Alarm bells ringing in China ahead of a massive earnings report from Nvidia 8/26/24

0:01Morgan, thank you very much live from the Nasdaq market. This is fast money. And here's what's on tap tonight. Challenges ahead for China. Shares of PDD holdings were crushed as they miss expectations and give a gloomy outlook. So how much will a slowing Chinese consumer weigh on the markets here? We'll debate. Plus, another black eye for Boeing. NASA bringing back the Starliner capsule from space without the astronauts it brought to the space station. We'll have the latest on this new headache for Boeing's new CEO. And later, countdown to Nvidia. Chip stocks struggling ahead of the make or break earnings report later this week.

0:41We will look to the charts, check the options, and pull the traders straight ahead. Good evening, everybody. I'm Tyler Matheson. In tonight for Melissa Lee, coming to you live from Studio B at the NASDAQ Market Site. And on the desk tonight, we've got Tim Seymour. We've got Courtney Garcia and her family. Come on. Her family is here tonight. Dan Nathan. No family. You didn't even bring a dog tonight, did you? I like your dog, by the way. And Guy Adami, who brings me lovely coffees every time. It's a, what is it? It's a vanilla iced latte. Are men drinking that? Very well. Excuse me? Sorry. Tyler is drinking it, Tim.

1:19I mean, you're going to be derogatory at the top of the show. All right, here we go. The Dow. It was a record close for the Dow today. A record high, up almost 10 % for the year so far. The milestone coming ahead of a full slate of retail earnings and, of course, NVIDIA. More on that one coming up. Day doesn't go by without a big NVIDIA feature. We begin tonight with another warning shot, though, from China. PDD Holdings, the parent company of the Chinese e-commerce giant Timu, plunging 28 % today. Worst day ever. Second quarter results fell short on revenue. Company warning about continued pressure in its outlook.

1:55Gloomy forecast taking down a number of Chinese e-commerce stocks like Alibaba, JD.com, both sinking. The K-Web Internet ETF down as well. Tim, is this a confirmation of what we already knew Chinese consumers aren't spending or what? What does it tell you? I think we know that the Chinese economy, but the Chinese consumers under a lot of pressure here. I think higher interest rates have certainly had their impact even in China. I look at the Chinese Internet names, though, and I actually think, one, you're not really buying them on their earnings dynamics. You're buying them as much on macro policy, but you're buying them also just on their ability to actually just do their job and be left alone by the government.

2:31So I actually think this is a buying opportunity, at least for some of the others. And to me, that would be Tencent. That would be Alibaba. The price action we've seen, I think, over the last, let's call it even six months, has been constructive in a very volatile trading range. PDD is a little different. This guide is worrisome. And I just think that ultimately, if you're trading Chinese Internet stocks based upon the macro, I think you're probably missing the story. If Chinese consumers are slowing down, if Chinese stocks are having some cracks, should American investors who invest in American retail or American online e-commerce companies, should they be worried?

3:09Yeah. You know, to Tim's point, I mean, you know, like a lot of incremental growth for U.S. multinationals has come from places like China. That's obviously slowed down a great deal. If you're investing in a Pindadao or some of these other Chinese names, you're really leaning into the Chinese consumer. So to Tim's point, that's obviously pretty weak. I'd take it over to like a Tesla. I'd take it over to Apple. I'd take it to a Nike, you know, Starbucks and these sorts of things. Because when you think about Tesla, for instance, I think 50 percent of the cars that they build come out of the Shanghai.

3:39Now, we know that demand is really weak for domestic demand for that. We know there's a lot of competition. But a lot of those cars go to Europe. And Europeans have been talking about tariffs. So that just kind of adds to some of the problems that these U.S. multinationals have. All that being said, look at the way the dollar has just come in really hard. That should be great for a lot of these U.S. multinationals. So maybe that kind of balances it out a little bit. Court, thoughts? And I think the thing with PDD is really they're trying to be that value to the consumer. Because what's happening in China is the same thing happening here in the U.S.

4:07where the consumer is stretched and they're going down. Like you're seeing here in the U.S., more people are going to Walmart. The fact that they aren't able to get that on the value, I think, is concerning. And that's really what people are worried about right now. And you're also seeing Amazon is really trying to swoop in and they're trying to provide really what they're not able to offer right now. So there's definitely concerns. There's also political concerns because regardless of which Canada is coming in, there likely may be tariffs on China and those companies are going to be affected.

4:32But I do agree with you, Tim. I think longer term, it's absolutely going to be a buying opportunity. These short term uncertainties just really lead to good prices. Our guest, who's going to join us in a minute, is going to say the Chinese are still spending. They're just spending a little less robustly and maybe differently. Rational is the term, I think, that P &B, rational consumer. That's fine. I'll say this, though. It's a warning sign when a company of that size, and I think at its zenith, it was a$150 billion company, moves 30 % in one day. I mean, that to me is really fascinating and a bit of an alarming move as well.

5:07Now, I'm not suggesting the broader market's going to do that, but when you see individual stocks move like that, it should try to tell you something, I think. And to Tim's point with that said, if you're running away from Alibaba on the back of this, I think that's a mistake. To me, this was sort of PDD-specific, understanding it has some reach. But Alibaba, very quietly, has gotten from that 68 level, traded up to 90, pulled back a little bit. The quarter wasn't great, but it's hanging in there. So I don't think it's an indictment on all Chinese stocks. I also think, Ty, it's a combination of this stock married to the backdrop.

5:39But this stock has been an unbelievable growth story. I mean, it really actually has been. I mean, year over year, they've got transaction growth that was somewhere north of 230 percent. So this is a case also. Enormous expectations have been priced into this stock. Whereas, again, if you get back to an Alibaba or a Tencent, I think those are actually value plays. And it's less to me about the Chinese consumer than it is that catalysts around asset spinoffs and less pressure on them from the government. How worried do you this is a jump ball for anybody. How worried do you think Chinese companies are about the possibility of Trump returning to office and really raising tariffs on Chinese companies on Chinese?

6:15Well, I think both parties seem pretty aggressive on that right now. If you just listen to what they've been saying over the last few weeks or so. So, again, I think that it's not just the U.S. It's Canada is placing tariffs on EVs coming from China. We just mentioned with Europe. So I think that is going to be a mainstay. And, you know, they're almost like stepping on the neck of China right now. Their economy is so weak, and it just seems like this only has the ability to make it that much weaker in the not-so-distant future. Is it so weak? I mean, we would probably be happy to have their weakness.

6:45There's so much talk about China by 2050 and the battle that we're having. They have a massive demographic problem. They have 1.3 billion people. And I think in the next few decades, it's supposed to go south of 1 billion. So they might not be the adversary from an economic standpoint that we think. Obviously, Gen. AI, this is a more important war. And then, obviously, the stuff that goes on with the geopolitical, the military stuff. But, you know, again, I think as far as the consumer is concerned, I don't know what makes it come back when you consider what's going on in the real estate markets over there, too.

7:13All right. Let's bring in our aforementioned guests. For more on the Chinese consumer and the riffle effects, let's bring in Shahzad Kwasi. He is managing director and COO of China Beige Book. I've got to ask you, what is China Beige Book? Because we're familiar with the U.S. Fed's Beige Book. It's not the same. It's not that kind of thing. It's not the same. We run large-scale business surveys inside China. Thousands of companies are surveyed by us every month, around about 20 ,000 unique companies a year, which helps us get a pretty good sense of what is actually going on the ground in the world's second largest and most opaque economy.

7:46What happened to Pinduoduo? And can we generalize from its example out more broadly to the Chinese economy? Is something a tidal change afoot there? Look, what's happening in China is everybody's having a tough time, right? This much is clear. The reason is that Chinese consumers are not spending money across the board. Now, they spent more last year than was ever acknowledged. This year, what we're seeing is they're spending on things like experiences. So over the summer, they are spending on travel. They are spending on dining out. They're just not going out there and buying another Chanel bag.

8:19And even cars and automotive sector are starting to struggle a little bit in China. So it's that dynamic that's at play. It's not that they're not spending. It's that they're spending differently, what we talked about a little bit earlier. There's been a lot of thinking that at some point the Chinese government swoops in to stimulate the economy and get it moving. You see that happening? No, not in the way that I think the markets have been expecting. First of all, let's establish the fact that the Communist Party is not interested in blowout GDP numbers. They are interested in putting a floor under growth, which means that if they hit something like a 4.9 percent this year, they will be very happy with it, which means they have no desire to do large-scale stimulus programs the way they did in the past.

9:01They want to deleverage the system, especially property. They want to have something that's far more sustainable if they can get to it. I mean, I have a big question mark on that. And then they want to get the country ready for the next trade war. And how might a trade war with the United States under a different administration, how might that injure the Chinese economy and these companies that we're talking about? Yeah, I think I think it's going to be a big challenge for them, especially because of what they've done in the manufacturing sector. They've doubled down. Chinese overcapacity is a real problem.

9:32Right. So they are, as a matter of fact, selling as much as they possibly can now before tariffs take a hit. And in a way, that's to cushion the blow, I think, against what's coming next year or the year after. Tim, so government should not be subsidizing bad businesses. And in China, bad business has been building too much residential property. I mean, what about letting a lot of these businesses go bad? If you take down one or two bad banks, you backstop the depositors, you let the banks get crushed. Do you see this happening? Because ultimately, this would be actually, I think, a very encouraging signal to the markets that the government isn't going to just stand in there and not let Darwin kind of win out here.

10:10Yeah, I think they have done that to a certain extent in the property sector with a lot of developers, for sure. And we do see some of that take place in China. It's just it's a recycling of the money, right? So you let some of these banks or some of these asset management companies fail, and then a state bank takes over. The problem is they start doing the same thing over again, the bad loans to zombie companies to keep them alive. The problem is really systemic in nature, and I'm not sure anything will move them away from that practice. It doesn't sound like you see any real stimulus coming then.

10:39In other words, is there any sense that the market is wrong on this? Because that's really where I think the market finds Chinese equities, without any white knight to jump in. Yeah, no big fiscal stimulus is coming in. The housing rescue package is going to remain pretty modest. And here's the other thing no one appreciates. They've done a lot of monetary stimulus. It has just failed to move the needle. Companies are not interested in going out there and borrowing, no matter how low the interest rates keep coming. So the credit transmission mechanism in many ways seems broken, too. Shuzad, does a weakened China make it more likely for them to do something with Taiwan or less likely, in your opinion?

11:13Look, I think the Taiwan goal is something that Xi's going to do at his own time. and, you know, he's going to pick a time when he wants to go in. And I don't know if the economy is going to impact it one way or another because they could have a weak economy but a very strong military, and they are trying to be as technologically advanced and as strong as they possibly can, even if it means having sub 2.5 % GDP growth rate. Court? Now, when you see what's happening with the consumer there, it feels a lot like what was happening with the U.S. consumer post-COVID, right? I mean, they're getting back to spending.

11:42They're wanting to get their savings up. They're moving to experiences over goods. So how much are they just behind the U.S.? Like, are we going to see that same trend in China that we are here? And is that something that we can't extrapolate out in the future? A couple of things are going to make a big difference. Number one is going to be housing. Do we get a housing bottom this year? I remain optimistic that we get in sales terms a housing bottom in 2024. The second thing, of course, which will, unless it changes, is stimulus. We got tons of money being thrown at households in the United States.

12:11Nothing of the nature has taken place in China, nor do I think it will. So I think the capacity to spend will always remain much more restrained compared to American households. To button this off, you say you wouldn't be surprised to see some short-term rally in Chinese equities, but it would not really necessarily signal economic strength. It might signal merely that money needs a place to go. Yeah, that's a big—it's called a big money ball in China. It used to roll from property into commodities into equities, and property isn't too hot and bonds perhaps are a little bit overdone. So it may be making its way over to equity sometime soon.

12:45And really, it's a function of having a close capital account. People have to invest somewhere and make some money in the short run if they can. Shazad, thanks so much for being with us. Appreciate it. Appreciate your time today. All righty, let's talk this one through a little bit. Is there a trade here that comes to mind, Dan? Well, I think you should worry about companies in the U.S. who depend for growth on China right now. And so you think about some of the nationalistic tendencies that we've seen by their citizens as they think about, you know, purchasing, you know, something domestically made.

13:13We're seeing that in EVs right now. And, you know, this has been a problem for Apple. I think, you know, earlier this year, I thought in the Q1, the calendar Q1, I think their sales were down, you know, mid-teens sort of thing, percentage. And you think about their market share there. They've just dropped to number six. They have 14 % market share. Number six? Number six. Among phone sellers in China. Yeah. I mean, so when you think about that and you think about the expectations for this 16 line of phones coming out that's going to have this Apple intelligence on it. I don't think Apple intelligence is going to work the same way there behind their firewall that it does here.

13:45There's some estimates that there's maybe 200 to 300 million Apple iPhones in China right now. They don't have a reason to upgrade. That could really be, I think, a headwind to their growth. Very interesting. All right, we're going to leave that one there. And coming up, another black eye for Boeing, the company leaving astronauts stranded now after ruling that its Starliner spacecraft is unfit for reentry with people aboard it. The fallout and what is next for a beaten down name, if ever there was one, Boeing. We'll talk that. Plus, a big shakeup at Apple moving the stock after hours. Happened in the last hour.

14:20All that drama ahead of Apple's biggest event of the year coming up early next month. We will dig in next. Be right back. You're watching Fast Money here on CNBC. We'll be right back.

14:42Welcome back to Fast Money, everybody. Apple trading lower in the extended session after announcing its CFO would transition out of his role effective January 1. This coming just after the company announced its much-anticipated iPhone launch event. That's going to take place on September 9. Steve Kovach joins us now with the details. Let's start, I guess, with the CFO change, Steve. Yeah, this is an important one. This is CFO Luca Maestri Tyler. He's stepping down on January 1st, 2025, from that CFO role. And the new CFO taking over is Kevin Parekh. He's currently on the finance team under Maestri, one of Maestri's top lieutenants as well.

15:21He's going to be joining the executive team as of January 1st, reporting directly to CEO Tim Cook. Maestri is going to stay at Apple, though. He's going to lead a corporate services team that manages things like real estate for the company. That's going to also start in January. Now, Maestri has been a longtime Apple executive. He became Apple CFO back in 2014, a year after he joined Apple's finance team. Since then, stock up just 786 percent. And as for the incoming CFO, he's been at Apple about 11 years and before that worked at companies like Reuters and General Motors. Stock is not reacting too much.

15:55It was down about eight tenths of percent or so here. But look, I think the real lesson here is there was a succession plan in place for this role. Apple went out of their way to say that this was always the succession plan. We've seen a lot of muddled succession planning from corporate America recently. But this one seems to be pretty smooth there, Tyler. He's a guy I think I've heard of Luca Maestri's name before, but maybe not. And I'm wondering, there are some companies where CFOs are absolutely critical to the operation of the company and others where they are kind of in the backseat or secondary.

16:31How would you stylize or characterize Apple in that regard? Definitely the former. Maestri has been a big presence on earnings calls. He takes up a lot of just about the same number of questions as CEO Tim Cook. He's one of the guys I meet with every quarter when Apple does their earnings report right there along with Mr. Cook as well. And, you know, he's behind a lot of the financial things such as those massive stock buybacks, including the biggest stock buyback in history that was announced earlier this year. All right. Thanks very much. We appreciate it, Steve. Todd, you might have been thinking of Luca Brasi.

17:06Luca Brasi. He was an enforcer and critical. And he swims with the fishes. He sure did. I mean, there's a lot there. I know Guy's got to be on this. Well, it's upsetting to me when you bring up things like that. I mean, that was a tragic moment in the movie, as you know. Who was that? Okay, that's Tim Seymour. See? The phone talk. You know what? I don't know if that's artificial. I'm not even sure who that was, but obviously Apple was involved. When Tim and I are together, I tell Tim to make sure his phones are silenced, and he gets mad at me every single time. Yet here we go. My phone's on silent right now.

17:36I mean, I don't know why. It was just talking to you. That was serious. It was the ghost of Luca Bras. Yeah, clearly. Let's talk Apple. You gave us your take on Apple a minute ago, or one element of your take. Are you coming back to me? Yeah, I'll come back here for a couple seconds. I would say one thing that Kovacs said, and I think is really interesting. They have nearly retired. Well, they bought back in dividends nearly a trillion dollars since they instituted this buyback in 2012. Obviously, Luca was a big part of that. And the other thing is I've listened to dozens and dozens of calls for this company.

18:05He is at the center of this call. He's at the center. He's an important guy, but this is not important for the stock. What is important, I think, will be valuation when they report in October again. We got through that big day they had on June 10th or something. The stock didn't act that day. Then it went up 30 percent over the course of the next few days. Trades at 31 times next year's numbers, maybe 9 % revenue growth, maybe 8 % EPS growth with margins that have been effectively flatlining now for a couple of years. It isn't in any environment an expensive stock. And when you talked about China at the beginning of the show, that just adds to it.

18:39So great company, you know, but expensive in this environment. Want to button it off? Yeah, and it is expensive. And I think that's the question right now. Is their story going to be artificial intelligence? And is that going to be enough for people to start to upgrade their phones? Because that's like half of their sales right now. They really need that upgrade cycle to happen. But you're seeing an environment like look at the markets today. You're seeing everything do well kind of outside of tech. There's this rotation out of those areas because people are starting to question, can I justify these high valuations when there's so many other opportunities in the markets, especially if rates are coming down?

19:09So I do think it's going to be a show me story with Apple, especially at their event next month. And Warren Buffett would rather be an eyeliner than iPhones, right? That's a good point. Yes. There you go. Who wouldn't? I'm anxious. I don't know. Coming up. Speaking of eyeliner, a new black eye for Boeing. What's the company's Starliner disaster means for the future of Boeing as problems mount for this beaten down stock? And we're going all in on NVIDIA ahead of the earnings, the technicals, the options, how you can play the numbers on this powerhouse. That's coming up next.

19:54Welcome back to Fast Money. More bad news for Boeing as NASA ruled over the weekend that its Starliner spacecraft is unfit to bring home the astronauts it carried to the International Space Station. The news rocking an already shaky and expensive program and rubbing salt in the wounds at Boeing. SpaceX has been tapped now to bring back those stranded ISS astronauts, but it won't be until next February. Morgan Brennan has been following all this. How big a brawl, Morgan, is this for Boeing and its incoming CEO? Oh, this is definitely a black eye, Tyler. This Starliner test mission has gone from eight days to now eight months.

20:35This is a big upset for Boeing to have SpaceX, its direct rival in NASA's commercial crew program, step in here. And for new CEO Kelly Ortberg, this does speak to the magnitude of the challenge that confronts him. B of A noting that with Boeing already facing financial and execution challenges across both commercial and military aircraft programs, this is another negative, saying, quote, we would not be surprised if Boeing were to divest the manned spaceflight business. This has already cost Boeing upwards of one and a half billion dollars over the years, given delays, tech issues on top of NASA's four point five billion dollars in contracts.

21:07Now, Jeffries notes$125 million in charges so far this year. There is risk of further delays that would seem to be in the$500 million per year range, with losses contributing to that firm's Boeing Defense and Space free cash flow outflow of$2 billion this year and$1.4 billion in 2025. That's according to Jeffries. That's just the defense and space business. As for SpaceX, it is on track to launch its 14th human spaceflight as soon as tomorrow morning, Polaris Dawn. This is going to include the first private spacewalk, new suits, two crew members who are also SpaceX employees. So, Tyler, a real reversal, if you will, here from 10 years ago when SpaceX was seen as the underdog, when NASA first awarded these contracts and tapped these two companies for this commercial crew program.

21:53But now it's SpaceX that's stepping in to essentially bail out Boeing. It's basically bailing out Boeing. Morgan, thank you very much. Courtney, your take on Boeing. I mean, Boeing, it's just been one thing after another. It's honestly, it's kind of exhausting right now. And I think - For a decade. It really, it just brings into question, like, is their space program even going to be able to continue? And this is a company who already has a strained balance sheet. They're having all of their issues with their aircrafts currently. And it's just like adding on top of that right now, which this is a company that long-term, I mean, it is a duopoly.