Amazon’s AI & Tesla's Annual Meeting 5/16/23

0:01Right now on Fast, Elon Musk facing his shareholders. The annual meeting is underway. The stock after roaring higher in Q1 now stuck in neutral. What can he do to get things revved up again. We'll debate that. Plus, Home Depot's fixer-upper of a quarter, the home improvement giant, posting its biggest revenue miss in over 20 years. As do-it-yourselfers shelve big-ticket items, the retail ripple effect straight ahead. And later, Japan's big market milestone, Amazon's AI ambitions for shoppers, and the government looking to block a big biotech deal. I'm Melissa Lee. This is Fast Money. We're live at the Nasdaq market site in the heart of Times Square.

0:34On the desk tonight, Tim Seymour, Steve Grasso, Dan Nathan, and Guy Adami. And we begin with some signs of progress from today's White House meeting between President Biden and congressional leaders on the debt ceiling. Speaker McCarthy saying after the meeting that negotiators are still far apart, but a deal by the end of the week is, quote, possible. I guess that's good news. Our Eamon Javers joins us from Washington with the very latest. Eamon. I guess it is good news, too, Melissa. You know, a little bit of optimism here from lawmakers as they came out of that meeting. talked to reporters on the North Lawn of the White House, suggesting that there was no deal in the room today as they met with the president of the United States, but there was some progress.

1:12I want to play for you a soundbite from Speaker McCarthy because he hit on something that I think might be key as this negotiation enters into its final phase. Take a listen. What has changed in this meeting is the president changed the scope of who's all negotiating. Appoint somebody from the president's team who can work with the speaker's team to see if we could come to an agreement. That is what the decision was made in this meeting. So the structure of how we negotiate has improved. So the Speaker of the House there suggesting that the structure of this negotiation is what changed. There's going to be a key point person on each side who's going to run it on a staff level.

1:52That's different. That might indicate that there's actually some stuff to talk about, and that might indicate that there's some progress about to be made. Remember, the X date is June 1st. That's not for a while yet. We still have to do a lot of brinksmanship getting up to the end of that. But it does give you a sense that there's a formal negotiating structure in place behind the scenes, as you just heard the speaker say. We also heard from Chuck Schumer, the Democratic leader in the Senate. He also talked about some of the things that made him optimistic today. What gave me the most hope, and there were a bunch of things, is that everyone, including the speaker, agreed we need to be bipartisan.

2:26The idea of having a partisan bill we knew would get us nowhere, and everyone freely admitted that. So, Melissa, that might be as optimistic as you can be without an actual deal on the table here. One more interesting behind-the-scenes tidbit on the negotiations. We did hear from the White House today that the president is going to cut his Asia trip short after the G7 on Sunday. He's going to return to Washington to be here on Monday for the final week and a half or so of the negotiations as they really get down to brass tacks next week. So a burst of optimism, a rare thing here in Washington.

2:59Melissa, back over to you. Yep. Eamon, thank you. Eamon Jabbers. I feel like Washington has a different definition of optimism than normal people because to improve the negotiating structure, the fact that President Biden is coming back from an overseas trip. I feel like these things, they need to be bipartisan. These are things that we all knew had to happen in order for any deal to come together. I'm not surprised. I think it's nice that the president's not going to Papua New Guinea and he wants to kind of come home and sign a deal. So but I'll say this again, straight out of central casting on both sides.

3:34Yeah, I'm optimistic, actually. Are you more optimistic based on this? I can only I can only be more optimistic. I am. And the fact that he's cutting his trip short, I think it's a good sign. When Chuck Schumer uses language like that, he's probably trying to be somewhat tempered. So he's probably more enthusiastic than he is. And I'll say this, the gold market today appears as though something's going to get done as well. Gold sort off in a pretty precipitous way. Now, with that said, you saw the late sell-off in the S &P and the HYG, which is interesting and sort of counter to what I just said.

4:08But, yeah, I'm a little more optimistic having heard that. I think both sides live and die by polls. So the American population is getting tired of hearing about this debt ceiling debate. But when you look at it, why would we ever have had a debt ceiling issue anyway? They could always kick it down the road till September 30th. So there should never be a default. That's off the table. Are there crazy people on both sides? Yes. Is this going to happen right now? I don't think so. I think the worst case scenario is they sign it for September 30th, kick the can down the road, and nothing happens.

4:43crisis averted, everyone back to normal. Yeah, it's really hard, though, to kind of see what the market's pricing because it doesn't seem like it's pricing a whole heck of a lot. And I just go back to small caps. And I think about this as if there was like something that doesn't kick the can down the road, even if it's to September 30th, you know, any drawn out situation, any increased volatility, anything that actually makes consumers like think twice about spending or businesses think twice about cap packs and those sorts of things. That is just a surety. One thing that we are all debating is like, is there going to be a recession?

5:11How long will it be if it happens? This would put us in a recession very quickly if there was some sort of prolonged situation that resulted in some sort of near-term default or the government inability to pay their bills. The market's not pricing anything. The only thing that appears to be pricing is small-cap stocks, some sort of disruption or a slowdown in the economy. I think if you look at the VIX, the market isn't pricing anything. If you ask me if our equity market's pricing in a default, I'd say no. But I then look also at the breakout of mega cap tech stocks and where we are in cash levels, that Bank of America fund manager survey.

5:43We've had the biggest move into tech stocks since 2009 over the last two months. That's a market that's defensive. There's no question about it. And so the VIX headlines, we've talked about it, these VIX geeks break it down nicely. You are a VIX geek. That's a compliment. And, you know, there are reasons why volatility is so low. But there's no question that the stock market is not pricing in disaster. And I think that's something that I think is probably appropriate. But the market is pricing in recession. And it is pricing in lower. Sorry. If we were going to default, if that was really on the table, then you have to start investing.

6:19You sell the dollar and you invest international. But I don't think that's going to happen. So you could see the reverse of that. You could see people buying the dollar denominated assets, obviously risk on once again. But if we get close to that hiccup, then you want to be getting out of the dollar because everyone else will be doing the same. I mean, in the meantime, right, big cap tech is almost like the new staples, new utilities in this sort of money market. So, right, exactly. So the fact that we've seen flows over the past couple of months, we continue to see big cap tech and the big cap stocks really do all of the work in the markets, guy.

6:51This really tells you that to Tim's point. It is a defensive market. We are pricing something in. We're not pricing it in a conventional way. We're pricing it for this reality, which is at the flight to these big tech stocks. All great companies. But again, is that a healthy sign for the broader market? We can debate it whether or not these other companies will start to play catch up at some point. But the fact that these have been defensive and valuations have gone up along with it. We talk about it all the time. I'm not suggesting that I'm right. But all the moves in a Microsoft, to a certain extent in Apple, all multiple expansion, which is fine.

7:27I mean, that can continue for a period of time until it doesn't. And then things catch up. I mean, the last couple of quarters for those companies, by their own standards, were not particularly good. The stock reactions have been remarkable. Yeah, the concentration is about as bad as it can get right now. And I'll tell you why. If you look at energy, you look at financials, you look at small caps, we just mentioned, look at other parts of the economy that are very cyclical, this market. and they're saying something very different than five stocks that make up nearly 50 percent of the NASDAQ 100.

7:54And so when you think about all of the risk of the entire stock market has been transformed to these five stocks at a time where plenty of other sectors are telling you there are problems out there, or at least they're pricing in a slowdown in the economy. But when you have a market cap weighted index, you're going to get that. I agree it's expanded dramatically, but usually you have 20 percent of the market in those top five to ten names. Now it's 30%. But you understand what I'm saying is, but all of the concentration. No, I understand. You guys need to understand each other. But all of the risk, though.

8:26And when someone says, do you understand, I have to say this idea. I think I would. Okay, look. All right. Go, Dan, please. No, no. I'm just saying, like, it's about as cute as it's been in a long time. Yes. In five names at a time where we have so many headphones. That's my point. Okay. They did it. I think we could be on all of it. Okay, let's move on. But they split them up. We got to stay here. No, we don't. Now to the other big story of the day. Tesla's annual investor meeting. It's underway right now. The stock is racing higher earlier this year, but now Tesla's spinning its wheels. Shares dropping nearly 18 percent over the past three months.

9:00Beyond the meeting, we are also counting down to the huge Elon Musk exclusive one-on-one with our own David Faber. CNBC's Phil Lebeau has got the latest developments from this meeting today. Phil. Melissa, they have just started the Q &A session of the annual meeting, which is always interesting because that's probably where you get Elon Musk, where he is the most off the cuff, if you will. In fact, somebody just asked him point blank, how are you doing? You've had a lot happening in the last year. And he said, yeah, it's been a little rough. Had to do some open heart surgery on Twitter, but I feel good with Linda Yaccarino taking over there.

9:32That was a comment from just a few minutes ago. Two pieces of news have been made by Elon Musk this afternoon. One of them with regard to his view of the economy and where it's at, where it's headed, and how long until he sees things improving. He's not real optimistic near term. Here's Musk talking about the next 12 months. I expect things to be just at a macroeconomic level difficult for at least the next 12 months. like tesla will get through it and we'll do well and i think we'll see a lot of companies actually go bankrupt that's elon musk talking about the economy and what he expects over the next 12 months he says he believes that tesla shareholders will be better off let's say 12 months to 18 months down the road once they come through this patch that he expects for the entire economy with regard to tesla specifically he did say that the company is planning a couple of new products so there's some news there here's musk talking about what they're planning two new products that i think you will be very excited about

10:47and both the design of the products and the manufacturing techniques are head and shoulders above anything else that is present in industry he did not put a volume on those two new products but he was extremely bullish in saying they will be big sellers in his opinion for tesla at some point in the future melissa we don't know what those products are he said there will be a proper unveiling if you will at some point down the road i'm almost positive one of them is going to be a lower priced car probably something that they can sell in that 25 to 30 thousand dollar range if not a little bit lower likely will be built at the giga mexico which is being built in northern mexico right now as for the other vehicle there has been speculation that we might see a more full-size suv a traditional looking suv at some point but that's elon so far talking about what he expects and like everybody melissa we're looking forward to this interview with David Faber coming up at the top of the hour.

11:47We are. Thank you, Phil. Phil LeBeau, who is, by the way, in-house here at the NASDAQ market site. Again, 6 p.m., that one-on-one David Faber with Elon Musk. Two new products, particularly when we're talking about a more affordable product. Isn't that the holy grail here to get a Tesla car into the hands of everybody? Wasn't that the Model 3? Wasn't that supposed to be the car for the masses? For the masses, but 25 to 30 could be emerging markets, Mr. Emerging Markets. It could be. And this was a classic Elon headline. Very vague, very pronounced and very dramatic. And, you know, I think it's exciting to think about that.

12:26I think the dynamics around the company right now are really people, you know, they're on both sides of this. Where is demand? And again, is this production at any cost and at any margin the right strategy? And I'm sure we're going to hear a lot about that. Margins. That's exactly what does it mean for margins? They talked about it in the fall, they being Tesla, that their margins were coming down, but they wouldn't reach the levels that the Fords and the GMs were. I think 16 percent, something like that number. I think they're below 20 percent or right around 20 percent, which I think alarm bells go off when we get south of that.

12:58And they're trending down to those levels. And this is interesting. I'm not trying to parse every word. But after he said roughly 12 months, the global economy will be better. So anyone who is a long-term investor in Tesla will do extremely well. What happens in the short term, though? I mean, the stock has not traded particularly well for over a year. That bounce over 100 percent notwithstanding. I mean, there's still a$165 stock, significantly lower than its all-time high. So at this level, I mean, this is really the level of support. We start breaking down here meaningfully, and you're probably looking at that 110 level again.

13:34Yeah. Yeah. Well, I was just going to say, I mean, they're really wrong about one thing. They thought that there was going to be this elasticity if they reduce the price of these cars. And what happened is it just destroyed profitability. We saw that, OK, with the margin decline. It was much worse than people expected. That's even with the the IRA credits, that sort of thing. So, I mean, if demand really does fall off and there is a big price war and your point about the Model 2, this really lower end than the Model 3, they're having huge competition issues in places like China, in emerging markets right now.

14:05So to me, I... But all of Latin America. Okay, fine. There's manufacturing there. Maybe. I don't know. I mean, right now, I mean, like, China is the growth engine, right? And so, like, that would take a couple years to get ramped up, wouldn't it? Yeah. Long term, you said, long term. Anyway, let's bring a Tesla Bowl. Gene Munster, managing partner at Deepwater Asset Management. Gene, great to have you with us. How excited are you, if at all, about this, you know, Tesla Model 2 or whatever you want to call it, this lowest-end car that could be unveiled soon? uh scale one to ten uh nine point five uh this is a measurable uh outcome a measurable development we knew what's coming we don't know the timing of it but just to kind of put the context of the conversation and ultimately is there is this is about selling units it's about deliveries and to increase deliveries you need to increase your product line they really have two products right now model y model three they announced today that model y is the best selling non-pickup truck in the U.S.

15:04Non-pickup truck means pickups sell more than the Model Y. That's the F-150. And I think there's an opportunity for Tesla, if you just take the step back here, Cybertruck's going to be coming out next year. That could be nothing. It could be a grand slam. And then you put on that a lower priced vehicle that you're talking about. And then there's this other vehicle. I'm going to guess that it's probably something like a kind of a van, a sprinter like a mercedes sprinter like type of vehicle uh smaller market than the model y but still kind of fills in this product uh gap and they don't update their products very often as they're very different than a typical car maker so i'm optimistic about the long term here based on what's going to be more models coming out and it's uh yes we're in a storm around the economy right now but as soon as these products start coming out i suspect investor optimism related to Tesla is going to shift to being more positive.

15:57Gene, hold on. I want to get to Phil LeBeau again. He's got some more details from the meeting. Phil. It just came out a couple of minutes ago, Melissa. A question from one of the shareholders was basically, why don't you do advertising? If you did advertising, you might be able to reach a larger audience and advance sales and advance the development of electric vehicles. Elon Musk kind of talked about it. He said, yeah, maybe. He goes, hey, I'm open to ideas. We will try advertising. We'll give it a shot. Now, does that mean that we expect a full campaign that you would see from a traditional automaker?

16:31I don't think so. But it is significant, Melissa, because they have never done any type of advertising. Let's see if this is just a comment that is made at an annual meeting or if there's follow through here and we actually do see some form of advertising for Teslas over the next couple of years. Sounds like a comment made by the owner of Twitter, which relies on advertising. Phil, thank you. Phil LeBeau for keeping us posted. Gene, back to this here. Should we think about Tesla now as growth at all costs? I mean, is that the right sort of way that we're looking at it? Because that's what it sounds like, that whatever products they have, they don't really care about the profitability.

17:08They don't care about the margin. They want to get the units out there. That's what you made it sound like, too. Yeah, I think I think Dan was mentioning that earlier on. I agree with that. I think that they are. This is growth at all costs. This is not just an EV story. It's not just a Model 3 and Y. We talked about the other two products that are coming out. They led their investor commentary today to talk about Master Plan 3. There's going to be HVAC. That's a new product. Obviously, FSD, more solar products. And then he said Optimist. And this is the kind of the, I guess, the eye-rolling comment.

17:40I think the head of the eye-rolling comment is that long-term Optimist will create more of the valuation of Tesla. Obviously, this is this robotic that is just in its infancy right now. But all those, when you put this whole piece together, what this is, it's growth. I mean, each of these products are going after big addressable markets. And I would just put that up against, and the debate about investing in this is that put that line up, even if two or three of those hit, put that line up against any other car makers. And I think that Tesla still stands above the rest when it comes to growth opportunities.

18:14It's going to be bumpy, but they're going after such big markets and they got such a good lead. I suspect that the momentum is going to shift more positively in the quarters ahead. Gene, do you think the market has become too fixated on that margin of 20 % because they're so far ahead of the competition? Do you think that's where we should be fixated on the fact that even if it drops to 15%, they're still going to be way ahead of the other carmakers. I think I know your answer. But why do you think the market attached itself to 20? Markets typically looks two, three years out. In the case of Tesla, it's been looking the one quarter, two quarters out, focused on that number.

18:54If that number goes down, let's say it goes at 15 percent number, the stock's going to go down. I'm going to be wrong in the near term. But I think that eventually I think what really separates, And this is what we do at Deepwater is look for persistent growth. These are companies that grow longer for faster. And I think what really the opportunity around Tesla is to lean into whatever the margin is, if it's 8 percent, if it's 2 percent. But if they start capturing some of these markets, they are large and large is an understatement. And I think that eventually the profitability is going to swing back.

19:26And they've shown they can do that in electric vehicles. I think they can do it in energy capture. and eventually, long, long, long shot here, but eventually around optimists and robotics. Gene, thanks. We'll check back with you. Thank you. The shareholder meeting, of course, still underway. We'll keep you posted on any developments. Meantime, coming up, spending slowdown. Home Depot delivering a weak outlook as consumers pull back so could Target and other retailers follow. We've got the details straight ahead. Plus some overseas outperformance. Japanese stocks continuing to rally and hitting their highest levels in 33 years.

19:58Can the climb continue? We'll debate that when Fast Money returns.

20:06Welcome back to Fast Money. Home Depot dropping today after delivering its worst revenue miss in 20 years. The home improvement retailer also saying even high-income homeowners are cutting back on spending. That warning sending Williams-Sonoma and RH shares lower today. Two retailers catering to the higher-end home goods shopper. Target reports before the bell tomorrow, and it might be in an even tougher spot than Home Depot. The retailer is highly reliant on discretionary spending. Only 21 % of its revenues come from groceries. What should we glean from this other than something that we've been saying for a long time, and that is there has been a tremendous pull forward when it comes to these discretionary items, particularly for the home during the pandemic.

20:44How many oven mitts and pillows do you need in your house, Scott? Are you buying oven mitts at Home Depot, by the way? That explains a lot. No, but for like William Sonoma and RH and the higher-end consumer that's buying fancy I don't take as many of their oven mitts as they have to sell me. That's a great-looking oven mitt. You got the small ones. Nice. Not a baby. I'm sorry. Can't even talk. I'll take it from here. So I think in Home Depot's case, no one's had a sweeter spot than Home Depot's had. And if you think about it, again, there's been lumber deflation. So as we're speaking about small mitts, I mean, I think this is something else that I think Home Depot is suffering from.

21:25They were in the perfect space for two years. And I actually don't think these numbers are that bad. If you look at their gross margin, it's still above a 2019 level. Should you be out rushing to buy Home Depot here? No. Was that guy disappointing? Is this shocking for Home Depot? But this is hardly, you know, like, you know, run for the doors. And in fact, their pro business is part of the reason why they're very resilient, because there still are a lot of contractors out there filling a lot of orders. But, you know, it's a sign of the times. We're they're never going to see that again. Home Depot will never see.

21:56And that includes their margin profile. That was it. I've composed myself. Thank you. You're welcome. I thought the stock actually traded OK today on what wound up being a pretty lousy overall tape. I mean, the stock was down four bucks to 75 was still support level. We talked about it should have been worse. The restoration hardware move was really bad. I mean, they took that out to the woodshed. And that is this, you know, on valuation. It's actually cheaper than Home Depot. So I don't know. I mean, I don't think HD traded particularly bad today. Traded a few times normal volume for a trade.

22:27I think you'd be long the stock. Anything that you're going to need a second mortgage to buy, anything that's related on interest rates. When you go to Home Depot, people are putting extensions on their house. They're doing new bathrooms. They're doing new kitchens. If it's a sectional couch, yes, you probably have to finance that, too. But you have to be a little more cautious. If it's a high end product, people who have money might curtail it a little bit, but they're still going to spend it. If you need a second mortgage to buy it, stay away from those stocks. So you're saying you'd rather be in Home Depot even if there's a pullback in spending?

22:58I think Home Depot, I could see those people pulling back because they have to actually take out a loan. So anything that needs a loan, but if you're talking about high-end clothing, I think you could still be there. Yeah, it's interesting. You know, Guy just said he's surprised how well it traded today. I mean, this stock, you know, trades at a market multiple. And I think we can all agree on this desk that we don't think the multiple assigned to the broad market right now is appropriate, given how fast interest rates have come and what we're starting to see is sort of the data from the economy.

23:26When you hear a company like this, I think you said, Mel, it was like the worst revenue miss in 20 years. These are not one quarter sort of things, you know. And so here's a company that's dealing with a hangover from the pandemic. They really benefited from a lot of the dynamics that were going on in the housing market and low rates and all that sort of stuff. And then we think about, again, the conversation we're having at the top of them. You know, you were talking about margin expansion and some of these new staples now, like the biggest companies on the planet who have all these moats. And now they're trading at like 30 times or whatever.