Apple’s Momentum Keeps Building… And AI In Focus In Sun Valley 7/10/24

0:03Live from the Nasdaq market today on a day when the S &P and Nasdaq set a closing record yet And again, this is Fast Money. Here's what's on tap tonight. Melting up and down, we've got our eyes on two stocks moving in very different directions, one hitting one record high after another, the other at nearly two-year lows. How to play the names coming up. Plus, high host silver, the mining stocks of five of the last days and hitting their highest level since early June. Can the trade keep on shining? We'll debate that. And we're going live to Sun Valley, Idaho, with LinkedIn co-founder and longtime Democratic donor, Reid Hoffman will get his thoughts on the AI boom and what he has to say about the state of American politics.

0:41I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Karen Feinerman, Dan Nathan and Guy Adami. We start off with Apple adding another 2 percent today to market seventh all time high close in a row. That is its longest streak of record closes since 2012. But even with these big gains, Wall Street remains optimistic on the stock. Needham's Laura Martin upping the firm's price target by$40 to$2.60 a share. She writes that the company's$110 billion stock buyback is a near-term positive, while other companies are forking out similar amounts to pay for generative AI infrastructure.

1:15And Bloomberg reporting today that Apple expects 10 % growth in new iPhone shipments this year on expectations that new AI features can boost demand. The company reportedly aiming to ship at least 90 million iPhone 16 devices in the back half of 2024. But with the stock trailing behind AI darlings like NVIDIA, Alphabet and Microsoft, should investors bet on the continued comeback for Apple and other AI laggards? This is the whole dilemma. Do you trade into the ones that have been underperforming for the year? Guy, what do you say? First of all, I mean, the work you've done this week is remarkable.

1:50I mean, you're the hardest working person at the network. I mean, you're at Squawk Box 6 to 9. I have the next two days off. No, just kidding. I was going to say, what are you going to tell us? I mean, incredible work by you. Look, I would have said at$190 the stock is expensive, and it was at the time. Now at 32 times earnings, which is expensive even by Apple standards, with a company that's going to do 7 % EPS growth, maybe 8 % revenue growth, with margins that have been maybe upticking but flatlining for the last couple years, it's gotten to be a very expensive stock. Now they cite the buyback.

2:20That's great. You know what? Apple's been buying back stock for the last couple years. The number, I think, took people by surprise. But when you break it down, it's probably sort of what they've been doing all along. So you're definitely paying up. The stock is clearly paying catch up. But I can't believe you're chasing the stock at these levels. Corey, if you believe the Bloomberg report, the company is saying, is telling its suppliers, it is expecting to sell more iPhones, more 16s because of AI this year. It's happening already, Dan, if you believe that report. Well, I don't. I mean, a month ago, we were watching this worldwide developers conference.

2:55the stock sold off 2 % that day. And for some reason, first things first, you couldn't give this stock away in April, okay? Like, think about that. So it's up 40 % since then. It's gained a trillion dollars in market cap based on the excitement around something that we have no proof that it's actually going to drive upgrade cycle in iPhones. We have no proof to believe that this is going to be this sort of transformative sort of iOS experience that they're saying. If you think back to what they demonstrated to analysts and basically, you know, investors, whoever the heck it was on that day on June 10th.

3:28I mean, like maybe we're going to get some of these things on iOS, you know, 16 or 18. I think it's 18, you know, at the end of this year. But listen, you know, I mean, have at it. To some extent, though, the whole part of the AI trade is a leap of faith, is a belief that it will be transformative. We don't know a lot of things about AI. We don't know if Microsoft will truly monetize AI. People will pay up for COVID. We don't know a lot of things. And yet there is this assumption that it will happen. So why not for Apple? Especially with, you know, two and a half billion devices out there or a little bit less than that.

4:00And either way, you're going to have a refresh. So I don't think there's any question that WWDC was positive. And I think that the market's interpretation for a couple hours in the afternoon was wrong. And it's wrong not just because the market has said it's wrong, but it's wrong because there's no question that there is some sense of partnerships. and whether it's with ChatGBT, whether it is that they can get the services out now in the current operating system, but ultimately it will inspire people to buy a new iPhone at ASPs that I think will be higher. The stock did nothing for two years. In a market that's moving higher and re-rating on multiple, then why wouldn't Apple do it?

4:37I mean, part of this to me is just that you needed a new horse to drive this rally. And no, not expensive relative to NVIDIA, but obviously, yes. I mean, we sat here on this desk. I certainly sat on this desk and said I don't love the multiple. But I just think that in a world where we don't know exactly where the AI chips are going to land, I do think that Apple's in as good of a place in terms of their control of the consumer. And we see this. We see this with Microsoft and Google falling all over Apple, essentially, to help be part of that conduit. So I think it can continue. It continues in a market which is just going higher.

5:12And we'll get into Fed. We'll get into CPI tomorrow. We'll get into all these things. But when the market's moving higher, Apple has to be a part of it on some level, even though it did nothing for two years. It's certainly it's it's time to step forward. It's such a big part of the market. So, you know, I guess I can't say I'm that surprised. I'm not that surprised either, but I don't think it's I think it's too expensive. Right. I mean, kudos to Gene Munster, who right after WWDC thought that was fantastic. I think this multiple here, remember, a lot of it is hardware, which should get a very different multiple.

5:43And if you look at something like Microsoft, which is also expensive at high 30s multiple, that's a much more, first of all, already seeing, you know, co-pilot revenue. Right. So there's more certainty there than do they need an upgrade. That seems to me actually to be those two prices don't seem to be fair relative to one another. Both seem high to me. But so I've been a skeptic on this on Apple for a long time. That's been the wrong place to be. But. Well, Microsoft is a 70 percent gross margin company. Right. So there's no real hardware to kind of value this thing on. So when you look at the 46 % gross margin that Apple is expected to have and 50 % of their sales comes from hardware, you know what I mean, or more than that, actually.

6:2350 % is iPhone. You know, like if you're playing, would you rather? You know what I mean? Like I think it's probably an easy bet right here. I think the big differential, and this is something I think people came to understand right after WWDC, is that they're not paying OpenAI, right, to have access to chat and GPT. They're going to talk to, you know, Google and try to do the same thing as far as Gemini. They're probably going to talk to Baidu as it relates to China. And, you know, we talked a lot about that right after that. You know, Baidu's actually had a big run over the last couple of weeks.

6:55And that was a name that we said should benefit right that. And I would say that if you can get China iPhone sales moving higher because it's been really stagnant there over the last, I think, two years or so. Well, that would be something, I think, to look at and say, well, that's something that's changing the whole dynamic of this stock. I think part of that Needham call is the implication that they are not spending the money on developing their own AI, and they are getting it from open AI, and they're able to use this money for a buyback. I mean, I know money's, you know, cash is fungible. But the buyback is not accretive, right?

7:29Right, right. So that used to help. Right. But to the extent that they can use the money in some other capacity, maybe that's a smart thing, at least at this stage in the AI race. No, I get it. Roger McNamee was on one of the squawk shows, not your squawk on the street yesterday. And he was citing a Goldman report saying, you know, the hype is probably a little bit excessive right now in AI. And he brought some pretty interesting cases. He spoke to David Faber. David pushed back correctly to do so. But, you know, Roger McNamee, somebody should probably listen to. You don't have to agree with the guy, but you got to say, hmm, maybe he actually is on to something here.

8:01Now, the stocks are on autopilot, clearly, but I think he brings up a good point that maybe that back end, that monetization that you cited. No, I've yet to see the case that proves there's going to be monetization on the backside. I get the spend portion of it, but people have to be able to monetize this on the back end. This was dead money for two and a half years. It was dead money from Jan of 22 in the greatest bull market possibly of all time. So with a little bit of news around WWDC and a little bit of their time to at least shine a little bit of light in terms of what AI means for them, when other companies have probably proportionally taken a lot more out of that trade with less, you know, I don't think it's that big of a deal.

8:42Steve Eisenman, remember, he came on our show and said the refresh cycle. That was well before WWDC. That's true. And, you know, we sat here and we said that makes a lot of sense. So, I mean, I just, you know, the multiple doesn't make sense, but the market's multiple doesn't make sense either. Relative to the market, relative to everything else that's going on for a stock that was dead, that a lot of people, look, I bought Apple at$195 recently. I hadn't owned it for a long time. I kind of felt like there's enough here to actually get behind the stock, and we still don't have to see a whole lot out of them.

9:11I think it continues. All fair points. I think the question, though, now at this point in time, after a trillion dollars in market cap being added is, is this going to be a great trade? Yes, dead money for two and a half years. But if you're in it since June, what a great trade that was. If you're in it from here to the end of the year, is that going to be a great trade again? And just to go back to that Mellius Research note from earlier this week from Ben Reitzis, you know, is it time to move into those laggards? We saw that playbook last year. The second half of last year was a powerful one for the laggards in the first half of the year, like an Intel, an AMD, a Dell.

9:44Is it going to happen this year and Apple would fall in that bucket? I think so. I mean, Intel falls into the bucket, as Ben mentioned. I guess Apple, you could throw it in there, although the run has been pretty extraordinary over the last couple of weeks. I guess, listen, I understand exactly what Tim is saying. It's been dead money for a long time. It's finally starting to play ball. I'll say this as well. You pull up an Apple chart over the last seven or eight years and you will see at least that many 25 to 40 percent peak to trough declines. I mean, we saw one recently, I think, as late as April of this year, where the stock had a pretty significant drawdown.

10:17It's not impervious to market sell offs. It never really has been. All right. Well, while big tech breaks out to new highs, it may be crunch time for Lululemon. The stock is down again today, bringing its losses to 44 percent for the year. And it hit lows dating back to October 2022. BMO's top retail analyst warns the athleisure brand faces a watershed moment. Simeon Siegel follows Lululemon for the firm. He's got a market perform rating and a$384 price target. Simeon, it's always good to see you. I mean, I guess the question is, you know, is this sort of a one-off bad season or is this a more prolonged sort of slump that Lulu is in?

10:51Is the verdict still out or are you ready to make a, you know, decide? Wouldn't it be nice if I just said yes? So I think that's the question. I think you and I have talked about in the past, we've talked about on the show, this notion that brands hit ubiquity levels. Brands become not cool at a certain level. And that level, my team has done phenomenal work on this, so thank you to them. But what we have found is$3 billion in North America is that level. And so companies go above it, and then they come crashing back down. And so Lulu right now at over$6 billion looks much higher. Now, guys are going to come at me and say, well, where's Nike fit on that?

11:25And the answer is there are exceptions. And so we need to figure out, is this an exception? What you look for is whether the sales are eroding, the quality of sales are eroding. Do they have to discount to get those revenues? Last quarter, they did. So let me ask you, we've seen turnaround plays before. I think of Ralph Lauren as one, right, where it surpassed that$3 billion. It's north of$6 billion. The brand was ubiquitous, and it seemed to be sort of tainted somewhat. And yet, they were able to do it. What did they do there that you think Lulu could or won't be able to do? So I'm half glad you're asking me that, half not.

12:01So one thing that we did is. I'm still waiting for Guy to come up with each other. That was a preemptive strike. I got it before he did it. I get it. I would have done the same thing. I got it beforehand. I'm here. So it's$3 billion of sales at retail. So what that means. So these companies report their revenues. But Ralph is a wholesale business. And so if you strip out the business and you add that up, actually it looks different. And so that's really important because I don't really care about what revenues a business recognizes. I care about what level a consumer spends. And so a lot of these businesses, you watch Ralph, you watch Coach, you watch Michael Kors, you watch these businesses go higher with wholesale, which helps.

12:36Lulu doesn't have wholesale to any real extent. But then they actually did come back down. And so part of what Ralph did so well is they appreciated this idea that you can sell less and charge more and make more money. You can raise your price. And we learned this in Econ 101, price elasticity. I can make a lot more money by being more exclusive. We all want to be inclusive. We want to sell to everyone. But the reality is you don't. But, Simeon, so I hear your concerns and you're talking about ubiquity. That sounds like it's almost brand specific because that's what happens to brands. I hear you talking about levels that you and your team have at least determined are where companies run out of gas.

13:11This sounds as much like a macro story as it is a company specific story. I think it's both. I actually think it's a case where I think the macro is just as bad as the specific story. And I think the pull forward from COVID is one of the most extraordinary things we'll ever have seen if you're a company like Lulu, especially in athleisure when Guy sat around at home in his yoga pants and didn't have to really put a suit on until last week. So is it Lulu or is it the consumer? So this is what I love that you guys do so well. You can take a company, strip it down to not what they do and look at the numbers and say, OK, how is that working in a way that other people cannot?

13:48If you look at Lulu's numbers relative to the group, subpar last quarter. It's always been better. Its gross margin dramatically underperformed. And why did it underperform? They marked stuff down. I don't think, I don't cover LVMH. I don't know, I didn't hear them talking about marking stuff down. So there's macro that hurts a lot of people, but what you're watching is relative to the group. If I were to delete the fourth LULU and just showed you the performance, you would look at this and say, well, should I be paying 20 times? Then you would say, going back to your conversation right before about the market multiple, and you say, well, Lulu historically has always traded above.

14:20So that's this give and take. And so what you can come back and say to me is, okay, how was their inventory? And what I would say is their inventory was really clean. And so what retailers do when they make a mistake is they discount, they clean, they start again. That's why we're not ready to make that call. Because what could happen, it could be that Lulu had a mistake. They had a fashion miss. So beyond just macro, they actually had a company-specific miss. Isn't that nice? I get to say those. I'm a retail analyst. That's great. But what about the – I mean, the – The margin is flat for the last two years, and it's a bump from 55 % two years ago up to 58 % or so.

14:52And you look at Nike down there at 46 % or so. And I think it's probably more macro if you think about it. Do you not believe the double-digit expected earnings growth and sales growth with a flat margin next year? Because if you do, then trading at 18 times, you just don't have too many opportunities to buy a company like this that doesn't have a specific issue. If you believe, and this is where that$3 billion number matters, and we've seen so many companies, I've had so many conversations with so many people in different corner offices that say, okay, I get it, I can see it, but it's not relevant to me.

15:25If you believe it's relevant to them, you and I are not going to be seeing this revenue number go up. It's not a question of how much it's going to grow. It's actually going to shrink. The question is when. And if it shrinks, you're at a 23 % EBIT margin that doesn't really exist in retail. That's a very high sales per square. You were talking about Apple before. They have Apple-level sales per square feet. If that goes the other way, that 23 EBIT margin, which is almost double Nike's EBIT margin, starts going the other way, too. I think that's it. I want to clear something up. Tim was projecting, I don't wear yoga pants, number one.

15:55You know this. Tim knows this, but he feels it necessary to bring that up. Great flow by you, by the way. He could have played high school hockey in Minnesota. Here's my question. They reported on, I think, June 5th, their first quarter. Inventories were down, like, almost 15%. Yeah. Against decent sales growth, which suggests that the next quarter margins might actually improve, which might sort of vindicate your call. I don't know about the price target, but at least your thesis. Does that make sense? If the company would have gotten on the conference call and said, we messed up fashion, sorry, and because of that, we took our medicine, marked it all down, and we're clean.

16:33It's good. This is the buying opportunity of a lifetime. They didn't say that. They guided grosses down again. And so if this is the beginning of we just found out Lulu overstretched, then this looks very different. And it's still a$35 billion or so market cap on$10 billion of revenues. Most of the companies I look at don't trade on multiples of revenue like that. So for the first time, they've had some really sort of real competition, right? And this fascinating Aloe and Priory literally being right across the street or next door. How big of a deal is that, you think, to the Lulu story? So, Sinji, because you brought up Ralph before, I pivoted into coaching Capri, and I remember when that first happened, when Michael Coors came out and said, I'm just going to put a store next to every coach, and it was easy and it worked.

17:19Went too far, but it worked. You're seeing that. And so the question is, and this is semantics, and it might just be silly, but I'm not arguing that Al and Viore are taking Lulu's share. What I'm arguing is that Lulu has potentially hit that level where they're no longer who they were to their core audience. That person walks into the store, feels like it's not their Lulu because it's so large you've hit Ubiquiti. They walk out. And by the way, there's two great options sitting across the street. And so I wonder if Alo and Viore's growth is more emblematic of Lulu being too large rather than symptomatic, rather than it's actually taking their share.

17:51It doesn't really matter because we can see their success in a way that hasn't existed before, despite the fact that Lulu's always had competition. They just have never been able to scale up. That may be the macro. It may be the fact that we do and can still wear these pants because if you're not coming to the office or if I'm doing this, if I do your show from home, I can wear those yoga pants below. Or it could just be that there's finally another opportunity and there needs to be because Lulu has gotten too large. I think that's the question we're trying to watch. Simeon, thank you. Always good to see you.

18:19Simeon Siegel of BMO. Great hair. This is on today, by the way, that Jeffries, who's been on top of this, lowered their price target to$220. And I'll say this, and Simeon probably knows, that 263-ish level, the lows we saw in 2022, that is huge support. So there are not a lot of catalysts going forward other than maybe getting buoyed by technical support or a broader market that keeps going higher. But it's clearly a company where competition has become a huge problem for them. All right. We've got a news alert here on Alcoa. Kate Rooney joins us now with the details. Kate. Hey, Melissa. So Alcoa is out right now with some preliminary results.

18:54This is in connection with its acquisition of Illumina. So that's expected to close August 1st. They say Q2 revenue is expected to come in between a range of 2.85 and then 2.9 billion. So a year ago, that number, for some context, was 2.6 billion. So at the low range, it's up about 10 percent. They say it's a sequential increase due to higher average third-party prices for alumina and aluminum. And they say that's partially offset by lower alumina shipments. And then net income as well. This turned positive. It looks like it's expected to turn positive. They're looking for adjusted income per share of between eight and 19 cents a year ago for contacts.

19:33That was a loss of 35 cents for Alcoa. And we're going to get official results on July 16th. The CEO, William Opplinger, saying here in a statement, we had strong preliminary results for the second quarter. He says it reflects strong market improvements. You can see shares up here slightly. Mel, after a hour, back over to you. All right, Kate, thanks. Kate Rooney. Once upon a time, this used to be the first out of the gate, and earnings season used to be a read on the economy. Maybe not so much anymore, but it's still a good occasion. No, and when they spun off essentially the exciting part of the business, especially metals business, this piece of the dirty metal was something that largely has been left for dead, except for that it's not.

20:13It's still one of the biggest aluminum companies in the world. I think this is a space that has a little bit more headwinds, more tied to the industrial production dynamic, and I don't think it gets a lot better, but those numbers are interesting. Coming up, a gloomy forecast in the payment space. why analysts are seeing some clouds forming for Visa and MasterCard and how you should manage the storm next. Plus, we're going live to Sun Valley, Idaho, where AI is taking center stage at the Allen & Company conference, how the top players in the space are handling the tech revolution ahead. Don't go anywhere.

20:40Fast Money is back in two.

20:50Welcome back to Fast Money. Visa and MasterCard taking a hit today after Bank of America downgraded both names to neutral from buy. While the analysts say they remain positive on the business, they see limited upside for both valuations and estimates that are also cutting price targets on each company. So what do we make of this? Regulatory issues. Everybody's going after overcrowding on the long only and the hedge fund. Non-consensus call also. Those things go together. And I thought that was interesting because this was as much of a technical call as it was a valuation call. They said, we love the moat.

21:24We love the competitive landscape that they're in, but it's crowded. It's always been an expensive stock. I mean, since we started talking about this, it's always traded at a premium, and rightly so. Visa, the same thing. It's only recently, and it started in March, where the stock is not kept up with the broader market. And this is typically lower left, upper right. I mean, as steady as she goes, but something has changed. And when you see a stock down as significantly as it is today on the back of that downgrade, But on obviously a broader market that did very well, you have to say, hmm, something's going on here.

21:56The report at the end of the month, I think, maybe valuation finally caught up or maybe something else is going on. Maybe the transactions, which has been their bread and butter, maybe they're slowing down and maybe it's a tell on the consumer. So I think it's been more expensive at other times. Let's say Visa, for example, you know, something is mid-highish 20s. Multiple has been way higher than that. Now, granted, we're in a different rate environment. But so regulatory, I think, is one. The other, is there at some point down the road some sort of threat to their position? Right. We've thought that for a long, long time and then sort of gave up on that.