Big Tech’s Moment Of Truth As Nvidia Climbs… And Next Move For Rates Description 10/25/24

0:02Live from the Nasdaq market side in the heart of New York City's Times Square this is Fast Money Here's what's on tap tonight. Back at records, the Nasdaq catching an all-time high for the first time in more than three months. With big tech earnings just around the corner, will the result boost stocks further? We'll debate that. And Apple's health goals. The tech giant reportedly looking to expand into a new category where they're setting their sights and the company's being impacted. Plus, Nike losing ground to the competition. Another sign of a shaky foundation for housing. And what the options market says about Capri now that its tapestry deal is a no-go.

0:35I'm Melissa Lee coming to you live from Studio B at the NASDAQ. I'm the Destinite. Tim Seymour, Bono and Ice, and Steve Grasso, and Mike Coe. We start off with NVIDIA's record run this week. The AI darling stock ending the day just short of all-time highs, up more than 16 % this month. The chipmaker also briefly topping Apple in market cap today. The world's two most valuable companies neck and neck ahead of a big week for the tech trade. Most of the MAG7 stocks gearing up to deliver results. Alphabet, Microsoft, Meta, Amazon, and Apple all on deck. So will next week be the moment of truth for big tech and the AI trade?

1:09Can the reports feel even more upside ahead? And I guess people will say, you know, what are they going to spend? And is it going to prove that NVIDIA's market cap, NVIDIA's PE, is worth it, Tim? Well, that is the question. And I think we've talked about that a lighter capex load might actually be something to rally the mega caps on. because I just think at times, especially we know with Meta that the year of efficiency led to a lot of gains. People have been concerned. I think with Google, who's going to report on Tuesday, I mean, there's a dynamic here that I think there is some need to see some follow through here.

1:42I think ultimately, as we go into this period, if you look at the NASDAQ 100 or the triple Qs and the Mag 7, obviously outside of Tesla, which has been on a tear, have not made new highs going all the way back to July, whereas semis have retaken some leadership. If you look at that period from September 9th, or there's been a couple of different periods I think the market has used to both rotate out of growth back into value and this and that. But from September 9th or shortly after we got that payroll number and some reaffirmation of the consumer and the economy, you actually saw the growth come back in the semiconductors and that leadership.

2:17They've outperformed the S &P by almost 7 % just since September 7th. And will they make new highs? We haven't made new highs on semis. also since July. But I get the sense that's where we are. And I think everything we're going to hear from the hyperscalers is that this is a very important part of, again, that prisoner's dilemma. They've got to be there. Yeah. following. Yeah. So it just seems like that move that NVIDIA had over the past two weeks, three weeks, has been pretty incredible. You had a pretty substantial pullback. You know, we had last quarter, we had concerns about the Blackwell chip supply and demand kind of balance.

2:51Were they be able to meet demand? Would that lead to a pullback in revenue? Had we pulled revenue expectations too far forward? And we've kind of reversed and approaching, you know, what seems to be us asking the same question again, which is, will the CapEx spend be there to kind of support the multiple and the revenue expectations? I would imagine that the other hyperscalers are continuing to spin because, as Tim said, it does seem somewhat of a situation where you have to continue to spin. You have to be in the game. This is essentially what all of these are leaning on in terms of margin expansion and supporting the multiples that they have now gotten.

3:25I'm not sure if next week necessarily is going to be the quote unquote moment of truth, only because I think for some of them, Google, for example, Amazon, for another example, I think some of the expectations, the multiples reflect that expectations have pulled back a bit. So I do think, you know, from one MAG7 player to the other, the expectations and the earnings multiple reflect that perhaps there is an opportunity to trade here ahead of earnings. I guess when we were thinking about what we were going to talk about on the show today, we thought, oh, a lot of things. And we think long and hard.

3:55We actually, we do. We have planning meetings. We talk about this for a long time. We've been meeting since Wednesday to talk about this. Kind of a healthy discussion. I think the big question here with big tech earnings is, does it confirm the overarching thesis that has been driving the tech trade? And that is the robustness of the AI trade. Right. And so to that end, Grasso, can we separate it? Can we separate what Amazon, you know, Alphabet, Microsoft are going to say from NVIDIA's performance? Or are they inextricably intertwined? Well, they're all clients of NVIDIA. Right. Right. So that's a good spot to be in.

4:34NVIDIA is still 80 to 85 percent of the market. NVIDIA is the one that's actually getting revenue now, not sometime in the future. Can you separate them? Sure, you have done that. NVIDIA is up 200 percent, 185 percent, 186 percent. The rest of them are not. So we have separated them already. But wouldn't you say this is somewhat priced to perfection? And I've been positive on the market. I've been positive on NVIDIA. I missed NVIDIA. I got too cute around that 110 level, thought it was going to come back in. That ship has sailed. I'm going to wait until we do a Marketson turmoil special, probably to buy the next leg of NVIDIA for me right now.

5:17Cheeky Grasso. True, right? So when you really think about it, though, what do we have? The bar has been lowered for earnings. I think most of these companies can step over them. But when you look at the year-to-day performance on most of them, I think they need a breather. All right. Let's say, Mike, that a lot of these hyperscalers say, you know, we're not going to spend as much. We don't anticipate the spend to be at the same pace as we have been spending of late. What happens to this trade, Mike? Is it a positive, as Tim posits, or is it a negative overall? A positive for the hyperscalers, if you're talking about Amazon, Microsoft, and so on.

5:58Well, I think it could be okay for them. First of all, I kind of push back a little bit on the notion that they aren't participants yet, because, of course, AWS, Azure, these are products that are material for these businesses already. We can't ignore that. Now, have they developed AI out to the level that I think everybody is anticipating? I think people are sort of losing the difference, essentially, between their cloud products, which do defend heavily on NVIDIA GPUs. Let's be honest. I mean, I was a longtime subscriber to AWS, and we were spending quite a lot of money to basically get access to all of that.

6:38So you have to separate that from an AI product that's recognizable to the average consumer, something like a chat GPT. I think that's what everybody thinks is going to fall out of all of this, not recognizing that these companies are already generating billions of dollars off of their cloud stack, which is a large part of where that NVIDIA money is coming from. Right. And the consumer side of it may not be the biggest sort of gainer of it all. I mean, it could be the enterprise side of it, which we're not necessarily hearing about at this point. But, Tim, let's say the hyperscalers say we're not going to spend as much, and that's a positive for them.

7:12Negative for NVIDIA. Sure. Yeah, I do think that there's been kind of this this dynamic that that's driven the NVIDIA numbers and has allowed the street also just to kind of project what it's going to look like next quarter. But I do think it does get back. And I think Google is a good example because they are kind of caught in the middle of this. I think we want to understand what the ROI is on their spend. They as much as anybody. So we want to know what the spend is. We want to know what the ROI is on the spend. And then you get back to their core consumer business. I mean, their core search, which is obviously on some level, this this dynamic, which may be getting threatened, but is still expected to kind of grow.

7:46I think the streets of twelve point four percent on consensus and that the the EPS line is supposed to grow roughly thirteen and a half percent. It leads you to a place where Google of all of these names, I think, should be the most defensive, though, based upon the multiple relative to itself. And again, at the EPS where the street is, this is a$200 stock if it's trading at 20 times. And that's something I think is interesting. Remind me not to go behind Tim. He just literally makes all the points, and I'm here to just kind of co-sign them. But essentially, I think that if you're concerned about whether the MAG-7 trade can continue, you do look to Alphabet.

8:21Because again, as I said, I think that multiple, I think the recent price action, vis-a-vis that and the semi-trade, has essentially priced in that margin for error. All right. For more on what to expect from big tech next week, let's bring in Jeffries analyst Brent Thill. Brent, great to have you with us. I'm going to pick up exactly where we left off, and that is Alphabet, because you think that Alphabet's actually the most controversial name, because it's got to prove that what it's spending on is worth it. What are you looking to hear this quarter? Yeah, good afternoon. Thanks for having me.

8:53Google has had the worst sentiment of all the names going in. So the setup is better because everyone is so negative. As Tim pointed out, the multiple is super low. It's trading at a low teen EBITDA multiple, which, again, is very, very cheap relative to historic. I think the big concern around are they going to monetize AI? What happens to search? What's the new CFO going to say? Google has been a company that has literally given investors no outlook, no milestones, nothing that they're going to hit. They're like, either you invest in us because you believe in this, but we aren't going to give you anything financial analysts.

9:32Google, Meta, Microsoft, everyone else gives mile markers. So I think everyone's been, hey, I can't really understand this. And it's no doubt why the sentiment's so poor. So we're looking for clues around will the CFO change the outlook and the way that they've guided historically. No one's expecting a lot. And ultimately, the health of search has been good. Advertiser checks have been good. So I think it's more around when are they gonna, how are they gonna monetize AI? What's happening in core search? Are these new AI systems that we're all using, are they taking away from our ability to go to Google?

10:09We don't think that's happened. Obviously YouTube's a big focus. We think YouTube's doing very well. So overall we think it's a lot of the negativity is priced in and we would agree it's definitely has the lowest expectation going in. What are the markets that you wanna hear from Google when it comes to monetizing AI. I'm curious as to, you know, what the advertising is like and what they make on, let's say, an advertisement that's placed next to a Gemini, you know, answer to a query versus in the search, in the traditional search business. Yeah, I think we'd love to hear that. I think the big thing, you just want to hear that core search is good.

10:49We're obviously in an election year. You have a lot of online spend. Again, you have the strength that can continue. Many advertisers are worried about a Q1 hangover because we have such a robust advertising market. What's going to happen? They don't typically give us an outlook on that. But I think, of course, search stays solid. YouTube is good. And they continue to demonstrate inroads in AI with Gemini, which we think they are. And again, we're really early. We're like bottom of the first inning, maybe even bottom of the first inning. It's so early. So I think as long as it's not terrible and core search is OK and ad budgets look good, stocks should be OK from here.

11:30Brent, do you find that we're getting to a valuation time period with these names or are we still just focused on AI? Because Google could be considered cheap, NVIDIA could be expensive, but are we not there yet? Is it still AI-centric? We're not. I mean, you look at NVIDIA and Microsoft train at 30 times earnings. These are not, you know, dot com, Internet, cloud. You know, we're not, you know, Palantir is trading at 30 times revenue. We have NVIDIA and Microsoft trading at 30 times earnings. So I don't believe we've hit this bubble. Second, there's no mass rip roaring IPO market, right? We're not seeing that.

12:10We're not seeing huge multiples. My entire industry, which mainly is software, the multiples have only compressed and gone into energy, gone into financials. We've seen actually in our desk more money moving out of tech into other sectors, given the rip we've had in semis. So I don't think we are in a bubble from what we can tell across multiple fronts. We just we don't see it yet. The question you guys raised earlier was on CapEx. Every investor we meet with globally is like, when are all these dollars? If Amazon and Microsoft next year spent 80 billion in CapEx, how do I know we're getting a return?

12:48We're seeing a backlog. We're seeing it in customer stories. We're seeing the adoption of some of these new products. It's early. But every board and every CEO in America is talking about how they embrace AI. I don't care if you sell farming equipment or you're the most technologically advanced healthcare company. Every single CEO. And I've never seen boards in 25 years of history doing this. They are absolutely freaked. They weren't freaked about crypto. They weren't freaked about the Internet. They weren't freaked about other technology shifts. They are freaked about this, and they're getting in front of it.

13:21All right. Brent, great to have you with us. Thank you. Thank you. Brent Thill of Jeffries. Michael, how has the positioning been like into this very big week of earnings? Bullish. Bullish pretty much in all of them, actually. Oh, yeah. I mean, well, first of all, look, NVIDIA traded, what, 4.7 million contracts, over 55 million contracts, including index and ETF options today. But calls are outpacing puts in all of these names and by a considerable amount. And we're talking about probably two times as many upside bets being made. And I think it's more just a skittishness about the fact that the stocks have come so far, NVIDIA maybe being the most notable example in this.

14:03Because I mean, I guess what multiple we assign to this depends a little bit on what you think they're going to do. But I'm looking at maybe$4 a share for a full year 2025. So that gets us to 35 times next calendar year. That doesn't seem overly expensive. That's more than 40 % year-on-year growth. So that's peg ratio less than one. I mean, that's growth at a reasonable price. All right. Meantime, let's move to Apple here, reportedly testing a blood glucose management app as it looks to expand its health offerings. Some pre-diabetic employees testing the features with Apple hoping to integrate the tech into future health products.

14:37And new-setting stocks like Dexcom and Insulet sharply lower midday, though they ended off their lows. Apple's system expected to show users their glucose levels change based on food intake, according to this report. And, of course, remember, traditionally, blood glucose is measured with a pinprick. I mean, you actually have to get the blood. But this is a bloodless way of doing that, which would be revolutionary. It's good that they don't do this on the set of Fast Money after we're handed gummy bears. Harrybo's, which are fantastic, by the way, and the folks out there know we know that they liked us.

15:08We like them. Excuse me. I just think it's a case with Apple. This isn't something that's moving the needle. I mean, this is something that is part of that story. It is part of a place where at some point Apple does become indispensable and is part of that that device that I do think from the health front is helping the services revenue. But it's not changing A.I. It's not changing this the dynamics around the refresh cycle. Sorry. Yeah, no, well, it just makes that device that much more desirable, that much stickier, right? And that's what it's all about, the ecosystem. You're not going to go to some other device to do this.

15:39You've got it all in your watch. And that's good enough for me to want to upgrade my watch. I don't, again, I'm agreeing with Tim. I don't really think it moves the needle, but I do think it's supportive for Apple from the point of view that it does speak to the install base. And you have another sticky or attractive feature that you now have there. Listen, I don't know when they expect to roll out of this and whether or not it will really be disruptive in terms of the healthcare space. However, again, I just think it speaks to their install base, which is really, again, the bull case for Apple.

16:09Do you remember when they first came out with the new watch, they wanted to have the pulse ox, but they couldn't do it because it was infringing on someone else's? You know, that's a much better use case because everyone is your tam on that. Everyone would enjoy or like the benefit of a pulse ox. There's not as big TAM on this use case as it was on that. So I think they're just trying to have something, not the best thing. Well, if you think about the TAM for weight loss drugs, there is some overlap there because there's a lot of pre-diabetic people out there. There are a lot of diabetic people out there, and hence the huge market for weight loss drugs.

16:50And so if you think about it like that, the TAM is actually not that small. It's not that small. 11 % of the population has, I would think, around 11 is diabetic or some progress through the phases of diabetes. It's, you know, with a pulse ox, once again, it's 100 % of people that wear the watch would use that. Sorry, I just, and they probably already own either an Apple phone or a watch, and therefore I'm not sure it really moves that needle. Coming up, a footwear face-off. do big gains and hoka maker Decker suggests Nike's problems are bigger than we thought. But first, the latest on Elon Musk's reported secret meetings with Vladimir Putin, what it means for national security and for Musk's company.

17:35This is Fast Money with Melissa Lee, right here on CNBC.

17:49Welcome back to Fast Money. A new Wall Street Journal report revealing a regular contact between Tesla and CEO, Tesla CEO Elon Musk and Russian President Vladimir Putin. The secret conversation is raising concerns over national security. CNBC's Eamon Javers has got more on this. Eamon. Hey there, Melissa. Well, what we know as of this afternoon is that NASA head Bill Nelson is saying today that the possibility of conversations between Elon Musk and Vladimir Putin should be investigated. speaking at a conference organized by the publication Semaphore. Nelson said if the story is true, that would be concerning.

18:24No comment yet from Elon Musk, but the Kremlin is denying the Wall Street Journal report from this morning, calling the story, quote, fake. The Wall Street Journal citing several current and former U.S. and European and Russian officials in its reporting. CNBC has not been able to independently verify the details here. What the journal is reporting here is that Musk has been in regular contact with Vladimir Putin since late 2022. They reportedly discussed personal topics, business and geopolitical tensions. And the journal says Putin asked Musk not to activate Starlink over Taiwan as a favor to Chinese leader Xi Jinping.

19:02Now, I've been talking to several high ranking former U.S. intelligence sources about this. And there's a couple of points to know here. One is, and maybe most importantly, it's just unclear at this hour if Musk disclosed these Putin contacts to the U.S. government. That would be required of him as a holder of a top-secret security clearance. You know, we'll have to do more reporting to find out. It is at least possible, also, that U.S. intelligence knows more about the contents of these conversations between Musk and Putin. if the NSA is technically able to obtain Putin's communications, it would be allowed to record conversations he has with Elon Musk, even though Elon Musk is a U.S.

19:41person, as long as the intended target of that surveillance is Vladimir Putin himself. That's called incidental collection. They would be able to make use of that. Presumably, Melissa, Elon Musk knows that. If he's talking with Vladimir Putin, whether it's encrypted text messages, whether it's over the phone, what have you, Elon Musk has been around long enough to know that that kind of communication would be a target for U.S. intelligence. All right. Eamon, thank you. Eamon Javers in Washington on this story. At what point does this catch up to Tesla, to the valuation of SpaceX, to all of this, Mike Comey?

20:17What do you think? Well, first of all, we'd have to make an assumption that U.S. security was somehow unaware of it. I mean, for all we know, if this was true, if it is true, it is entirely possible that they essentially were listening in, if you will. So I think it's very speculative stages. I will say that net of the pop that we've seen in Tesla, though, and going into some additional results from other automakers, I kind of feel like it's probably not a bad idea to lighten up on Tesla here and maybe pick up a little bit of GM or Ford. I mean, take a look at GM, for example. That thing's trading at 150th of valuation on an EBIT basis.

21:02Ford's probably a similar number. I like GM better because they have better autonomous driving technology. I just think that you could probably justify lightening your position there on valuation alone. Bono and Tesla or GM? For trade or for a long-term hold? For trade and then for a long-term hold. No escaping. So answer both. I would say GM. Listen, I wasn't expecting this massive run up in Tesla going into earnings, and clearly that's happened. I think, you know, you can kind of drill down and ask yourself, is this kind of an ongoing margin expansion, which is what they reported, or is this a one-time thing related to batteries?

21:37So I tend to be in the latter camp. So I would say, yeah, GM for the short term. I do think, you know, the concern around Tesla, at least for me, and I think, you know, a few others, was that ultimately these price forwards were going to lead to erosion of margins and essentially, you know, a war with both local U.S. manufacturers and, you know, Chinese manufacturers. It seemed like everyone, at least domestically, has really rolled back their commitment to EV. So I think over the long term, particularly if you're able to get a pullback and then find a reentry point, I do think Tesla, because I think it has the potential for growth and I think it has the potential for innovation and that the competition has seemingly fallen by the wayside.

22:18Whenever it's election season, we always talk about baskets of stocks that are Republican baskets or Democratic baskets. Where does Tesla, I mean, where does Tesla fall? And I sort of ask that facetiously. We sort of know that he's aligned himself with Donald Trump at this point. So has it benefited from that run-up in the Trump basket that we've seen? Well, it's fascinating because you would think historically it would sit in a basket that had a blue ribbon on it. Right. Based upon at least what they do, the people they appealed to. But it's a fun game to play, and we play a lot of fun games here, and we have a lot of fun.

22:53I just think in terms of thinking about Tesla this week, obviously, it is not, and even the rally in Tesla that we've seen over the last month or so, it's really been driven by a dynamic that this is a more profitable car company, and the sentiment was so poor. And we got more detail from IR that really explained about some of those cost inputs, and it had the analyst community saying, we think these gross margins are more sustainable. So this This is a week where, you know, Tesla, I mean, Elon Musk made$22 billion this week. That's right,$22 billion. And it's a case where I just think the sentiment around Tesla was so poor, but that no one expected these numbers.

23:26I'd rather own GM. You didn't ask me. Yeah, I think on a technical level, Tesla is running into a couple of resistance points. It can go higher, but sentiment was so poor. And whenever you bet against Tesla, it winds up really spiking the way it has. But GM is just crushing Tesla and Ford on a year-to-date performance. I would stick with GM. There's a lot more Fast Monday to come. Here's what's coming up next. A sneaker showdown for the ages. Is strength in upstarts like Hoka proof that Nike's problems are about to get much bigger? A closer look at this footwear face-off next. Plus, another dent in the housing trade.