AI Battle Royale… And The State Of U.S.-China Relations 12/19/25

0:02Mazda has been named Consumer Reports' safest new car brand. It starts with our approach. Every Mazda comes standard with proactive safety features, so you're more aware of what's around you, more focused on the road ahead, and ready before problems ever start. Mazda. More of what matters most to you. Go to mazdausa.com to learn more. Consumer Reports does not endorse or promote any product. At Edward Jones, we believe rich isn't about having life all figured out. It's opening yourself to all the possibilities. That's why your dedicated financial advisor provides long-term planning built around you, meeting you where you are, and helping you get closer to where you want to be.

0:47So no matter where you're starting from, you can move forward with confidence. The key to being rich is knowing what counts. Let's find your rich. Edward Jones, member SIPC. Live 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. An AI rebound. Tech stocks leading the market to close out the week with Micron serving another 7 % today. What do these moves tell us about the state of the trade? How should you position going into the new year? And drug price dealing. A slate of pharma companies agreeing to voluntarily lower drug prices.

1:21What it means for the stocks in the state of health care. Plus, Nike swooshes lower after earnings. Rivian revs up for its best week of the year. And college football playoffs kick off tonight. we've got an exclusive look at the most valuable programs in the NCAA. What's behind their growth and why private equity is watching so closely. I'm Melissa Lee. Come to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Courtney Garcia, Steve Grasso, and Mike Coe. We start off with an AI battle royale. Hardware versus hyperscalers duking it out in a heavyweight bout into year-end. Today, it is hardware landing a right hook.

1:54Micron soaring another 7%, building on a strong post-rearnings momentum. NVIDIA also getting a nice boost after a bullish note from Bernstein analyst Stacey Rasgen, who cited an attractive valuation. AI hardware infrastructure names seeing some of the biggest gains today. Oracle bouncing back from big losses yesterday thanks to its TikTok deal. CoreWeave, Supermicro, Dell all joining the party. Meanwhile, those Mag7 hyperscaler names largely sitting out today. Alphabet, the only name with a gain of more than a percent. And on top of everything else, OpenAI may become the next member of the trillion-dollar club before it even goes public.

2:28So at the end of a week of wild swings, what have we learned about this trade? Or is this just sort of a blip in the bigger AI trade, Tim? What do you think? No, look, I think the last month has been important in terms of evaluating free cash flow from companies that were gold standard. By looking at the debt markets by assessing the dynamics of does Oracle have funding? Are the blue owls of the world sticking by? There's other folks that are, you know, that's emblematic of a broader story. I do think that hardware, in the case of Micron, they told us that they were actually seeing spot prices, that which they could price out two, three, four quarters, that kind of visibility.

3:05The fact that you saw a rebound on a day when you had a triple witching, I know Steve watches this stuff, too. I mean, you had enormous volume. You had, I'd say, some incentive for where dealers were positioning to be on the right side of the upside today. And I do think that was part of today's move. But if you're if you're watching kind of the short term between now and yes, dare we use the Santa Claus rally dynamic, I think it feels pretty good. I love this bounce off the 50 day. Nothing to me has changed in terms of the fundamentals. And the key fundamentals are that demand is there. The Fed is your friend.

3:39And you continue to see investors pouring money into U.S. equities. U.S. fund flows have been great this week. Yeah. Mike, what was the role of today's huge expiry? Seven point one trillion in notional in the impact here. I mean, you would think that Friday would be quiet because it's the Friday before holiday short and trading week, and yet it was very heavy. Yeah, well, I think you're right that normally when you're just taking a look at a pre-holiday weekend, you're going to see reduced trading volumes. But when you have an expiration like a triple or a quad, which you have a lot of expiring contracts.

4:10And that often means that you've got positions that need to be rolled to subsequent expirations. And so that tends to fuel a big uptick in volume. And we certainly did see that today. But I think the positive I took away from today's activity was the fact that the volatility indices, both on the NASDAQ and on the S &P, came in pretty considerably. And it was something I was looking at earlier this week that had been troubling me. I think it's looking a little bit better right now. Steve? I think when you look at this, you have Oracle that everyone was worried about the debt issues. Then you had sort of a reset, all the bloated names, the quantum names, AI names.

4:47and everyone wanted a reason to spend again. Or not spend, but to invest again. So you have the end of the year, you have the Santa Claus rally coming on. You had to get that fluff out of the market. So I think the fluff came out of the market and I think it came out of the market enough so that people can get back to investing. So if they're back to investing, they're going to buy what they know again because if you look at energy, energy is not a big enough percentage to move the overall market. Industrial is not a big enough percentage. Tech is 40 % of the overall market. So if you're expecting the market to go up, it's not going up without technology.

5:20So people are going to go with what the most widely held names are and what they feel comfortable buying with a pullback. Right. But within that trade, I mean, it's a huge group of stocks here. We did see distinctly today hardware names do better, in particular semiconductors. semiconductors. Was Micron's guidance enough to make you think maybe the safer, quote unquote, safer area within the AI trade would be the areas, the companies that have visibility for the next two years? I mean, the guidance that Micron gave was phenomenal in terms of how much demand there is for the next two years. Correct.

5:56And the demand is a huge part of that. But also, they're in a really good position to be able to pay down their debt when you look at their cash flow. I think that's a big part of this because I don't think the AI trade is over by any means, but people are really starting to question the companies who don't have the cash flow to support all of this build out that's going on. So I think that's where we're going to see this bifurcation happening in 2026 is the companies who have the cash flow to support it and those who don't, because I think investors are becoming increasingly wary about that. And you bring up a good point.

6:24I mean, when you look at tech and information services, that's over 45 % of the S &P 500 now. There's a lot of concentration risk. And I think a lot of people are really waking up to that and realizing that. So I think you want to start to look elsewhere. I don't think this trade's going anywhere, but is it going to have the kind of outperformance it did in 2025? I don't know. Do the companies, according to the companies that have that are going to be issuing debt will lean on the debt markets, but also have free cash flow. Do they get dinged next year, Tim? And I'm thinking of like, you know, the medicine of the world.

6:53Well, not only do they, they have. They have. Yeah. And that may be an opportunity because I do think you can make an argument from a cap structure perspective that there's a better return on investment in terms of where they might be going. You certainly don't want them to issue equity here. You certainly, as a debt investor, we've heard that on this show from folks that we reach out to when it's time to evaluate credit. And they've said, hey, you might actually have a great opportunity to be investing in AAA or like in the form of Meta or Microsoft or an Apple and take advantage of it in terms of that yield pickup on the fixed income side.

7:27Credit side, I'm not worried about Meta. I do think that the valuation has already been pushed down. All right. Mike, how are you thinking about the trade in terms of the distinction that we saw, at least for today, between hardware and specifically semis and the others? Yeah, I mean, well, it's interesting just taking a look at the others and maybe the worst performing of the others coming into this week. We had a short on Oracle for some time, which we actually did cover this week. So I think that maybe the worst damage in Oracle has already been done. Look, the Micron situation, you know, this is not a company that's very expensive at all.

8:02There are some other companies that are, but, you know, now that you have some visibility on pricing, which I think is the point that Tim was making. Now, this was a name that we were long. We actually did pair it in one of our discretionary portfolios this week. But I expect, with these upgrades that we're sort of seeing in the forecast EPS and revenue numbers, that this is something that we're going to hold in something besides our seven conductor portfolio, where we still continue to own it. That forward P on Micron, I almost had to do a double take. Seven. It is seven. I mean, it's very cheap.

8:36Yeah, based upon what they've told you and imputing out there, that's part of the reason. And the demand is absolutely there. You know, it does. I kind of feel as if the hardware names are rallying, then the software names will follow. I mean, that's what we've seen. And I still don't think that the semiconductors rally is something that we should be that concerned about. I don't know what's going to get in the way of it. I actually think Broadcom may be the most interesting in terms of the pullbacks and what we've seen in terms of the custom space. I just think more broadly, too, what's been important about this move is if we're having a market conversation, it's not just about tech.

9:12And it really has been a week where banks have exploded and, again, exploded to fresh new all-time highs on the view that the yield curve is steeper, that you have a lot of different dynamics in terms of their core business. You've got probably a Fed that's your friend. And I like that about this week. That's the other part about what I think is really fascinating and what will be the next two weeks. You know, when you look at memory, though, first of all, to your point, Micron's up 260 percent this year with the valuation still being extremely easy. When you look at DRAM, DRAM is 77 % of their revenue base.

9:44NAND is 23%. HBM is 15 % of the 77%. And they're the third player. So you have Samsung and SK Hynex. So you have the three players that really have a monopoly on this. And their money will continue to come in. But what I'm nervous about is what happens if that CapEx spend isn't what we think that CapEx spend is supposed to be next year? because it's a commodity-based business, right? Boom, bust. Why do we not see cheaper prices? I know we have the deep seek scare. I know we have the whole issue of they could do it for X. It doesn't matter if deep seek is a lie or a fake. There's got to be some commodity element to this that the market's going to start sniffing out.

10:29Do you really need$100 billion? The CEO of Micron will be very concerned. I mean, to go that far out in terms of the guidance, you've got to have a degree of... Well, I'm not talking about Micron. I'm talking about the rest of the other. Oh, okay. Because I think Micron, to your point with valuation, I think Micron is still in a very good spot. Because you haven't seen the run-up, even with the stock up, 216%. You haven't seen valuation get bloated, where a lot of these names, you're going to start to say, okay, well, what's the return on investment capital? How much am I getting back from it?

11:02Who is spending it efficiently? We've seen Meta do this a couple of different iterations, whether they're spending money, whether they're getting it back on it. And the market's going to start to sniff out who is doing it most efficiently. It's not going to be as easy as let me dump 100 billion anymore and I'm going to get it right back. All right. Our next guest expects the AI trade to shift from broad enthusiasm to a more selective environment in the new year. Wall Street legend Rick Sherland is founder of Sherland Partners and recently joined Wedbush Investment Banking as a senior advisor. Rick, great to have you with us.

11:31Nice to see you. Well, Melissa, thanks for having me. And I should caution you that I no longer wear the analyst hat. So I'm going to be ducking some stock questions, probably. That is fine. We want to get into your head, Rick, in terms of how you're thinking about this AI trade. So when you say shift from broad enthusiasm to being more selective, what do you mean? And what we saw today in terms of the enthusiasm behind the hardware names versus some of the others, does that play into your thinking? I think this year has been one of kind of a monolithic trade. People think of the Max 7. It's now about 35 % of the S &P.

12:08But I think 2026, you're going to see that trade broaden out very substantially. You've got a whole universe of SaaS companies that the street's kind of looking beyond right now. There are some issues with respect to is the architecture flexible enough to accommodate AI? Is the business model at risk? So they've been out of favor. But I do think you're going to see some of those come back where they've made good progress on both sides of adopting AI and the business model changes. You'll see a very robust IPO market because there are a lot of the private AI companies that have gotten to scale.

12:45And some of the SaaS companies that didn't get out in the peak of the market in 2021 will likely be coming to market where they've made good traction on AI and the business model shifts. M &A, of course, is going to be a big thing next year. All the big enterprise companies need to add AI into their own architecture. And an easy way to do that is through acquisitions. So I think that all the derivative beneficiaries of AI in the streets, and you guys have been looking at pretty closely, I think there's a lot more of that that we'll see next year, not just within software, but broadly across the economy.

13:25So go ahead. Yeah, sorry, Rick. Sorry to cut you off because that's exactly where I wanted to go and to better understand your thoughts. And I'm not going to ask you to pick stocks here. But when you talk about enterprise adoption and really, really the follow through from the. Are we talking, though, about the industrial sector and people finally, you know, banks, places that have had a great run? Industrials have rallied all year, I think, on some level because they were already running their business more efficiently. Are you really talking, though, about the platforms a little closer to home, especially whether you are talking about the hardware names?

13:55I certainly agree that software has underperformed here as people have been concerned about the hardware, and I think you'll get follow through. But please just clarify this enterprise adoption dynamic sector-wise, if you can. Yeah, so a couple of thoughts. You know, AI has been a novelty for consumers with chats, and a lot of knowledge workers have gotten big benefit out of it because they're very good at researching and summarizing content for knowledge workers. But after three years on the market now, it's finally becoming part of the business process and workflows, how a company actually conducts business.

14:30So this involves the use of agents or agentics and how they collaborate and do complex workflows. As a result, the amount of inference that's going to be required is going to explode. You know, a single call to a chatbot means it's one call to the LLM to give you the answer for inference. If it's a workflow-related question, particularly for complex workflows, it could be 10 or 50 trips back to the LLM. So LLMs are going to really be stressed by enterprise systems. We've got reasoning we're asking these models to do now. They're not built for reasoning. So they just kind of throw a lot of weight into this GPU saying, give me 100 answers and I'll pick the best one.

15:16So I think for all these reasons, you know, the inference is going to be the heartbeat of American global business. It's how it runs. So that's going to create enormous demand for data centers. So the data center trade, you know, I'm not worried about it. we're going to have so much more demand than we have supply of data centers, given all the constraints on data centers, the capital, the GPUs, memory, et cetera. So the question would be, and I think this has been forefront in people's minds, is, well, is the business model there to support the financial commitments that are being made? And I think people look to the LLM market.

15:57And the leadership in LLM changes over more times than a close match basketball game. The score just keeps going back and forth. So the Chinese have open source models. You've got Meta and NVIDIA with open source models. So the LLM business is going to be a very competitive business. But I don't see the leaders in that market saying, we're going to make all our money on LLMs. What they're going to do is what Microsoft did with Windows and go up the stack. They're going to do what Oracle did, put them in the database and move up the stack. So it's going to be about to do the tooling, they have the APIs, the programmatic interfaces, so people can build their software, their applications on top of your LLM and drive demand for LLMs through the entire stack.

16:42So it's very sticky. And so the economic model is not selling LLMs, it's building a whole new tech stack. And that's where the battle is going to be fought. And so that's a very different economic model than saying, well, my LLM allowed me to generate the cash flow to pay off my commitment. So I don't worry as much about it. I don't know if the Chinese are thinking about building a whole tech stack, but certainly the leading U.S. manufacturers are thinking much broader than just an LLM. Rick, it is great to get your thoughts. Thank you so much. I do appreciate it. Rick Sherland, now Wedbush, an advisor there.

17:21How do you think the trade will change in 26? Well, I'm going to be presumptuous, and I'm going to say I'm going to pull forward. The next thing is you're starting to see these hyperscalers actually spend money on quantum names, and they're kicking the tires. The next natural progression is going to be AI to quantum because you need faster inference. You need faster data sets. So I think 2026 could be, and maybe I'll have my acronym be something to do with that. Ooh, that's quite a tease. Just thinking of acronyms. We think about them all the time, in fact. Yeah, I think one thing you brought up, which I very much agree with, is that we're probably going to see this broadening out here.

17:58And I think what you want to start to look at as we look into 2026 is rather than the companies who are spending on AI, you want to look at the companies that are adopting AI. So those companies are going to increase their productivity, which is essentially the other 493 rather than just the MAG-7. So we've finally gotten to that tipping point in terms of games. I think we're starting to see that, yeah. Mike, how about you? Yeah, I mean, it's interesting that Steve references quantum, although I think we're probably a little way off of that. I mean, what we're talking about here are some of these NP-hard problems.

18:28That's, you know, in inference and optimization, that's often what you're dealing with. And, you know, you can have, you know, some software solutions like hybrid algorithms that can help solve those types of problems. But, you know, it is basically incredibly chewy when it comes to the technical requirements to solve problems that big. And that's that is obviously the next big area. All right. Meantime, several of the world's largest pharma companies agree to lower drug prices and invest in the U.S. in exchange for a reprieve from President Trump's tariffs. Shares of Gilead, Roche, Bristol-Myers and Amgen all rising on the news.

19:02Emily Wilkins has got the details here. Emily. Hey, Melissa. As you said, President Trump, he announced agreements with these nine pharmaceutical companies to lower these drug prices. And that, of course, as you said, includes Amgen, GSK, Gentech and Merck. The company is also committed to bringing more of their manufacturing and production to the U.S. And the Trump administration, they've now struck agreements with 14 of the 17 major drug makers that Trump initially asked to lower prices. And Trump said he expects to make additional announcements with drug makers in the next week. He name-dropped Johnson & Johnson during today's presser and said he'd be involved.

19:38But he also announced today that he would be meeting with insurance companies in the next week to see if there are ways they can reduce prices for Americans. Now, as you can see here, insurance companies' stock took a dip after the news. Politically, Trump's announcement comes as affordability around health care is taking center stage in D.C. Congress is debating whether to extend those Affordable Care Act tax credits that have helped keep the cost of premiums low for millions of Americans. Melissa? And just quickly, Emily, where do we stand on that? So at this point, this issue is being kicked until January.

20:10There's still bipartisan discussions going on. We're expecting to see at least one vote in the House, but it's not clear that there's one bill that can actually get the support needed from both chambers and be signed into law. And I think that's part of the reason why you saw Trump make that announcement today with the insurance companies. All right. Emily, thank you. Emily Wilkins. OK, so pressure on the insurance companies, pressure on the pharmaceutical companies. is there a sector here that you say they will take the pressure and I don't want to be part of it? I'm more worried about insurance than I am the drug companies at this point.

20:42And I think we've priced in a lot of pressure. People hate insurance companies. Yeah, and I think we've priced a lot of pain into the drug companies. I actually think the insurance companies have had a pretty good run here on the whole, considering some of the risks around this. I also think that a lot of the drug companies had already begun to cut deals, especially related to Medicare and Medicaid. I think the dynamic around the kind of most favored nation status that the U.S. is seeking. Why not? I think it's good politics. I think it's good for the drug companies. So if anything, I kind of like the tailwind from this to continue for what I think has been a very solid run for pharma.

21:18And when you look at it, it's going to be dealing directly. So the PBMs are going to be out of the loop on that. Right. So and then you'll be generic drug makers probably reap the benefits of this. But I think with the insurance companies, the health care companies, what Trump is trying to do is take that money and give it directly to, who knows how the ACA is going to play out. But he wants to take that money and then give it to the individual who gives it right back to the health care company. So I think we probably carved out way too much in stock price of these. They're probably buys at these levels.

21:51And I think, you know, it is still a little early to say, because we don't have the full terms of this deal to see exactly how it's going to be impacting these companies. But I think, as we've seen with some of the deals in the past, that there is going to be some benefits that they are getting, right? I mean, the administrator is giving them something to lower these prices. So I actually completely agree with Tim here. I think it's the insurance companies you want to be a little more wary about here than the drug companies. Coming up, Morgan Stanley in orbit. The potential big win for the bank as the IPO market kicks into high gear next year.

22:18Plus, another prediction market popped. Robinhood, the latest name, getting in on the mania. how it will impact retail investors, and what the charts say about the stock's next move. Don't go anywhere. Fast Money is back in two.

22:35Are you as confident as you should be when it comes to growing your business? Is your strategy ready to execute today? If cash flows aren't where they need to be, growth could be at risk, especially in the eyes of your investors, board members, and the business press. But when your business is operating in top shape, you've earned the right to grow. EY Parthenon can help you reimagine your business and execute a game plan for long-term growth. EY Parthenon. Solutions that work in practice. Not just on paper. At Venture Global, we think about what can be done, not what's usually done. Through innovation, Venture Global is not only building some of the largest energy facilities in the world right here in the United States, but delivering American energy at a fraction of the cost in a fraction of the time.