Alphabet Ascends… And Getting Technical On Some Big Names 4/8/24

0:02Live from the Nasdaq marketside in the heart of New York City's Times Square. This is Fast administration doling out billions to a major semiconductor giant that's not an American company. Is this a risky move or a smart maneuver to secure our AI future? And later, topping the tape, a new ETF that lets you invest in private tech startups. A Bitcoin bounce back, why the crypto is surging once again, and charting the P in Blisep, why one technician is going from bearish to bullish. I'm Melissa Lee. Come to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Courtney Garcia, Dan Nathan, and Guy Adami.

0:48We begin with the rise of Alphabet. The stock jumped in more than 14 % over the past month and outshining the rest of the Mag7. Meanwhile, AI darling NVIDIA stalling over that same time period is an unusual place. The red, this comes following a nearly 225 % gain over the past year. So what does Alphabet's turnaround tell us about the AI and tech state of play? This came up because this is the one-month anniversary of that key reversal that guy so fondly refers to. March 8th, what it tells you is I think people are concerned somewhat about valuation. They're looking for places in a rising interest rate environment, which we're clearly in, where they can wrap their head around valuation.

1:27And Google's been in that stock all along. So when rates were low, Google was sort of left on the side of the road for the high valuation, high growth names. Now that rates are a bit of a story, I think people are finding Google correctly, by the way. Do you feel like this is a change that sticks or do you think NVIDIA comes back? No, I think you're likely going to continue to see people going away from things like NVIDIA, which I think ultimately has revenue, which is likely going to decelerate when you're looking into 2025 and later. So you want to have some of these areas like a Google, which when you look at their search business, the amount of cash flow they're getting there puts them in a really key position to continue investing in things like AI for the future and make sure they can become profitable there while they have a profitable business in the meantime.

2:06So I think that trend is likely going to continue. The Magnificent Seven keeps going down and down. It's now the Fab Four and the, you know, who knows how many we're going down to. But I think things are going to shift away from those names. If you're an investor in Google, you have to like what people have thrown at you, what the market has thrown at you, what the pundits have thrown at, at least their inability to deliver on. They should be right out of the gates, at least in AI 101, delivering a product. And, yeah, there's been some understandable and some appropriate criticism. But if you look at a stock that's continuing to make fresh highs, it's as we've talked about so far.

2:39It's a combination of valuation. A rising rate environment has shown mega cap tech stock to be very defensive. So if you look at that peak day that guys talk about, not just for NVIDIA, but the semiconductors group as a whole overall, have underperformed the S &P by about 5 percent in the last month, NVIDIA by about 8 percent. So it's been an environment where you've put to test growth at any cost. We don't care. There's an argument, of course, for NVIDIA. Maybe we'll get deeper into that. But I think back to back to Google, you get into core search, you get into cyclicality in the economy. I just look at what Meta's been able to do.

3:11And a lot of Meta is, yes, they're given credit for actually having the ability to benefit from AI now, whether it's Reels, whether it's some of their other offerings. You could make an argument that Google is not. But I also think there's an argument that Meta and Google are both part of the cyclicality of the economy, especially in the media space, especially in ad spend. And that's very good. We don't really talk about their core business. We've been so quick to point out just that where are they tomorrow? I think tomorrow is certainly going to be fine. Yeah, I mean, to me, it's really about sentiment and expectations, right?

3:37Right. So if you think about NVIDIA, the sentiment is really bullish and the expectations are really high. On the flip side of that, you have Google where the sentiment is really bearish and expectations are actually very low. So when these guys talk about a broadening out, looking for different stories, different ways to play this, NVIDIA was clearly the way to play it over the last year and a half. You have that 300 percent gains. You have a$2.2 trillion market cap company. The one thing I'll just say is that expectations for earnings growth this year, current fiscal year for NVIDIA are about 80 some percent.

4:03And same for sales growth. And the stock trades about 35 times this year's expected earnings. That's why you hear people say all the time, this is not an expensive stock. Here's the problem with next year, 2025. You have expectations for 22 % earnings in sales growth. And it's trading at about 30 times next year's earnings and about 16 or 17 times sales. So it's really expensive there. So if you have some deceleration, what Courtney is talking about over the course of this year, you start seeing them hit those numbers but not being able to guide up. Then you have a situation where people are like, it's all in in the stock, right?

4:35And then we're going to have maybe one of these waves where we have a cyclical downturn in demand for these things, where more supply comes online, where these companies don't commercialize these products. The exact is potentially true for Google, Alphabet. If they're able to come in line or do better than expected this quarter after two conspective negative quarters and really bad guides, and then guide up, the stock's going higher. You know what I mean? It will be a catch-up trade. So I do think there are interesting comparisons, despite the fact that the companies really have nothing in common.

5:02You know what I mean? They are in a supply chain, if you will, together. But it is about sentiment and expectations. Yeah, I mean, maybe this is also part of the sort of the search for the other AI plays that are not the hardcore, the hardware sort of picks and shovels aspect of it. We saw it with Meta. We saw it with, well, Micron in the chip sector, Micron and Dell in terms of just looking for the under, quote unquote, undervalue relative to NVIDIA AI plays. And maybe this is part of that same sort of thinking in terms of application of AI, not just as a product, but also to its own business.

5:31This is a market that where people have front run stories like that. So I would think Apple would be the logical place. If you get a front run, anything would be Apple. And Apple's been trading terribly now for the last six months, if not longer, vis-a-vis the broader market. So I hear what you're saying in terms of that. But the most obvious candidate to take advantage of that seemingly is Apple. And it's not getting any love whatsoever. Are we going to wake up one day and say, oh, look at Apple. It's now the A.I. play. Who thinks that? Anybody? Well, you're never going to count Apple out. And some of the same reasons why I love Google.

6:04I mean, think of all the data that Google has. Think of the massive user base. I mean, these are things you can say about Apple, different type of data, et cetera. I think ultimately Apple's ability and their ability, I guess, just really to own the consumer, to have that interface and that operating system be a part of their life, at least when they're on the mobile side. And we talked about where Google kind of owns the desktop and owns the mobile side. So I think you can't count Apple out, but it's underperformed the S &P by 25 percent from early December. I mean, this is pretty clear. I mean, Apple is waiting for a new catalyst.

6:36Meanwhile, I think you've really taken a lot of the faster money out of that stock. At some point, it gets interesting. You know, holding 165 to 170, I think, is very important for Apple right now. But we've also proven that Apple is not critical to this market. Yeah, I'll just say this. Tim, I think you were saying it last year. You thought Apple gets to 140-ish or something like that. It got down there, and that was a buy. I mean, clearly, it was a buy. It went back and made a new all-time high. I think it got to 195 or something like that. You know, on an evaluation basis, it doesn't look great relative to growth.

7:05We've been talking about that for a while. They haven't had any new products. But I do think that if they were to miss and guide lower because of China, because of iPhone, because of just people not really that interested in some of their new products, and you have to think out a year or so. Let's say they do a deal to license Gemini with Google. They do a deal maybe with OpenAI. Maybe there's something else there. You get into Worldwide Developers Forum. You get people excited in and around the ecosystem, what they're able to build on that$2 billion iOS installed base, that sort of thing. The next phase, the next things that people are going to get excited about is AI on the device, right?

7:37And if you think about a device maker who's really good at doing this stuff, it would be them. So a move lower by 10 % or so because of disappointment because of China would set up really well to me into early June. And then I think you want to own it because I do think the sentiment and expectations there, again, are low. We've said so many times in terms of Apple and its ecosystem, if they just said we have an AI product and all you have to do is pay$5 a month and multiply that by their install base, that's a lot of incremental revenue, right? just right there, just because you are in that ecosystem already.

8:05So why not? And you click it and you're done. You're subscribed. Yeah. And I don't think we can discount them as getting into the AI play. They have definitely been the ones who have been on the sidelines. And the fact that they are having to utilize potentially Gemini with Google in order to get their AI, it's not their own product. I don't think it's necessarily a good sign, but it's not to say something's not in the pipeline. But I think they also have some bigger issues. Like people are not as interested in upgrading their iPhones recently. They have a lot of competition, especially in China.

8:28There's antitrust issues. I mean, I don't think this is just an AI issue with Apple. They have a lot of other stuff going on. I think you need to keep that in mind as well. Yeah, I think that's a great point. I mean, this is, you know, Apple, we're talking about other things. And I would get back to Google, too. You know, Sundar Pichai has got some critics out there. It's been easy to applaud where Google has gone. But there's an argument that the C-suite here has not been as aggressive as the other C-suites, and certainly less than Microsoft, less than Meta. And you also have the dynamic with Ruth Porat, where there's supposedly a CFO transition.

9:03What's going on there? So I kind of feel like in Google's case, you've got also some other issues that are holding back the company. And really, otherwise, it gets back to advertising is 80 percent of their gross revenue. Search is 60 percent of that. I think there's a real good tailwind for that right here and now for their core business. That's why I think the stock's going higher. Their business is fine. The economy is fine for what they do. And they still dominate it. And that's why you're getting it at a reasonable price. In terms of, though, NVIDIA's, I don't want to say fall because it has not as far from a fall, but stall over the past month.

9:36What does this mean for the markets? I mean, if you thought that NVIDIA was sucking the oxygen out of the room, so to speak, and that oxygen is all of a sudden released, where does that go? And if we're seeing it go to a place like Alphabet, does that mean that it's going to more value-oriented names in general? Well, if the question is, I think it is, if NVIDIA continues to break down and it has not traded particularly well since that March 8th date, what does it mean for the broader market? Now, I would say the broader market is going to suffer on the back of that. But I would say the same thing about Apple.

10:05And that hasn't happened. Although I do think right now NVIDIA, in terms of market sentiment, might be a little bit more important. So if you see this continued deterioration, and that's what it is, I think the broader market has problems. And it's going to drag down, I believe, the SMH. I've thought for a while the SMH is destined to trade back to 163. I think that's the level you're looking for. Yeah, it's also there's other names out there, like sizable names, Adobe. I mean, this stock is like literally making new six months, seven month lows right now. This is supposed to be a beneficiary of generative AI.

10:36They're integrating it. They had their Firefly product. They've had a bunch of different product announcements over the last year. I mean, there's a whole host of other software names that are not really participating right now. So the question about NVIDIA is just the concentration there, the concentration, enthusiasm about them owning this cycle, right? And so you mentioned earlier, you know, Micron. So a couple of weeks ago, they announced earnings, and they're going to tell us that, you know, all of these servers, all of these supercomputers, all of these data centers, they need memory, right?

11:01And then the more, so like, okay, so they joined the party. Dell joined the party because they make the servers, you know? So we're seeing this again and again, the concentration of this enthusiasm and the pushing evaluation limits and the like here, sooner or later, we're just going to get above of what you can actually kind of see commercialized across all of these different companies or so. And I think companies like Adobe are kind of telling you that they're riding the wave last summer about the enthusiasm about if there's ever a company that's gonna be able to use generative AI and their productivity suite and whatever, it'd be that, well, they're not doing it.

11:32So I think that there's gonna come a moment this year where a company like Microsoft disappoints on how they're integrating this open AI technology across their productivity suites and their expenses are gonna be too high and all this sort of stuff. And I think the whole thing is going to take a breather. I don't mean it's going to crash or anything like that. I think the whole thing is going to take a breather. We're going to start talking about valuation again. By the way, 165 on the SMH, you're talking about 25%, my friend. I just did a little quick math. It took me a while. I don't know if you could hear the brains turning.

12:00I thought I heard something. A little creaky. No, but that's an extraordinary move. And if you think about what your question was, does that mean that the more value part of the market is starting to move? The more value part of the market has been moving. And I agree with Dan's call even on software companies. In fact, I would argue that, you know, when you saw some of the big, you know, Palo Alto's big donut, they dropped. I mean, the software companies, and even if those that are more exposed either to security, but there's certainly an AI component of this, they were rallying along and they fell at the same time.

12:30Meanwhile, the rest of the market, I get back to what's going on with banks, what's going on with industrials. Every day, new all-time highs. We had a bit of a pullback last week. Let's see where a lot of these charts look. But to me, the more value-oriented part of the market, the part of the market that was selling off for two years, is the part that's really been the most interesting part of the last two months. So let me alter the question just slightly then. Does the NVIDIA stall make you more confident in that move by the value stocks? It's reassuring in some way that the market isn't just all over the SMH hype.

13:00But I will tell you, I think if the semis are getting to guys' level, this market is going to be through a lot of pain. So I still believe that the semis have led the market for the last two and a half years. And I think if you really see massive deterioration, I don't think the overall market can withstand that. All right. For more on what this all could mean for the markets, Eric Hirsch of private markets investment management firm Hamilton Lane joins us now. He is the firm's co-CEO. Eric, great to have you with us. Happy to be here. I know you're a private credit guy, but I want to ask you just your general take on the markets and the conversation that we have been having.

13:32What is your view of NVIDIA sort of stalling out and leaving some oxygen for the rest of the markets to breathe even more? Well, I think that's really the issue, Melissa, is that you have had the public markets so dominated by such a small number of stocks that it's frankly causing what we see a lot of investors to sort of move away from the public markets and actually more towards the private markets where they're picking up a more balanced, diversified portfolio. And wondering just, you know, in terms of the markets, but also for your part of the world, private credits, you know, what the rate environment, what do you see the rate environment being?

14:06And also, if Jamie Dimon is right and says, you know, as high as 8 percent in the next couple of years because of various inflationary dynamics, what does that do? Well, I think we should break private credit into a couple of buckets. Part of what's happening and you're seeing the sort of the surge of private credit is really because of the demise of the regional bank. Think about being a classic entrepreneur with a privately owned business and think about where you're going to get access to capital. For a lot of them, it was the regional banks. And so that market has really been sort of superseded by the private credit managers.

14:37So we've seen a huge rise of private credit managers, a lot of expertise, a lot of talent and a lot of a lot of capital sort of sitting there. I think to Diamond's point on sort of rates, I think there's a today issue and a tomorrow issue. I think today I don't think we're seeing any indication that rates are going to be soaring to eight percent. But I think Diamond lays out a very cogent argument in his in his letter to say, if we see a bunch of factors line up, inflation, major geopolitical disruption, continued overspending by governments, then, yes, that's absolutely a possibility. If we see that, I think we will likely not.

15:13But if we do, you're going to see a real cool off of people wanting to borrow capital at that point. Hey, Eric, it's Tim. Thanks for joining us. And first of all, private credit, no question, has exploded higher in terms of not only the size of the market, but also the availability of private credit for what have not been traditional buyers of that credit. But using the same today, tomorrow dynamic in private credit, I mean, today we know credit spreads are at all time tight, effectively as tight as they were even going all the way back to kind of pre-global financial crisis dynamics. Tomorrow, do you think they're going to be tighter than this?

15:48I mean, that's really the dynamic here. I understand there can always be problems in certain corners of the private credit world. We're always waiting for something to happen in commercial real estate. But I guess, you know, from a credit spread perspective, allocating a dollar tomorrow versus the market we have today, what's your outlook for credit spreads? I think investors need to be careful. I think what you've seen is the rise of the private credit manager has happened so rapidly. And frankly, a lot of that capital is coming from the retail investor, not the institutional investor. So as we've seen a real rise of these evergreen funds, I think people need to recognize that as those dollars come in, they need to immediately be deployed.

16:25And so what we see is a real gapping beginning to occur among the quality of credit being done by different managers, depending on how quick they are to deploy. So our view is you're going to continue to see capital flow in. I think that's going to continue to tighten up the spreads. But again, I think we're going to start to see more gapping around performance of the private credit space. So given your 30 ,000 foot view, what should the Fed be doing this year? I mean, I think people are wishing for three rate cuts. I think be careful what you wish for. What's your sense as the path forward for the Federal Reserve?

16:57First of all, I think they're in a really tricky spot. I think you've seen some irrational behavior by the consumer, and that's beginning to finally ebb off, as we've just seen sort of really, really strong spending. I think one of the things that we've kind of all underestimated is that rising rates have actually benefited the big spenders. So people who are kind of early retirees or higher income earners, largely living in a world where they've got fixed rate debt, if any debt at all, and they're benefiting from kind of their investment portfolio. So I think our view is we might see some rates coming, I think, like cuts coming later in the year.

17:29I think the odds of us seeing three of those in rapid succession near term, I think, seems pretty low. So, Eric, great to speak with you. Thank you. Pleasure. Thank you. Eric Hirsch, Hamilton Lane. So what did you think of Jamie Dimon's 8 % warning? Yeah, I mean, I think sometimes some of this stuff that Jamie Dimon says will come out of context. Like even when he was saying, well, like a hurricane was coming, I think that was also maybe like taking a little out of context what he was saying. So I think take that with a grain of salt. But there are definitely some forces here that could push inflation up higher.

17:59And that doesn't necessarily mean here in the short term inflation is going up. And I think the conversation that when the Fed's going to be cutting rates, regardless, we are on good footing in the economy. We have low unemployment. GDP is still coming in strong. Like at some point, the question is, does the Fed have to cut interest rates? And I think that's different than eventually us going to 8 percent, I think, is a completely separate issue. But I think people are starting to realize these rate cuts might not come as soon or as fast as anybody thought they would. Right. I mean, I think 8 percent is sort of whatever it is, it is.

18:27But the general gist is that we are in an inflationary world where there are inflationary. Right, exactly. Inflationary forces will continue to push inflation higher as much as the Fed wants to bring it down to 2 percent. And these are things that are structural. They're things that are instigated by policy that would need to be reversed by legislation. But right now, that is a world we live in, an inflationary world, no matter what the Fed does. Yeah, I thought he was talking about structural things, you know, whether it's the green economy or, you know, essentially, you know, budget spending.

18:56You know, there's deficit spending. There's different dynamics. And I agree with Courtney. I mean, also, Jamie is a guy that is going to give you a full range of scenarios because I think he's probably right. He's also using that same spectrum of two percent to eight percent, which is what I heard the range. And so, you know, if you're somewhere in the middle, around five, you're not terribly far from where we are. But this is a bank that is incredibly diversified. So J.P. Morgan, you know, part of that setup is to point out that J.P. Morgan is an all weather bank. We're here in a lot of different businesses and we're well positioned.

19:27And frankly, I think banks still do look really interesting relative to the broader market, at least in terms of where they trade. So I think 8 percent would be devastating. Let's be clear. And I think if you look at where rates are going and maybe back to our earlier conversation on NVIDIA and semiconductors, you know, we've had a 50 percent move in the long end since the end of the year. And a lot of that, I think equities are starting to get a little queasy. I think another 30. And I think the equity market's going to have trouble. Right. So you just use the term devastating if we get to Jamie's target.

19:57OK, so let's just use a phrase that's been used a lot and really hasn't been devastating. That's the long and variable lags of monetary policy. OK, so if Jamie Dimon is calling a shot right now, if he's basically being really patient and saying 8 percent. Do you remember when last year at this time, Jamie Dimon, I think, came out with some sort of commentary about during the lows in the pandemic when rates were zero and a lot of his peers, Bank America and some others were like buying treasuries at those yields. And he said we were not doing that. Right. And so you think of the problems that a lot of them had in their mark to market held maturity, you know, books and the like here.

20:29Who knows how they're doing right now? Because rates are higher when we had, you know, regional banks go under, you know, when we were taking the losses that the mark to market losses, mind you. OK, so we get an environment where, you know, Fed funds is going to six percent, seven percent, possibly eight percent. You think about, OK, all these companies that need to refi at some point, all the tighter lending regulation. Look at what's happened in the non-bank market. Right. We spent a lot of time talking about private credit and like here. There will be some devastation here. OK, like it just has to happen.