Bull Market of Full of Bull? Making Sense of the Astronomical Climbs in Nvidia and Others 2/12/24

0:01Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast Tmoo's Super Bowl ad blitzed the Chinese e-commerce app spending millions to raise awareness and boost business. But will U.S. lawmakers, angered by Tmoo's ties to the Chinese government, put a roadblock in front of their expansion plans? And later, inside the original F. Fang's new deal in the energy patch. Fang, like Diamondback. The options action on Robinhood ahead of earnings and an infrastructure stock posting tech-like returns. Can it keep climbing? I'm Melissa Lee coming to you live from Studio B at the NASDAQ on the desk tonight.

0:47Steve Grasso, Karen Feiderman, Dan Nathan, and Bono and Eisen. We start off with this seemingly unstoppable market. The Dow and S &P setting another round of intraday records today, with the Dow closing at an all-time high again. And even the Nasdaq got in on the action trading at one point at what would have been a record close for the first time since November 2021. All three indices solidly in the green this year, but a couple of individual names have really caught our eye. Everybody's eyes, that is. NVIDIA continues its astronomical run at one point today, eclipsing Amazon in market cap, inching toward passing Alphabet.

1:21It's added over$550 billion in value just this year. Then there's Arm Holdings up another 30 percent today, nearly doubling since reporting earnings last week. Eli Lilly, which is up 113 percent in the past year, now has a bigger market cap than Tesla. And Super Micro,$300 stock just a month ago, is now closing in on 800 bucks a share. So these monster moves got us thinking, is this truly a bull market or is this market just full of bull? Oh, Dan. I'm surprised we never heard that before. So she goes to the guy that she thinks is most full of bull. But here's the deal. Really interesting day in the market.

1:56I think you guys would probably all agree that to have Apple and Microsoft and Amazon and Google close down 1%, have the S &P unchanged. Right. At one point, NVIDIA was just raging. Right. And the semis kind of did that sort of intraday reversal. But again, unchanged. OK. The problem with NVIDIA here is that they report next week. We can all put it in the calendar. We can all see what the expectations are. We know that it's up at its highs today was up 50 percent. Just do the math on that. So you're just talking about how it overtook Amazon in market cap 50 percent on the year. That's what happened.

2:29We're in the second week of February. That's nine hundred billion dollars in market cap. I think in all of our collective careers, we've just never seen anything like that in such a short period of time. So it's really hard to kind of get your arms around it. You know, I still have PTSD from the 2000, 01, 02 sort of bear market. When the last time we saw these sorts of ramps and individual names based on the sort of excitement that I think most people would agree that, yes, this was a new technology. It was going to change so many industries and that sort of thing. But you pulled forward all that enthusiasm and it did take two and a half years.

3:03It took 14 years for the Nasdaq to get back to those highs from 2000. So, you know, I look at this and I say it's an accident waiting to happen. But here's the good news. If you're a slow money person, not a fast money person, you own 4 percent of this and you're a spy. You own 6 percent of it in your Nasdaq 100. You are exposed to it. I just think the idiosyncratic risk that exists in this name into that print next week is really dangerous. Are we too hung up, though, on the percentage gains in the stock as opposed to looking at the valuation? Because what is different about the time, the period that gave you PTSD and today is that this is a name that's making money.

3:39And we couldn't say that about those other companies back then. Yeah, that was going to be my point. It's like there's a massive disparity in terms of valuation. Now, agreed in terms of the pace of acceleration, it is concerning because at some point, you know, the price and expectations do outstrip the actual value. However, comparing those to Y2K, if you will, some of those companies, we're talking about valuation, some of those companies didn't produce income, let alone revenue at all. So that was purely on speculation. When you're looking at names like Lilly and NVIDIA, they truly do have and have shown the ability already with their target adjustable market and the proliferation to the market is that they have an opportunity to be truly transformative in terms of both the stock market and in terms of how they're affecting consumers.

4:26So I do think there is definitely at least some proof of concept there at a very large scale. Not to mention, I think Dan mentioned a couple of shows ago when we saw AMD start to stumble a bit. And they're coming in essentially saying that they're going to be competing on price, looking to slice margins. When you see that type of competitor fall, that to me bodes very well. And you juxtapose that, you know, with the Lilly situation where we've seen other trials that have not gone through. Clearly, they have found a way to wrap up the secret sauce and deliver a product that has, one, a large adjustable market and two, clear barriers to entry because competitors are unable to compete as of now.

5:04At some point, yes, competition will take over. But for now, we're essentially saying the valuation still is compelling. And these are companies that are earning and watching earnings expectations be ratcheted higher. Value investor over here owns NVIDIA. I do. I do. And I own Lilly as well. And, yeah, I mean, this sort of action is particularly the first, I don't know, hour or two hours, just a melt up on really on nothing. It was it almost reminded me of Archegos. Do you remember that? Where the Viacom, you know, for no reason. I mean, it was just going berserk what was under it. This is a little different than that, but it did seem up on nothing.

5:42We've seen this twice before since the giant transformation and when they made that enormous expectation of revenue just exploding. So I think it's going to play out the same way. There's just I mean, the expectations are so, so high. Can they even put up any number? Is there a number that they can put up that will be enough? I'm concerned that there isn't. And so I have to lighten going into it and probably right when it happens. I agree with that. You have to lighten. She has no other choice. But think about how many times I think you said the last time on the show, how many times have they surprised to the upside where everyone said it's all in the numbers.

6:19Right. So we did the valuation. You guys did an excellent job of comparing 2000, the dot com bubble to now, how it's different. But think about it. They have 85 percent of the market share, 85 percent of market share of every sector. Every sector is going to use AI, whether you're an industrial, whether you're an energy company, whether you're a retail company. So when we used to look at technology companies, 95 % of that technology was used for that technology company not to be sold to every other sector. Every sector, everyone in this room, the majority of the population with a computer is going to be using AI.

6:56They have 85 % of the market share. Until they lose that 85 % of the market share, this was all pixie dust. Until they were actually monetizing it. They're making billions in it. 80 percent of their revenue is from data centers. What do you need for AI? Data centers. They've locked it up. Yeah. I mean, listen, and you could have made the same argument, you know, 20 some years ago about it was actually data centers back then, too. It was Sun Microsystems that was actually funding a lot of their and Cisco. I mean, they were the same. It really doesn't matter like the profitability. Cisco was a very profitable company back then, but Cisco was a 400 billion dollar company at its highs.

7:34We're talking about a company that literally just gained a trillion dollars in a month. OK, so my only point is when I look at a company that has 73 percent gross margins, they have 85 percent market share. It doesn't get any better from there. Like that's it. And when you think about all of these industries that are going to transform using AI, they're going to use it from the hyperscalers. It's going to be AWS. It's going to be Azure. It's going to be Google Cloud. It's going to be a whole host of other players. How do they compete? They compete on price, just like the competitors when they come in, like an AMD and these other ones.

8:02Then they're going to go and they're going to design their own chips because they don't want to bring the price down more. It's going to become commoditized. It's going to transform, but it's going to transform over a much larger period, a longer period than most people expect. That is the history of technology. There's no reason to think that this should be that different. So I'm just saying we look at every tick in this stuff. We talk about it every night on the show. We debate this sort of stuff. It's kind of a game for us, OK? But it's not different. Human psychology, the way we think about transformative technology, the way we think about investing in it, the way we think about fear and greed, it's the same.

8:32So at some point, this will turn. It might turn from$2 trillion or$2.5 trillion or whatever. You know how I'm going to be there? I own stuff for the long term like we all do that we dollar cost average in, and this has become a huge outsized percentage of it relative to what it was a year ago or whatever. So you have that exposure. And I totally get it. And I guess my point is that you can't go from a nascent industry to a saturated commodity-based marketplace overnight. So I think you buttoned it up well. Where does that happen? I still think we're early in that cycle. Right. When do you get off the train?

9:05Yeah. When do you think the train is going to stop? So how do you assess that? And what happens to the markets when that train stops? If the markets are being powered right now, literally, by AI, AI-powered sort of plays, you know, GLP-1 sort of plays, what happens when that music stops? If it does, are we in jeopardy? Well, certainly. I mean, all you have to do is look at SPY versus, like, an RSP. You can see the equal-weighted versus the SPY in the very concentrated market. excuse me, market cap weighted index or ETF. So it is telling you, yes, we do have extreme concentration risk. We do have a handful of names that are leading us higher.

9:39We probably have a lot of trouble under the surface in other subsectors. But for me, that's all the more reason for me to be if I'm going to be invested, at least right now, to be in those markets. And to Dan and Karen's point, I agree that things do happen in cycles. There is a human psychology. But as Beffitt says, things can can remain out of whack much longer than you can remain solvent. And so how what is the opportunity cost to I mean, at three hundred dollars, we said it was ridiculous at four hundred dollars, we said it was ridiculous at five hundred dollars, we said it was ridiculous.

10:07And I'm not saying that you eventually won't be right, but you can lose a lot of money or have foregone a lot of money in that time frame. And so we're here playing fast money, trying to pick the tops and bottoms. And I don't blame Karen for lightening the position. But I do think at some point, as informed as we all are, we have to be a little humble and trade the trends and say, listen, whether we necessarily can derive value in the way that we would do traditionally, there is a perceived value around these companies. And it's our job as one of my mentors. Do you want to be right or do you want to make money?

10:42And you have to be in lockstep with where people are allocating money. You have to be in lockstep in what the what the overarching cyclical themes are and probably play those. And perhaps you get in, get out a little earlier than maybe someone who wants to write it for the last tick. But to essentially say this is completely uninvestable. I just I'm not sure I can get into that camp. So I'm somewhere in the middle. It's investable. I'm invested in it, but there is that part of it. It is just, you know, I wouldn't say it's a greater fool theory. It's the expectations being too much theory that getting back to that, as I said, is there a number they can put up?

11:17So to me, I think that I will be at least a third out by the time they announce. Whether I buy that back, I don't know. Then you've got the big tax question of when, you know, you pay an enormous tax. And then when do you get back in? I don't know. But I do think, to Steve's point, we're still early in the AI evolution, revolution, whatever you want to call it. And Cisco, let me just say Cisco in 2000 or 1999 was trading at 200 times earnings. Wow. And this is this is not. Well, it was 30. But now it's like 47. I don't know where it is now. But I think to dance with that, we could be early in the AI story, but we can be later in the video story.

11:58Well, that is true. Right. I mean, there's a difference there. Anyway, our next guest suggests NVIDIA's monster rally is evidence a fear of missing out is forming in the market. Julian Emanuel is Evercore ISI's senior managing director. He joins us here on set. Julian, great to see you. Great to be here. So how do you sort of think about what investors want, how they're positioned, the trend versus the fundamentals of where we are right now? So I'm going to start by acknowledging two things that Bono just said that is absolutely spot on. The first being, you know, essentially that it is not about being right.

12:32It's about making money in a lot of this business. But the second really sort of tying in from the first is that there are times when one has to think about protecting one's capital rather than growing one's capital. And look, our call that there is FOMO in the market. You see it in the options market. calls or trading at all time expensive versus downside puts. The sentiment is very, very bullish. The bears have been eliminated, short interest, all of these things. And also, anecdotally, the same clients, a lot of which we know going back to 2000, have begun in the last couple of weeks to talk about the potential penalty that they might pay for being underinvested.

13:19That's the first time that's happened since 2021 for us. That's a bit of an alarm bell. Now, the other thing is that the humility of this business is really evident in some of these stocks moving. We have been on board in pieces. We like communication services. It's been a great sector. We think there are defensive properties. But all in all, this is a time where when you look at it, the S &P is up 43 percent since the October 22 low. The Nasdaq is up 71 percent. And guess what? Earnings at the S &P level are the same that they were two years ago. Nasdaq, obviously, we know where the earnings power is.

14:02But at the broad index level, 22 times is very expensive. We just think it's time to think more about risk than reward until we get just a little cooling off. I almost thought you're going to go to, you know, we want to be long, but we don't necessarily see the fundamentals stacking up. But it sounds like that's where your clients are at this point in time when they're feeling forced to be long, you know, at all time highs. That's part of the message. And again, I think, you know, and we compare this to 2000. And the good part about comparing this to 2000 is the valuations are not as extreme. Basically, the seeds for a downturn started to appear in early 2000.

14:54You didn't get the recession till 01. We do not see that yet. But on the other side of the coin is that the concentration of the top five right now is 25 percent. That number was 18 percent in 2000. So, Julia, when I look at it, there's always two sides of the market, right? So when I look at it, I think people were offsides and people were overestimating how bad things were going to be. So they stayed out of the marketplace. And that was that created a pent up demand. They're worried about the recession that hasn't come yet. or maybe there was sort of a rolling recession that we didn't see. That's why the money rushed in.

15:30So I always think that you can remain that way or offsides on both sides of the market. We got so defensive and people pulled back so much money from the overall market. Now they're dumping it in. So I don't know if it's fear of missing out as much as, hey, this is the game in town that I have to be on board with because the apocalypse is not coming at least for the foreseeable future. And I'm sympathetic to that to a certain extent, Steve. But at the end of the day, you're still making 5 % on cash. OK. And so there is an element. True. And you can make 5 % in 10 minutes. Right. In two minutes, really, seeing some of these names.

16:11But that is the entirety of the calculus that for us says, you know, and we've had this conversation from time to time, is that when you're actually thinking as if nothing can go wrong, which the market in a lot of ways is, that's the time when you have to think about if you've got an average-sized pullback. In the average non-recession year, the market pulls back 13 % from peak to trough. You need to be a buyer, not a seller. And if you can't see yourself being a buyer down there, you should probably lighten up a little bit here. Julian, you know, we just spent a lot of time talking about psychology.

16:47And again, we all have these long memories about these periods. And so when you see some of the activity that's going on right now, it's really easy to say it's different this time. Obviously, we know that. You know, one of the things that I when we think about NVIDIA, we think about what's going on in semis. I want to go to Tesla. This was one of the best secular stories ever. Right. We were going to be full EV by here. It was going to have this sort of penetration. They had no competition here. They were the best manufacturer of this sort of stuff. And they had margin in this sort of stuff. And, you know, full self-driving was going to come.

17:14And that was going to be really high margin. And here we are. It's been cut in half. It's massively underperformed the S &P 500 over the last three years. It's down 30 % in the last few months ago. I don't hear any of those folks anymore. You know what I mean? We hear a few of them. But, you know, that sort of thing. This can happen again. You know, the last time, you know, NVIDIA had this sort of mojo, it was AR and VR and Facebook was changing its name. And then it went down 70 % over the next year and a half. So I'm just curious, like when you talk to clients, are they cognizant of this sort of thing?

17:44Do they have this sort of memory? Well, they do. But again, there's an element of the recency bias that says, you know, I may be in more danger for missing out on on the way up. But look, I would say it's pretty clear and everyone's been talking about this for weeks. The Magnificent Seven is now the Magnificent Six. And to me, that implies that the gains are becoming even narrower here. And that's something we feel like you need to watch out for. Julian, thank you. It's always good to see you, Julian Emanuel. So, Karen, in terms of option strategies, how are you protecting your portfolio? I sold some more meta calls today.

18:28And I'm short in video calls. I have some one by two, which is essentially selling some stock if it gets above a certain price. And I'll look at more in the next couple of days. It's interesting, though. So psychologists always tell us the pain of losing money is far greater than the good feeling of making money. And yet we're in a very different. Do you talk to your shrink about stocks? No. Oh, that was interesting. OK, I was just curious. That's really interesting. That seems like behavioral economic. I mean, Daniel, I really just they do have shrinks for my business. They do. It's not just like it was on billions.

19:06Yes. It's not just like a billions fantasy. It's an actual real thing. So what are you doing, the options guy? No, honestly, with implied volatility is where they are. I think you actually buy protection. I think you actually buy protection. And admittedly, as I've told you, I've even lightened up some of my NVIDIA position. I just think, one, it's a long haul. But I do want to acknowledge both of their points, both of these two panelists' points. I agree with you things are cyclical. I guess what I'm saying is there's a long, toothed round trip. And are you willing to miss everything that goes along with that round trip?

19:38So, I mean, that's really what it boils down to for me. Coming up, we are watching Vernado Realty after our shares of the office property manager on the move. After delivering results and numbers out of the quarter next, plus inking an infrastructure deal, Martin Marietta scooping up a building supplier as it looks to cushion its construction operations, the details and what it can mean for the stock ahead. Don't go anywhere. Fast Money is back in two. This is Fast Money with Melissa Lee right here on CNBC.

20:10Welcome back to Fast Money. We've got an earnings alert. Office property manager of Renato reporting its Q4 results after the bell. The stock is up 2.5 % after hours. It was up more than 6 % at highs. The Real Estate Investment Trust reporting an adjusted earnings of$0.04 a share, revenue of$442 million. FFO did beat what was expected, I believe. Karen, what do you make of this quarter? Well, it wasn't as bad as people thought it maybe could be. The New York City occupancy wasn't terrible, so that's good. We all know New York City commercial real estate office buildings, not a great place to be.

20:42San Francisco, very, very challenged. But really, the underlying thing here is what do you think happens to rates? I mean, this is so pinned to rates. All of them are. But you have to just make a bet that rates are going to go lower to feel comfortable here. Yeah. How do you feel about rates and whether or not you would be in one of these names? I don't think I'd be in this name. One, the concentration in New York and then San Francisco as a secondary market. Rates, I don't think, are going to be falling nearly as fast. And for me, it's not just rates. It's banks' willingness to go on ahead and refi and extend the existing terms.

21:18And I think they're kind of coming under the gun and not being able to do that. Not to mention, Karen and I were just talking about all the dry powder that is there in these distressed asset funds. So there's actually a willingness for banks to now deal to people that can come in and kind of take out the existing equity. So I just think the backdrop is a little bit different. And we've heard these data points. One and a half trillion of commercial debt is supposed to reset by 2025. The bottom of the commercial market is not supposed to hit until the second half of 2024. So you can get in and buy these names ahead of those bottoms, but why would you?

21:55It just doesn't make any sense. And who's holding all that debt? 30 % of it is the regional banks. So you have to stay away from regional banks. You have to wait until commercial real estate bottoms. And there's a lot of if and then what going on. I mean, even second half of 2024 seems very optimistic. I mean, Mizuho had a report saying CRE default rates, they're a lagging indicator. And so what we saw during the great financial crisis, we didn't see them actually peak until 2011. So that's quite a huge lag. I mean, if you're thinking about investing now to see a peak in a year or two years. Some might say it's a long and variable lag.

22:29But again, because we haven't seen it. Just look at the home builders right now. They're raging. Do you see them today? And do you see where the 10-year is at 4.17, like the highest it's been in a while? So, again, I mean, this is a really tricky – both areas. I think the dynamics are obviously really different, and I actually don't think the commercial real estate thing gets any better anytime soon. I agree. I think that there was a bounce there when rates went down, but I think that this is – the pandemic is way worse than 07. and beyond, I mean, right? Structurally, I mean, yeah, yeah. Way worse.

22:59There's a glut of supply, and that's the difference between, you know, the residential or the home builders narrative and this. I mean, there is, to me, there's no end in sight. Unless we're going back, return to work is getting restored to 100 % of what it once was. If there's even a modicum of hybrid work existing, you can't expect there to be the same occupancy rates. There's a lot more fast money to come. Here's what's coming up next. We're living in a material world, and this is a material deal. A building supplier inking a$2 billion construction acquisition as demand in the infrastructure world keeps climbing.

23:36And it's not only the deal of the day, one oil producer sinking their fangs into an energy mega merger. More on the crude consolidation ahead. You're watching Fast Money, live from the NASDAQ market side in Times Square. We're back right after this.