Apple, Amazon Report Results… And Dow Notches Worst Day of 2024 8/1/24

0:02Live from the Nasdaq market site in the heart of New York City's Times Square on a day when the Dow fell nearly 750 points at its lows, and the Nasdaq shed as much as 3.1%. This is Fast Money. Here's what's on tap tonight on Earnings Palooza. From Apple and Amazon to Intel, Snap and more, we've got some May draft hours action tonight. We're bringing you all the numbers and all the details from the calls. Plus, a rate route yields on the 10-year Treasury hitting their lowest level since early February and giving markets a serious case of whiplash. What's next for investors? We'll look for some answers.

0:33And love for Lilly, the farmer giant, finding another potential use for a ZEP-bound weight loss drug, helping it to snag an elusive gain in today's session. Will the winds keep coming for the company and the stock? We'll debate that. I'm Melissa Lee, coming to you live from Studio B at the NASDAQ. On the desk tonight, Karen Feinerman, Dan Nathan, Guy Adami, and Carter Worth. We start off with that huge slate of earnings, big names on the move in the after-hours trading session. We've got team coverage on the results. Julia Borson standing by on Snap's massive drop. Pippa Stevens is covering Intel's crushing move lower.

1:03Kate Rooney is digging into Amazon's quarter. Shares lower on weak revenue. Disappointing guidance. But we start off with Steve Kovak, who's got the details on Apple's beat on the top and bottom line. Steve. Hey there, Mel. And not just the beat on the top and bottom lines, they return again to top line sales growth. That is one of the big headlines on this report. Let's go over the results here, though. The EPS was a beat, like you said,$1.40. Street was looking for$1.35. Revenue, a beat at$85.78 billion. And that is up 5 % year on year, about where Apple had guided to in last quarter. And iPhone revenue a beat here again.

1:38That is$39.3 billion. And services revenue,$24.21 billion, slightly beating expectations, but up 14%, continuing that double-digit growth in that segment that we've seen over the past few quarters. And then I also got a chance to catch up with CEO Tim Cook about these results. And of course, I focused largely on artificial intelligence and where it plays into the iPhone upgrade cycle. And, of course, capital expenditures, the big theme of earnings season, big tech earnings season this year or this quarter, rather. Let's talk about what he told me on AI spending and CapEx. First on AI spending, telling me, quote, what we've done is we've redeployed a lot of people onto AI that were working on other things.

2:22So basically shifting some talent around. You might remember earlier this year, Apple canceled its car project and moved a lot of that talent over to artificial intelligence, among other things. And then on capital expenditures, Cook telling me, quote, this quarter is an increase year on year in the amount we're spending for AI and Apple intelligence. And then also kind of playing into this AI narrative is what the rollout looks like. So Apple intelligence is launching this fall, but it's only going to be in U.S. English at first. Apple has already said it's not going to launch in the European Union anytime soon because of regulatory concerns.

2:57But a more important market is China. And China has even stricter regulations around artificial intelligence. Here's what Cook told me about that. He said, quote, we're working on exactly what we will do there. And there are definitely regulatory questions there that we have to respond to. And we're working constructively on those. And then I also just talked to him in general about iPhone demand and whether this artificial intelligence is going to drive it. And he basically told me a little too early to tell people usually don't show demand for a new thing until it actually launches. So even though it's been announced, it's going to be a couple more months before it makes its debut and they can get a read on how well it's driving iPhone demand now.

3:38Sound a little cautious there in terms of the driver for an upgrade cycle, Steve. more cautious and more sober than perhaps a lot of Wall Street analysts? Potentially, yeah. Most of the Wall Street thinks that it's going to be a huge upgrade cycle, but right now they're not willing to say anything. But I will note, Mel, the call did just kick off and they usually give a little hint at some forward-looking guidance. So maybe there's some new commentary coming here in the next few minutes that can add some more color to that, Melissa. All right. Steve, thanks. Keep us posted. Steve Kovach. It was a fine quarter, right, Guy?

4:13I mean, it was fun. You know, it's a couple themes. So last night we talked about, if you recall, Facebook, how well they did in Europe. And we had a conversation. And now you look at Apple. I mean, a lot of things stand out. But Europe was up 8.3 percent year over year. I get it. It's not that big a deal. But it's something to watch in terms of if Europe's turning. Greater China, not good, down 6.5 percent. So here's the rub with me. Services are now 28 percent of overall revenue. That's the highest I've seen. It's probably the highest they've been at. I'd much rather be 28 percent off of instead of 5 percent revenue growth year over year, maybe 10 percent.

4:45But you know what? That's maybe splitting hairs. That's a good thing. That's why they deserve it of a premium valuation. However, this much of a premium valuation in this environment, I don't know. I think it's a good quarter. I don't know if it's good enough to move the needle. Karen? I think it's it was fine. A lot a lot to like about it. But the whole story now rests on nothing that happened this quarter, really. Right. So we really have to see. And I don't actually think next quarter we're not going to have much. We got a few weeks maybe of phone sales there. So we may not have a sense. Then we'll get a little bit of a sense.

5:16But so I think this was very good quarter. Perfectly fine. It doesn't really change the story much right here. Not surprised where it's trading. Good enough. Yeah, the narrative, though, you know, from WWDC, which was on June 10th, the stock had, I think, a two-day rally of more than, you know, 12 percent or something like that. I mean, the streak got behind the fact that there's hundreds of millions of iPhones that are going to get upgraded because people want access to this technology. It's only going to work on the 15 Pro and the 16 Pro that is going to be released. It probably doesn't start shipping.

5:47Yeah, but it probably doesn't start shipping, let's say, late October, maybe early November. Remember, there's a Bloomberg story saying that all of it is not going to be rolled out. If some of the stuff that's meant to be on device doesn't go on the device, you're talking about we're not going to get guidance on this and probably till late January or so. Right. And then you think of China. You know, China is very consistent with what we heard from consumers throughout this earnings period. You know, down six percent year over year. It's about 17 and a half percent of their revenues. And I think what Steve mentioned about Tim Cook's comments about China, we've been talking about this for a couple of weeks.

6:22This will not make it by the firewall in China, right? So they're going to have to do some sort of deal with a local, maybe it's Baidu or something like that. And that's going to come under a lot of scrutiny, too. So to me, I don't find it particularly interesting, given the underperformance over the last few years, then the quick, you know, catch up trade based on some fundamental stuff that I just don't think is going to happen until early next year. So basically, no AI catalysts, at least, that we know of until next year. Let me make one other point. So we've been spending a lot of time over the last kind of week or so digesting a lot of this generative AI spend, predominantly for the enterprise, right?

7:00And that's what we're focused on with Microsoft. This is going to be the first real test of consumer. Yeah, we know that OpenAI put their chat bot out there, ChatGPT and stuff like that. But this is going to be the big one because there's hundreds of billions of dollars that have made a bet over the last month or so that this is going to be a consumer success. I think that's an interesting point to make, to think about the AI catalyst not lining up until 2025 for Apple. We might not know anything about that upgrade cycle or anything about their AI rollout until 2025 when they report. Although this is sort of typical Apple, right?

7:35They're not in the business of being first. They're in the business of being the best. And if that happens to be six months from now, so be it for them. All right. Conference call underway right now. We'll keep you posted there. I want to get to our next earnings alert on Amazon. Shares are down by about 5 % right now after the tech giant gave disappointing guidance for the current quarter. The conference call kicking off in about 20-plus minutes. CBC's Kate Rooney's got all the details. Hey, Kate. Hey, Mel. Yes, it was the weaker-than-expected guidance that's really weighing on the shares after hours.

8:01Amazon's revenue outlook for Q3 came up short. AWS, though, that cloud business, was a bright spot, 19 % growth. That was better than expected. It was a key metric. Investors were really watching heading into this print. CFO Brian Olssofsky just had a media call addressing the big tech theme of the week, CapEx. He says for the first half of the year, it was$30.5 billion. And looking ahead to the rest of 2024, they expect capital investments to be, quote, higher in the second half of the year. The majority of that spend is going to be to support the growth needed for AWS infrastructure and AI. He says we continue to see strong demand in generative AI, says they have strong conviction on that CapEx number and says that it's a positive indicator when we step up our CapEx in this area, says it signifies demand.

8:45And then you got operating margins, 9.9 percent. That was a beat. Operating income nearly doubled on the e-commerce side. Margins in North America expanded to 5.6 percent. Advertising, another thing to watch. That disappointed. Growth slowed from to about 20 percent, slowed from the prior quarter. The CFO, though, pointed to prime ad sales. He told me they're going to be seeing an increase over time. He said he was confident about the ad business, despite that slowdown, guys. Back to you. All right, Kate, thank you. Again, the conference call in 20 minutes time gets underway. Karen, what'd you make of this quarter?

9:14I actually thought it was a little better than where it was trading. I think that Amazon has not done a good job. I don't think they try particularly hard to give great guidance. I think they just, who knows? It's an enormous organization. How are you going to know what's going to happen over the next 90 days? So I sort of dismissed that. I think the beat in AWS was probably the single most important thing. So it was about a$300 million beat. I think the advertising was about$200 million light. That seems to be weighing more. I don't really get exactly why since so much of the story is about AWS.

9:46So I thought it was not bad. Yeah, I'll just say this. And again, this goes back to the point I made about consumer demand for this sort of stuff. When you think about AWS, and I agree, it was like a really good quarter. It bottomed out at like 12, 13 percent growth. This was a couple of quarters ago. But this is a company that's not going to get the benefits the way Meta has about the spend that they've done, how they're deploying this across their ad serving and that sort of thing. You could also make the case that Microsoft is in a very similar situation with Copilot and the like. So at some point, Amazon is probably going to overbuild with AWS.

10:20They're going to probably overbuild by buying too many high end chips and the like. And they're probably going to have greater capacity once we see a slowdown in some sort of demand. You know, Microsoft on that quarter earlier in the week, they talked about that being capacity constrained right there. So, again, you know, the jury's still out on this one, but AWS is super important, you know, but it was good. The ad part, I think, is the faster growing business. And it's also a very high margin for them. A much smaller business. Yes, yes. And high growth. But why couldn't they deploy sort of the same mentality that Meta does in terms of employing AI to improve their ad offerings and their ad platforms?

10:56I don't really, they are an AI company. Well, they're not talking about it. So, like, if you think, if it was going well. Well, it would be at 20%. Obviously, it's not going well if they are, right? They're at some sort of behind the game here. Well, we got, the one thing that was really good about Meta was you really got a sense of, okay, wow, they're really turning this into revenue. That was much more clear here. One thing, though, I really want to say, though, the calls are so important. There's so much nuance to be had in the calls that you don't get from just reading the release. Margin's great.

11:26If it was just the quarter, the stock is up probably 6 % or 7%. The guide is scaring people. We have a crack staff in EC. You know this. You go there from time to time. I do. Well, they should put up a chart of the Amazon and go back to like April. They'll go a little farther back, and you will see that this 174-ish level is where we stopped back in April. So the same conversation. Remember the conversation we had about Mike? What's today? Thursday, Tuesday, about Microsoft, about you looking for levels to buy it, not sell it. And it was so to remember that whole thing. Same thing. Same thing.

11:56Let's go to Carter Braxton. Carter, we've got to check in with you on how these charts look to you. Well, since we're on Amazon, let's do it. I mean, the level to cite here is important. Last Thursday, a week ago, we're approaching that low right now. So that low was 176.80. Stock's printing around 174, 175. Now, that's also just slightly below the 150-day moving average. Holding that is very important. Now, hunch as it does, and this is not that big a reaction. Big reactions, we know, are violent up or down. This seems fairly muted. As to Apple, it's literally hunched down a little bit, also fairly muted.

12:35My thinking is there's not a lot of downside on a day-to-day basis in either of these. In fact, it's all a question of whether these are intermediate tops that turn out to be major tops. Can't be determined, but that is the risk. All right. Let's get back to the market sell-off. The big story of the day, markets bouncing off their worst levels late in the day, but the Dow is still sliding almost 500 points. It had been down nearly 750 points at its low. The S &P dropping more than a percent. The tech heavy NASDAQ down more than 2 percent. And the Russell seeing the biggest losses down just over 3 percent.

13:07Benchmark 10-year Treasury broke below the key 4 percent level the first time it's been that low since February. The move comes after a slew of weak economic numbers today. Weekly jobless claims jumping today ahead of tomorrow's jobs report. Highest level since August of last year. And the ISM manufacturing index unexpectedly fell to its lowest level since November. Did this spark new fears of a potential recession? Of course, we're coming off the Fed meeting yesterday where they did seem to tip their hand in terms of the risks to the employment picture, not just the inflation picture. As they should.

13:38And I'm not I say it all the time. I'm not humorless enough nor smart enough to be an economist. I'll throw that out there. But with that said, we had an interesting conversation last night about lower rates and what it would mean. And Carter talks about this a lot. Be careful what you wish for. At a certain point, rates going lower will not be good for the market. And I think for the first time in a long time, the bad news that we got and don't pretend it was bad news on the economic front was actually bad news for the market. The bond market is saying and rates are not going lower because this war on inflation is won by any stretch.

14:09It's going lower because the economy is slowing down. And I think the market, at least today, it's a snapshot of what you could see. How did you how did you read that move below four percent? Yeah, I mean, I asked a question to Guy last night about that, and I think he was spot on in its answer. I know we didn't get the 25 basis points yesterday, but we got as much certainty as we're going to get from Powell. Right. He always wants to leave an exit door. Right. If he needs to use it. So I thought the data was somewhat mixed to negative. Some of it's noisy and some of the revisions make that moves a little less bad.

14:41But it's slowing. It's definitely slowing. So I think that we still have very good growth, but the concerns about the consumer are real. And so I think it's not it's not surprising the market's down. Yeah, I'd be surprised when we get to Jackson Hole in a few weeks here. If Fed Chair Powell actually speaks to a slowing economy, I think they're probably you know, that's not the narrative that they want. They want to kind of get in a mode where they've done what they needed to do with inflation. Right. Without too many hiccups along the way. And if you think about it, I mean, for all intents and purposes, it has, you know, GDP surprise to the upside last quarter.

15:17You talk about the R word recession. I mean, you would need a material slowdown, you know, quarter over quarter to get that. As it relates to the stock market, you know, it's interesting. Last year, it topped out on July 18th, and it went down about 10.5 % to the October low. Since then, we've rallied about 38 % to the recent highs. You know when those highs were? July 16th. And you think about the narrative in and around earnings for this Q2 period and the guidance that we've seen. I would say year over year, it's much worse from the stuff that we've heard about the consumer. You just talked about that PMI that's moved into contraction.

15:52So I think of the stock market down 4.5 % from those recent highs. I see the reaction, the volatility that we're getting. Think about NVIDIA. Three days ago, it was down 7.5%. Then it was up 12%. Today, it was down at 1.8%. And, you know, Guy and I were talking about this earlier. That's not, and Carter actually made this point to us earlier, that's not the sort of price action you would expect down 4.5 % of something that's about to bottom. It would almost say to me, and Carter's actually made this. I don't know if we're going to go back to him. And I'm just using all his best talking points.

16:19Oh, he's here. He's still in the room. All right. But he said on so many occasions, Carter, I'm going to hand it off to you. When we go down 5%, usually it does something more. And I'm going to say, go get him, buddy. OK. Here we go. Ready? So there's an adage that I committed to memory from a teacher and mentor. A sharp indecision is resolved sharply. Now, what we're seeing, of course, is this violence up 2%, down 2%. If you're in a protracted bear market, volatility or variability is quite calm. You're just declining. If you're in a protracted bull market, it's at moments of transition that volatility really picks up.

16:54So typically, at a major market bottom, there's a debate. Is this real, this 09 bottom? Or is it still Bear Stearns is gone, Lehman's gone, who's next? Or is it not real? And at market top. So volatility is extreme at market turning points. Now, that would argue that perhaps this is a turning point. Or said differently, it happens at market bottoms or market tops. If this is a market bottom we've been going on for 10 years, that would be weird. Carter, two questions, not in this order. Where are you in front of? And then the other question is, if you were to just look at a chart of volatility, what would you say about where you think volatility is going?

17:34Sure. So a high school classmate at boarding school painted the painting and had a long time, amount, as to the volatility. Vince, you know, I can only speak to the fact that it's mean reverting and that it does spike, but it always gives ground. Is volatility as measured by the VIX low? Historically, yes. Are the implications that volatility is going to increase and the VIX will go higher? Yes. Okay. So I just want to back up to your statement that this would be weird if this were a market bottom, and that implies that you see more downside ahead. Is that correct? That's a bottom line. Sure, let's talk about that, right?

18:11Because if you think about when you're transitioning, right, when something is, think about we're in the throes of a relationship that's ending or that's starting, whether it's a job or with a person. There's great volatility, unknowns. I'm in, I'm out. It's working. It's not working. So think about that concept. There's sharpened decision. A lot of people are saying, no, no, AI is good. It's early stages. This is going to go on forever. Other people say, they said that about dot com. This is crazy. This is the end. There won't be a result. But if you look at industrial commodities, they are collapsing.

18:42Copper, zinc, nickel. Interest rates are literally freefall. The notion of a soft landing seems a little misguided. My hunch is that you can call this volatility symptomatic of a transition. And again, great volatility happens at important lows or important highs. We have been essentially going up year after year after year since 2009, with the exception of a few blips like the COVID blip. Right. You mentioned the industrial metals and, of course, gold on the flip side. New high today. Guy, I know you noticed that. Yes. And that is going to continue. And I think Carter agrees with that as well.

19:21And quickly, Karen's a bit of an art aficionado. That looks to me, you can correct me, a Francisco Goya painting behind Carter Worth. if you were to go and look at some of his works. For example, Saturn devouring his son. Very eerily reminiscent, number one. Number two, have you been watching the Olympics by any chance? Oh, I have. Katie Ledecky. Oh, my God. Unbelievable, right? Unbelievable. She's in Paris, but we have our own Katie. That would be, of course, Katie Stockton, who about a month and a half or so ago, if you recall what you do, said, remember, she said volatility is going to start to move to the upside in a meaningful way.

19:58That proved prescient. What about our big short guys who were on last week? They said make volatility great again. I just want to say, maybe they can pull up a few-year chart of the S &P 500 really quickly. I don't know if they can do a 200-day moving average. I stole a lot of good stuff from Carter. I'm going to steal this a little bit. Last summer, you know, that high in early 2022 was 49.50 in the S &P 500. The breakout late last year, early this year, obviously above those sorts of levels. The rising 200-day moving average is about 5 ,000 from those recent highs. if you got down to that 200-day moving average, that gets you about 11%.

20:31That was the drawdown that we saw last year from late July into late October. And that makes perfect sense if we do have a slight sentiment shift here. If people are reevaluating. Here's the other thing. Earnings estimates, this is a perfect set, are still expected to be up 11 % this year and up nearly 14.5 % next year. That seems very high when you see the sort of data that we're getting right now. And if unemployment goes the direction the guy is suggesting, I mean, I think those numbers are probably too high, which makes the S &P at about 20 and a half times, 21 times, probably too expensive.

21:04These after hours moves are worth tracking as well. Apple is now down by about 2 percent on its earnings report. Amazon is still down 5 percent. And take a look at Intel. This is one we want to get to. It is down 18 and a half percent after a top and bottom line miss. The chip giant also suspending its dividend, suspending its dividend to preserve capital. That's never a good sign. Pippa Stevens got all the details. Hey, Pippa. Hey, Melissa, well, that dividend suspension starting in Q4 is part of a cost-saving measure, with Intel outlining a$10 billion cost reduction plan, which includes a more than 15 % reduction in workforce, the majority of which will be completed by the end of this year.

21:41Now, the Q2 miss driven not by PCs, but by the data center and AI unit, with Q3 guidance also missing estimates. The call kicking off just now with CEO Pat Gelsinger calling the Q2 profitability disappointing right off the bat. But he did say that the tradeoff to drive the AIPC category, despite the pressure on margins, was worth it. He also called the ongoing job cuts necessary decisions and said that even with lower overall spending, the company will continue to fund the investments needed to drive its strategy. Now, the company guided Q3 adjusted gross margin of 38 percent compared to the 45.9 percent that analysts were looking for.

22:18That stocked down nearly 19 percent here after hours. Melissa? Pippa, thank you. Pippa Stevens. If it opens here, it's an 11-year low in the stock. Just when you think it can't get any worse, it gets worse. They announced layoffs last year. Another round of layoffs. Semiconductors, I thought, it's a new oil, right? I mean, that's like the one sector everybody should be in is semiconductors. Intel makes semiconductors, right? And this is the national semiconductor. National semiconductor. It is our native semiconductor manufacturer that's getting money from the United States government. And you think they'll be hiring people in this environment.