Apple And Alphabet Dip, China Stocks Falter, And Disney’s Whole New World 5/7/25

0:02Live from the Nasdaq market, it's in the heart of New York City's Times Square. This is Fast Powell raising concerns of the dreaded S-word, stagflation. What's on the central bank's radar and how do tariffs factor in? Plus, Google Sinks on a stark warning from Apple. Disney shares surged after surprise subscriber growth and Uber hits the brakes after its latest earnings report. We'll dive into all these trades. I'm Melissa Lee. Come to you live from studio at the NASDAQ. On the desk tonight, Tim Seymour, Steve Grasso, Dan Nathan and Michael Cantopoulos, Deputy Chief Investment Officer at Richard Bernstein Advisors.

0:45Welcome, Michael. We start off with a developing story in the chip space. NVIDIA shares popping in the final minutes of trade, ending the day up 3 percent. It comes on a report that President Trump will end chip export restrictions. Other semi-stocks like Qualcomm, Broadcom, Taiwan Semi all rallying. CNBC's Christina Parts Nevelis has got the details. Christina. Melissa, it's Trump nixing Biden's complicated AI chip rules just days before they were supposed to take effect on May 15th. Markets, like you said, closely watching with NVIDIA, AMD, Oracle initially jumping into the close, but many of them are trading lower and after hours.

1:17But really think of it more as a trade reset instead of Biden's three tier global system, which was criticized for pushing allies closer towards Chinese chips like Huawei. What would instead were likely headed towards targeted country specific restrictions. The Commerce Department told Bloomberg that the old rules, the Biden rules were, quote, overly complex and bad for American innovation. NVIDIA's CEO has been very vocal in imposing these rules. Here he was just last week in DC. We need to accelerate the diffusion of American AI technology around the world. And so the policies and the encouragement from the administration really needs to be behind that.

1:59But don't mistake this for a complete free for all though. Trump's team plans to keep existing China curbs, like requiring licenses to send NVIDIA's H20 chips to China while crafting simpler rules, potentially cracking down on countries like Malaysia and Thailand that allegedly funneled chips to China. The timing, though, isn't coincidental, with Trump heading to the Middle East, where Saudi Arabia and UAE have strongly opposed chip restrictions and would definitely like some type of bilateral chip deal. So this move could really smooth diplomatic waters while positioning the U.S. to maintain tech leadership, Melissa.

2:33So let's be clear about this, Christina. It would, in theory, open up some markets more to chip exports as opposed to what was currently in place. It's just the chip restrictions might be more targeted, like specifically on China. Which is why, yes, 100 % correct. And then that means NVIDIA could be still used as a bargaining chip between country relations. And it's funny how the administration now says that the old rules are complex, but now potentially it could be dealing with 20 to 200 new trade deals, individual ones that would require a lot more work. Yeah, that does not sound easier. Christina, thank you.

3:10Christina, parts Nevelis. But it would mean more chips sold abroad for the likes of an NVIDIA, an AMD, maybe a Broadcom. I don't know. What's your interpretation, Dan? It's confusing. And you could say that there's one word that is most important here is Biden. So this went into effect late in the Biden administration. And here's another thing that went into effect the last year and a half of the Biden administration, the Chips Act, right? So you want to kill AI diffusion, which kind of limits the ability for our best technology to be funneled into China, therefore funneled into their defense and intelligence apparatus.

3:40This is really a matter of national security. On the flip side of that, the Chips Act existed to reshore a lot of chip production or eventually kind of create an ecosystem here to diversify away from China as a matter of national security as it comes to manufacturing. So as far as I'm concerned, this administration's view about all of this, like, advanced technology is clear as mud right now because this doesn't do a whole heck of a lot. And it actually undermines, I think, our positioning for a trade war with China because what is it really all about? It can't just be about trade. It is about national security, too, and re-leveling the playing field as it relates to our advanced technology and not letting them get access to it.

4:20All the other goods may be for various reasons, but when it comes to chips, I mean, national security should in theory be the North Star, which guides all of our policy. And yet here we have a restriction lifted, which sort of, you know, what's going on here? Well, yeah, I'm not sure if this does simplify it. I think this is what Dan's saying. And I think you got a place where also if if some countries are OK and you actually you're on the verge of going to the Middle East, UAE, Saudi, and you're saying we're willing to actually trade with you on chips, which, you know, the simplest form of this is that American technology maybe just shouldn't get out of America.

4:54And I realize that's not an exciting thing. I mean, the flip side of all this is NVIDIA took a five and a half billion dollar charge. We were on the show that night, whatever, three weeks ago. And all that did was kind of remind us of the pressure that's been on semis for a long time. pressure that's coming from export markets being closed off, pressure from just some of the infrastructure to actually even follow through on demand here. So I don't know what this headline really means. I do know the market liked it. And I would get back to where the market was on semis even before this announcement, which is that semis were leading the market back.

5:27If you think about where we are off of those really April 7th intraday lows, but even a day or two before that, semis have outperformed the S &P by almost 9 percent since that time. And if you're looking for market leadership, you want to see the semis move. So, again, whatever you boil down where this is going, I'm not sure we know. We do know that the headline is semi-friendly. Yes. And that is something that is market-friendly. More chips to be sold versus 24 hours ago. But not to China, right? So not to China, not to Russia, not to North Korea. It's definitely positive to the semiconductor.

5:58But just addressing the national security issue, we're not going to be sending them to our enemies. just one and two tier. Right? So all the other countries and our absolute verified allies. So it's a benefit. It's a tailwind. But the problem is the semiconductors rallied because they thought it was a blanket approval. Now it's going to be a qualified approval. So not so fast. All right. We've got some breaking news meantime, sending pharma stocks lower in the after our session. President Trump picking a new Surgeon General nominee. Angelica Peebles has got the details. Angelica. Hey, Mel, that's right.

6:34President Trump is nominating Casey Means to be the Surgeon General. Remember, he pulled his pick earlier today. And this is a big deal because it's really a Maha takeover. You have RFK Jr. now as HHS secretary. You have Casey's brother, Callie, working with him over at HHS. And now, of course, she being the Surgeon General, if that goes through, This would be a total transformation and really sticking to that theme of trying to shake up health care in the United States. She and her brother have talked extensively about chronic disease and how the whole system is corrupt and there's warped incentives.

7:11And that's what's driving health care. So a big deal today, Mel. All right, Angelica, thank you. Angelica Peoples, Maha, of course, standing for Make America Healthy Again, which is a big theme that's really sort of part of the RFK junior takeover of HHS here. But you can see the reaction here. We saw the reaction also yesterday in terms of the replacement for Dr. Peter Marks at the FDA, Dr. Vinay Prasad, and that was negative as well. So it just seems like headline after headline coming out of who is going to head the various health agencies, Tim, a real challenge for pharma stocks, which in theory be sort of defensive in this environment.

7:48They should be defensive. But but if you think about the essence of what at least is being targeted here is is that if the farmers, it's seen that the farming industry has certainly had an inside track to not only keeping competition out, but as a pricing advantages and some of it is corrupt again, which let's go by on some of that, at least some of the the theory and some of the approach they've taken to policy here, then that's obviously going to be negative in terms of pharma. What we've seen also is that the pharma stocks are struggling. Some of the core names you just listed up there are ones that are struggling with loss of exclusivity.

8:18There's an element here that I think there's a you know, it's almost like pushing the companies that are weakest right now in terms of where they have drugs under patent and actually seeing what you can get away with. And I think, you know, unfortunately, I think pharma stocks will be defensive. Remember, we're also in a market where for the last month and a half, actually for the last month or so, it's really been about being offensive off of those lows. But more uncertainty. Yeah. Yeah. I think Tim hit the nail on the head. you know, the last month has really been the comeback trade, right? And healthcare, Staples, you know, they've been, they're the leaders earlier and now they're the laggards as you get the rotation back to the old leadership.

8:54And, you know, listen, I think as you go later into the year, if you have earnings begin to fall, if you go into an earnings recession at some point, if you go, you know, economic growth continues to fall like we saw in the first quarter, you know, healthcare will probably still be one of your leaders. It's kind of like long-term treasuries, right? Nobody wants to touch long-term treasuries at the moment. But if you go into a recession, you can bet your britches long-term treasuries are going to be okay. Healthcare will be the same. All right. Meantime, let's get to the other big story of the day here.

9:22Shares of Alphabet dropping more than 9 % at its lows of the day after Apple executive Eddie Q warned that AI will replace search engines. The comments coming during testimony in the Justice Department's lawsuit against a Google parent. Steve Kovacs got the details here. Steve. Hey there, Melissa. It's not just replacing search with AI. There's another aspect to this. Eddie Q, he's the head of services over at Apple. He was testifying in this trial, and he said on Apple devices, Google searches actually dropped for the first time ever in the month of April. So let me explain why this is important, because the narrative around Google during this whole AI boom was that this is an existential threat to Google, that people are going to start migrating more towards artificial intelligence.

10:03And Eddie Q basically said, yeah, that's kind of what we're seeing here. In fact, we're looking at other partners to play into AI search, to be integrated into iOS, similar to the way they do Google. That would be perplexity or ChatGPT or Anthropic. He named a lot of those by name. And we got two things going on here because Eddie Q is there basically to protect this agreement that Google has that could get blown up in this DOJ case where Google pays up to$20 billion a year straight to Apple for being the default search on iPhones. And that is one of the things that the government is looking at ending.

10:39And so that's free money, up to one fifth of all services revenue coming straight from Google that is at risk here. Eddie Q, by the way, Melissa said, this is the kind of thing that's keeping him up at night, because if this goes away, Apple is going to have to come up with a new solution. Whatever they come up with is just not going to be as lucrative, at least right off the bat. And then on the Google side of things, this is really a test of what they can do with artificial intelligence. They have yet to prove they can monetize artificial intelligence search. They're heavily reliable or reliant, rather, on the traditional search method where you type in, you see all the blue links.

11:14You have to scroll through a bunch of ads. That is slowly chipping away and going away because of artificial intelligence. So we'll see what Google's answer is in a couple weeks here when they have their developers conference, Google I.O., out there in Mountain View, California, to see if they talk a little bit more about how search is evolving to meet these challenges. But right now, this could be one of those moments, Melissa, where we look back and say, this is the day search really started to change. The day of the old blue links, the old paradigm of Google search is going away in favor of AI, Melissa.

11:45All right, Steve, thanks. Steve Kovach, our next guest thinks today actually could mark that historic turning point in sentiment, at least for Alphabet. Ben Reitz is the head of technology research at Mellius Research. Ben has a hold rating on Alphabet. You made the comparison in a previous note, Ben, of Alphabet to Eastman Kodak, which certainly conjures up the worst case scenario. Are we going to look back at today and say this is the day that the market realized that that existential threat that had been talked about for so long is a reality? It could be that day. It really could be. We compared it to Kodak in terms of the innovators dilemma where your eyes saw digital cameras coming and the digital revolution.

12:26It didn't matter if it was really ready for primetime that exact second, but you knew it was coming. And then eventually it caught up with you and the existential threat did come to bore there in the worst way possible. Not going to be really the case for Alphabet because they could break up and they have a lot of great assets. But nonetheless, it does remind us of it. Innovators dilemma. They don't really know what to do. They're experimenting here, experimenting there. Actually, nobody even knows what's going on. The regular search, we think, is being disrupted by AI very clearly, though, and they've got to make a bet soon.

13:00What kind of bet do you think they should make? I mean, do you think that the disruption to regular search is much faster than what everybody is expecting now? I mean, I know that when I use, if I use Gemini instead of a regular search, I don't click on any of the blue links. I don't go to any of the sponsored stuff that I might have gone to before in a traditional search. And I'm imagining that that times however many is the experience for many people. Isn't it amazing? Just common sense in what you said and how many times I caught so much for saying that in my notes. But it's just common sense.

13:33You put an AI summary in even and it demotes links. You times that by a lot. It's got to demote the rate of return of the ads. And, you know, what I really think they need to do is make a bet and they need to say, hey, this is the this is the new way of search. This is how we see it. You know, sort of like what Apple does when they put out the iPhone. This is the new way there's a phone. And they disrupted the iPod and the iPod went away. And, you know, they need to do that. And you say, this is the new search. This is the magic three links instead of 50 links that are useless. And this is the way it's going to look.

14:07It's crisp. It's cool. Here's a new bidding system. This is Google now. And then they have to have Google Classic, which is like a Google search and that has the old ad platform. and people can choose that, maybe people my age and older. But things in this AI age are happening fast. They happen the fastest we've ever seen. And you just don't know. Me personally, I put in my estimates, them getting really hit from search next year and the year after. But then a day later or something, the paid clicks came out in the 10Q. And we saw that paid clicks are already decelerating at Alphabet. And on their conference call, they said everything was great.

14:47And then you realize they increased the cost, the click charge, which we don't think is going to happen forever. If the rate of return on your ads is going down, you're not going to be able to charge more all the time to make up for a weakness in clicks. So I just think it's classic innovator's dilemma. It's a great company. There's probably a lot of people watching it from the company right now saying, we're amazing. But when you have the innovator's dilemma, the best model like Gemini doesn't always win. You have to disrupt yourself and go. Ben, you could probably make the same case for Apple here.

15:21I thought it was really interesting that Apple sold off when these headlines started to hit. And this is a company that's been massively behind the eight ball. When you think about WWDC, when they launched Apple Intelligence, I mean, there was no there there. And so here we are almost a year later, and I say to myself, okay, Google pays$20 billion a year to Apple for exclusive search on Safari, on iPhones. They have$100 billion in revenue in services. 20 % of that is that payment from Google. And you say to yourself, these guys have no strategy right now. When you think about innovators' dilemma, let's apply that to Apple right here.

16:01Well, I think there's a little bit of a different case here with Apple. I mean, when in terms of Google, they basically have to change the main product at the company's search. I don't think you have to change the main product in terms of iPhone. I think people will always need a device to access AI. And the issue with Apple right now is that they created this whole services business, which created the pillar of the multiple. And what we just said in a report today is that if services is damaged, that multiple can come in because the pillar is services. And I think that what, you know, it's about$1.30 a share in terms of if that 20 went away.

16:41Now, what I think Apple can do is they have a lot of things. They can launch new services with AI that people aren't thinking about and charge for it. They can get other forms of traffic acquisition costs and benefits from OpenAI, other players that are going to win, and they can re-up their deal with Google somehow. Now, what everybody's worried about is the judge is going to say, hey, it's over. No more deals with Google, no more revenue in terms of not only upfront payments, but even variable payments. And Apple's going to have to make up for that and make up for that with new services, new arrangements, and new innovations in services that people will pay for.

17:23They have a better chance of doing that and have shown they did that with Apple Pay, Apple TV Plus than you guys may think. So I think putting it in the same bucket in Google is a folly. And, you know, that's what we think. All right. Ben, always great to get your take. Thank you so much. All right. Thank you. Ben Reitz of Milius. So what do you do here with Alphabet? Yeah, I think you sell Alphabet. First of all, Alphabet, the first time they're below 93 % of search, this is since 2015. They haven't been below. They're at 89 and change. But I believe Ben's right. Probably going to fall precipitously from there.

18:01I do agree with them as well on Apple. They're going to have four agreements or three agreements instead of just the one with Google. So they have a way that they could keep their$20 billion per year or maybe more. Google doesn't. Would you sell? No, not here. I feel like we had priced a lot of this in. Today's a big day. We can all decide just, you know, how momentous it will be. I do think it's very clear that we learned today that Google lost some kind of a regional semifinal match or something. In other words, or maybe that's a bad metaphor. I read a note by Steve Fallews. I think they called it a bake-off.

18:34So it's clear that ChatGBT has won an early, at least, beauty contest of sorts. It doesn't mean that Apple and Google still don't see each other as very important partners, both because, again, the financial relationship. I'm sorry. What does the DOJ say? Well, I don't know. And that's obviously what's brought a lot of this out. I think that has something to do with also the heaviness both in Apple and Google over the last week or so. And that's obviously where all this came from. It came from a testimony. And was he planning to say all this today? I don't know. But I do think it's a case where we've priced a lot of this into Google.

19:09I think long term, that relationship with Apple and Google and Gemini chat chat pot is is ultimately something that's still in the driver's seat. We may think it needs to get better, but I'm not so sure that Google has lost here. The heaviness in tech, though, Mike. Yeah, you know, I think this shows the dangers of, you know, investing in momentum mega cap growth, in my view. You know, you've got customer concentration in this particular case and, you know, some of the chip manufacturers case. and listen, when things go bad, right, they go bad, you know, to a large degree. And what worries me about the space in general is that, you know, you already had peaking earnings on the tech sector.

19:50Earnings peaked in the second quarter of 2024, right? And it's hard to imagine when you get headlines like this plus declining earnings, how they necessarily outperform going forward. And, And, you know, that concerns me. Coming up, details from the latest Fed's rate decision, where they are seeing the risks, what it could mean for the markets. That is next, plus earnings around Arm Holdings, Zillow, Carvana, Dutch Bros, Flutter, all in the move after their reports. Details in the numbers from the quarters do not go anywhere. Fast Money is back in two.

20:26Welcome back to Fast Money. stocks riding a roller coaster after the Fed's interest rate decision this afternoon, with the S &P dropping half a percent at its lows. The central bank raising concerns over stagflation, citing a more uncertain economic outlook, as well as a risk of higher unemployment and higher inflation. But major indices all rebounded off their worst levels, with the Dow gaining nearly 300 points. Ten-year Treasury yields, meantime, back below the 4.3 percent mark. Let's get to Steve Leisman, who's got all the headlines out of the Fed today. Hey, Steve. Hey, Melissa. Yeah, Fed officials maintain their holding patterns for monetary policy at that May meeting and suggested they could be on hold for a while longer until the fog from the economic impact of tariffs and other fiscal policies clear up.

21:06The Fed said in its statement that, as Melissa said, the risk of both higher inflation and higher unemployment had risen. That's the stagflation problem. Even while the economy continues to expand at a solid pace, unemployment is stable at a low rate and inflation somewhat elevated. Asked whether there had been any progress on the Fed figuring out which side of the inflation unemployment mandate it would most likely need to address, Fed Chair Powell said, still too early to say. I don't think we can say, you know, which way this will shake out. I think there's a great deal of uncertainty about, for example, where tariff policies are going to settle out.

21:44And also when they do settle out, what will be the implications for the economy, for growth and for employment? I think it's too early to know that. So, I mean, ultimately, we think our policy rate is in a good place to stay as we await further clarity on tariffs. So the market continued to price a July rate cut with some confidence at 70 percent and two more cuts this year, one in September than the other one in December. But that 23 or what is it called there on June, there's a 23 percent probability on a June rate cut. That shows the market hearing the Fed loud and clear. June is still too early to know how monetary policy should be steered amid the profound changes and uncertainty that's coming from President Trump's tariffs.

22:26Melissa? I thought what was sort of interesting was there's a question, I think, surrounding being preemptive. And he said we are not in a situation where we need to be preemptive, as opposed to saying we would not be preemptive. We would wait to see the impact in the data. Well, the problem for the Fed being preemptive is preemptive on which side of the mandate. There was a nice quote from Jason Furman in The New York Times who said, the reason why the Fed needs to be behind the curve is it risks being in front of the wrong curve. Right. And the trouble is the uncertainty. They called it strategic uncertainty.

23:05I call it. I'm not sure if they know what they're doing. But in any event, on the tariffs, Melissa, if you go ahead and you cut interest rates because of the negative impact of tariffs, and then you have a situation where the president makes a deal and withdraws those tariffs, then the Fed could be on the wrong side or it could be on the right side, depending upon what kind of impact of inflation comes through. I think we're just going to have to wait and see. And there's another danger here, Melissa, that is really hard to get your brain around, which is what if you have a reaction first, for example, in the jobs market?

23:37Let's say those jobless claims spike or get them tomorrow morning or the jobs market weakens and inflation stays cool until later when the retailers and the wholesalers pass along the tariffs. So you could be out there addressing the jobs part of the mandate. And only later do you find yourself with an inflation problem. Right. What a pickle. Steve, thanks. It really is. I mean, I thought that was a pretty good word. It's a pickle. Where did that term come from? Being in a pickle. I don't know. Anyway, well, you could probably come up with better things than that. You know, I think we saw today that the Fed truly is a lagging indicator, number one.