing. But at the same time, the stocks themselves never went down. We never got that part of the cycle. The multiples immediately went up and offset. And so some of those valuations are somewhat stretched. I think there's a question on whether or not some of the industrial and the auto numbers have been cut enough. We just have a negative pre-announcement from Microchip recently.

15:56We had a negative pre-announcement from Mobileye. So those make me a little nervous. Some of the ones that I really like, I actually really like Broadcom. Broadcom has really tried to de-risk their core business. And they say that they got a really good AI story that's bridging the gap. And then they just closed on the VMware deal, which adds a ton of accretion, especially if you get into 2025. I actually really like the Broadcom story. Stacey, great to speak with you. Thank you. Good to be here. Stacey Raskin of Bernstein. Courtney, where are you and chips? We definitely own them. I mean, we want the exposure there.

16:27I don't think it's going away at any time in the near future, but it's definitely not where I'm actively allocating our capital right now. I just think some of the valuations have gotten a little too stretched. But absolutely, you need to have it as part of your portfolio. It's a long-term story here. Glad Stacey mentioned it. That's one name we've actually gotten right is Broadcom. And people look at it as a$1 ,200 stock and they say it has to be expensive. And I understand the price tag is. But valuation-wise, it's actually reasonable, especially in the space 21 times next year's with a growth rate that actually makes sense.

16:54He mentioned the VMware deal 100%. They're off cycle. I want to say the report late February-ish. Goldman Sachs has raised their price target. What's going to happen is a lot of analysts are going to have to raise their price target in their earnings. I think you stay with AVGO. All right. We've got a news alert on Microsoft, a cyber breach there. CNBC's Megan Casella has more on this. Megan. Thanks, Melissa. Microsoft is saying this evening that a nation-state actor affiliated with Russia attacked its corporate system and gained access to a small percentage of Microsoft corporate email accounts, including what the company says were members of the senior leadership team.

17:30The company detected the attack a week ago on January 12th, and it's saying tonight that they do not believe there to be any material impact on the company at this time. Microsoft identified the attacker as Midnight Blizzard, a Russian state-sponsored actor, also known as Nobelium. And it says the attack began in November 2023. The attackers were able to access email accounts in their cybersecurity and their legal departments, as well as others. The attack appeared to be focused, at least initially, Microsoft says, on information related to Midnight Blizzard itself. Melissa, we'll keep tracking this, and back to you.

18:04All right, Megan, thank you. Megan Casella in our D.C. Bureau tonight. sort of a, not sort of, it is a black eye for Microsoft, considering the breach was specifically senior leadership and members of the cybersecurity department. And, you know, impact or no impact on day-to-day operations, oftentimes with these breaches, we do not know what was taken until months or even years later. So, I mean. I'm surprised we found out, number one, that means that probably something was going to leak, because there are companies that have been hacked that you don't hear about because they want it to go away.

18:37With all that said, you're right about Microsoft, but how many years have we talked about cybersecurity in Palo Alto, which, by the way, has had its ups and downs. But as we're sitting here today, we're going with the rest of the market making an all-time high. So the cybersecurity name still work, Mel. Agreed on cybersecurity. I think in terms of Microsoft, I think this is especially concerning considering the back and forth that they had with OpenAI. And essentially, they're wanting to perhaps having that reined in. This coupled with the breach in security at least would give one pause. I think you likely buy Microsoft into any material pullback, but I do think it's just greater food for thought in terms of how we are transitioning into this AI environment.

19:17I agree with you. It's embarrassing. I mean, right? You'd think if anybody could get it right, well, one, cybersecurity, but we've seen them breached as well. And email. And email, right. That should be, I mean, the phishing expeditions are getting very, very sophisticated, though. I mean, my email box is just sort of littered with them. But still, I think that it's surprising to me that we're only hearing about this now. And that it took months for them to figure out that it was happening. And then what made them just, you know, January 12th sort of the, I don't know, came to light. But why are we seeing it a week later?

19:55But also, to your point, we may never know. You may never know. Right. How broad that is. Coming up, that's The Spirit. Spirit Airlines catching some serious air today after raising guidance, but one of our traders says major turbulence is still on the table while she is not afraid to use the B word. But first, the CEO of American Express sounding off in the state of the consumer. We'll hear what two areas he says are at their best since before COVID. More Fast Money in two. This is Fast Money with Melissa Lee, right here on CNBC.

20:33You know, we saw some good spending in the holidays. We talked about good consumer spending all the way from, you know, Thanksgiving into Cyber Monday. We just did release some credit statistics through an 8K a few days ago. You know, our delinquency rates and our write-off rates are lower than they were in 2019 still. Look, you had a good job. You had a good jobs report. We had wage increase in December. Interest rates are leveling off and inflation seems to be getting under control. That was American Express CEO Stephen Swery on the Halftime Report, delivering an optimistic outlook for the U.S.

21:08consumer after the company saw strong holiday spending and low delinquencies into year-end. That stock finishing the day almost 2 percent higher. Other financials that fell yesterday on Discover Financial's weak forecast also gaining steam. Capital One, MasterCard, Visa, Discover, all closing in the green. Synchrony Financial among them. But again, we were talking about the bifurcated sort of look of the consumer, the high end doing well, the low end not doing so well. Exactly. Yeah. And American Express is really going to be showing what the high end consumer is doing, which I don't think any of us really questioned they were doing well.

21:38And I think you're seeing their delinquency rates are good. But a lot of the broader industry is now back to pre-pandemic levels, if not lower. I am still optimistic on the consumer. I think you want to look at things like JP Morgan is also showing that the consumer is still strong. So I think we are still seeing it broadly speaking. American Express might not be the one to look at there. What's also interesting with American Express is they're really getting into the millennials and Gen Zs. So actually, you're starting to see even the higher consumers on that younger generation is actually doing very well.

22:06And American Express is showing that, which I think is a really good sign. It's interesting how you can spin things, right? And he's an amazing job. It's a fantastic company. So net charge-offs came in at 1.5%. Street was looking at 1.2%. That's up from 0.7 % a year ago. Last 12 months has sort of been steady. I understand what he's saying. 30-day delinquencies Basically, after six months of increases, it's starting to flatten out. So you could say things are slowly improving. On the flip side, you could say these are numbers that are somewhat alarming. I know 1.5 percent is not a big deal, but up from 0.7 percent, you know, it just, again, it speaks to the state, I think, of the consumer on either end of the spectrum.