Alphabet’s Reports… And Disney Gears Up To Do The Same 02/04/25

0:00Live from the Nasdaq market saying in the heart of New York City's Times Square. This is Fast Money. Here's what's on tap tonight. A monster night of earnings from Alphabet and AMD to burritos and biotech. We've got all the numbers from companies reporting tonight and are bringing you the trades. And a Merck meltdown. Shares of the Pharma Giant tumbling to more than two-year lows after saying it's paused in sales of one of its key vaccines. What it means for revenues this year and whether the stock can bounce back. Plus, Estee Lauder shares in need of a makeover. Pepsi loses its fizz. We're getting ready for Disney earnings tomorrow morning.

0:31how the entertainment giant stacks up now in the streaming space. 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 Savita Subramanian, head of U.S. equities and quantitative strategies at Bank of America Securities. Welcome, Savita. We start off with Outfit Slide on its Q4 results. The tech giant losing nearly$200 billion in market cap after a miss on cloud revenue. The company also announcing$75 billion in CapEx this year. The call kicking off in just the last hour. CNBC's Deirdre Bosa has been listening in. She's got the latest.

1:02Deebo. Hey, Melissa, I'm listening in, and the CFO, Nat Ashnikazi, is speaking right now. We're getting to the juicy part, so I'll check back in with you. But the big picture here is that shares are down more than 7%. She just called out for an exchange rate impact that will affect Q1 revenue. So that may be why you're seeing them slide even lower. She's going to call out a few more things, which I'll bring you. But it's really the cloud miss that investors have been focusing on. That comes about a week after Microsoft's cloud miss, suggesting perhaps that investors are going to have to wait longer for substantial AI monetization.

1:36Senator Pichai, the CEO, opened the call talking about Google's full stack approach to AI. That's infrastructures, models and product. CapEx, this is a number that many investors are looking at very closely in a post deep seek world. It is intact. They're expecting to invest approximately$75 billion in CapEx in 2025. That is a major step up. That's 47 percent growth year over year. The street had been expecting about 18 percent. So that is a big step up, basically telling us that they're going to continue to invest in AI, even though DeepSeek proved that you can do this a lot more efficiently.

2:14Doesn't really change the proposition for the big AI foundational model players like Google, because the stakes are just risen for them. They have to keep spending. Senator Pajai also shouted out their, quote, strong relationship with NVIDIA right at the top, noting that just last week they were the first to announce a customer running on the Blackwell platform. Melissa, I have a feeling that there was more comments from the CFO right now. So I'm going to look at those and I'll bring you them if they're moving the stock. All right, Debo. Thanks, Deidre Bosa. The stock is down 8.6 percent. As Deidre was talking, it was sinking a little bit.

2:46So what do we make of the quarter, Karen, especially given the stock was up into the results. Yeah, so the stock was up sharply into the results the last two weeks. But, I mean, there's some stuff not to like here, and Google's a big position for me, so this is not delightful. But I think some puts and takes. I thought the advertising business was fine if you were afraid there. I don't think it was anything to really be afraid of. That CapEx, which you talked about, that is a very big change when we still haven't fully gotten our arms around what is the promise of all of that spend. right on the flip.

3:19So Google Cloud was about 250 million dollars light on the flip side. YouTube, 250 million dollars above. So I don't know those two things, even though the same amount of money, they don't seem to have the same weight. The cloud is much more of a focus here. So the last three or four points down, I don't know what that was. I would say it's really important to listen to the call. What they have to say. I want to hear what what are they what are they thinking when they talk about that 75 billion dollar spend? Why are they so feeling that they want to spend. They want to ramp at this point. Right.

3:49Well, and would we have been happy to hear 50 billion? Because that also would imply that there's been a lot of missteps in terms of CapEx and they're toning it down a little bit. So I don't know. I mean, I understand why we're watching post deep seek CapEx for everybody. But I think this was all about cloud. I think this is weak. This is bread and butter. Because, you know, I think about ad tech, I think where they are in digital ad. And I think they're dominant and I think they're going to continue to grow, take market share and improve margin. So I guess I'm less worried about that than I am the bread and butter.

4:20And it gets down to some commoditization and a very, very crowded cloud space. I do like the operating margin at 32%. I think overall margins for this company are getting better. That's good news. And I think everyone just hit it. I mean, the stock moved 40 points or about 35 % from Thanksgiving into the print. It was priced to perfection, even though it wasn't expensive. And Karen will point this out. I mean, what's interesting about Google, and this might be a negative, is that in the run we've had with mega cap tech stocks, this stock is absolutely in line with its 10-year P.E. In other words, it's not really a stock that you can say, well, it's gotten kind of expensive in this move and it deserves a higher multiple.

4:55It doesn't have a higher multiple. Why is that? Yeah, gross margins, though, last year 69 percent. This year a little below 64 percent. So this is something and it goes back to CapEx. It goes back to, you know, just kind of, you know, how they're operating and how they see their path forward. You know, when you say that that step up in CapEx from$59 billion to$75 billion, it almost seems somewhat defensive. And I think Tim's point is a great one. If they had come in from$59 down to$50, like, might that show a level of confidence about what they've already built? When you think about the hyperscalers in general, they are more interested in asking for forgiveness than permission on this front.

5:28And that might be one reason why this kind of story has flipped a little bit lately. The stock is approaching a 9 % loss here in the after-hour session. Let's go back to Debo, who's got more from the conference call. Deidre. Yeah, so this is where sort of the CFO left off. It's exactly what Dan Nathan is talking about. She called out that increase in CapEx. She says that is going to increase pressure on the P &L, primarily in the form of higher depreciation. The profitability picture has been trending much better in the last few years. So this is something that investors probably don't want to hear.

5:59They're also saying that they're expecting some headcount growth in 2025 in key investment areas such as AI and cloud, all of this to say that it feels like Alphabet is back in spending mode, and that could hit sort of the margin. So that may be what's taking shares lower by about 9 % right now. All right, Deidre, thanks. Keep us posted. Deidre Bosa. Savita, how do you feel about the AI trade at this point? Look, I think these companies, the hyperscalers, are damned if they do and damned if they don't, because they have to spend a lot to remain competitive, but they are cutting into their cash flow, right?

6:35And more and more. So what we found in our numbers of back tests that we've done on everything, what you don't want to own are companies that are accelerating their spend on CapEx because they tend to cut into their profitability. What you do want to own are the companies that are getting the money. And right now, it seems like these AI plays are missing on expectations in terms of revenue and monetization, but they have to spend. And that's not a great recipe. Look, I don't think it's game over for big cap tech. I think these are big companies with lots of optionality. They can, you know, they can do what they did in 2023, cut costs.

7:12They can, you know, shore up balance sheets, do big buybacks. And they're doing a lot of that. But they have to hire more. They have to spend more. It's not the same. It's not the same profit story that it used to be. One thing I noticed about this release, their headcount is actually already up a little bit. And you think, you know, AI and the promise of efficiency and all of that and how much you can save on... It would bring efficiency there. It would have brought it, yes, but not yet. And then it sounded like Deidre said, they're going to go even higher. Yeah, right. And so everyone with this spend, except for Meta, which got a pass...

7:43Well, got a pass, but also monetizing. And monetizing. Monetizing the results. Well, yes, that's right. Monetizing in a much more efficient way. They don't report a number like Azure, like Google Cloud, and like the AWS. So, like, to your point that they're monetizing is they've converted a lot of the spend that they did in Metaverse, right? And they cut a ton of jobs. This is back to Savita's point about 2022 and 23. It's just a very, very different story. But you asked her, what about the Gen AI trade? Well, let's break it down a little bit, right? So the chips. Look at NVIDIA. It's down 22%, right, just in the last month or so.

8:15Look at Micron. It trades horribly. It's basically round tripped in its entire move. So there are some components that go into the servers. Look at Dell. Look at Supermicro that make the servers, right? Look at some of the data center names that we're seeing, how they're trading. We just went through this on the CapEx and everything like that. It feels like some of the pillars of the bull story are coming undone. And the price action in the stock market is kind of telling you that. If NVIDIA goes and makes new lows and these other stocks aren't going to be the recipients of a new cycle, then we're kind of out of the, you know, we're just kind of out for a couple of months or a couple of quarters, actually, for that matter.

8:49Because I just don't know how you turn it around, especially when you just saw. We saw$65 billion from Meta and CapEx. We saw$80 billion in Microsoft. Now we're seeing$75 billion. And look at how these stocks trade. Unless we're seeing the next leg of the trade already. We started seeing that with the DeepSeq sort of route where we saw software names pick up. Software came back, yeah. Magentic AI names really pick up. We saw Palantir go gangbusters on its results. This is sort of the – could this be the next place that investors are going instead of the hardware side? Well, it has been all along.

9:19And if you look at the move in CRM or if you look at some of the other software names, I mean, they really, after that pullback of last year in the chips, which then talked them to fresh highs, they never stopped gaining ground. And I just think that the software story is part of what we took out of DeepSeq. And it's also the place where other folks, even like an Apple, suddenly look like they suddenly have a little bit more of a seat at the table in a world where you have a broadening AI story, more efficiency. see AI for the masses, a productivity story that I'm sure Savita likes for industrials.

9:53I mean, this is part of the EPS story. I mean, absolutely. And I think, you know, there are 10 other sectors besides technology. Tech was the only sector that was down in January. Everything else was up. And I think that's kind of telling us that we're moving from an environment where every company spent only on tech to tech spending on everything. They're spending on power. They're spending on chips. They're spending on hardware. But they're spending. And that, I think, is the important shift. For more on Alphabet's results, let's bring in Fast Money friend Gene Munster. Gene, your take on the quarter.

10:23The stock is down 8.8 percent right now after hours. Melissa, I don't know if Deirdre covered this in her kind of recap from the call, but they did say that there are two headwinds related to FX and the loss of one day of leap year. It's going to have a negative impact on the March quarter. But they also said, and this is what really caught my attention, is that the cloud segment is going to have variability. That was the comment variability quarter to quarter based on when capacity becomes available. It all makes total sense. But when you play it into investors hyper focused on the near term, what it means for the March quarter in terms of Google Cloud growth, the streets at about 30 percent.

11:01When you talk about variability, it probably means that the numbers should be closer to 27 percent. So I just want to highlight the stock is really trading on one data point, which we need to start there and just acknowledge of course that this is all about Google Cloud. But I think that that is largely missing the point. The search business saw a fractional acceleration in growth. They've rolled out from 300 million customers that saw AI overviews to over a billion. Remember, that's the big negative here is that is generative AI and perplexity going to take away. We're not seeing that yet, but I think that that is an impressive YouTube, two and a half percent upside that was in part driven by some of the election spending.

11:41So don't read too much in that. But Overall, I put this in general. My money's on that this is an overreaction, what we're seeing here. And then one final piece, Melissa, as Dan was kind of doing some of the setup here, talking about the derivatives relative to this and the concept that we're shifting to a software-focused AI trade. And I understand that concept around that. But I think there is much more room left for these hardware companies to grow. Again, of course, the 47 % increase in CapEx that Google talked about tonight. They got to run the table. Amazon needs to say something positive about CapEx.

12:15If they say something negative, then all bets off. But my suspicion is that they're going to also be spending like drunken sailors. And I think that this AI hardware trade still has another year or two years left in it. I know those are real issues, but FX and the leap year thing really sound like lame excuses. I mean, Google's got a calendar. We know that, so they know that leap year is not, you know, anyway. It's weak. Right, it's kind of weak. Putting that aside, though, in terms of the CapEx spend, as an investor, are you confident that that additional spend, there's going to be a return on that?

12:46I mean, I think that is a critical issue here. A ramp of 47 percent, that's major. And what are we getting out of it? Yeah, it's major. Just some quick context to that. They generated this year$72 billion in cash. They've got$97 billion in cash. They're talking about taking their CapEx from$51 billion to$75 billion. They've got plenty of money to spend. And I understand the concept of wanting to see a return on this, but they've got the money to invest. And then, you know, how do we see this forward? And unfortunately, I can't put a stake in the ground and say that all this is going to have this incredible outcome.

13:21I believe it will for all the virtues around AI. But that's going to be a question that's going to be nagging. I would say that where are they spending that more specifically on the infrastructure? Sundar said that this year is going to be the most innovative year in search. Every year should be incrementally more innovative, of course. But I think that that speaks to still this underlying question is the Google search results is still pretty junky. It's pretty messy. It's not as clean as perplexity by any measure or GPT. And I think they need to really overhaul that in the next year, two years, while not really jeopardizing the golden goose around their search business.

13:56They still got to thread the needle here, still feel confident they can do it. But there's a big task ahead of them. Gene, it's Karen. Thanks so much for being on. Just to clarify something for you, were you saying they were not constrained, capacity constrained in Q4, but would be in Q1? What I was saying was that just there was no capacity issues there. In Q1, there's just variability in saying that, I guess that is a form of capacity, is that they just don't have some of the data centers up and running. So, yes, I guess that is a form of, in an indirect way, saying that they're capacity constrained.

14:32She did not explicitly say that they got too much demand, but she said that based on availability of hardware, when these data centers are up and running, it's going to have an impact. And that's understandable, but I don't think investors are going to really like that tomorrow. Again, I think this is an overreaction. I think the stock should be flattish on these results versus down 8 percent. All right, Gene, thank you. Keep us posted on the call. Let's get to the latest now out of D.C. President Trump signing a slew of new executive orders this afternoon and making comments on USAID, the Department of Education, China, and much more.

15:06CNBC's Eamon Jabbers joins us now to break down all the headlines. Eamon. Hey there, Melissa. It looks like there's going to be no call between President Trump and Chinese leader Xi Jinping today, despite what officials had been signaling early in the day. President Trump spoke to reporters in the Oval Office in the last hour. He played down the significance of a call with his counterpart in Beijing. You know, we'll speak to them at the appropriate time. I'm in no rush. I'm in no rush. Do you think that conversation can lend itself to the type of freeze that it meant for the tariffs for Canada and Mexico?

15:40Well, we'll see what happens. Well, there's a short-term freeze with Mexico, as you know, and with Canada. But they've agreed to be very, very strong on the border, stronger than they ever were by far. Trump was also asked about the retaliatory tariffs that China imposed on American goods overnight, calling them fine and predicting that the U.S. will do very well against China. Now, in Beijing, officials announced a slate of new tariffs and other retaliatory measures, including a 15 percent tariff on coal, liquefied natural gas and other commodities, a 10 percent tariff level on crude oil, agricultural machinery, pickup trucks and other goods there.

16:19A Chinese antitrust investigation into Google and export controls on tungsten and other metals, along with rare minerals as well. Tungsten, Melissa, is used for everything from light bulbs to microwave ovens, but it's also used in armor plating and armor piercing projectiles. So that restriction there could over time impact U.S. military supply chains. Back over to you. All right, Eamon, thank you, Eamon Javers. So, Savita, how are the markets taking all this? Well, I mean, we've had a positive start to the year. I think there still is a lot of liquidity out there looking for a home. I think there's still a lot of cash on sidelines.

16:59We still get the question, my client has a lot of cash. Should they buy now or wait for a better entry point? Which means there's probably not going to be a better entry point until we stop getting that question. Look, I think that it's tricky right now because where we are is an environment where the uncertainty is high. The other factor that we need to think about is, you know, are our allies going to continue to trade with us if, you know, if we're playing hardball with them right now? So I think that's the other kind of longer term ramification here. I mean, I think that so far what we've seen is that U.S.

17:37corporates are actually in a position where they can handle tariffs, the extra tariffs, reasonably well, especially for China, because they've already had this learning curve since 2018. Half of the economic activity that we used to do with China is now being done with Mexico and Canada. So that's the bad news is that it's been transported to other areas that are starting to be in the crosshairs. I think that, you know, from an inflationary perspective, this is potentially negative. We've dialed back our Fed call to no hike. Sorry, no cuts this year. We're not talking about hikes yet. So no cuts this year.

18:13But but I think that where we are is an environment where you want to you want to sort of prepare yourself for upside pressure to rates, to inflation, to the idea that we don't have an all clear on policy decisions until maybe, you know, closer to the second half. and that could stymie corporate planning, etc. What I would play, the easiest theme to kind of invest in with Trump 2.0 is deregulation. And I don't think that gets as much play as it should, because that is a theme where it's easier for him to get a lot done. It's not as negative for the economy. It's actually positive for productivity.

18:51It's positive for rates. It's positive for growth. So I feel like the lens on tariffs is obviously that's where the headlines are right now. But there are a lot of other ways to think about policy changes and how to invest to make money. What is that deregulation trade? Is it financials? Because that seems like the easiest. And we've already seen the lift in financials on the back of the expectation of deregulation. Yeah. But, you know, it's interesting. Even in financials, if you look at the stocks that are most crowded by professional investors, they're private equity in regionals or private credit in regionals.

19:21You know, the larger banks are still underweight. And I was surprised to see that data in our latest run because I would have expected to see this huge, you know, bid in the most regulated areas. So it's kind of surprising to see that positioning is still very overweight. The sectors and the areas that have less to gain, maybe more on M &A activity or other facets. coming up earnings season in full swing shares of chipotle snap and amd all on the move after reporting the numbers moving those names next and speaking of results here's a merc plunging on theirs the stock sinking more than nine percent what china has to do with the drop and why it's having such an impact on the company's outlook don't go anywhere fast money's back in tune welcome back to fast money we've got an earnings alert on chipotle the burrito chain stock lower after hours despite a slight earnings beat.

20:14The conference call is underway. Courtney Reagan has been listening, and she joins us now at the very latest. Courtney. Yeah, so question and answer session going on now. Was the first full quarter with Brian Boatwright at the helm? Quarter largely as expected, maybe some weakness here for the sales. The revenue comparable sales up 5.4%, also slightly below expectations. Comp's gaining, though, every quarter but one over the last seven years. Transactions up 4 % for the quarter. Now, the full-year comparable sales guidance also So coming in as expected, the company also authorizing a new$300 million buyback program, sort of the details that came out after that initial release.

20:46And then higher food and beverage costs as a percentage of revenue is, quote, primarily due to the higher usage of ingredients as we focused on ensuring consistent and generous portions. Yes. They heard the people and the smoked brisket offer, too. That was part of it. Chipotle did call out higher avocado and dairy costs, but that wasn't the primary reason there. And they said that the increased costs partially offset by those higher menu prices. Now, on the call, the CFO just said that guidance does not include the impact of new tariffs on items imported from Mexico, Canada and China, adding that if the recently announced tariffs go into full effect, it would have an ongoing impact of about 60 basis points on our cost of sales.

21:24But the CFO also added the company is actually confident it can offset that through investments it's already made and then some other identified efficiencies. Now, CEO Brian Boatwright, she tried to say, said that digital sales made up more than a third of total, which is pretty interesting. In detail, some kitchen process improvements like new slicers, increasing speed and consistency. And get excited, guys. Honey chicken coming soon. That's delicious. Coming soon for the new protein offer. That sounds great. So basically, they made their portions more normal, i.e. bigger. Yeah, generous and more consistent after, you know, people sort of started noticing that perhaps they were shrinking that.

22:01Does that mean they were shrinking them? I mean, that seems to be an ambition. They were high, is that they got smaller somehow. Yeah, yeah. Have you noticed? I feel like the burritos are heftier. Well, there's a candy bar. I won't give the brand makeup. But those minis have gotten really many. Sorry. Really many. And the prices have really gone up on that candy, too. Courtney, thank you. You got it. Courtney Reagan. What do you make? I mean, avocado prices. I know. I'm very into the avocado prices. You're very closely following that market. Yes. They will go up. They will go up. We talked about this.

22:30It's hard to hoard because they don't last. But I'm wondering, they say, well, we can compensate for that with some other things we can do more efficiently. Do they do those anyway, regardless of whether they take effect? It's not like, oh, we are paying higher costs. We'll look for other efficiencies. I think they should do that anyway. But it wasn't a bad quarter. I mean, I've always found it too expensive. The restaurant margins were actually fine. It was a decent quarter. Too expensive for me. It's interesting. This is happening at CMG. At a time we thought that their margins were going to decline.