Bank Stocks Rebound From Tuesday’s Losses in a Big Way, and What Does Alphabet Have to Do to Win in AI? 2/15/24

0:01Live from the NASDAQ market site on a day where the S &P500 close at a fresh record high. This is fast money. Here's what's on tap tonight searching for a winner. As the AI battle heats up, is a king of search in danger of being dethroned. Alphabet stock now acting like rival. Microsoft could really overtake it in this new AI arms race. Plus, high-tech Halo. Just how many companies is NVIDIA investing in and funding? And what impact is it having on the chip giant's bottom line? We'll break down the ripple effects inside and outside NVIDIA. And later, down on the farm, inside Deere's tough quarter, charting the big rebound in small caps.

0:34And is China now so bad it could be good? The surprising take from our traders. I'm Melissa Leigh County live from Studio B at the NASDAQ on the desk tonight. Tim Seymour, Chris Verone, Dan Nathan, and Guy Adami. We will drill down on Alphabet's bad day in the AI arms race in a minute, but we begin with the rebound in banks and the real estate sector. J.P. Morgan closing at an all-time high with other big banks like Wells Fargo soaring to a 52-week high. The regionals also rebounding, the KRE up more than 3 % today. And even New York Community Bank Corp showing signs of life closing up more than 6%.

1:066%. Real estate also heating up. Check out the gains in names like CBRE, Equinix, Boston Properties, and Alexandria. So why this big turnaround? What has really changed for these sectors so tied to rates? I mean, nothing as far as I know compared to yesterday. No, I can't figure this out either, but obviously a tremendous run. And maybe it's a valuation thing. Maybe people say, you know what, I don't got the risk curve in terms of technology. Banks make sense here. All clear. Maybe you got that sell-off out of the way on Tuesday. Here we are today. But, you know, the XLF is now within a hair of the all-time high.

1:38I think it made in January of 2022, 41 and changed. More importantly, though, and you mentioned some of these regionals, I'll say this. IWM, the Russell, is right at huge resistance level. I'm sure Chris has thoughts on that. But, you know, 205 had been resistance for a while. We traded down to 190. Here we are back again. If these regional banks are sort of out of trouble, which I don't think they are, IWM here is pretty interesting. Yeah, you know, Guy, you can't talk about IWM without talking about banks. It's the largest weight in the IWM. And this looks ready to go. We'll talk about it more later in the show, but very, very much poised to break out here.

2:12I think when you look at the regionals and the real estate names in particular, we had put out a note earlier this week just talking about, hey, these are oversold. They're in uptrends. All this fears about commercial real estate, regional banks, that was kind of last year's worry, not really this year's worry. So let's not over-respond to this. I thought what was very interesting over the last few weeks is they sold off. Credit conditions really never deteriorated. So if you look at financial high yield spreads, they did not widen. We thought they were oversold. You buy that condition. I think the new high in Wells Fargo is particularly interesting.

2:41Is that really what you do? We just had an analyst on from Jannie Montgomery earlier this week, Chris Maranac, and we talked to him about regionals and we talked about delinquency rates and when they typically peak in relationship to the economic cycle. He said he expects it to be a second half 2025 story. If we're going to see this rate tick higher, so more trouble for commercial real estate, potentially for regionals, is this the time you want to buy these? Well, this has been the delayed kind of dynamic of where leases are still pretty decent, where some of these I.O. loans that some of these big real estate CREs actually have exposure to still have a little bit of time to roll off.

3:14It's interesting. This all happens on a day when the Fed announced their June stress test dynamics. And again, those banks like New York Community Bank, which is now over 100 billion and is exposed to a lot of the more stringent dynamics. It's just interesting. It's I would say this wasn't really about the banks. I would because Chris is talking about it. I'd say this was like the revenge of the four ninety three day. I mean, it really felt like the rest of the market and it felt like the rest of the market, especially when I see energy rallying. I look at industrials, XLIs making fresh all time highs.

3:42This is a case where such underperformance, it's all happening on a day when there was a fair amount of macro out. That was if you wanted to have a glass half empty on that macro, you could have. It was weaker retail sales. There were revisions from some of the strength of the fourth quarter. You had import prices that showed at least a lessening deflationary trend. I'm not saying that they were inflationary numbers, but we're having less deflation. You had dynamics on industrial production we know are bad. So I think the market got a chance to look at the broader economy and say things are pretty decent here and yet not run away in a place where the Fed has to do a whole lot of anything.

4:18Nothing is good for equities. Yeah, pretty decent. But like for the banks in particular, you know, like on Tuesday, maybe it sounded kind of glib. You know, this was CPI Day as our final call. You know, I said, listen, if higher for longer is a thing, you know, the last time we were at 4.2 percent in the 10 year, you know, the S &P was much lower. Banks were much lower. And I said, listen, I wouldn't be buying the banks right here. Look at this performance today. We can't really put our finger on what that is. If you look at yields, they're down just a little bit. I don't think people are buying banks, you know, for outperformance right now.

4:50You know, you can say that things feel fine, and they do. I mean, like they're screaming fine for all intents and purposes. I worry about CRE. I worry about some of these regional banks and some of the exposure there. I worry about this concentration and this now the competitive nature within private credit that the banks are getting in the game. We're not done yet here, people. So when I look at a day like today and seeing Wells Fargo up 7%, I see JP Morgan breaking out to new highs, I see some of these money center banks that we know have issues with their mark-to-market, held-to-security portfolios as rates move higher, I don't get why you'd be buying them here.

5:22Dan, maybe it's the markets saying, hey, rates might not go higher here. Let's explore that for a second because when you look at the groups, particularly within small caps that are leading here, small cap biotech, small cap software, Those are groups that don't do well when rates go up, yet they're leading right now. So I think the message of the market, I mean, even look at the home builders. They've held up well here. Isn't that the base case scenario that rates are not going to go higher? It's just a matter of if they stay the same or go lower? I think the market leadership, the fabric of the leadership is telling us rates flat to down is the most likely path from here.

5:52I think that's why you're getting this oversold response in the banks. I think, Tim, you made a great point. Look at today's price action. On a weak retail sales number, discretionary staples were evenly matched, right? There was no advantage to getting defensive or owning the consumer anti-cyclicals. You had a very cyclical response to it. Well, I think that's what's interesting because we've had plenty of opportunities for some of these 493 to rally over the last month, and they have not. And I think the point is made that on weaker to lower or lower to flat rates, you have a great backdrop for the MAG-7.

6:26I guess we are still doing it. No, I'm not. I'm not refused. As do I. But I'll say this. Tim mentioned energy. Think about this. The XLE is hung in like a champ on a backdrop where 50 percent of that ETF are three stocks, Exxon, Chevron and ConocoPhillips, who have not performed. It's getting dragged up by names like Valero, PSX, Marathon, Pioneer to a certain extent. If Exxon and the other two start to get on their horse, the XLE, I think, makes a new high through probably 100 or so. And I still like energy here, as does Tim, I'm sure. All right, let's get to one notable laggard amongst the big cap tech stocks today.

7:01Shares of Google parent Alphabet sinking over 2 percent, far underperforming both mega cap tech and the broader market and hasn't just been a one day thing. This year, Alphabet is basically flat, while AI rival Microsoft is up over 8 percent. There's more reason to believe the tech giant is losing ground in the AI race. Reports today that OpenAI is developing a web search product in conjunction with Microsoft's Bing engine that could rival Google. And even Apple is making some strides with Bloomberg reporting the company is preparing to launch a competitor to Microsoft's co-pilot, GitHub co-pilot, I should say.

7:32That stock taking a leg higher in just the last few minutes of the trading day today. So what does Alphabet have to do to convince us that it is a true AI play? And I know that we're going to say over the past 12 months, the performance of Alphabet versus Microsoft are virtually neck to neck. But there seems to be a growing disparity between the two as sort of the people play around with sort of the AI offerings and start to digest how these are going to be taken up by consumers. Yeah. And I probably when we're having that conversation said, I don't think Google's performance has been that bad.

8:03You know, for the last 11 months, it's actually outperformed the Nasdaq a bit. It's been kind of dead money for six months relative to those those other big fellas in there. So I guess the question is, does Google need to prove their prowess in AI or is it that Microsoft, NVIDIA, obviously, and Meta have been the ones that have proved their prowess? I mean, has anybody else really proven AMD, obviously, to a lesser extent, other chip companies? But that's my view on Google right now. My view on Google on valuation. I'm not worried about Bing taking over their search. I like the trends in the macro, the cyclicality of their ad business.

8:35Pretty solid. Yeah. So the question you ask is, what do they have to do? They have to build a better mousetrap. They've been talking about as being an AI first company for a very long time now. And we assume that they've been spending billions and billions of dollars in R &D on machine learning that was going to lead to these sorts of technologies that can be integrated across. They have nine platforms with over a billion users. They have like four or five with over two and a half billion users, that sort of thing. So when I think about this space, I say, OK, well, we know how Google got to where they are, digital ads and search.

9:05They need to build something as ubiquitous for how people use search, how they interact with it. To Google something. They need to do that. They need to do that. That needs to be an advancement of what they've already been able to do in this market share they've been able to gain. And every perception that Microsoft and also OpenAI or other upstarts like a perplexity or something like that have is going to be a knock on Google. It's going to keep it below a market multiple. This stock is below a market multiple. When we spend a lot of time talking about Microsoft at 35 times, which none of us can remember, at some point, if they do have a better product, they converge a bit in valuation-wise.

9:43Technicals matter as well. I mean, if you go back to December, yeah, Chris is nodding his head, because you go back and look, December of 21, where we traded up to, look at the run we've had over the last year and a half, two years. Just got us right back to those levels we saw basically three or so years ago. That's problematic that it does trade at a market multiple. The market's not giving them anywhere near what a Microsoft or an Apple or an – well, clearly, NVIDIA would trade at. They're saying, you know what, this is what you're worth right now. And if that's the case with a market multiple against these technicals, that's problematic.

10:13I think, God, to that point, look at when the stock peaked relative to the S &P, actually the day the market bottomed back in October. So the fact it's underperformed since then is almost the market saying, hey, this is not an offensive name within tech anymore. This is more of a defensive name within tech. And think about the price action since the earnings. We were 155 before earnings. We printed 136 the next day. We tried to rally and make a new high, failed at 150, and we're kind of right back to that 140, 135 level. I think if you give up the earnings low, it was 136.50 on the 31st of January.

10:43It's a problem for the stock. All right, so we wanted to see how these chat bots really stacked up, all three of them. I know I didn't. Chat GPT, Google's Gemini Advanced, as well as perplexity. So we asked Dan to give it a test drive. Take a look. All right, it's not all fast money all the time. I'm going to Las Vegas. I'm going to see you two at the Sphere. Here we go. Chat GPT4. How do I get from the win Las Vegas to the Sphere? Let's go over to Gemini Advance. I'm going to ask it the same question here. And while we're doing that, let's do it on perplexity also. All right, Chat GPT4. It's still going.

11:20It's giving me a whole list of things. Taxi, rideshare, public transportation, walker, scooter. Let's go over to Advance. Gemini here from the alphabet. here. It's already done. It's got a Google map of the sphere. It's got directions. Very easy to send to my iPhone there. And lastly, perplexity. Oh, man, it just gives me a narrative and a bunch of sources here. Not particularly helpful. ChatGPT4. Oh, it's done now. There's no maps. There's no directions. A bunch of links and stuff like that to do. I'm going with the Google Gemini Advanced. That surprised me. Were you surprised? Well, we tried a bunch of different things.

11:59And, you know, it's interesting. I think it's going to be different things for different people. And these things are going to get better. They're going to learn. But I think the one takeaway for anybody who's messing around with these sorts of things, it's going to take human verification, especially if it's mission critical sort of information. The last point I'll just make is I don't have a single Microsoft product, right? So the idea that I would subscribe to CoPilot or, you know, GPT-4 is kind of a different thing. That's more of an open AI thing. It's not particularly likely. So I am more inclined to use a Google product because we've all been trained to go to Google search and that sort of thing.

12:30So again, it comes back to if they can build a mousetrap that's maybe just as good as the other ones, I think they're going to have a lot of us folks who are not on the Microsoft Enterprise products. And maybe that gives the advantage to a consumer-facing company like a Google. You have Gmail, I assume. All of us probably have Gmail of some sort. I mean, you assume. You know. You still have AOL. You have AOL. Not that there's anything wrong with AOL. No, clearly not. My page? Not. But anyway. Hotmail. or even but that also begs the question of Apple. And if Apple came out with something, how many people are in the Apple ecosystem?

13:04How easy would it be for you to just say, you know what, I'm on out. I got my iPhone. I got my Mac and I'm just going to go with the Apple product. I think that's fair. I'm surprised Dan didn't have a couple other stops on his way to the sphere mapped out. But I will leave that for another show. My wife really go. But I do love his call on dynamic of I'm Google's my right in my wheelhouse. Every time I'm looking to do something, This is what I think to do. You know, I've seen on Microsoft software all day long. And I do think that when I'm on the move, I'm not thinking about Microsoft. But when I'm at the desk, I am thinking through Microsoft.

13:38So it's a fair point. The mousetrap that needs to be built right now, I still think that the bar not in the market because we've seen that the bar is very high. I think the bar in the consumer land is actually still quite low. People don't know what they're supposed to have. Have you tried any of these? We tried some of them to kind of work through some of our process, looking at charts, trying to find patterns. Like how does a chart for NVIDIA look? What does it say? What is seasonality like this time of year for this stock or that stock? I would say it's 70 % of the way they are, but you've got to check it.

14:10Human verification. One last point here. So you started this conversation with Apple. Apple should buy perplexity tomorrow. Like have this, you know what I mean, this large language model built in. And I actually think the regulators would let them do it. If you think about the arms race that's going on between Microsoft, between Google, between Amazon, right, between OpenAI and Anthropic and some of the cash that these companies have, what Elon Musk wants to do with XAI, Apple should be in that game. Perplexity is like pocket change for Apple. It would be pocket change. And I actually – A value to$500 million or so.

14:41But shouldn't Apple – we have to assume based upon what they haven't bought in the past, too, that they've been at work at this a long time. I know Siri's awful, by the way. I should say, Siri, do you know you're awful? OK, well, she's not talking to me right now. She knows it's a family show. She doesn't want to really give you the full response. There's no question. Apple is in the game to me. And I would be surprised if they made a major purchase, even though it's not major market cap. All right, let's get to an earnings alert now. And Coinbase shares are higher after hours. The company reporting a beat on the top and the bottom line.

15:12Kate Rooney's got the details. Hey, Kate. Hey, Melissa. So Coinbase reported a surprise profit. Thanks to soaring trading volume in the quarter, Bitcoin markets recovered in the fourth quarter. That was a big help. also helped by higher interest income. It earns interest on assets in this partnership it has with Circle. That was up 17 percent. As far as interest income, the company brought in$1.04 on EPS. That was compared to a loss of$2.46 a year ago. Trading volume almost doubled from the prior quarter. Coinbase still very much tied to volatile crypto markets, which could be a good thing in a bull run with Bitcoin topping$52 ,000 this week.

15:47Here's what Coinbase's CFO said earlier on Closing Bell. We've always said that crypto is a volatile space. And when we see increases in volatility, it has long attracted more trading volume to our platform. And that's exactly what we saw in the late fourth quarter. Subscription and services revenue, which is a little more consistent and predictable. That beat Coinbase said in press release as well that they gained market share, but they did not disclose a monthly user number yet that might come later in the 10K. Also, the take rate, that fell almost 1 % from the prior quarter. they're seeing a higher mix of professional traders, which tend to do more volume, but at a lower fee, guys.

16:25Back over to you, Mel. Kate, thanks. Kate Rooney. We've talked about this crazy recent run in Coinbase, and here it is up another 11%. Chris, I'm curious, does the chart look sustainable in your view? Well, I certainly think it behaves as a stock and a very established uptrend should behave. Remember, it's only a month ago. We're talking about a 40 % correction. All it did was bring it back to the 200-day moving average. That correction was coincident with the launch of the ETF. It was kind of the sell the news type of event. We didn't even kiss the 200-day. We were there for an hour and now right back to the highs.

16:57Good charts in uptrends don't even give you a chance to buy them when they're oversold. They go right back to the highs. It's exactly what we've seen here. I think you continue to carry on. As someone that's long into this number, expected a lot of volatility and thought we could see it to the downside and was still going to be OK with it. We've talked this week about the growing addressable market, the size of the trillion-dollar Bitcoin market. Like it plays into Coinbase's hands. I understand there's a lot of competition. There are ETFs. But this is the right playbook until that entire asset class starts pulling back.

17:26At the end of December, we traded up like 180 and change. Failed to Chris's point. That's the same level, by the way, that we broke down from in March of 2022. So to Chris's point, I think Tim is hoping this. Close above 186. You're an entirely new trading range to the upside. Coming up, dear downer. The industrial titan dropping on disappointing guidance before the bell. The numbers that scared the street next. Plus, DraftKings shares on the move after the sports betting giant posted a surprise loss for the quarter. We'll debate whether the company can keep its crown as competition in the space heats up right after this.

17:59This is Fast Money with Melissa Lee right here on CNBC.

18:11Welcome back to Fast Money. We've got a buzzkill on Deere. Shares falling today after the company cut its full year profit guidance. That did beat earnings and revenue estimates for its most recent quarter, but said high borrowing costs are hurting demand and that fleet replenishment will moderate from record levels in 22 and 23. Shares down more than 5 percent. Their worst day since August. They can't raise prices anymore either, Guy. Guy and lower, not good. Inventory build we talked about a couple of quarters ago. There are no such thing as triple tops. People say, well, take a look at a long-term deer chart, because quite frankly, here's a classic example of a triple chop going back three or so years.

18:45We can't get through 435 for whatever reason. People will look at valuation and say it's reasonable truth unless they start guiding down like they are. Then all of a sudden becomes expensive. So you're a pretty critical support level right here at 360. Breaks 360. I think it has another 15%, 20%. Yeah, I think that's right, Guy. And remember, it's another example of why we don't own the laggards in good groups. own the leading issues in the best groups. Deer hasn't been that for two years. I think what's also notable here, though, the weakness in Deer today did not spread to the rest of the sector.

19:16I mean, industrials, Tim's point earlier, have been leadership for a year. I think they remain leadership here. They didn't hit Cat today. They didn't hit Emerson today. So look to that still as kind of the cornerstone of the leadership of this market. Deer not infecting anything else. You know, it's a good point. I mean, like, it's really kind of hard to find. Like, you know, one-off source, we spent a lot of time talking about Boeing, horrible chart. You know, some of These autos have gotten better. If you look at that XLI, I mean, it looks like they are using AI or whatever. I mean, it seems like one of these kind of bull market trades.

19:44So there's a lot of sectors that are acting a lot better at this stage of the game, confirming, I guess, what the broader market's doing also. The mix is different for Deere, too, though. I mean, be more leveraged to farm. Agricultural crops are terrible in terms of price. Farm income is supposed to go down next year, according to the ag department. So the fundamentals for that sector is not good. Look, I understand, by the way, price is not linear to valuation. So one price. But but this was one hundred and eighty dollar stock before COVID. Their business didn't change that much. Why did it change that much?

20:15It's because money became more free than ever. And if you listen to what I heard today was demand is is is a function of higher rates. And at some point there are a lot of these. This is a case where I think you see both industrial customers and people that would delay. And that's what we're hearing. Tim has a John Deere. John Deere. I do have a John Deere. Some people call it a lawn tractor. I like to call it a tractor. Of course I do. They have different categories. They have large agricultural, and they also have small agriculture. Yeah, I think Tim probably has a small one. I don't know what you mean by that.

20:48You've got a little push cart. I can pull, yeah, I can pull like a cart with my kids behind me. Ice is fun. Adorable. Sounds dangerous. For the kids, yes. Sounds dangerous. I'm probably going to get some parent group coming up. It's like Carter's an outside poisoning. Coming up, some major after-hours action. Shares of DraftKings and Roku both dropping on the back of their latest reports. We'll take you inside the numbers from sports betting to streaming right after this. You're watching Fast Funny live from the NASDAQ market site in Times Square. Back right after this.