AI Booming, But Where’s the Retail Trader? 5/26/23

0:01Right now in Fast Stocks rallying into the holiday weekend as investors hope lawmakers are close to striking a deal in the debt ceiling. This Nasdaq and S &P both posting their highest closes since August. NVIDIA setting another all-time high, inching even closer to becoming the first trillion-dollar chip stock. But why don't retail traders seem to be getting in on the AI-fueled action and a sobering trend? That's what the chart master is seeing in the large-cap Russell 3000 stocks. What's got him so concerned and what it means for your money? Plus, it's Friday, so you know what that means. We've got the chart of the week for you.

0:34This time it's WEAK week. This group stuck in the cellar after a massive run. Is a bigger breakdown coming? We've got some answers. I'm Melissa Lee. This is Fast Money. We're live with the Nasdaq Market Site on the desk tonight. Bono and Eisen, Steve Grasso, Guy Dami, and Tim Seymour. And we start off with an AI boom for the markets. Wall Street piling into the trade, helping the tech-heavy Nasdaq gain 2.5 % this week, its fifth straight week of gains. NVIDIA's blowout earnings and guidance in Marvell's forecast for quote-unquote tremendous potential in AI, adding fuel to this fire. But there's an unusual dynamic under the surface.

1:09Retail traders appear to be sitting on the sidelines. Even as the stocks are rallying, individual investor flows into AI sensitive names have been muted, according to research firm Vanditrack. So why isn't the AI hype driving traders back into the market? Or maybe they will go into the market and fuel another leg higher. Grasso, what do you think? So I think the retail investors normally like cheaper stocks. They like lower priced stocks. They could buy more of that stock. And if you look at during the meme era of stocks, they were buying a lot of cheap stocks, a lot of heavily shorted stocks.

1:42You can't say that now. NVIDIA, no short interest. NVIDIA, over$300. So I guess if you look at C3 AI, that's as close to it as you can come. Look at the chart on that one. That looks to me like retail investors have been buying it, selling it, buying it back. Cheaper stock than NVIDIA. It has it's in its name is AI. Right. So that one probably tests that that premise right off the bat. Yeah. And it's tickers. AI. How much is that ticker worth today? Bono. And what do you make of this trend? And do you think, you know, it's just a matter of time before retail starts getting in? I mean, the point in the note was also that it was banks doing a lot of the flow inflows into some of these names.

2:25Yeah, I think Steve makes a lot of good points, and I agree with some of them. I'm kind of looking at the same thing, but from a slightly different lens. So let's take a look at some of the names that we're heavily involved in by the retail, right? Tesla, AMC, GameStop, and then Bitcoin. Tesla's down 50 % from its 21 peak from 407 to 197. AMC down from 3640 to 474. GameStop from 81 to 2373. And Bitcoin from 64 ,000 to just 520. So, I mean, if you look at the carnage. What do you think that does to the psyche of a retail investor? I mean, a professional investor would be taking pain. It would likely have his risk manager tapping him on the shoulder right now.

3:05So I do think there's a certain psychological aspect. And then you look at, like, the housing boom that happened throughout that same period. That offers an alternative to where you would be investing those dollars. So you've been burned in this high volatility situation. You're now able to park your money in a more stable asset and get similar appreciation. And the last thing is just with the reopening of the economy and return to offices, we can argue the extent thereof, you just don't have as much time to fixate over how you're going to be trading your portfolio around. So I think those three dynamics together make it a bit more challenging for the retail investor to participate.

3:37Are you surprised by this guy? I'd agree with what Steve said and Bono said. I think that's exactly right. Steve's point about these stocks are expensive in terms of a price level makes a lot of sense. And Bono's point about these folks getting burned, look at AMC, look at what GameStop is. Bitcoin is a great example. On top of which, I don't think people have the time necessarily that they had in the peak of COVID when a lot of people might have been home working clearly, but had more time on their hands to actually trade stocks. So I think it's a function of all those things. I don't know if it's a tell necessarily on the market or where we're going, but I think it's important to bring up.

4:12And I think to a certain extent, I think we've explained a lot of the reasons why they're not there. Yeah, but maybe the tell really is the inflation in these prices. And I don't mean to cast aspersion on the term by using that term. Inflation meaning just the stocks going up by so much, Tim. I mean, what does that say about the markets and how quickly this happened? I mean, these are just jaw-dropping gains in just a couple of trading days. Well, and I'll disagree with all the guys just to be that guy today. I think the retail investor is here. I mean, look, I think the retail investor never ran very far.

4:49If we look at more of the broader flows from retail investors, especially during some of the peaks of market, call it volatility and whatnot, the retail investors actually hung in there. I look at Microsoft and Apple within 2 % of all-time highs. I look at semiconductors breaking out to all-time highs. And I think that was obviously we know what NVIDIA did this week. But look at semiconductors more broadly as a group. If you're using the SMH, you can see that actually not only do we break through that December 2021 relative high to the S &P, which is, I think, a very important point for the market here.

5:24Semis are leading the way. But back to the retail investor, the retail investor through difficult times. And we talked about this also at various times where almost your Microsoft, Apple's, Amazon's, Netflix at 52 week highs were almost seen as the money market stocks for the retail investors. So retail flows overall actually belie the view and the theory that the retail investor is not getting involved in this market. And if anything, the institutional positioning and the sentiment we get from Bank of America and all the other folks that measure where the professional community is, say they are the ones that are most nervous and most underweight this market right now.

5:59Yeah. And maybe also the fact that Nvidia had such high short interest going into the year, you know, really tells you sort of that the institutional investor might have really questioned this and not traded this one particularly well. When NVIDIA, when you look at them, they started off as a gaming chip stock, and they were doing just under$2 billion in revenues from that. Then it became a data center story, and they were doing double that amount. Now it's become an AI story, which in conjunction will use the data centers and the gaming chips. So now everything is clicking all at once. But these valuations have blown out to what we considered extended.

6:42Now are tremendous, enormous. Use any word that you want on it. But it's very hard to figure out where you should be a buyer of these names. Sometimes you just have to hold your nose because expensive stocks have a way of getting more expensive. Cheap value stocks get even cheaper. But I think part of this is just the radical change in the perception of NVIDIA and a lot of these chip stocks. in just the past couple of months. We remember in March, NVIDIA was announcing a 4 % cut to its workforce. I mean, things are viewed completely differently just a couple of months ago, Guy. And here we are talking about NVIDIA and talking about AI basically saving the market.

7:19I mean, take a look at the massive gains in the mega cap tech stocks thanks to AI. Yeah, no question. It's saving the market for now, for sure. But I think as Carter's going to say in a couple of minutes is it's setting the market up for something else. And NVIDIA, you go back a couple quarters and, you know, they weren't saying particularly great things. And then the AI realization came and they really hammered that home. They did a remarkable job, a masterful job of sort of focusing on that when some of their other businesses were not doing as well. Now, those businesses are catching up to a point.

7:51But again, to Steve's point, you know, valuation right now at a trillion dollars effectively. I'm rounding up clearly. Even if the most ambitious people out there in terms of revenue, you're talking about a stock that's probably trading 25 times revenue. That's historic for a chip stock, especially with a chip stock with that market cap, which we've never seen before. Yeah, I mean, a trillion dollar valuation on$27 billion in revenue. I mean, listen, there's no argument against the fact that the valuation is stretched. I don't really think that's what it is. What I think to me, at least, is that NVIDIA is kind of viewed as this tangential play as opposed to a pure play, which inherently will have more risk to live and die on this AI theme, so to speak.

8:32So NVIDIA still has this use case well within game. And you saw the same type of dynamic happening with the whole Web3 move, right? Meta came out and announced it. The logic was that, listen, you're going to need this processing ability that NVIDIA clearly has a leadership position in in order to kind of make this move. And I think it's the same situation with AI, where there's still an underlying operating business that supports at least some type of cash flows there. And then you have the upside with the AI adjacent, as opposed to chasing a name that is going to live or die on its ability to deliver on the AI front.

9:03But all that said, do you like NVIDIA here? I do. I mean, although I have trimmed some. I mean, but that's just about freedom risk management. But in terms of did I get out? No, I'm still in. OK, let's dig deeper into NVIDIA's big gains this week before Wednesday's earnings report. The chart master thought this chart looked so good it was bad. Of course, we know that hasn't pan out so far. So what's the next move for the chip stock? Let's bring in Carter Braxton, worth of Worth Charting. Carter. Yeah, I myself bet I own puts going into the numbers, so perhaps you don't want to hear anything more from me on the subject.

9:35I'm in an equally strange position of having put out my Monday piece titled Semiconductors. Make sure you're long semis relative to tech. It's a perfect example of do what I say, not what I do. Semis doubled the performance of tech, up 10 % versus the tech sector up 5%. Decent idea. And yet I myself went and bet that it would have an outsized move and it would be down. Let's look at a few charts and figure it out. So NVIDIA, in relation to its 150-day moving average, with this gap up, you see it there. But let's put it in context. Look at the next chart. Now, this is going back 10 years. And again, you're just simply seeing a stock, NVIDIA, with its average trailing price over 150 days, 150-day moving average.

10:23Final chart for NVIDIA, look at its percentage right now above the 150-day at basically 78, 79%. This is as steep as it's ever been. And if you go back in the history of the data since its IPO, you're getting also one of the most extreme readings on record, which is to say typically when it's gotten this far, it's right to trim, sell calls, take some measures as other people sort of lose their minds. Would you but this is not prompting you to say to sell your the position in NVIDIA? Oh, I mean, if I had this as an individual or if I were managing a portfolio on behalf of other individuals at the professional level, mutual fund, hedge fund, I would be reducing for sure.

11:16So, Carter, why don't you take your own advice? I'm just curious. Yeah, well, that's why they have that expression. And the English is great. That's why it's too. Well, so, again, you use something that I would I also could have done is done a straddle at the end of the piece that you if you don't want to be directional, buy a straddle. That would have worked, too. I just thought we'd get an outsized move. And I said, you know what? Everyone loves this thing. Let's bet the other way. But the beauty of options, of course, you can hear more at 530 is that you spend less to make more or lose less.

11:44Right. Carter, thanks. And we will see you on options action at 530. Tim, that chart's pretty scary looking. It's scary looking. We've seen how these charts can get scarier looking. You know, one of the conversations we were having this morning on our call, a guy was talking about rotation out of health care. And I think there's rotation across a number of different, obviously, defensive sectors, not just staples, not just even, you know, CPG. And even where we've seen some of the consumer discretionary, it's been very resilient, like a Nike or Lulu. I mean, what you're seeing, though, is broader rotation into higher growth stuff.

12:23And it's not just five stocks. Look at what's going on in communications. Look at what's going on in software. Look at CrowdStrike, Okta today. Look at Adobe. So, you know, to me, part of this is part of the same story. And I would look at the triple Qs against the S &P. And if the semis have taken out that deck 21 high, I think the Qs are going to do the same thing. And I think they have probably 10 or 15 percent up to that relative position to the S &P. Again, so you could divide the Qs, divide by the SPY in the same way we did today, the semiconductors against the SPY. So, you know, I think that's what we're looking at here for the broader market.

13:00And that's why I wouldn't be fighting it in the absence of a debt ceiling fiasco and a Fed really articulating a much more aggressive policy. That's what stocks are doing right now. And I think you stay in this trend. Yeah, I mean, it just seems bizarre kind of guy for talking about this, you know, possibly hitting up against the debt ceiling and possibly going into a recession in the back half of the year to be in high growth, high multiple rising interest rate environment, high growth, high multiple stocks. And yet here we are. That's where you see the gains. And that's that's listen. I'm clearly I've been flummoxed by the entire thing, but that's what's going on.

13:36And Tim makes a good point. I mean, Adobe's gotten off the mat. Adobe was a$700 stock in November of 21. And I think it's trading$415 or so now. But I understand what he's saying. It's bounced nicely as well. So you have participation now on a broader set of stocks. But it's these big, again, these stocks with market caps north of half a trillion dollars and up with moves that are asked. We're going to talk about Broadcom in a little bit. Look at the move today. I mean, I'm jumping the gun here, but it's not normal to see companies of that size have 10 % moves over the course of a trading day.

14:12Now, can it continue to Steve's point? I guess, but we're pushing the envelope here, folks. Coming up, worry that you missed the rally in NVIDIA. Well, there may be a way to squeeze more gains out of this stock. We'll lay out how you can do it with options. But first, we're not quite done with earnings yet. From Salesforce to Lululemon, there's still plenty more on the calendar next week. So which names are our traders watching? Stick around to find out. much more fast into.

14:40Welcome back to Fast Money, a short but mighty week of earnings ahead. We'll get results from names like Salesforce, Macy's, Lululemon and more. So which is the one reporter traders are watching? Let's go around the horn. Tim, start us off. Yeah, I think it's I think it's Salesforce. Again, I talked about software and I look at CRM not only has had a tremendous run up 65 %-ish from mid-December, but has outperformed the S &P, like a lot of these stocks, over 50%. I think the story here really is about margins and then what the demand environment is. I want to hear what's going on in enterprise.

15:13There's no question that in many of these customers and in many of these kind of recurring revenue receivables, you have seen companies start to question whether they're going to spend their next dollar. We haven't really heard that yet from CRM. We've seen a company that's also paired back and been watching the bottom line. So you're watching margins, you're watching demand, and you're watching enterprise. Guy Broadcom. Yeah, AVGO reports Thursday after the bell. This is actually a name we've liked, but I got in my wildest dreams. I didn't think you'd see an 11 % move. Again, this stock now is a market cap of about$340 billion.

15:48I guess the good news is you can make it still a good case for Broadcom on valuation. It trades at a market multiple or slightly less, actually. And it trades at about 10 times revenue, which pales in comparison to a name like NVIDIA. Now, obviously, a little bit of a different animal, but this is one where valuation is actually compelling. The problem is, you know, an 11 % day like today into earnings. I mean, what are we setting ourselves up for? So I'm fascinated to see what they're going to say on Thursday if they can keep this momentum going. Steve, you're in retail here. Yes, Capri. I'm looking for a pop sort of like the same pop that you saw in Abercrombie.

16:25Everyone has bet against Capri. Everyone thinks they're going to guide lower. If they guide lower, it's in the stock. If they don't guide lower, you're going to see a pop the same way that you saw in Abercrombie. Middle of March, the CEO bought$10 million worth of stock. Doesn't mean he knows anything, but there's only one reason why you buy a stock. You think it's going higher. You could sell it for a multitude of reasons. If they continue the buyback the way they're doing it right now at the same pace, the company becomes private in less than five years. Oh, that's an interesting. Are you worried about China and the impact on Capri?

17:01Not particularly. I think that you have a lot of other companies that are more exposed to China. Plus, this one has delevered an enormous amount over the years. All right. Bono, and you're also looking at retail different sorts, though. Yeah, I'm still in the retailer complex and I'm drilling down on it because I'm trying to distill, you know, some key takeaways from the consumer. And so when you've looked at what's come out so far, you've really seen revenues start to shrink. You've seen margins hold up. And I want to know if that's going to translate. For Chewy. No, no, generally speaking. But I want to see if that translates to Chewy.

17:32And really what I'm looking for here is like a port in the eye of the storm. Because I would assume that there's a certain amount of inelasticity of demand for pet-related products, right? You may trade down on your chips or your sodas or whatever. But Fido, you're going to make sure he's getting the best, right? And I trade down on Fido's food, too? Perhaps. I think it's probably one of the last things that you're willing to do. There are real pet enthusiasts out there that I think are going to continue to drive top dollar demand there. And so I really want to see whether that shoe drops and I'm able to kind of glean out some strain to the consumer or whether I think it's going to the left and down.

18:06I feel like you might not buy the extra two toy. I wouldn't. No doubt. I get your point, though. Coming up, it is Friday, so you know we've got a chart of the week for you. Could this week's move be a sign of a shaky foundation for one group? We'll get some answers after the break and throughout May. CNBC is celebrating Asian American and Pacific Islander heritage. Here's a founder of Kinsey Capital Partners. I feel very fortunate to have grown up an American, but also with a deep appreciation for my Korean roots. When I started my career in finance, I didn't look like everyone else and found I was often misunderstood and underestimated.

18:49But I learned to take a seat at the table and contribute by finding my voice and using it. I have found strength in the Asian American community, which has given me support and confidence, especially as I went off to launch my own company. Each of us has our own superpower, and it's up to you to use that power to create success on your own terms.

19:23Welcome to Fast Money. Time for our chart of the week. Yes, that's week with an A. And this week, it's the ITB home construction ETF eking out a gain today, but losing nearly 3 % since Monday. The leg lower comes as 30-year fixed mortgage rates topped 7 % this week for the first time since March. So are this week's moves a sign of more pain in the housing trade? I don't know. The builders individually have done well. It's unbelievable how well the builders have done. But when you have a mortgage rate that has doubled, doubled, It's really you're buying. You haven't seen the cost of these homes get cut in half.

20:01So maybe that's not the knee jerk reaction. But the prices of homes has not come in to the degree that a doubling of the mortgage rate should make it the ability for someone to actually go out and buy a home for that. So I've been shocked at where these builders have been, but they have become more efficient. I think if rates stay up here for a longer period of time, you're going to see that flow through. We haven't seen that yet. And I guess it's what kind of audience you sell to, Guy. I mean, Toll Brothers did very well. They seem to be not that affected by this. They cater to wealthier consumers, wealthier homebuyers.

20:34No, it's interesting. The ITB, if we look at it quickly, I mean, 25 % of it is DHI, which is the number one holding. Huge double top around 112. And NVR, which is a$5 ,000 stock. I mean, we don't talk about it, but another huge double top. So if those start to roll over on a technical basis, this ITB could really be vulnerable over the next couple of weeks. Yeah, I didn't agree it could be. But, I mean, let's zoom out from the week and look at the year. It's still up 20%, 25 % for the year. I think if you really look at valuations, which I believe Steve drilled down in earlier, these are still part of the cheapest part of the market.

21:10And so I think that does provide somewhat of a tailwind there. All right. Time for the final trade. Let's go around the horn. Guy Dami. Palantir's had a huge run, but there's some juice left. I think the AI trade, I think Palantir is the way to play it. Tim Seymour. Used to be a mega cap tech company. Now PayPal is just certainly a payments company, and one where I think actually trends are getting a lot better. Certainly e-commerce trends, but again, their margin and share, the CEO search is, I think, getting closer to completion. Stock's been destroyed, and I think you look at the charts, it's definitely put in a bottom.

21:45Bono in. So Carter mentioned some of the challenges of the overall market. I want to drill down into the Brussels 2000, IWM. That's really where I think there's a lot of pain points. Steve. Capri looking for a big pop on earnings. All right. That does it for us. Don't go anywhere. Options action is up next.

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