: All Eyes on Nvidia’s Quarter, Foot Locker Goes Foul, and What’s Driving Netflix Higher? 8/23/23

0:01Indeed it does John thank you very much right now on fast and videos unstoppable move the chip giant posting a nearly 90 percent jump in revenue a big boost in guidance and announcing a huge buy back in the the numbers, the stock pop, and the instant analysis coming up. Plus, Fowl Financial's footlocker stinking up the joint today. The stock down nearly 30 % as the retailer posted a dismal quarter and slashed its outlook again. The retail ripple effect minutes away, and later, Peloton's downhill ride rolls on. The options action on one of the monster bond ETFs, and Netflix surging in the face of the writer's strike standstill.

0:43Good afternoon, everybody. I'm Tyler Matheson in from Melissa Lee, and this is Fast Money live from the NASDAQ market site. And on the desk tonight, Steve Grasso, Bono and Isid, Guy Adami, and guest trader Katie Stockton from Fairlead Strategies. Welcome to all of you. Good to be with you. We start, of course, with that massive post-hours earning move in NVIDIA. The stock surging on demand for its AI chips, including the after-hours move. the company has gained more than$900 billion in market value just this year. That's more than one Berkshire Hathaway, which, by the way, is the next biggest company in the S &P 500.

1:23NVIDIA's call is just kicking off. Our Christina Parts and Evelis has all the details on the quarter. Christina, tell us about it. Well, I have to just point out that the options market was right. They had anticipated a 10 percent swing and you can see the stock is up almost 10 percent. And that's because the AI hype has materialized into dollars for NVIDIA, the company posting not only a 61 cent EPS beat, but revenues that came in at$13.5 billion versus the$11.2 billion estimated. For context, that's more revenues than the combined amount of Q2 and Q3 of last year. And if we're talking about guidance, let's talk about Q3.

1:57It was even more impressive, $3 billion above consensus at$16 billion. So that's$3 billion more than what was anticipated. The last time that happened was last quarter with NVIDIA. Data center revenues, which contributes roughly 60 percent of total revenue and encompasses those popular AI chips, jumped 141 percent quarter over quarter to$10.3 billion. That is the major driver for this name. The company also announcing a$25 billion buyback. There's no deadline for it. The company plans to keep buying back shares this year as well. So this blowout report is setting a positive tone for greater tech right now.

2:32You got Rival AMD that is trading about 2%. Oh, look at that. 7.5 % higher. Their chip is coming out in Q4, their AI. Contractor TSMC up almost 6%, Supermicro up 7%. The call has maybe just begun. I'm about to tune in, and we're going to be looking for comments about the investment cycle going forward. Customers, they're going to keep spending, and if supply will constrain future quarters. Guys? All right, Christina, a lot to digest. Thank you very much. Let's trade it. Guy, let's start with you. Numbers don't get much better than those. A lot of superlatives, listen, I've been a nonbeliever in terms of valuation for a while.

3:05I'll say this. Actually, with this guide for the quarter, they're actually sort of growing into their valuation, albeit still inexpensive stocks. So they probably went from 26 times revenue, if you sort of extrapolate out the$16 billion. Let's say now they're at 22. That's the good news. Margins, operating margins, 57.5%. Same quarter last year, we're 20%. Incredible. I mean, so all great things. I mean, the superlatives one after another. The question, of course, is can this growth rate continue? And is it justifiable of this valuation that we're seeing? Well, listen, but I've been a non I got to be fully, you know, I've not been a believer for a while.

3:41What will change your mind to make you a believer? Well, at this point, to be honest with you, I mean, sometimes things just get so out of the way. You're just so wrong on something. It's not even worse. No, you can't. You can't because you start chasing now. Then you start doing it backwards. Yeah. Bono, I mean, the law of big numbers here comes into play. I don't even know what the law is, but whatever. I respect the law. Let me just tell you, I respect the law. But the law, a big number, says you can't keep compounding at these rates, can you? No, you can't. But you're probably not buying the stock because you expect this to go into perpetuity.

4:16Essentially, the argument is that this thing, despite its valuation around 48, 50 times, I believe it is, was undervalued given the growth that they were going to have in top line and margins going forward for the next two or three years. Keep in mind that they're still meeting less than half, less than 50 percent of the demand that they actually have for these chips. And the stuff that we kind of brush to the side, autos, gaming, the things that we totally forgot that they do, still beat across those boards as well. So clearly, AI is the driver. But give me another play, another pure play for AI right now.

4:52That is monetizing AI right now. And that's what this is. In today's time. Exactly. Exactly. And they are, depending on who you speak with, and I tweeted this today, they're either 70 or 85 % of the AI market. It's theirs to lose. So when you look at it in those terms, no one's even knocking on their door. No one's even close to where they are. So Bono and Brought Up Some Numbers, or actually brought up some buckets of income. Right now, AI is 5 % of their total sales. If you look at data centers, you're at 20%. Internet of Things, it's 10 to 15%. This is not pixie dust. This is not something that's glitter and sparkles.

5:33This is happening right now. And to Bono's point, nobody else is monetizing it right now. It's their game to lose and their game to lose for quite some time. How big is the market going to be? 161. Who knows? Put a B or a T on it. Who knows what the market's going to be, right? They're going to own 80 % of it. Going forward. Katie, we had, I think it was Carter Worth last night, It showed us a chart. And on previous earnings days, the last quarter and the quarter before that, the gap up was just – you saw it right there. It was like looking at an X-ray of a leg fracture. And there was the break.

6:09And you saw it go up 24 percent, 27 percent. This looks like a 10 percent move. What does the chart tell you? I mean, it's really remarkable to see a gap up after such a prolonged up move. But it's what we saw from NVIDIA in May also. So we have the potential to see immediate upside follow-through. What we tend to do with short-term investors is to watch the gap, kind of mind the gap. Mind the gap. Tomorrow's gap, if it falls very quickly, within maybe a week or so, back into that gap, that usually is a short-term setback. And that might be an indication to reduce exposure temporarily. For long-term holders, I can't make a compelling case against the stock.

6:48It's new highs. It has very good long-term momentum. But before earnings, we did see a loss of momentum that was shared by many large-cap tech stocks. So some folks might want to take some time. There was a little bit of sentiment around this table last night. You weren't here. And you weren't here. And nobody were here. I was here. I don't know. You were awake during this part. What part? I'm kidding. The part where maybe it was you who said it. Is this as good as it gets for NVIDIA? No. How can it be as good as it gets? We haven't even started the market. So there are a lot of companies that are pixie dust.

7:26Yeah. So there are a lot of companies that aren't capable of monetizing it. They have a backlog. Can you imagine what their backlog of orders is right now? Their only issue is capacity constraint. China's buying. A lot of the Chinese companies are buying their chips, right? And they've got a big backlog from China as well, not just U.S. users. I think those are slightly different chips, right, given the sanctions that have been imposed there. Some of them, yeah. But all that does is increase demand. That's another chip that needs to be manufactured and shipped. You know, there's probably an AI-like chip, given, you know, what we've done in terms of, like, that trade balance there.

8:05But to Steve's point, it really is about they've yet to tap into. Now, honestly, you know I'm Ben Bullets of Stock. I actually view it through a slightly different lens. It is probably as good as it gets in terms of perception because we just don't know what this AI boom is. So our imagination allows us to extrapolate what this market may be. At some point, we'll actually be able to quantify what that market truly looks like. And at that point, maybe you start to see some pullback. But to your point, remember Tesla's run. And we were all saying, listen, Tesla trades on nothing but technicals and pixie dust.

8:36We have no idea what the valuations are, but there was no other player in town. And I think it's a similar situation. So until we're actually able to put a finger on it and quantify what this market actually looks like, we know that they own 80 to 90 percent of our imagination. And to me, that's a compelling reason until you're able to quantify and show data that shows otherwise. And one last thing on this. We haven't heard or did they say anything about a stock split? They have not yet. I don't buy that. They said a buyback. 25 billion. You get that next thing about sniffing around about a stock split.

9:06There's a whole group of investors that are waiting for that stock split for that next leg higher, believe it or not. Yeah, we had a guy on Power Lunch earlier today, Harsh Kumar. He changed his price target to$500. What is it trading at right now? 512, 517. Pretty nice move there. Pretty good. There was an$800 price target late last week. So, I mean, people were ratcheting up for sure. To Katie's point, though, on the technical front, and I'm sure Carter would. Now you have two gaps in the chart. You have the gap from May from 320 to, you know, 4 and a quarter, 450. Now you have this subsequent gap, if, in fact, we open here tomorrow, from today's closing to where we are today.

9:46You don't historically see these gaps going unfilled for a prolonged period of time. So let's see how it all shakes out. Listen, I get all the things I like about this. We have seen double ordering in the past. And say what you want, this is an industry that over time becomes extraordinarily commoditized. They're in the top of the hill right now. Chances are they'll stay that way, but the hill will get a lot smaller is my opinion. Interesting point. All right. By the way, queues are up 1 % after hours on this NVIDIA move. And for more on NVIDIA's second quarter, let's bring in Susquehanna's Chris Rowland.

10:20Chris, you say these results are nothing short of phenomenal. I don't think you'd get much argument. Yeah, our quote, our title of our last note was the greatest beat of all time. And I think they stole that from this quarter's update as well. The greatest beat of all time. I'm going to go see Michael Jackson tonight. There's beat it in there. That's one of the great beats of all time. But this is right up there. Where do you think this stock can go from here, Chris? I mean, Jensen's talked about$600 billion of eventual AI revenue with$300 on the hardware side. I think there's probably upside from here, upside for numbers for probably another quarter or two at least to go until we finally figure out what cruising altitude is for the hardware part of this AI story.

11:13The revenue in the most recent quarter was, what was it,$13 billion,$13.5 billion. That runs out to, if you just go simple here, that's$52 billion over the course of 12 months. What do you see as a 12-month revenue run rate for this company? You're going to have to go a lot higher than that. believe it or not, the prior street numbers are now probably just in line with data center numbers for NVIDIA. We did a bunch of survey work. We did our preview going into this. We were super bullish. We thought data center for next year could be doing$55 billion. And my guess is after today, the buy side is going to be at$80 billion in data center for next year.

12:01In data center, what percent of NVIDIA's revenue is data center revenue? It's a very high percentage, right? Yeah, I mean, it really depends on what year you're talking about. But in the current quarter, for example, two-thirds of it right now is from data center. Yeah, and as Bonoan pointed out, though, it wasn't just the data centers that were doing well. It was a game. It was all kinds of things. You had a question. Yeah, Chris, Bonoan here. So, listen, we're all bulled up on this name. What should we be looking for from the sell side? What are the things that should be concerning for an investor in NVIDIA right now amidst all the euphoria?

12:39Yeah, I think Guy touched on it a little bit, double ordering. Steve touched on it, bookings. So, you know, the backlog here is incredible. But the question is, is there some buying ahead? And I think there ultimately is some buying ahead. This probably isn't going to come to some sort of a moment of a downtick, let's say, probably until mid next year as people are clamoring one on top of another to get H100s, to get AI cards. There is definitely a frenzy out there right now. But given this frenzy, I can't imagine that there isn't double ordering taking place as well. All right, Chris. Thank you very much.

13:27Chris Roland of Susquehanna. We appreciate that. Let's trade this. Steve, what do I do? So back back in May when it gapped up, I said sometimes you just have to hold your nose and buy the stock. And that that proved to be true. And now I do believe I always talk about a three day rule. I do believe you have to sit back. Katie touched on it before. See how it reacts tomorrow. Does it fill in the gap at all? Wait a couple of days, but I still hold your nose and buy the stock. Yeah. Katie, any further thoughts here? Yeah, I would just say generally a better seller with the intention to revisit it after some consolidation.

14:02Final thought, Guy? No, I mean, congratulations if you've been on this. I mean, everybody but me on this desk has been. I'll say this. You know, we have seen stories like this over the last few decades where everybody gets extraordinarily excited. Things do become commoditized. Yeah, they have 80 percent right now. Guess what? If there's that kind of total adjustable market out there, other players will get into the space as well. then you have margin compression. And if we are seeing double ordering by the Chinese ahead of other sanctions coming, this all starts to feed on itself. And oh, by the way, the China-Taiwan thing is still out there, which would potentially be catastrophic for this space, especially in them like NVIDIA.

14:38Bono, and last word to you. Well, listen, I'm long. I'm going to stay long. My only suggestion would be put in a stop loss. You've made a ton of money here. There's no point in trying to extract an additional one or 2 % by being cute. Put in a stop loss around 450 and then let the thing ride. Good way to end it. Really good advice here. Thanks very much. Coming up, folks, we've got Foot Locker getting kicked and taking other big retailers down with it. The headlines that had investors running for the door next. Plus, the latest out of the writer's strike, what the studios are offering and why it's just not enough.

15:13All that and more when Fast Money returns when we return in two minutes.

15:23Welcome back to Fast Money, everybody. Shares of Foot Locker falling off a cliff after the company reported a soul-crushing quarter. Get it? Soul-crushing. You got to think. It's suspended its dividends slash guidance for the second time this year. Look at that fall off in Foot Locker. FL blaming consumer weakness for the results. The stock dropping 28 % today. Second worst day on record and hitting levels not seen since all the way back 13 years ago, 2010. The commentary dragging shares of other athletic wear retailers lower. Nike falling for a tenth day in a row, extending its longest losing streak ever.

16:05Bono and play referee here on these stocks and particularly maybe on Foot Locker. Yeah, foul. Foul. Know the whistle. Maybe suspension. I don't know. PEDs. This is a tough one. You know, I know the CEO, Mary Dillon, here is working on a like a reorg reconstruction. I know that they've moved away from Nike or tried to diversify a bit. I know that they've also had some slippage and loss from from things from theft and things of that nature. So, you know, I just think it's a challenging setup and I really think expectations are quite low. So to see this move to the downside on the back of that setup, to me, is particularly concerning.

16:38I think it's seven and a half times forward. It's somewhat of a value trap. I think you look at that and you're saying, OK, well, maybe I start taking a nibble here, but I don't really see any compelling reason, particularly after the guy down. In terms of where I'd be looking, it's probably Nike. I think Lulu is a bit expensive here. Nike sub 100, around that$95 level starts to look compelling. I think sub 25 times forward earnings. I think you start to take a look at that one. Nike's still the big horse in this stable by a long, long shot. But there are a lot more sneaker brands out there to choose from today.

17:11The hokas, you see a lot of those. Ons, you see a lot of those, right? Guy loves sketchers. He'll never admit it. He'll never admit it. But he likes slipping on his sketchers. You know, people wear sneakers. I'm not one of those sneakers with a suit, no. Just saying. I've started to wear it. Can I ask you a question? People talk about slippage or shrinkage or whatever. We had a conversation last night. If someone ran into this studio and stole Bonowin's laptop, would we allow that to happen? No. What's going on with retail, Tyler? We would stop him. Stop the theft. Stop using it for earnings. Exactly.

17:49These stocks, though, to Bonham's point, nothing compelling about Foot Locker other than the level that it's at. It's like a fireman trade. Yeah. Everyone's running out of the building. It's a burning building. Somebody, the fireman has to run up. Maybe you could buy something and get some sort of a retracement on the way up. Too early to think about that. But just on a price level. So you're sort of shaking your head a little bit. They're all in downtrends. So and now we have some gaps, of course, that we can keep an eye on for those gaps to be filled potentially. But what you're doing is putting on a short term counter trend trade and those tend to be pretty low probability.

18:23So I think it's a high risk area from a technical perspective. And it has been for a very long time. If you look at the spider XRT, the retail spider, that ETF has underperformed for more than a year. and it's continuing, of course, to do so with these gaps down. And so we don't have any counter trend indications in the space yet. We don't like breakdowns. We especially don't like breakdowns when the market's rolling. So the whole space, you see it as sort of infertile ground. Yeah, I mean, we would apply the gaps down that we've seen as a message from the market regarding the whole space. Is there a name in this area that you like?

19:02Tim, we're here. Tim's been saying the short Nike now for the better part of a month and a half, And that's been it's on a nine day losing streak, a 10 day losing streak. He's been right. And that probably will continue. I mean, quickly about Foot Locker. And this is not good. You have inventories up 11 and a half percent year over year against sales growth of negative 10 percent year over year. So that means by definition margins are going to continue to contract. So there's no compelling reason to be long Foot Locker. And then you start to do the math means that Nike is probably too expensive.

19:31And quite frankly, I'm shocked that Lululemon held in as well as it did today. All right. There's a lot more fast to come, and here's what's coming up next. The writer's strike is in its 115th day, and Hollywood studios are bringing an offer to the table. The concessions they're willing to make and what the unions have to say about it. Plus, Jackson Hole on the horizon. Investors on the edge of their seats ahead of Jerome Paul's big speech Friday. What you can expect out of this year's big meeting. You're watching Fast Money, live from the NASDAQ market site in Times Square. We're back right after this.

20:18All right, welcome back to Fast Money, everybody. The major studio is moving higher today as investors hope for progress in ending at least one of the strikes wrangling Hollywood right now. But those hopes may be premature. Julia Borsten here with the very latest on the gridlock in Tinseltown. Hi, Julia. Well, Tyler, there were hopes that the talks that were happening last week would yield progress. But now here we are. We are back to gridlock. Now, last night, the WGA met with the AMPTP's president, along with Disney's Bob Iger, Warner Brothers Discovery's David Zaslav, Universal's Donna Langley, and Netflix's Ted Sarandos.

20:54Now, those talks did not go well. And then the AMPTP released its latest proposal publicly. effectively appealing directly to the writers to put pressure on their leadership to accept the offer. Now, the offer includes what the studios say is the highest wage increase in more than three decades, what they call landmark protections against AI, as well as increased transparency about streaming data, which then can be used to figure out more fair compensation around streaming. But the WGA criticizing the offer and writing to their members, quote, this wasn't a meeting to make a deal. This was a meeting to get us to cave.

21:28Now, as Picketing continues today, the question is whether both sides can reach a deal that restarts production in time for new shows to be ready by early next year and whether the studios will end up pushing back big fall films such as Dune Part 2 amid concerns that the box office will suffer if the stars aren't around to promote them. And of course, the Screen Actors Guild strike is ongoing. Now, for the fall TV season, expect lots of reality TV, lots of sports. So we're going to have to see what gets these guys back to the negotiating table. Tyler? Julia, thanks very much. Let's trade this one around a little bit.

22:05Katie, any thoughts here on the entertainment business? Yeah, I mean, Netflix is one that's in a long-term uptrend, and it's corrected. So it's somewhat interesting to me. I just don't think it's the right time from a top-down perspective necessarily to add exposure. But when we do see the correction mature, which we expect within a few weeks, I think we'll have the opportunity to go back to leaders just like Netflix. Steve? It's been Netflix and everybody else is way off to the side. But there's been two things that have really helped Netflix. It was the password sharing crackdown and the writer's strike.

22:39Both of those things seem extended to me. This was a stock back in July that was$485. It's come in considerably to Katie's point. It has corrected. The password sharing is going to run its route. That's going to be over. The strike will in time be over. Those were your tailwinds. I think it's time to take profit. The strike was a tailwind. Why? They had a bunch of content. No one else had the content. They didn't have actors. They didn't have anybody writing anything. And they had a lot of stuff. They had a lot of stuff on the shelf ready to go. Much more of an international presence as well. More of an international play.

23:15Any other thoughts here? No, their production is overseas. No, to Steve's point, that 385 level sticks out. I'm sure Katie probably sees that as well. And it's clearly Netflix world. What I find remarkable is how miserably Disney trades, even on a decent market day, can't get out of its own way. Now we're at levels we saw in the worst of the pandemic. It's incredible. And quite frankly, I was the one that thought on their last earnings release when they announced the fact that they were raising prices. And that would be it. That would be the catalyst. And it worked for about a day. But here we are below the levels we saw before earnings.

23:46Does anybody think, as I do, that when Disney announced that partnership with the gambling company, with ESPN putting them together, that that hastened the day when Disney splits off ESPN? Anybody jump on that? Yeah, I think that's the case. But Disney has had its own issues in the state of Florida that has been a lid on the stock as well. There's been a lot of stuff, a lot of issues with the parks. Prices are increasing. The parks number is an astronomical number. But if they can't tap into it, they're sort of back in the day. There was it was not a streaming company. Now people only see streaming and they can't execute.