Big Tech Earnings, the Quest to Cure Aging, and the Big Short Traders Reunite 1/30/24

0:06Live from Miami Beach at the Fontainebleau, this is Fast Money. It is day two of our special coverage of the iConnections Global Alts Conference. I'm Melissa Lee, joined here on set by Dan Nathan and Guy Dami. We've got a big show for you on tap tonight. They made big money on the big short. Now four of the original traders will join us to unveil their big bets for this year. A must-see reunion coming up. Plus, the heads of Fortress and Oaktree will be along to talk private credit, the economy, and more ahead of the Fed decision. and later beyond obesity. We'll hear from obesity legend Alan Patrykhoff and a biotech all-star Jim Mellon on their push to help people live longer and better lives.

0:43We've got a jam-packed hour ahead, but we start off with a full slate of earnings that have crossed just within the past hour from big tech to big coffee. We're digging into all the numbers. Full team coverage here. Steve Kovac on Microsoft. Christina Parts Nebulis on AMD. Kate Rogers on Starbucks. We start off with Deidre Bosa on Alphabet. And you're right now after hours lows after seeing a drop in ad sales. Deebo. Hey, Mel. Well, no surprise here. Generative AI, the focus of the call. CEO of Sander Pichai weaving it into alphabets of different businesses from search to cloud to subscription.

1:15Light, though, on specifics, and that is what the street is looking for. He said that Gemini Ultra, their most advanced version of their latest large language model, he said it's, quote, coming soon. There were no numbers, really not much color either on early uptake or other versions or expectations for Ultra. Now, Chief Business Officer Philip Schindler, he did provide some optimism on how Gen.ai can drive Google ads. He said that early tests show advertisers are building higher quality search campaigns with less effort using Gemini. But that hasn't been enough to help search this past quarter.

1:49And Wall Street is really focused on that broader advertising number, which came in light. Now, Melissa, the prepared remarks are still going. They should be ending soon. Ruth Poirot, the CFO, speaking. and then we will get into Q &A. I will be listening. Hopefully, we hear some more details on that generative AI strategy and monetization in particular. So we'll come back if we hear anything good. Back to you. All right, Deidre, thank you. Deidre Bosa on shares of Alphabet. Again, down 5 % right now. MetaShares, by the way, are down by more than 1 % in sympathy here. What'd you make of this quarter?

2:21Slight miss on ad revenue for Google, which is the only thing that I can sort of take away in terms of why the stock is lower, other than the fact that we can pull a chart up. This was the high today that we made, the same high we made in November of 2021. But what's fascinating is, going through all the releases as we're doing, I thought Google might have been one of the better ones out of the bunch, yet it's reacting the worst. We saw that a couple months ago as well. Guy, what's that thing that your grandma used to say to you? She used to call you a little guy, but she used to say, if you have nothing good to say, don't say anything.

2:49Well, we'll stop for a second. I said some nice things just now. No, I know. Keep me silent. But what I'm saying is, what did Debo say about what they had to say about Gen AI? And when you think about Google, Listen, I think universally people are pretty comfortable on valuation relative to, let's say, Microsoft and some of the other ways that you were going to play Gen AI in the public markets. The problem is that they don't have a product right now that is humming the way, let's say, Microsoft does. So, I mean, again, you're not going to get a lot more detail. The stock just rallied 13 % into the print.

3:17They didn't give you what you needed to do. And so you're going to take a step back on the valuation. It's just not that interesting right here, especially when you consider that Gemini launch that they had and then going back a year to that Bard launch. They're not delivering on what, I guess, investors need to see right now. They've got to really climb out of the trench in terms of convincing Wall Street that they are an AI story. They've got a product that's monetizable, and right now that's what Wall Street wants. That's what it wants, but listen, Google can live standalone on their own two feet in terms of what they're...

3:45And this is the stock, again, 148 down to 83, back to 148. So you've had a huge run over the last year and a half, two years. And valuation has not been stretched like some of these other names. But if people are waiting for the AI genie to come out of the bottle, it's not going to be in the form of Google. But in terms specifically of advertising, Guy had mentioned it. It was fine. It wasn't as healthy as what Wall Street had expected. So what is sort of the read-through for Meta? Well, listen, let's go back a month or two since October. We heard from some of these digital ad-based models about the war in Gaza and obviously the terrorist attack and what that meant.

4:19There was some talk about like weak ad environment. So like might we see that out of meta? I mean, people are pretty geeked up about meta into their print, you know, on Thursday. But again, you know, I just think that we're probably you want to pay attention to some of those sorts of things. Digital ads in particular are sort of cyclical. The other thing is that ad business. I mean, this is one of the risks about Gen. AI, you know, over there at Microsoft or some of these other folks that are basically harnessing the technology better. Let's get to Microsoft now. That stock is down 1 % after a revenue and earnings beats.

4:48Azure revenue up 30%. Steve Kobach's got more on these results. Steve. Yeah, Mel, you want to talk about monetizing AI? That's Microsoft. Microsoft doing it right here with that beat on the top and bottom lines. But more interesting, what the other numbers are telling us about the AI story here. You have Azure growth. That is a beat, 30 % versus expectations of 27.5%. And here's the real kicker here. Microsoft says six point of that is coming from AI services. That's stuff like OpenAI running on the cloud, on the Azure cloud specifically. And it's a second beat in a row showing growth is re-accelerating for Azure cloud.

5:28Next, take a look at Office 365 growth. And on the commercial side, well, that's up 17%. The big question, how much of that is due to sales of Copilot? That's the AI assistant. They started selling to big businesses last fall, and they opened it up to even more folks here in January. Guys, wait for the call at 530, especially for any caller or commentary about those co-pilot sales. How much of that contributed to 365 plus guidance for the current quarter? We usually get that towards the end of the hour. Mel, hopefully I can sneak it into that show for you. Yep. Steve, thank you. Steve Kovach, again, guidance to come.

6:05And also, you know, whatever they say about co-pilot and AI, that's going to be sort of qualitative. We're not going to get actual numbers or expectations. So I want to hear about demand and uptake and things like that. Yeah, I think it's going to be unimpressive. And again, I mean, we won't know until they come out and they say it. But the stock has just rallied 13 % in what feels like a straight line off of the lows this month. It's rallied 30 % since late September. That's a trillion dollars in market cap. They will have to blow the doors off of guidance and their commentary around this, in my opinion, to keep this stock going higher.

6:34So, again, this is an unobstructed move to new all-time highs. It's the largest market cap company in the world. I just don't think they're going to be able to deliver the sort of guidance that will justify this valuation and this move over the last few weeks. August, it was a$315 stock. Steve just mentioned that. You think about it. I understand that Azure growth was better, but this whole run to the upside was basically predicated on that growth coming in where it did, if not better than that. So, I want to wait for the call. I get it. But to your point, Dan, not only that run, but the run since this time last year when I think it was a$223 stock.

7:04But this also puts a huge fine point on what Amazon has to say on Thursday. When you think about what Steve just mentioned, okay, so Azure and their outperformance they're seeing there, I mean, there's folks that are obviously renting that cloud storage to get access to those sorts of products, right? And it's Amazon, whose growth is down at like low teens right now at AWS. U.S. They are the market share leader, but they're losing share to Google, to Microsoft, and to some of the other players. So that, to me, leads me to Thursday again. All right, let's get to AMD now. Shares are down around 3 % after reporting minutes ago.

7:36Christina Parts and Nevelis joins us now with more on the big earnings here. Christina. Well, the stock first reacting negatively to the lighter Q1 revenue guidance, but coming back ever so slowly on the slightly more bullish 2024 outlook for AMD's new GPU chip, which rivals NVIDIA. What we're seeing, let's just go over Q4 really quickly. Data center revenue fell in line with estimates, with AMD saying it was a record quarter as they continue to steal market share, presumably from Intel. And then you can see on your screen, client was a missed gaming beat embedded in line. But what investors care about is Q1 guidance.

8:09AMD expects its data center segment revenue to be flat. PCs, the semi-custom chips as well, all to decline quarter over quarter. But the company saying that all that weakness will be offset by a stronger data center GPU ramp. And that's what investors want to hear. So I just received Lisa Su's prepared remarks. The call has just started. And what we know now is that AMD is increasing its 2024 AI chip revenue from$2 billion to now exceeding$3.5 billion. So, again, now it's going from$3.5 billion. It used to be$2 billion. And that's what investors want to see. The company's saying that they're seeing revenue growth and customer pull and all of this.

8:50So this is just I'm sure she hasn't even said it yet, but it was in the in the prepared remarks just now. And so that's what investors want to hear, Melissa. All right, Christina, thank you. Christina Parts Nevelas, that raise on the on the A.I., that was expected to three and a half. Yeah. I mean, look at the I mean, think about it. Last two quarters, AMD was one hundred thirty five dollar stock two quarters ago. Everybody loved it in the earnings. It's traded down to ninety five. Last quarter, it was a$95 stock. Everybody hated it, and it traded up to$180. I mean, it's doubled in the last quarter or so.

9:21This first quarter guide, in terms of revenue, you can strip out everything you want. That's discouraging in a word, especially when you're talking about a stock that's effectively doubled over the last few months. Yeah, and it's just a different story than NVIDIA. They're not demonstrating the sort of upside that got that stock going last spring and kept it going into this year. and expectations are obviously very high with NVIDIA as the stock has rallied like 30 % in a straight line again over the last month. Just do the math on that. That's a half a trillion dollars in market cap. When I think about AMD, consensus is already calling for near 50 % earnings growth in calendar 2024 with only about 20 % sales growth.

9:55So they just raised that number a little bit. You're just not getting the upside. And the last point I'll just make is that this is a 53 % gross margin company versus NVIDIA that has upwards of 72, 73 or something like that. How they're going to take share versus NVIDIA is likely on price. They're not likely to get the margin benefit that NVIDIA got over the last year and a half or so. So to Guy's point, this stock nearly doubling in the last couple of months, it's all in there, people. Yeah. NVIDIA, by the way, is down 1.25 % on the back of AMD. Meantime, coming up, a huge lineup joining us from Miami Beach.

10:26We are digging into the state of private credit with the heads of two major Wall Street firms. Drew McKnight of Fortress, Armin Panosian of Oaktree Capital will join us next. And the traders who predicted the 2008 housing crisis, they are back together. They're going to give us their take on the markets. Why the guys from the big short, not so short right now. You're watching Fast Money Live from the iConnections Global Alts Conference. Back in two.

11:03Welcome back to Fast Money live from Miami Beach. The Fed is set to make its first rate decision of the year tomorrow as the economy has been showing signs of strength. Our next guests have insight into what is doing for the credit markets, the private credit markets. We're joined now by Fortress co-CEO Drew McKnight and incoming Oak Tree co-CEO Armin Panosian. Gentlemen, great to have you with us here by the beach. Drew, I'll kick it off with you. You say that credit is more interesting than equities right now. Why is that? Well, I think any time you can get paid high single digits, low double digits coupons and be at the top of the capital structure, your downside protection is much greater than equities, and I think you're getting equity-like returns.

11:44A lot of people say everybody and their brother getting into private credit, and that is of concern in and of itself, that there's some sort of bubble forming. Is that the case, or what would you say to that? I think the demand for private credit actually exceeds the supply of private credit over the medium to long term. There's a lot of dry powder in private equity in search of private credit solutions, and therefore over a medium to long term period of time, I think that there's a big expansion opportunity in private credit. Drew, we spent the last 10 minutes breaking down a bunch of earnings releases, so we're very granular at a 30 ,000 feet.

12:15What do you see that's encouraging or maybe what do you see that's sort of scary right now? Well, I think encouraging credit markets are wide open, right? And I think the availability of credit is very healthy for the markets. That said, the cost of credit, given what's happened with interest rates and credit spreads, is not cheap. And so I think the cost of that capital is something that does need to reflect itself both in private equity multiples but also in public equity multiples. Armin, when you think about, again, we have this Fed meeting tomorrow, expectations for a rate move, not high at all, but as we think about March, that's going to dominate the conversation over the next month or so.

12:49Are we on the precipice of another regime shift as it relates to rates? And we've had a lot of volatility in yields over the last few years. And how do you guys think about that? It's very hard to predict what the Fed will do. But I think there's enough data to support possibly a rate cut. But it really depends on what you believe will be the case in the economy at that point to precipitate that rate cut. I don't think it's, you'll have to see a picture that's not that pretty for the Fed to move faster than what would otherwise be necessary maybe mid-year. How would you characterize this coming year?

13:22Is it going to be sort of a sweet spot? I mean, it seems like we've got rate cuts coming. The economy has been slowed but not halted by any, you know, according to any of the data that we see. So in terms of private credit, is that sort of like the Goldilocks scenario for you guys? Well, look, I think because of the contractual coupons, it is an interesting place to hide where you don't have to get the rate cuts call right. You don't have to get the equity multiples call right and still earn very healthy returns. I think what does give us some pause and some worry is the cost of capital in the real estate capital markets is still very expensive.

13:53And so I think the availability of credit in real estate, whether it's commercial or residential, like anyone who is trying to take out a mortgage right now, it's a lot more expensive than what it was. And so I think that is something that does give us pause. And I think a 25 basis point rate cut or a couple of 25 basis point rate cuts is still very far from the cost of capital we saw in 2021. So do you see that as I'm assuming that you see that as well in terms of the higher cost of capital in real estate? And can you sort of, you know, play that out with what's going on in commercial real estate and the concerns that surround that sector?

14:24I think the issues with commercial real estate are twofold. First of all, in commercial office properties, you have vacancies, you have a need for capital to retenant space, and the existing owners of that real estate are not really willing to provide that additional capital. I think the second issue is the maturity wall for commercial real estate, even outside of commercial office properties, is high and will continue to be high for several years. And with that escalated rate move over the last five years, there is going to be a need for additional equity capital or hybrid equity to fill that gap because deleveraging is necessary.

14:53Drew, how important is what's going on with China over the last six months, but more specifically over the last couple weeks in terms of their seemingly commercial real estate and real estate problems? Look, I mean, just yesterday with Evergrande, I think it's very much top of mind. I think if you look at what's going on in that market, I think it's navigating a lot because they really don't have a bankruptcy regime. We invest in primarily developed markets because we're in credit, and our biggest focus is needing to actually enforce contracts. And China is really inventing that process as we speak, and you're seeing it playing out on something like Evergrande.

15:27I think it also affects everything we're doing. We had a panel earlier. We were talking about treasury auctions. How does that – China's a big player in our auctions. How does this affect the way they behave in these auctions? Yeah, so, Armin, you guys have been the hire for longer camp. And I know you said the last question you answered is like, I can't really predict rates, but like, you know, the whole idea that for rates to go down precipitously. And at one point, Fed fund futures were pricing in five or six cuts at some point this year. We debate on this desk, what would be the impetus for that to happen?

15:55Something not good, not good for the economy, not good for risk assets, that sort of thing. On the flip side of that, though, and none of us are going to try to predict that, higher for longer, what does that mean to you? Is it that inflation is a bit stickier, the economy, you know, like we have unemployment that stays below 4%. How do you guys think about that? I think it's the Goldilocks scenario. Honestly, it's that there is GDP growth, but it's tepid. There's CPI that's sort of in line and not really problematic that needs to, or you don't need to see a rate increase. But there's no real catalyst to actually reduce rates.

16:28And I think that in being in that Goldilocks scenario for longer than expected results in being higher for longer. All right, we're going to have to leave the conversation there. Thanks, guys, so much. Always too little time. Drew McKnight, Armin Panosian, we appreciate it. Meantime, let's get another check on Alphabet. Shares are taking a leg lower right now. They are, in fact, at after-hour session load. Let's get back to Deidre Bosa for what is pushing a lower D. Hey, Mel, they were down as much as nearly 7%. And, you know, despite analysts' best efforts to get the management team to break out generative AI and get more details, the team there keeps talking more about incorporating it, more of what they've been doing for years, less about breaking it out as a product that it can charge for.

17:08There was also some comments around CapEx that could be making investors a little bit nervous. CFO Ruth Porat called out$11 billion in CapEx in the fourth quarter. She said, overwhelmingly driven by investment in tech infrastructure with its largest component for servers, followed by data centers, aka that's GPUs, which we know are a little scarce and expensive. She also said that in 2024, we expect investment in CapEx will be notably larger than in 2023. So perhaps offsetting some of the efficiency measures they're taking, like the rolling layoffs we've seen this year. Mel, back to you. All right, Dee, thank you.

17:44Deidre Bosa, by the way, MetaShares are down by 2.6%. We'll continue tracking this conference call. Meantime, there's a lot more fast money to come. Here's what's coming up next. Focusing on fintech, where our next guest sees strength and how the deal landscape is shaping up. Plus, the big short traders are back together, but they're not as short these days. Their take on the markets, economy, and more. You're watching Fast Money, live from the iConnections Global Alts Conference in Miami Beach. We're back right after this.

18:25Welcome back to Fast Money Live in Miami Beach. a look at how stocks close out the session. Mixed day on Wall Street as investors await tomorrow's Fed decision. The Dow up more than 130 points, closing at a record once again. The S &P pulling back slightly from its all-time high, and the Nasdaq down about three-tenths of 1%. In some of this morning's earnings movers, we're going to get to shares of UPS sinking 8 % after a revenue miss and disappointing guidance. The company also saying it will cut about 12 ,000 jobs. GM, meantime, heading in the opposite direction, up nearly 8 % after a beat on the top and the bottom lines.

18:56The company forecasting continued strong profit this year. In a check on Walmart after hours, the company announcing a three-for-one stock split. Shares are up about a percent on the news. We've gone through this again. It doesn't change anything, but here we are up in the after-hour session. GM or UPS, your pick. UPS. I think, listen, UPS, I get it. It's UPS-specific, but is it a broader tell? And in terms of unemployment rate, more layoffs than UPS in trying to reduce costs. And that's a theme we've been talking about now for four months. All right, let's get straight to fintech here. The fintech industry facing headwinds from higher rates and a pullback in private dealmaking last year.

19:32But is the tide turning? Our next guest thinks emerging technologies could create a major opportunity in the space. Blythe Masters is founder, founding partner of Motive Partners, a specialist private equity firm investing in financial technology. Blythe, great to have you here. Welcome to the show. Nice to be here. Thank you. People think of fintech and they think of the names that have been crushed in the markets. should we be concerned about these firms? Because the bear case will say these are just financial firms and we should treat them accordingly. And if there's something bad that's going to happen in the economy, these firms will feel it even worse.

20:05Well, the interesting thing about the fintech space is probably better labeled financial technology because that really describes fully what it's all about. And it's much more than just some of the high-profile, non-bank challenger actors that have been harshly treated in some cases fairly so in the markets. This is a gigantic space. The vertical represents almost a trillion dollars a year of spend by a financial services company on technology. It's also horizontal because people are embedding financial technology in non-financial businesses in order to enable financial activity by their customers.

20:42That's approaching over the next five years another trillion dollars of spend. So this is a space that's too big to ignore. It's also one where technology-driven innovation is occurring at a furious pace. And that is something that will survive cyclical developments in interest rates and many other things. In fact, many of the companies in the space are not heavily leveraged and have business models that are relatively impervious to the ups and downs of rates, inflation, and other things that have affected more cyclical businesses. So there's still plenty of opportunity in this space. We spend a lot of time, like Guy just mentioned, thinking about unemployment rate and some of the trends that we're seeing.

21:21And today there was a headline like a PayPal, for instance, is cutting 9 % of the workforce, 2 ,500 workers. Think about it. That's a company that has a really good balance sheet. It trades at a really decent valuation. The stock can't get out of its own way, right? So are we going to continue to see businesses like that really solve towards expenses, to your point, a little bit? And should we expect to see cuts in the space continue? You know, I think the issue you're referring to is bigger than the fintech space. I mean, we're looking at an environment where we've had a radical change of economic conditions, interest rates, inflation, and that has affected the cost of operating.

21:57We had a period where there was significant wage inflation. that has meant the cost of employing people rose. Significant increase now in interest rates, a refinancing wall that is being at least now alleviated somewhat by market expectations of future rate cuts, which has meant that the capital markets for debt have reopened somewhat. So those refinancings are getting done, good news, but they're getting done at extraordinarily higher cost. And the combination of the wage inflation, the higher cost of interest is what's causing layoffs and some of the larger economically sensitive businesses like a PayPal and many others.