All Eyes on Amazon Results, Plus Why One of Our Traders Is Looking to Buy Staples 10/26/23

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. Amazon headlining the busiest day of this earnings season. Shares giving up their after hours gains even after a massive earnings beat. We're surrounding the action on that stock and the other names out with results tonight. Plus, add to cart, the sell-off in Staples has brought a bunch of these names to 52-week lows. But one of our traders has found a couple of stocks they say might be so bad they're good. The names that they are watching coming up. And later, a consumer crunch, two stocks sending signs that shoppers are struggling.

0:32the big headlines from MasterCard and Align technology that are raising some red flags. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Karen Feinerman, Dan Nathan, and Steve Grasso. And we begin with another monster night of earnings. Amazon, Ford, Intel, and Chipotle all on the move after the results. We've got full team coverage, Phil LeBeau, Christina Parts Nevelis, and Kate Rogers all standing by. We start off with Deidre Bosa, who's got all the details on Amazon's quarter. Debo. Yeah, so Mel, the street just wanted more from AWS, Amazon's cloud unit.

1:02The analyst call kicks off in about 30 minutes, but I did have the chance to talk to CFO Brian Olsowski just a few minutes ago, and I asked him if he could say whether AWS growth has bottomed. He said he wouldn't characterize it that way, that they're in a delicate situation. And while cost optimization work is starting to slow, he said that there are still companies that are joining that effort. And that's really when the stock turned and gave up the gains. It's also disappointing for the street, which wanted to hear that that trajectory had turned. Going into results, we had mixed messaging from the other cloud giants, Microsoft and Google.

1:36Google said something similar to Amazon, that customers are still optimizing. And that's just another way of saying that they're cutting costs. They're trying to save in the cloud. Microsoft Cloud, on the other hand, was stronger on the strengths of its AI offerings. Amazon, likewise, has been pouring all of its efforts and billions of dollars into generative AI through its cloud unit. So this could perhaps underpin sort of the street's opinion and notion that Amazon is a solid third in this race behind Microsoft and Google that is generative AI. We'll definitely get more on the call and listen to that when it kicks off in less than 30 minutes.

2:12All right. And Deidre, fourth quarter sales guidance also slightly disappointing, huh? Yeah, absolutely. And this is the all important holiday season. So that's also okay. And that relates to its core e-commerce business. All right. Debo, keep us posted. Deirdre Bosa on Amazon. We're in negative territory at this point. And Amazon's stock had been higher by as much as about 6 % here. What do you make of this? It's an interesting. Cost optimization. I said it really quick. I know, but I'm just saying that's the thing that literally sent Alphabet down 10%. It sent it down 13%. And so I think that's really important to see.

2:43Like, listen, a lot of folks were getting excited about the fact that maybe you were seeing this, like the consecutive quarters of decelerating growth in AWS bottoming out. And that answer from the CFO to Deirdre suggests that they don't have a lot of visibility right now. You know why? Because their customers don't have a lot of visibility right now. And when you think about it, I'm just going to kind of take it back to Microsoft. Yesterday, we spent a lot of time talking about Microsoft and those great results. Think about this. We also talked about this co-pilot 365 that they're going to start charging for on November 1st.

3:11What if those same enterprise customers are optimizing costs in and around some of the seats in which they license this sort of software? So what I'm saying is we're not done yet. We don't know about this. And a lot of these companies have also been cutting costs as it relates to headcount. When you have reduced headcount, that means you have reduced seats for these sorts of licensed software and the like. So I just think this is going to be a theme that we hear a lot about. So just if you think about the last three days that we've had of all these major companies reporting, it's like, you know, last quarter, these guys were good.

3:43This quarter, they're bad. I think it's going to keep ping-ponging like this for a bit until we get more visibility about the economy. I mean, what Amazon is telegraphing with its guidance and with the comments about cost optimization is that all customers, whether it be retail or enterprise customers, they are looking hard at what they are spending. And that's not the message that you want to hear in these stocks. No, it's a message we've heard from everybody. on some level, if you read between the lines, and if you read between the lines on housing and less projects, and people are definitely pulling in.

4:09But I think also for people that were expecting Amazon to deliver a really decided vote to break the tie between Google and Microsoft, this one kind of came down the middle. I mean, this one really doesn't really tell you all that much. People are encouraged by the operating, the op margin, and that was really impressive overall for the company. Came in about 300 basis points, better than expected. But then on the guide, they gave it all back. So the midpoint of the operating income for the 4Q guide implies that the operating margin is coming back in. I'm just reading a couple of reports from the street that are coming out here.

4:40Our friend Brent Hill said something like on his headline, 12 percent AWS growth, just not enough to keep the goblins away as we are so close to Halloween here. So anyway, I mean, this I don't think these numbers are terrible. Remember, Amazon has outperformed the rest of the mega cap space over the last couple of months after badly underperforming them. Some of this is just what we get to. These numbers aren't great. They're not terrible. But the stock's done well. So I think Amazon is a company that doesn't really care where their stock is trading in the short term. So I generally don't really give much weight to their guidance because they sort of put wide guidance out there.

5:18And I don't think they really care. That having been said, though, it's a little bit disappointing. I was hoping that they would be more on the Microsoft side of cloud growth as opposed to the Google side. But we'll see. It's very cloudy right now. I mean, there's a lot of some things that came out good. We'll get to Intel, for example. That was a surprise. But to Amazon, I mean, I'm long. It's not cheap for sure. But I think the story is still intact. If we have a week, fourth quarter, which sounds like we might very well might. I think it won't be great. But the one thing I do wonder is if they mention Timu, are they losing share there?

5:58Right, to Timu and Sheehan. Yes, and Sheehan, right, both. I want to hear that. I'm interested to see if that is, because they have not had a threat at all. And I wonder if this is going to start to be worse. I don't think they're losing share. I think Dan's been right to point out business spend is on the downslide. If we look at GDP, we saw consumer. Consumer is fine. The business is not fine. They're cutting back. So they're being judicious on their spend. But when you look at revenues, EPSB, stock ratcheted up quickly, then you look at AWS. We're not even talking about e-commerce anymore. This is not even an e-commerce business anymore.

6:37Granted, they're killing it on the e-commerce side as far as real numbers. This is only about AWS. us. If customers aren't spending because there's a geopolitical event or if there's something going on in the macro economy, that's a different story. The consumer is still strong. So I think we have to look at it in a different light. Yeah. You know, listen, I'd just say this, that operating income that you pointed to that Debo mentioned, I mean, this company is operating really well, right? So it really comes down to like, what are you willing to pay? To Steve's point, The North American retail business has never been valued at anything.

7:13It did outperform last quarter. They had better margins there. I think the street kind of liked it, but the stock is down 18 percent in nearly a straight line from those recent 52 week highs. So the expectations coming in were actually pretty low, despite the relative outperformance that you're talking about, Tim, over the last year. So, like, when's the last time you've seen a trillion dollar or a company of this size relative to the index sell off nearly 18 percent, put up numbers like that and then sell off? Like, it just tells you about where investors are in this market in a way. And so to me, that leads me to believe that we're not done.

7:48And I've been talking about the lack of visibility a lot of these companies have. They were given a pass. It felt like in the spring into the summer. But something turned in mid-July, right, when all of these companies like Microsoft and Apple in particular did not start. They weren't trading well on good news anymore. And I think that's a big shift that we've seen from the prior six months. I mean, that seems to be the common thread here in terms of the reports we've gotten. The ones, the companies that reported badly, missed, guided down, whatever you want to call it, got just wrecked. And the ones that even put up good numbers didn't do well either.

8:19I mean, Microsoft on the week, it's like they're getting no credit for the quarter whatsoever because they are flat at this point. Yeah, so this is all true. So we're making a market commentary here because there's nothing wrong with these companies and there's nothing wrong with even their profitability. There's nothing wrong with their ability to engineer earnings. They have a lot of flexibility. They could be buying back shares. They could be doing a lot of different things. As Karen rightly points out, Amazon's kind of in this for the long haul, right? And so, you know, our markets discussion at some point is going to focus that the triple Qs are about to go crashing through the 200-day or so it appears.

8:50And this is after a period where they've so dramatically outperformed the rest of the market. So at least walking in today, NASDAQ, triple Qs are up 32 percent on the year. The equal weighted S &P is down four. You know, that's a 36 percent differential between the biggest companies in the world and how they've done. So coming into this, we I think we thought the bar was going to be this high and therefore tough to beat two quarters ago for these companies on some level. I think that's almost the surprise. There's nothing here that we've heard that the economy is falling out of bed. We haven't even gotten any of the exciting AI kind of sprinkles out of Amazon.

9:22I think we're going to hear some stuff on the call that talks about AI, and I think they're well positioned. All right, let's get to Fast Money friend Gene Munster, who's here to dig into Amazon's quarter. He's the managing partner at Deepwater Asset Management. What's your take on this quarter? Melissa, I think we need to take two steps back and look at this at the highest level. And the lens that investors are focusing on is growth. Amazon just had a great quarter related to profits. They guided their operating margin for December to, if you do the midpoint game, to 6 % margin. The street was at 5.2.

9:54Back in the day, 8, 10 years ago, that would have been Amazon stock goes higher. But here we have it kind of fading in the aftermarket. And I suspect it will go lower because of that key growth question. And even though AWS is only 10 % of their business, it is foundational to how investors think about Amazon as a growth stock. In other words, is Amazon stock is not going to work until AWS shows measurable improvement. And I'm not talking about going from what it was this quarter, 12 % to 13 % or 14%. But that needs to step back up to the high teens or even 20%. Because mathematically, you're going to have Azure growing at 27 % next year and Google Cloud probably at 23%.

10:35Amazon's going to be losing share in cloud. And that is just the signature. Cloud is kind of the signature exciting topic now for investors. And so, Mel, my overall thoughts are that this is all about cloud. We knew it going into it. And, yes, there's a lot of good things, reasons to be excited about the company longer term. But until we see that meaningfully and sustainably accelerating the AWS number, I think shares are going to be range bound. So, Gene, when you look at the person who's running the company, it's the person who was running AWS. Does that give you more hope or does that make you more negative on the company, knowing that this is the best person there and it's still not performing to your liking?

11:19Well, I think just directionally, it's in the more hope category. I mean, the leadership understands that business infinitely well. I think the challenge here is that to get it to reaccelerate is a hard job. They've talked about those investments in Anthropic, and that's important to kind of get some of those models on. But Google is well ahead of where Amazon is at in terms of integrating these models, and they're losing some steam in cloud. It seems like all this is gravitating. So, Steve, in other words, I think that the issue here is almost beyond Jassy's ability to control. They're doing the right things, talking about those investments.

11:59But ultimately, they got to really beef up what's going on at AWS to try to play into this long term. And it is going to take a long time to shift investors on to getting excited about AI and e-commerce. Gene, it's Karen. You talk about their cloud position. Do you think that the pie is slowing measurably or is it just an issue of taking share to Microsoft, I guess? Well, the pie is, if you look mathematically at the three largest, it's basically flat. You had an acceleration from Azure, they got 22 % share. You had a decel from Google, they have 10 % share. And basically a flat deceleration from Amazon, and they have 33 % share.

12:43So I think mathematically, it's basically flat. That's understandable given everything that's going on. I think that this opportunity around cloud should clearly accelerate. I mean, this should be growing. The overall cloud market should be growing 20 to 30 percent for the next five plus years. And so I think that, you know, this is investors. It's just hard to get excited and get behind a company if they are perpetually losing share. And all the good things that AWS has done to get this leading market share position really doesn't hold weight unless they hold their market share position. Gene, keep us posted on this conference call as you start to listen to it in about 15 minutes time.

13:25Gene Munster with us. So it is losing. It didn't sound like Gene thought it was too early for, you know, to declare a winner in this race so far. No, but it sounds like he's a lot more impressed by the marginal share gain by Microsoft. And I just I look, I think this to me, the numbers we've seen out of the three companies we just talked about, I don't think you've seen anybody necessarily eating anybody else's lunch. I think this gets back to I mean, cloud has gotten uber competitive. At some point, there's slightly different services we're talking about. There's obviously software elements that Microsoft's claiming.

13:57There's the AI ingredients they're all adding. But this really is a tell on cloud, I think, at some point. And I think this is part of what we all have to grapple with. These companies are going to see slowing growth. He says investors, I mean, this isn't Gene. I mean, ultimately, we've been talking about cloud for two, three, four years and those folks that are most exposed. And obviously, AWS is the driver for the valuation at Amazon. All right. Let's go broader tech here. The tech heavy NASDAQ dropping deeper into correction territory today, falling another 1.7 percent to close below its 200-day moving average for the first time since March.

14:28The S &P 500 down over 1 percent and now more than 10 percent off its 52-week high. The Dow also under pressure. Dan, you say the underpinnings are really bad. This is to the point that you were talking about before. But listen, I think it's really important to put this in context. I mean, like, none of this is a disaster. I mean, all these quarters that we're talking about were pretty decent. I think a lot of it has to do with how much positive sentiment as it relates to the entire stock market complex in the U.S. is wrapped up in a small group of names. And we've been talking about this for months.

14:55If you looked at retail, if you looked at banks, if you looked at transports, if you look at industrials, I mean, the list goes on and on and on. Health care, they've all, staples, utilities, they've all fallen by the wayside. So this is the last bit to fall. It doesn't mean that we're going to crash. It just means that they're taking the froth out of the market. And if you look at the multiples in a lot of these more cyclical areas, they've already been massively depressed. OK, and this is very similar to what we saw a year ago this week when the stock market was making a low, that everything else other than these large tech stocks were trading well below, like very near trough multiples, where the stock market usually troughs in low teens.

15:33The differential, though, when you looked at the headline, if you're looking at FactSet or whatever, and it's saying that it's 18 or 19 times, you're saying that's expensive historically. But again, it was these 10 stocks. So all of these stocks that we're talking about, we're talking about Apple is up 30 % of the year. Microsoft, Amazon, Google are all still up 40 % of the year. NVIDIA is up 180 % of the year. Tesla is still up 65 % of the year. So what I'm saying is these stocks have a lot more to come in before we're done, in my opinion. The other stocks may start to show good relative strength.

16:04OK, so if the Nasdaq 100, which is at 14100 right now, goes back and retresses or retraces back to 13000, where it broke out during March, that April period, when we saw that initial flight to quality after the regional banking crisis, then you might have great opportunities. Like you mentioned last night about staples as your final trade or something, utilities or something like that. It wasn't on last night, but thank you. Two nights ago. That was my final trade. No, no, no, no. But my point is, like, there's going to be good stock picking opportunities. And maybe there's going to be a time where we spend less time on these stocks.

16:37So there is a convergence, in other words, in the underperforming stocks to catch up, so to speak. Well, this is what we were talking about this on the half-day call, which is, does money leave the market? Some leaves the market. And figures, all right, well, now I have an alternative. I can put it in treasuries. But some has to be redirected. Even if it leaves that magnificent seven, where does it go? That's the question. There's a lot of choices now. There's a lot of choices. RSP this week, by the way, is doing better than the S &P 500 to that point of sort of this catch up. Yeah, that was my point by saying, you know, plus 32 to minus four.

17:06I mean, we can do that math. So, yeah, I think something does have to give. I think you're in a place here where also you have to understand that the rest of the market that has been doing nothing or down and also was down last year is reacting to interest rates of 500 basis points. I mean, those are companies. And what we've heard in earnings so far, again, I would echo what we hear from both shippers, industrial companies, folks that are relying on funding. for their, you know, they're getting their funding, but it's not so good. They're funding one less project. And that's that's the story here.

17:36And the five or six or seven or eight companies that have dominated this performance are ones that aren't reliant necessarily on capital are ones that have certainly their growth is extraordinary. So anyway, we've just we've probably closed the chapter because we're now officially in correction mode on really one of the greatest rallies in the history of the stock market in one year. In other words, you saw a 40 percent move in semiconductors, a 35 percent move from that CPI low of October of a year ago. It's no surprise you're giving back here. I just think the dynamics, the underneath this marketplace is always going to be the same thing.

18:11We're always going to be those seven stocks. So either we're going to be in treasuries to take a powder, maybe in the Russell. I don't think anyone's dying to triple themselves to buy small caps right now. So you might take a powder from buying those seven names. But unfortunately, it's always going to be. Take a powder, man. You don't know what that means? Breather. Taking a breather. Taking a knee. A powder room. Is it a scheme? I think so. You take a powder. You take a break. So I think it's always going to be about those names. So whether or not you take a break, right, you take a break and don't buy those stocks.

18:42Passive investing is not going away. And all these investment funds, the 55 biggest global investment funds, are not going to get out of Apple and Microsoft to the tune that we need them to get out of to change the dynamic of the market. They were today, though. I mean, like, that was an interesting thing to me. I looked up at one point and I saw Apple down 3 % on no news. I saw Microsoft down the other 4%. That's a better setup for its earnings. Well, you could have said the same thing about Amazon today. You know what I'm saying? That's true. One last thing. And what happens is that that fund says, oh, wow, Apple's not X percent in my fund anymore.

19:13So, yes, to your point, they get a better entry point, but they're still buying the same names. All right. We're going to take a powder. Nice. Nice. Keep rolling in. Next up, we are tackling the big move higher in Intel. We'll bring the latest in the company's conference call next and later. Delivery delayed. Shares of UPS hitting their lowest level in more than three years after its results early this morning. What's behind the declines and how much can we glean from this move? Fast Money is back in two.

19:42Welcome back to Fast Money. We've got an earnings alert for you on Intel. Shares are higher by almost 8 % after the tech company beaten on the top and the bottom lines. Conference call underway. Christina Parsinebulis joins us here on set with more on the quarter. Christina. Underway. 18 minutes and Pat Gelsinger still speaking right now. But I guess, dare I say that the bar was set pretty low, the fact that they beat across the board, but this is the seventh quarter of sales declines. Yes, we did see some improvement in Q4 outlook, which was great, and gross margins. So we actually have a chart.

20:09Hopefully we can bring that up just to show you guys how gross margins have been declining for so long, just over the last two years since 2021. They're on your screen. And you can see just on the right hand side, that's a number we won't care about right now, 45.8%, much higher than the 43 anticipated. Why is that happening? The company talked about cost cutting. PC sales have been bad, but they're starting to improve. Q4 is going to be a little bit better, especially going into the holiday season. And then you have data center revenues. That sector was still a little weak. And on the call right now, Gelsinger did say that there was a wallet shift, which we already knew about, towards GPUs, et cetera.

20:45But they're starting to see normal levels in Q4. And they're still on track to, you know, their four, five nodes in four years. So they can be like TSMC, a foundry by 2025. So they appear to be on track with all of their goals. And that's why the stock is reacting so positively. I'm surprised that this huge jump given data center was, in fact, weak. I would have thought that the knee-jerk reaction would have been, well, not up 8%, maybe somewhere between up. I do think the foundry business plays a role. They announced that they have a new customer, which is a really big deal. They didn't say which customer it was, but that's showing that his two-year turnaround plan may be working, right?

21:23Progress in that. Data center weakness, we've heard from Texas Instruments, TSMC weakness. So it's not something that is necessarily very new at the moment. And yes, it's hitting him or his company. So I wonder AMD could be next too, in that sense. Christina, how much of this, you know, they're also sprinkling in a little AI pixie dust, right? They say their pipeline I was just joking. It's more than doubled, you know, in the last 90 days. Okay, so it's a really bizarre, like, let's go 90 days ago to that. But the point is that they are trying to not only reestablish their former dominance in Foundry, but also get to the places that they want to be.

21:56And are you buying it? They are launching an AI CPU chip. And they said that they're already shipping to customers, and it's going to officially launch on December 14th. So that could be a point. Am I buying it? I don't know the specs yet. I don't know how that's going to compare to the others. But you think every there's so many competitors in the market. I do believe that AI CPUs will be a good alternative because they're cheaper than GPUs. They just they have to be processing data as fast. And that's what we have to see still. Key parts. TSM. I think it was a couple of weeks ago. They mentioned that they might see smartphones and PCs bottoming in the comment that you just made.