Alphabet soars after earnings, plus results from Microsoft, Snap and Intel 4/25/24

0:02Live 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. Another earnings palooza. Alphabet and Microsoft surging, snapping, Roku rocking, but Intel keeps slumping. We're digging in on all of tonight's big movers, dialing into all the calls and bringing you all the trades. Plus, the great yield surge. Ten-year Treasury is hitting their highest level since November as expectations for rate cuts are pushed further down the road. Are we heading to a real credit crunch and what could it mean for the markets? And later, gold glistens.

0:33Newmont and Anglo-American both surging today, both having their best session since 2020. The headlines driving the moves and the impact on all the miners. I'm Melissa Lee coming to you live from Studio B at the Nasdaq. On the desk tonight, Tim Seymour, Steve Grosso, Guy Adami, and Kristen Bitterly, head of investments at Citi Global Wealth. Welcome, Kristen. Stocks ending the day in the red but making a big comeback from their worst levels of the day. The Dow down more than 700 points at the lows, ending the day off less than 400. The S &P shutting half a percent, while the Nasdaq down more than 2.3 percent at its lows, closing down just over half a percent.

1:07The loss is coming after a softer than expected GDP report. But already it's looking like we are in for a big reversal tomorrow. Shares of Alphabet and Microsoft soaring after their latest earnings reports. Google's parents adding more than $300 billion in market cap after announcing its first ever dividend and a$70 billion stock buyback. Let's get more on the numbers with Deidre Bosa. Debo. Hey Mel, so the call is still underway. the Q &A portion should be beginning soon. No surprise, though, CEO Sander Pachahi spent a lot of time talking about his AI strategy. And I want to highlight how the company says it's navigating generative AI and search ads.

1:43It's cash cow. Pachahi says he's encouraged by what he's seeing so far, including an increase in search usage among people who use the new AI overview. Chief Business Officer Philip Schindler, he went a little further, saying that ads are indeed finding a place in Gen.ai products, and he's confident that the opportunity will expand. But Chai also made a point, though, to tell investors that Google isn't just search ads anymore. He noted that YouTube and cloud will exit the year with a combined run rate of over $100 billion, suggesting that growth at those units will increase as well. Now, he's also keeping efficiency front of mind.

2:17Investors love this. He noted headcount growth, which was actually a reduction year over year, and monetization. He listed a number of paths to make money from Gen.AI products, ads, clouds, subscriptions. But it is probably Google's first ever dividend that is most exciting to investors at the moment and could help relieve some potential anxiety around increased AI spending. As I hopped on TV, I think Ruth Port was just talking about CapEx numbers, so I'll check them out and bring them to you if they're compelling. All right. Keep us posted. Debo, Deidre Bosa in San Francisco. How much of that 14 % pop do you think, Guy, is the dividend and buyback versus the rest of the quarter?

2:55I think the buyback,$70 billion is not insignificant. But in the scope of the market cap, it's not a huge deal. I think the dividend is a big deal. You get a new class involved. But the quarter is very good. And margins, where I look at the first thing, and their operating margins of their net revenue were up 37.7%. I mean, the street was looking for 33%. Good for them. So we had talked about the potential to break out of those prior all-time highs. now we're markedly above it. What happens tomorrow? Well, at least you have a place, I think, to trade around in the form of that prior high. And in fact, the breakout we were waiting for, I think, collectively in Google on valuation and a number of things is manifesting itself right now.

3:34So good for them. This is a very good quarter. Kristen. I would agree with that. I think there's a lot to like in this quarter. You have not only the dividend and share buybacks, but one of the questions that we had coming into this quarter was really around how Gen. AI was going to affect the search business. And so I think the results actually answer that, at least for the short term. So I think when you look at the dividends, share buybacks, the overall earning story, and answering some of those questions around delivering on Gen.AI today, as well as investing for the future, that's why the market's reacting the way it is.

4:03Seeing more people use that search tool with the Gen.AI overlay, that is very positive. I mean, no more existential threat? Look, I think the existential threat was over overplayed in terms of at least some of the clumsiness of some of the releases in terms of at least the new product base and really the lack thereof. But I just think it does get back to the fact that this company continues to execute in their core business. And if you look at the revenue, the top line, I think constant currency was 16 percent sequentially better than people had expected up from 13 and a half a year ago. All geographies are executing.

4:41It's a case where I I think really, again, their core business is executing as it was. And as we saw with Meta and as we've wanted with Google and at different times in the last four or five years, the cost efficiencies, the ability to generate free cash flow has been a big driver for a company that people said, hey, look, your core business is highly, highly cash flow generative. I think this dividend is very important. And another 70 billion, as Guy pointed out, I think is a big part of it. I don't think this is half of that performance. I mean, I think these numbers were out. We started to get some more details.

5:11You can kind of see how the stock rallied. But of the top three or four of the mega cap seven, I think this is the one that really has the most argument in favor of where it can go in terms of upside. Plus, when you look at it, though, there's a lot of algorithms that read earnings reports right after the bell. So if you see dividend and buyback, people like that, algorithms like that. But the other thing you have to look at is investment. Meta got hit for investment. Will they? They own search. It's over 90 % of search. They still have that. How many other AI guys and girls are coming for their basket, their search?

5:49Right now, they're not worried about it. They're still top of the hill. I mean, the question is, was Meta yesterday the, I don't want to say the exception because we've got three data points, but I mean, three of the sort of mag seven that are heavy AI plays, right? And Meta wasn't one that faltered. Alphabet and Microsoft so far look okay. Right. We don't have the conference calls yet, so we don't know. Faltered in the sense of the spend and the guide. Right, and the stock reaction. That's right. And the stock reaction. Because the quarter in a vacuum was, I thought, was extraordinary. We talked about that last night.

6:22So, obviously, that Facebook move was very Facebook specific. Now, and Facebook's not a problem on valuation. We've had that conversation. Flip side of the coin is Google's still fine here valuation-wise. Microsoft is the one, and we're going to talk about it in a second, that you start to say, hmm, this is interesting. I get why it's rallying. But to answer your question, clearly the Facebook quarter was predicated on the spend and probably to a large extent the run-up that it had into it. Probably wrongfully so because no one understood what metaverse was when they got slammed for investing in metaverse.

6:53And then they had the year of efficiency. And now they're talking about investing in AI. I think they should be given a pass with AI because the runway to actual profits and revenue on AI is potentially shorter. The roadmap is clearer at this point than the roadmap to profits for Metaverse. Exactly. I think the challenge was when you talk about that type of spend without clarity and exactly what it is, and it's just generically, I don't want to say generically, but a general AI statement, I think that's what the market reacted to. So the quarter itself was strong, but then guidance is what obviously it sold off on.

7:29And it's interesting just to see what does Meta do with the backdrop today of a very different earnings environment where core business, which Meta, as everyone said, delivered on. I think there's a different interpretation of – you could certainly have a different interpretation of what they told you on costs. And, hey, stay the course. We're going to spend some time. We may not see full outcome or certainly output from some of these investments for a few years. So interesting 1 % move. You think maybe it might like it a little bit more. So maybe we can't say that the environment's that different today.

7:59But I think there's going to be a bit of a reassessment of meta. Yeah. I mean, we might still be hit by a CapEx headline out of Alphabet that we do not like. Right. I mean, that is still possibly to come. We've been down that road before. Absolutely. No question about it. And they've been beaten up on the back of exactly that. But this, again, my interpretation, I think the street is getting more comfortable with the fact that, you know what, They're actually operating much better. Tim alluded to that. And the valuation is still okay. And when they put cash work in the form of the buyback dividend, there's a lot to like here.

8:31All right. Let's get to Microsoft now. Shares are popping as well after the company reported a beat on the top and the bottom lines. Steve Kovac joins us now to break down these numbers. Steve. Hey there, Melissa. Yeah, it's really all about Microsoft's Azure cloud growth here. It continues its acceleration after slipping dramatically over the last two years. Microsoft reporting Azure revenue growth of 31 % and a chunk of that, 7 percentage points, coming specifically from artificial intelligence running on its cloud. That's up from 6 percentage points in the December quarter. So the story here is AI is increasingly important to helping re-accelerate Azure growth.

9:06Beyond that, of course, beats on the top and bottom lines. Total revenues are up 17 % from the year-ago quarter. But what's not here in the report? Details on Copilot, the AI assistant Microsoft is selling to businesses. In the release, CEO Satya Nadella only saying Copilot is part of, quote, a new era of AI transformation. So the call is kicking off in about 20 minutes here, and we'll be listening for any more guidance on Copilot there. And, of course, like you guys were saying, any more on CapEx increases as well. All right, Steve, thanks. Steve Kovac, and obviously we're looking for the overall guidance for the next quarter in the full year in Microsoft's call as well.

9:44We certainly have been down the road where we see it after hours. Stock is acting well, and then we get hit with it. But initial take on the quarter. I think, Asher, and that pivot we really started to see last quarter, it wasn't much. It gave the bulls a chance to say that there was actually some inflection point. And this is a serious inflection point, at least, you know, when you want to see where a lot of the real growth is coming from, the fact that AI is seven points of that growth. You have a dynamic also with$8.5 billion in share buybacks, the ability of the company to actually at least support the share price, support earnings in a lot of different ways.

10:16But every segment, including commercial cloud, up 31 percent, Intel and cloud up 21 percent. That was a beat. O365 up 15 percent. That was a beat. And the operating margin gained 175 basis points. I mean, that's pretty extraordinary. And again, if you want to pay a higher multiple for Microsoft, which I've seen as 34, 35 times, even with these numbers, you have to believe in a margin. Yeah. Piper Sandler out with a note just moments ago saying Azure AI crosses the$5 billion run rate in terms of business. I mean, that's a sizable contribution here. I mean, Steve just said it. Steve Kovac just said it, right?

10:52It was all about once they saw that reacceleration in Azure, 31%, that was off to the races. I mean, the other numbers are what they are. But Tim makes the point. And again, at 34, 35 times next year's numbers, you're paying for that growth. Again, we've said it 100 times. Microsoft, one of the top five, if not three most important companies in the world, without question. But you're absolutely paying up for it in this environment. Is it worth it for this environment, given the uncertainty for stocks, given Treasury yields at 4.7 % in a world where rates might not come down? That's going to be the question going forward, because really it is price to perfection.

11:25But I think what the market is rewarding right now is in 2023, it was all about you could just mention AI and your stock would all of a sudden react very positively. I think right now it's do you have tangible gains and tangible productivity and results in your earnings today, not just some promise of the future. And I think where the stock market sees that, it will be rewarded, certainly short term. Last quarter, they had highest quarterly profit in two years. This was a show me quarter. They showed you. It was all about Azure. If Azure beat, the market was going to be up post-close for Microsoft.

12:00Let's see what happens tomorrow when they settle in. But you could make the case by its market cap that they had the most to prove. Microsoft. Microsoft. And this is a great test for them. I don't like where Steve had mentioned that AI went from up to 7 % part of that growth versus 6%. You would have liked to see a little more traction, but it's going in the right direction. In terms of big seven, whatever you want to call it, but so far, the names that are reported, are they going to be defensive in this environment at these multiples? Have they proven? Has Alphabet and Microsoft, let's pick on those two in particular because we had the result tonight.

12:37Are they going to be defensive? I think they're defensive when you have these kinds of numbers. I don't know how defensive you can be at some point. And I do think that defensive for mega cap tech stocks that are, look, the kind of growth we're seeing from these companies. It's mid-teens. It's high teens. For multiples, if you're looking at price-to-earnings growth, peg ratios, there's different appetite for different levels of valuation. But they are defensive. They've proven defensive in the past. But where have we come from? And what we've started to see in the last three weeks to month when the market's running into either exogenous dynamics that are causing people to reassess.

13:14The Nasdaq overall, if you want to just do a ratio chart of the triple Q's to the SPY, Nasdaq has not made new highs. And you've actually seen a lot of pretty negative price action. The only one that seems to be clearly making new highs to me is Google or Alphabet. And I think that's something to watch. But I don't think that these stocks are bulletproof. I mean, at some point, valuation matters. I would agree with that. I think valuation and fundamentals matter. I think the component, though, that is about, you know, a flight to safety, really focusing on quality, is the fact that these balance sheets are so strong.

13:49So when you have that free cash flow generation, these are going to be the stocks that are immune to a lot of the inflationary pressures, which the market will reward. But if you don't follow through on earnings, we've seen it. A lot of companies have been punished. 100 percent. And the valuation suggests that. I mean, they've become defensive because as money pours in, that valuation grows. It is a defensive play. And we'll talk about rates later in the show without question. That is going to be a huge component going forward that I don't think the market is paying enough attention to. All right.

14:16For more on Microsoft and Alphabet, let's bring in Fast Money friend Gene Munster of Deepwater Asset Management. Gene, what's your initial take on you pick, Microsoft or Alphabet? We'll do Google in one piece. Usually when you're listening to the calls I just got off the call, you can pick up some context and then look at the stock and see why it's moving. And Ruth Peratt, their CFO, said a minute ago that they expect to continue to invest in AI infrastructure and AI talent and expand margins throughout 2024. Now, while that may have been part of the street expectation, reiteration of that, in my mind, was a positive, given obviously what we've seen and heard over the last 24 hours.

14:58And so I was surprised to not see the stock higher on that. They are doing it both. Google is not only aggressively investing, and it was aggressive, they spent 21 % more in CapEx in the March quarter than analysts had expected. And despite all of that, the stock continues to move up. So I would expect that comment from Ruth Pratt to have been an incremental positive. I was picking up some of the chatter on the desk as you were talking earlier, and I think this piece around search, what they are doing, the fact that search growth accelerated, the expectation was 11%. They did 14 % growth in search.

15:35That's 58 % of their business. That, of course, addresses this narrative. And Sundar, their CEO, was quick to point out that their search generative experience, that's their lab where they're testing some of this generative AI within search. They say that it is performing to their thesis, which is the more that people use generative AI, the more actual old school search they do at the same time. And so this seems to be lining up pretty well against the bear case on Google. So that was my takeaway. Felt good about search and felt great about where margins are. So basically you're saying, Gene, that, you know, Alphabet has indicated that they will spend, they spent more already on, on CapEx.

16:17A lot more. And they're going to spend even more, but they're still going to expand margins. And that's very different from what we heard from Meta yesterday in terms of the concerns there. Very different. Yeah. They had this big step up from just under$9 billion in CapEx in the December quarter to$12 billion in the March quarter. And Ruth Peratt said to expect it to be up a little bit and roughly the same. So we don't know. She did say up, but she also talked about roughly the same. So I don't think there's this negative surprise around margins related to the CapEx spend. And it does speak to, I mean, they grew CapEx 91 % year over year in the March quarter.

16:53So they are putting the accelerator to the floor and trying to build the infrastructure. And I just want to point out this unique dynamic around AI more broadly, and this impacts a lot of companies, is this, they're doing the spending with this CapEx, but also they're seeing the revenue growth. We saw in Azure, we saw it in Google Cloud, acceleration of revenue growth. So this is pretty unique when you're seeing this paradigm shift, and both of those are moving in the right direction. I did bury the lead, Melissa, as I've thought about what I saw in the Google and Microsoft CapEx numbers and Microsoft's as I look forward to May 2nd.

17:27And when Apple reports their quarter, this is going to be their first quarter where they talk about AI in a more substance context. They, of course, have never really brought it up and prepared remarks. And so I suspect that they're going to talk about a major or a significant increase in CapEx related to AI. I would view that as a positive, but I think investors should just have the right lens going into Apple's print. What we're seeing here, Apple's going to have to take that same path because they want to compete in AI, too. All right. Gene, let us know what comes up on these conference calls.

18:02Gene Munster. Thank you. So we're hearing everybody say that they're going to increase spending on AI. Does that necessarily mean we should transfer that market cap, I'm exaggerating, to NVIDIA? That's what it felt like today. That's exactly what happened today. So the early weakness in NVIDIA was actually then was bought and the strength of it manifested. Well, it's on the back of everything that Facebook said last night. So, yes, of course, the problem is and we've been talking about this for a while. You know, that March 8th, Friday, March 8th reversal actually wound up being very important.

18:36You saw how low Google, excuse me, NVIDIA traded down. I think it got down to about 735. Obviously, it has subsequently bounced. But keep that in mind, because I think technically we may be looking at a bit of a broken stock here. I also think it's not just about semis or NVIDIA. It's the broader story in terms of who would benefit. And the market knows this, and these stocks have been rewarded. But everything from electrical equipment to utilities to energy more broadly, data centers, I think you have to kind of look across the board and say, regardless of what happened with Meta or what happened with Google and Microsoft, you're going to see continued flows and continued demand, and that's going to be a really important topic for earnings this season.

19:15All right, coming up, there's a lot more earnings action to bring you this hour with shares of Intel and Snap, both making moves. The details for the quarters next, plus mining maneuvers. The latest on BHP's bid for Anglo-American, why the offer may need to be upped, and how Newmont is faring after its results. All that when Fast Money returns.

19:33This is Fast Money with Melissa Lee, right here on CNBC.

19:47Welcome back. Intel's down 8.5 % despite an earnings beat in its latest quarter. The chipmaker's disappointing guidance to blame for the sell-off. Christina Parts Nevelis is here on set with more on the results. It seems like the guidance leaves investors waiting each and every single time. Even on the earnings call, which is going on right now, the CEO reiterated, our target model is reasonable, conservative. If we can move faster and do better, we will. So he's obviously always trying to hype up the crowd that it's going to get better in the second half. I was able to catch up with the CFO just about maybe 20 minutes after the earnings crossed, and we spoke about the three product lines, PCs, data centers, as well as their networking and edge.

20:22He did say that all three categories were suffering from the seasonality that you often see in Q1. He warned that specifically for PCs, we'd probably see the same thing happen in Q2. For servers, the common line, AI is taking all the money, you know, and any type of, he can use those words. I'm paraphrasing right now, but, you know, any non-AI business is suffering. And he pointed to other players in the industry. And I could think of Texas Instruments, TSMC, that also warned of that. But I did ask about specifically the foundry business because that posted a lost$2.5 billion in Q1. Last year, the whole year, they lost$7 billion.

20:59So you can see that they're already off to a rough start. However, they warned that this is going to be a peak year for losses for the foundry business. And then lastly, he did say that their margins were going to improve. So I said, does that mean job cuts? And he chuckled and said, no, we really believe that things are going to improve in the second half. And then pointed to Mobileye because margins are better for Mobileye. But mobilized business is also down 47 percent, almost 48 percent year over year. So trust us, things will get better in the second half is basically the precisely. So it's a very back half thing.

21:29And ASML was very similar. A few chip names are going that way, like really putting all the pressure on the second half of the year, blaming cyclicality in Q1 and Q2. How do you interpret this? And I value having Christina here because it seems to me like we've heard this story before. And I'm not sure what we heard that was new that was so bad. And you're talking to a guy that I own a small piece of this company. Very, very small, fortunately. But what I heard was we didn't think anything good was happening in the short term. When I heard a company reiterate, go out of their way to say, we're actually going to Q1's the bottom.

22:00We're actually going to see sequential growth from here on out. I mean, that's that's the headline right here. And that the guide was light. So then is Q1 the bottom or is Q2 the bottom? But the CFO is on the tape right now saying something along. We see Q1 as the bottom. And that, to me, on top of the fact that they're talking about 200 basis points of margin improvement, they're talking about their, you know, 500 million sales in their Gaudi AI chip. I mean, you know, I just think this response is interesting. I'm also someone that said every time this company opens their mouth, the stock goes lower.