Big Tech Reports… And Eli Lilly’s Letdown 10/30/24

0:00Live from the Nasdaq market site in the heart of New York City's Times Square, this is Fast Money. Here's what's on tap tonight. Earnings abound. Five trillion dollars worth of market cap reporting after the bell from Meta to Mocha Lattes. We are dialed into the calls, bringing you all the trades. Plus, weighty losses for Eli Lilly after the pharma giant's GLP-1 drugs come up short. What it says about prospects for the company and for competition in the space. And later, a super slump for Supermicro, the one-time semi-standout nearly erasing all its gains for the year as its auditor calls it quits.

0:31the concerns they're raising and how deep the troubles could lie. I'm Melissa Lee coming to you live from Studio B at the NASDAQ on the desk tonight. Tim Seymour, Karen Feinerman, Steve Grasso, and Guy Adami. We start off with another monster night of earnings. Full team coverage on all the moves tonight. Steve Kovac is standing by in Microsoft. Kate Rogers has got the details on Starbucks. Kate Rooney pulling double duty on Hood and Coinbase. But we start off with Julia Boorstin, who's just dialed into Meta's conference call. Hey, Julia. The call just getting underway as Meta beat on the top and bottom lines.

0:59Meta also guiding to stronger than expected revenue growth in the fourth quarter. The stock did move lower in after hours trading. So what could be weighing on the stock now down about 2 percent? Well, the company's revenue growth of 19 percent was stronger than expected, but still a deceleration from the last two quarters growth rates. User figures also missed estimates. Daily active people of 3.29 billion, short of the 3.31 billion that analysts anticipated. And the company raised the low end of its full-year capital expenditure range, now guiding to a range of$38 to$40 billion, up from the prior$37 to$40 billion range.

1:38CEO Mark Zuckerberg saying in the release that the quarter was good and it was driven by AI progress, also saying they have strong momentum with meta-AI, Lama adoption and also their AI-powered glasses. But, Melissa, we have to note expectations were so high going into this report, and the stock has doubled in the past year. Back over to you. There's also mention of, quote, significant acceleration in infrastructure expense growth next year. How do you interpret that, Julia? Yeah, so Meta has been very clear that their expenses were going to increase in 2025, and they are reiterating that. They're saying we are warning and we are reiterating our warning that expense costs are going to continue to increase.

2:17They are investing so much in AI. Melissa, obviously, that's expensive. All right. Julia, keep us posted. Conference call just getting underway right now. Julia Worsten is all over it. Karen, how do you interpret this? Is this minor, relatively minor considering the run right into the quarter? A few days ago, it was 560. Yeah, so it's relatively minor. There are a couple of things that I thought were really good, which was the average price per ad, which was up nicely, although the impression of growth was not as good. I thought the free cash flow was really good. You know, the street hates to see giants spend.

2:51So if they put a number on it that's different than what the street has modeled in, that's higher. That will probably be a bad thing. But I thought it was pretty good on top of what were really difficult comps to beat. So I'm, you know, down one and a half percent, two percent, whatever it is right now. I still feel very good about the story. I think that this price per ad that I mean, That is the promise right there, right, that we've been talking about for AI, for them. Karen's right to point it out. It was up 11%. The street was at, so they basically doubled what the street was looking for.

3:27Street was at 5.5%. Free cash flow came in,$15.5 billion. The street was at basically 12. Very good. I think what's, the reason the stock is selling off, if I'm trying to handicap this, the fourth quarter guide wasn't great. And the spend on AI may be scaring people. But with all that said, I mean, valuation wise in this quarter suggests you can still get your arms around Facebook here. Think of how high the bar is if Meta, which is the one MAG7 name that has actually been able to really quantify the monetization of AI, is spending on AI. And the stock gets dinged for that, even though they are making money off of that spend.

4:04Yeah. And because this is a company that's ridden the roller coaster of CapEx. And for Meta, for the Metaverse, it didn't work. for Meta. The company, it has worked, certainly as it goes to AI. Year over year, 3Q, up 35 % on net income is extraordinary, almost apologetic. It's like there's the lowest in four quarters. Big deal. And I think the daily average user growth that's lower, who cares? I have to say, I mean, that's not a concern, especially when most of the world is on your platform. I think it's a case where the bar is very high. Weakness here is kind of what you have to do. As Guy said, That guide for the 4Q, I mean, yeah, it's slightly above the middle of the guide.

4:42So did you want it a lot better? Apparently, you kind of need to after the year this company has had. You're buying weakness. This company is as defensive as any of the Mag 7s. And that and Google, to me, and it is about valuation, and it is about the growth that they're giving you for a company that large to be growing like this. They're the gold standard, right? So they beat everyone else as far as year-to-date performance. But when you say about spend, back when they were ridiculed for spending and penalized for it, it was about the metaverse. No one knew what the metaverse was. Now it's about AI.

5:14Everyone turns out they were right. Exactly, yeah. But when you look at it, meta AI, 500 million MAUs. I don't even know. I still don't understand what part of this meta AI that they have a half a billion people using every month. Do you? because they're still getting paid for it now. So is it ads? Are they building ads? Are people using the ads that they're building? Yeah, the price per ad is going up because their ads are so much better, so much more targeted. So Metaverse, they got zipped from. No one knew what it was. This, at least they're getting paid on it. And then they're going into a sweet spot for the other ventures, for all of the VR stuff, for all the things that everyone buys for their kids.

5:59They're back into the glasses. They've made the glasses more cool than they used to be. Maybe people will start buying those things, too. One other thing I just really want to point out, total costs and expenses, which are not the AI CapEx spend, are down. And that's, I mean, we wanted to. There's some offset to that acceleration. There is some offset, right. Maybe they're using AI in an efficient way to run their company. I wanted to see that from Google. We didn't yesterday, but everything else was good enough that it didn't really matter. So I would like to see them continue down that path of running it.

6:29Right. There was oblique reference, though, to some of the cost savings in that center picture I talked about, the percentage of lines of code that were generated by AI as opposed to written by 25 percent, as opposed to written by actual engineers. So maybe it's just a matter of time before we see that quantified. You're seeing it in operating margins of 42.7 percent. The street was at 39 and a half, up from last year without question. And to Karen's point, I mean, AI is helping them get the numbers that they're getting. So they actually should, I think, benefit from the spend, not be penalized for it.

7:01But I get it. I mean, it's happened before with this stock. But again, I'll say I don't think you run very far from Facebook here. All right, let's get to Microsoft now. That stock is up after the company beat on the top and the bottom lines and raised guidance. Steve Kovacs got all the details. Steve. Yeah, that's right, Mel. It was beats on the top and bottom lines for Microsoft, along with reaccelerating growth in Azure Cloud and how much artificial intelligence is contributing to that Azure number. First, let's go over those numbers. EPS was a beat by 10 cents at$3.30. Revenues a beat by a billion bucks as well,$65.59 billion.

7:35Azure growth, also a significant beat, growing 33 % year-on-year versus expectations of a bit over 29%. But something about that number, it may not be directly comparable since Microsoft switched around some of its segment reporting for this quarter. And boosting that Azure growth number is, of course, artificial intelligence. Microsoft says AI contributed 12 percentage points of that Azure growth. Earnings call kicks off at 530, where we'll get some guidance and more commentary on some important metrics like CapEx for AI. By the way, Microsoft previously said it'll be spending about$20 billion a quarter this fiscal year.

8:12Mel? All right, Steve, thanks. Keep us posted. Steve Kovach, again, conference call about 20 minutes time. It gets underway. We'll get the guidance in. So we're trading right now in a very limited basis in terms of information, but your first take on the quarter. Yeah, again, because we are waiting for that guidance to come in a little bit. But I just think with Microsoft, this of all of them, though, is probably the one that has the most predictability to what's going on with their AI business. And if you think about Microsoft, the story, unlike Google and Meta, it's about valuation. It's just a question of what you want to do here.

8:41This Azure growth is excellent. And if you think about where we've gone over the last kind of three quarters, in terms of where that was something that was a big concern, you're now picking up the pace again on that. Again, I think these numbers are fine. I think there's less to be excited about, although, again, the street seems to be pretty happy with what's going on here. Yeah. Karen? Yeah. Well, I want to hear the call, right? You always want to hear the call because you can get so much more color from that than sometimes you get from the release. But I thought productivity and business process, that was good as well.

9:08I want to hear about that. But, again, it's just a question of what do you want to pay for that? Right. And I feel like it's a little rich. It is probably one of the more expensive ones. It has been, but still. Yeah, I mean, if I'm doing the math, it's probably trading maybe 29 and a half times next year's numbers now at this current price point. Obviously, it's not traded great since July, but we're right back up against levels that we previously got to in July. So that's good. Dan Ives was just on, I think, closing bell. He thinks it's going to be the first$4 trillion company based on a lot of different things.

9:40And he may be right, but it's a fine quarter. The reacceleration of Azure, that's a good thing. It's an expensive company at these levels, I think. Compared to peers, but compared to itself, it's higher than the five-year average on a forward basis. It's definitely expensive compared to itself, and that's, I think, what everyone on the desk is worried about. If you look at the stock chart, it looks like a pennant formation where it has to break above 438 or so, or else it's probably going to be used as resistance. And I think you just have to sit back, wait, I wouldn't buy it here. All right. For more on Meta and Microsoft's reports, let's bring in Deepwater Asset Management's Gene Munster.

10:17Jean. Great to have you with us. Great to get your initial takes here. Let's kick it off since we just ended with Microsoft. Your take on the Microsoft quarter. It's all about Azure and they didn't need to hit that bogey that Google set, but they didn't need to see an acceleration in Azure. Of course, they showed that from 29 to 31. I was expecting that 10 points of that growth was going to come from AI, which is effectively their open AI relationship. In fact, 12 came from it, which means that their core Azure business, excluding AI, has been stable growing at 21 % despite the law of large numbers.

10:53The other piece I'm really cued in here too is to hear some real substance on the call about co-pilot adoption. Last quarter, they had 31 comments and their prepared remarks around co-pilot. None of them gave any sort of real substance in terms of what this actually means in terms of monetization. And so I'm going to be keyed into that. We didn't get any numbers, right, Gene? I mean, I think that they spoke in sort of broad directional terms, like the number has doubled or something like that, but they didn't actually give a firm number on co-pilot customers. That's correct. I mean, they are just, let's say, notorious.

11:29Amazon does the same thing after Cyber Monday, is give just a barrage of data points that you try to triangulate. That's been kind of the MO regarding this whole co-pilot adoption. They did say probably the most substantive data point. Last quarter was that 40 % of GitHub revenue has some sort of co-pilot. GitHub's a small percentage of their business, call it 5 % of their business, so it really doesn't matter. We're still looking for, I mean, at the end of the day, these additional, this 30 extra bucks a month, what does it mean to, what does it mean to their revenue and their bottom line? And they have been avoiding that question.

12:03I don't think they're going to answer it today, but that's what I'm going to be cued in on. Gene, do you think it's expensive right now? Would you be, I know it sounds like you're waiting on a couple of different things to sort of get you over that bubble. But you heard the conversation before where it looks expensive to itself. Would you wait here to see if they are in the prove me state because of how they've come so far so fast? I think so. I mean, the bottom line is that this is probably the most stable of any of the mega caps when it comes to AI. They grew 14 % and they just reported a quarter.

12:41Expectations of 14 % and then again 14 % for 25 and 26. And I think you pay up for that, Steve. I think that that's one piece of it. I do kind of look at this as a relative game, as which one of the mega caps have kind of the best upside relative to valuation. And I think Microsoft, oh, they're doing a lot of great things. I don't think they kind of hit that. So I do, the bottom line is I still think that this is expensive relative to an opportunity like versus Google. Hey, Gene, it's Karen. Just to follow on on that expensive, what do you think, where should this be trading? What's the right multiple you would feel comfortable with?

13:18Probably the mid to high 20s. If you're going at 14%, that feels like a good number. So we're a ways away from that, I think, kind of on the out-year numbers. But that's, I think, a good number. I would also say I think Google should trade at the mid to high 20s. And it's probably after today, right around 20 or 21 times, 22 times, perhaps. But again, I think if you look at the AI opportunity and say which company's best position, I think Google is a better positioned company. Let's switch gears to MetaGene because I do want to get your take. And the conference call is about 14 minutes. And we've gotten a couple of headlines.

13:53Steve had referenced one of them. The CEO saying that MetaAI now has more than 500 million monthly active users. A second headline says LAMA 4 models are training on a cluster that is bigger than 100 ,000 H100 GPUs a day, which, I mean, gives you the sense of NVIDIA's business for sure. But also just how much intensity and focus there is there on AI and getting that model right, Gene. So what is your take on the quarter here? So the quick take on the quarter was related to what the guidance was. they typically come in at the high end of the range that would imply 20 percent year-over-year revenue growth they just reported 19 percent so understand it had a high bar they did guide I view this as a guide of a fractional acceleration which is positive those numbers quickly that 500 million number they as a number that Zuckerberg also gave us a few weeks ago and this kind of this flexing around how much these companies are spending on all the output all that's nice to hear what matters is this is Zuckerberg's closing comment on the earnings call.

14:58He just said that this is the most unique moment that this company has ever had ahead of it and they are going to be aggressively investing in that. I think that's what you're seeing with all this GPU. They're going to be on that, stay on that accelerator and I think that that's a good sign for meta investors because clearly this is having a tangible impact. Probably of any of the mega caps besides NVIDIA, Meta's actually seen the tangible impact of AI faster than any of them. Gene, thanks. Always good to see you. Gene Munster, Deepwater Asset Management. Tim, your take. Well, I think on Meta, the Reality Labs feels kind of like an albatross right now.

15:39I mean, it's$22 billion lost. Maybe it's not. I don't really know. And I think it gets back to this is not the business we're all looking for at Meta, and we are looking at the core business, which has evolved to a place where now AI is delivering margins and delivering the company to actually be deserving of a valuation probably higher than the multiple it traded at in the past. So that's the part of this that's fascinating because I just, you know, he continues to press reality labs. That continues to be a loss leader. And that's something the market's given him a pass on. Yeah, 100 percent.

16:10But again, I go back to it. This is two quarters in a row now for Facebook where AI is seemingly helped and it's helping the metrics that I think are important. Karen said it. Average price per ad, double what the street is looking for, and their margins are improving. So you can actually justify the spend. That's ARPU, by the way. I just did that acronym. Did you? ARPU. Per ad? Well, average price. Yeah. It would be an ad as opposed to user. Okay. I mean, I love this acronym. It's nice. It's fun. Anyway, it justifies the spend. That's the short term. Coming up, more after hours action shares of Coinbase, Robinhood, and Starbucks on the move after reporting results.

16:46The instant analysis straight ahead. But first, we are one week out until the Federal Reserve's next rate meeting. Former Cleveland Fed President Loretta Mepster is here to lay out what she sees next from the central bank. Her rate cut timeline when Fast Money returns. Back in two.

17:06Welcome back to Fast Money. Private job creation hit its highest level since July 2023, according to ADP, growing more than twice as fast as estimates. But a first read on third quarter GDP came in short of estimates, with the U.S. economy growing at 2.8 percent. These numbers coming ahead of Friday's October jobs report and the Fed meeting next week. For more, let's turn to CNBC contributor Loretta Mester, former president of the Cleveland Fed. Loretta, great to have you with us. Welcome to Fast Money. Thanks for having me. What should the Federal Reserve do next week? Good question. I would be continuing on the path of reducing the interest rate.

17:40I would do 25. I would not do 50. But there's nothing in the data that came in that really changes the median run outlook, which is kind of what they aim for. Right. You're trying to set policy to affect the economy, but it won't affect it today. It's going to affect it eight months down the road. So you're trying to sort of all when the data comes in, it's like, well, where is the economy going and where should we put policy to be calibrated with that? Also, you want to make sure that you don't get too far out of whack one way or the other if the economy doesn't perform the way you expect it to.

18:11So it's all about keeping the monetary policy in a good place to be able to respond to risks if they manifest themselves on either side, but really keeping it normalizing as the economy is normalized. What's your take, though, on the move that we've seen in the 10-year Treasury yield versus what the Fed has actually done, which has cut by 50 basis points in September, but the 10-year yield has actually been up by about 60 basis points since then. So I think a couple of things. One, I think, you know, the economy, the data has come in pretty strong. I mean, you mentioned that the third quarter report was a little weaker than expected, but it's still a well above trend growth rate of the economy.

18:48And people earlier in the year wouldn't have expected by this point that we'd be still above trend on growth. The healthy labor market conditions, right? There was a scare that things were actually deteriorating more than the Fed would like to see. And I think that prompted a 50 basis point cut. But those numbers have come in pretty good. We'll get another read on Friday, as you know, and that'll give more insights into that. Although noisy data because of Boeing strike and the hurricane. So you have to take that with a little bit of a look through noise to signal. But still, I think the economy is doing really well and productivity growth has been remarkably good.

19:27So I think all of that in, that's feeding into where the markets, you know, are putting the long rate. And then on the other hand, there's a lot of talk about deficits. And, you know, that could lead to higher nominal long rates because of both the inflation that would be embedded in that and also, you know, in terms of having to induce people to hold those treasuries. So how do you think about that? I mean, it's I know, you know, there's fiscal policy and monetary policy and you can only do what you can do. But you're on the Fed. There's this clearly growing problem that will one day burst. How do you factor that in?

20:02So I think what you well, firstly, there's going to be a change in government or not. Right. Depending on what happens. Right. So we're going to have a new administration. Right. And they're going to be setting fiscal policy. But we're not going to know much about that until next year sometime. So at some point, you know, the staff of the Fed will be embedding sort of assumptions about fiscal policy into the models. So it gets taken into account when you're thinking about monetary policy. In terms of the long-run issue about financial markets, part of what the Fed does all the time is sort of monitor conditions in financial markets.

20:35So it is attuned to those issues. But I think part of the problem with the deficit problem and the debt problem is it's a serious problem, but it hasn't really affected things in a negative way so far. And it's one of these things, until you see the bond market reacting, I don't know whether there's any will to address that issue. So you really can't take into account and set your monetary policy, assuming that at some point there will be a reaction in the bond market. I think that's one of those things where, you know, it's part of the milieu that you're working in. You have to be ready for it.

21:11Right. And be able to know how to react if it happens. But you can't really take into account in your setting day to day monetary policy. So it's a little bit sort of monitoring, but not overreacting to something that may or may not come in the foreseeable future. Loretta, great, great having you. And I guess so speaking of liquidity conditions, and I guess I'm curious, how much does the Fed really think about the wealth effect and the dynamics around a stock market that's at all time highs, housing prices that continue to go higher and how much of a factor? And I don't know if you can quantify that factor.

21:44But but again, that seems to be such a big part of, I think, a different period when we've had extreme dislocations in markets up and down. But certainly on the downside, the Fed has really targeted that wealth effect. So targeted confidence, both in the housing market and even in the stock market. I remember back in 2008, 2009. Well, certainly when you're thinking about monetary policy, you do take into account financial conditions. You know, how accommodative are financial conditions? And partly it's because, you know, that it affects the wealth of the economy and then the wealth of households.

22:17And then that affects their spending. So it feeds through directly to sort of your forecast for the economy. And then that influences how you set monetary policy. So that's kind of the mechanism. But we don't like look at one interest rate or one particular stock market price. You know, like you guys are always talking about different interest, different companies, as you did before earlier in the show. So that's not kind of how the Fed looks at it. We look at the overall effect. What are happening in this in prices? What's happening in? And that's from the point of view of looking at wealth and then its effect on the real economy.

22:49We also monitor those conditions, as you know, for financial stability issues. Right. So we want to be monitoring those things to make sure that the financial conditions remain in a way that doesn't foment some instability in financial markets that then we'd have to react to. And the Fed may not be political, right? The Fed isn't political. The Fed is not political. You can be positive about it. Politics do influence those things that you're talking about, financial conditions, the wealth effect. I mean, they're sort of interconnected in some way, even if it's two times removed by the time the Fed is thinking about it.