Cautious optimism ahead of Nvidia earnings and a new global EV powerhouse 8/27/24

0:00Thank you very much Morgan live from the Nasdaq market site in Times Square this is fast money and here's what's on tap tonight the final countdown the markets in wait and see mode ahead of invidia's must see earnings. tomorrow. Investors also looking ahead to the next jobs report. Is this a make or break moment for the rally? Plus, big shot. Eli Lilly coming up with a new way to get its obesity drugs in the hands of more customers. The details and the ripple effects coming up. And later, Morgan Stanley thinks Coke is set to KO Pepsi. Yeah, right? China putting a new cheap EV on the market and get ready for a steady stream of football.

0:42We will explain that. Good evening, everybody. I'm Tyler Matheson in from Melissa Lee tonight, live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Dan Nathan, Guy Adami, and remotely, Julie Beal. We miss you, Julie. Wish you were with us, but you're here virtually. Glad to have you. And we start with another historic day for the Dow. The industrials eking out a record closing high yet again by two one-hundredths of one percent. S &P 500 and Nasdaq also modestly higher on the day, fractional gains there. The market largely in wait-and-see mode with NVIDIA results due tomorrow. The AI giant up about a percent and a half today, almost 160 % for the year so far.

1:25At the same time, the conference board reporting that consumer confidence came in better than expected this month. And that more bullish consumer may be lifting the fortunes of some travel names, Expedia, Carnival, and TripAdvisor, all higher on the day. So, Guy Adnami, does the market slow grind higher feel give you a – how are you feeling about it? I feel good that you're here, Tyler, for day two of three. I'm encouraged by the – yeah, I mean, listen, the move off the August 5th low is staggering. And here we are basically in terms of the S &P right back to prior all-time highs. I think that's encouraging.

2:04What I think is potentially worrisome is the fact that I think the VIX is still going to be a story. And, you know, the market is doing this again seemingly on a lack of real volume. I think it's just sort of this slow grind higher on the back of the anticipation of what we're going to see tomorrow and maybe in terms of the inflation data on Friday. I'll say this. The setup for NVIDIA having rallied now almost 40-something percent from that August 5th low is eerily reminiscent of what we saw back in April, and then you saw that gap higher again. I am not as optimistic, but clearly that's what everybody, I think, is focused on right now.

2:37I think I was here on this set with you guys last year, this week, during NVIDIA's earnings, and it didn't go well, if I'm remembering. It sort of stumbled. Well, look. It went up and then, pshum. And then it didn't stumble a whole lot more after that, though. So, I mean, the question really is what should you be pricing in for kind of medium term growth out of NVIDIA? I think that's what you have to get to. We know we're somewhere around 125 percent growth for this quarter. We know we're somewhere around 75 percent growth for next quarter. Actually, some expectation that you start to see reacceleration.

3:09And again, these are year over year numbers for the progressive quarters. I think you're going to get to a place here where the market needs to understand just exactly what's going on. I think the more important point for the market is, is the AI spend so critical for the overall market story. That's why NVIDIA is the most important stock on planet Earth or whoever we're calling it. I mean, there's a whole lot of probably hyperbole around it, but there's no questioning what's going on here. What does NVIDIA represent in this market, Dan? And can the market go higher if NVIDIA doesn't? Well, I think it can, actually.

3:45If you just see some of the stuff that money is moving away from the Mag 7 and going to some other places. You just said it. I don't look at the Dow. You can put a gun to my head. I couldn't tell you where it's trading, but it just made a new all-time high. The only thing that suggests of those 30 stocks that are price-weighted, they're moving higher. And so when I think about NVIDIA, I think it's a lot of what these guys have said. It really is about expectations. I think as we get into the back half of the year and next year, you're going to have really difficult comps. You can say that up 100 % this year in EPS growth and sales growth with margins that they've never seen before, upwards of 75 % is great.

4:19It might be as good as it gets for a while. When you think about the guidance, they're likely to be in this quarter. They've been talking about being capacity constrained. They've been talking about the demand. We saw all the CapEx numbers from their clients. When you think about 40 % of their sales come from Microsoft, Google, Amazon, and Meta, we all saw them raise their CapEx. The question is whether they confirm this next iteration of these GPUs, this Blackwell chip, if it is going to be delayed and for how long. And then they could talk about the customer migration to these. You know, so to me, that's really the risk.

4:52What really, you know, like the guidance and then what people are expecting in the back half of this year. Because year over year, you're seeing massive deceleration in earnings. Again, it's still up a lot year over year, but it's the decel and the forward guidance that I think people are going to be looking at. sell in hyperscaler investment in CapEx and AI be positive for them, though, and negative for NVIDIA? In other words, at some point, we were starting to push around meta. We were starting to push around Google when we started to hear these CapEx numbers. They're a bigger part of the weighting.

5:21If you're just doing the math for the market, I mean, I wonder, and I wonder if an NVIDIA failure, the other side of that is back to a lot of those stocks that are in the Dow, but is rotation a good thing or a bad thing? In other words, NVIDIA's failure, does that lead to rotation And is that positive? Was that happening anyway? And that's that's a big debate, because since we had that CPI, I think it was July 11th. You can make an argument that mega cap tech has been faltering relative to the rest of the market anyway. And a lot of people want to see that. A lot of people want to see the broadening of this rally.

5:49So I I'm not sure what it means for, say, a Meta or a Google or an Amazon. If NVIDIA falls, it maybe means that they're spending a little bit less on the A.I. that we don't know is necessarily pricing near term into their their profitability. Well, you know, of those three that you just mentioned, Google's the only one that's actually training a large language model, right? So for Google Cloud and Microsoft Azure and Amazon AWS, they're relying on these models on their platforms where other companies are coming and renting that compute for all intents and purposes. So, again, when we go back to Q2 earnings, investors did not exactly love the CapEx spend that we saw.

6:26Microsoft sold off after their results. Amazon sold off. Google sold off. So to me, you know, I think NVIDIA, if the guide is weak, I think the whole complex comes down. Julie, you've been sitting there quietly, but I have been seeing you nodding at different points during the conversation. Jump in. Yeah, no, I agree with Dan. I think people kind of underestimate the impact of the customer concentration that NVIDIA has. And so, you know, were I a shareholder, the thing I would care the most about is are we finally starting to see some broadening in their business? Because that de-risks the situation.

6:58And right now, with NVIDIA trading where it is, it's fragile, right? When you have this level of high expectations, high levels of growth, it introduces some fragility into its ability to trade well going forward. And so I think that's a really important question. I really do agree, though. It's in order for us to see a broadening in a healthy market where all of us on the desk have more conviction that this rally can continue, you have to see a broadening not just in the market but in the actual earnings. earnings. And what I continue to see when I listen to earnings calls is there's still some timidness in terms of the health of the consumer and the health of the macro and the geopolitical landscape.

7:38And so I think that that uncertainty is what causes these schizophrenic days where we have massive moves up and then massive moves down. There's just not the level of conviction that we need in order to have clear leadership long term. Guy, you want to button it up for us? I will. I'll say this. I mean, NVIDIA is supposed to do$120 billion of revenues this year, about$170, let's call it, next year, which is enormous growth. But in order to justify, I think, the price to sales at a$3.2 trillion market cap company, that$160 has to double. Now, if you think it's going to double over the next five years, as Dan would say, have at it.

8:12If you think the acceleration is going to slow down, then in terms of price to sales, this is a very expensive company. All right. Let's bring in Stuart Kaiser, Citi's head of equity trading strategy. Stuart, I note in my notes here, a couple of quotes playing back to you. This is a very unstable market right now, tricky environment right now. People are really on edge on whether there'll be a soft or a hard landing. Yeah, I think that's the case. I mean, basically, you had a 12 to 18-month period of positive economic surprise, what I would call higher for longer. Growth strong, rate cuts getting pushed out.

8:44Markets were able to deal with that because growth was really positive. Since late June, economic data surprise negative, economic data momentum negative. The market is now trading instead of higher for longer, trading a bit of a growth slowdown. And to Julie's point and Guy as well, I mean, that's why you're getting the schizophrenia is because as growth decelerates, you get near a borderline at which the risks become really big that you could go hard landing instead of soft landing. So our view is that risk-reward is just not what it was a couple months back. And you think we may be in store for a recession?

9:14Yeah, our economists have a recession in the third and fourth quarter of this year. remains to be seen. Obviously, those recession forecasts are getting pushed out pretty consistently over the last couple of years. But once you put payrolls down near 100K, I think the market becomes a lot more fragile. And I think that's the situation we're in. So with that in mind, so we've got a payroll number on September 6th. I'm not saying a bad payroll number means recession. I'm saying what the market will do with that bad payroll number going into this month. By the way, I've never heard more people complaining about the month we know is September and we know the volatility.

9:45What do you think about that? Yeah, it's a horrible seasonal month. There's no way around that. To your point of the payrolls, I think it's just that. It's once you get down around that 100K level, we saw it in early August, even if you were full conviction we're going to soft land, you're still going to get a batch or a cluster of data that might look like a hard landing. And the market's just not sort of positioned for that right now. And that's one of the reasons we saw so much volatility in early August. The market's positioned for a soft landing. Yeah, I think – I don't know if I'd call it the majority.

10:10I'd definitely call it the plurality. I think the plurality of the market is basically some sort of soft landing outcome. That's my sense. Yeah, but I mean, in a few weeks, we went from, you know, panic on that first week of August where people were convinced we're going to have a hard landing. And now it feels like, you know, the market's really close to the highs. It feels OK. Let me ask you this about positioning you just mentioned, Stu. Like when you think about like the consumer staples and you think about utilities just outperforming here, they've just broken out. What does that tell you about like the way, you know, money is being positioned right now?

10:41Yeah, I think it tells you two things. One, people are getting a little more cautious. And two, that is the stuff that's been grossly under-owned, right? That would be your short-legged momentum, your laggards. So I think what you're seeing is a little bit of a rotation going on underneath the surface. Julie mentioned earnings. The only pushback I would give her is the 493, the not MAG-7, actually grew earnings on a year-on-year basis this past quarter for the first time in about five or six quarters. So I think some of what you're seeing there is, yeah, people are starting to broaden out or kind of buy that second tier of stocks, particularly if they have a defensive characteristic.

11:10But really quickly, cyclical over secular, because that's really what we're talking about. So if the economy, if people are really nervous, you know what I mean? Like you would probably want to move out of cyclical. Yeah, I think that's right. And that's why, you know, the health care and the staples is doing well. The secular challenge, I think, is the big question, though, is if you believe, let's say, NVIDIA and AI is a secular story, but it's hugely owned. It is the it is the long position of the market. If you get a recession, is that stuff defensive because it's large cap, safe balance sheet and secular?

11:38or is it at risk because there's a positioning element to it? And I think that's one of the things that markets – NVIDIA will be an interesting test of that, actually, I think. Guy? What do you make of the consumer confidence? I know I get it's backwards. I get it. But this is on the heels of, obviously, the unemployment rate starting to stair-step. Consumer credit seems to be extended. It doesn't really make sense to me that people feel as optimistic as they do against the backdrop of what we've seen recently. Does that make sense? Yeah, look, there's been a lot of moving parts on the consumer side.

12:03I think, you know, coming into last Thursday when you had Walmart earnings and then retail sales. I think people were legitimately concerned about after a week payrolls print, what are we going to see out of consumer spending? To your point, the sentiment numbers have held in pretty well. You could read the Target and Walmart and Ross Stores earnings one of two ways. Either those are strong earnings, a consumer's healthy, or you're getting high income even that are trading down. And you could argue that's a little bit less positive. So look, there's a lot of moving parts on the consumer side. I think the consumer credit stuff, we've been talking about that for a while.

12:33So I wouldn't call that necessarily new news, But I think going into that retail sales print, there was a real concern about what are we going to see from these guys through earnings? And to be fair, it was mixed, mixed, but mixed against a very negative backdrop, if that makes sense. Stuart Kaiser, thanks so much. Appreciate your perspectives tonight. Julie, why don't you button it up for us? You used the word fragility a moment ago about, I guess, in the context of NVIDIA. Stuart sees the market as a rather perilous point or fragile state. What do you think? Yeah, I think the problem is that the data is still really mixed.

13:08And I think we can all recognize that the level of leverage that we've seen in the consumer is high. There is indication that the labor market is just not as strong as it used to be. And we have a government that has a lot of leverage as well. And so that isn't a fantastic setup. And I think when you see the things that are doing well, you see investors forced to play into AI, right? They have to, But they're defensively barbelling themselves with things like staples and utilities to try to protect on the downside if they can. All righty. Let's move to an alert on Nordstrom. Those shares popping as earnings beat expectations and revenue came in roughly in line with estimates.

13:48Same-source sales for both the namesake department stores and Nordstrom rack up year over year. The retailer did issue some cautious guidance, however, Tim. Well, you know, it's hard to get terribly excited about anything that we're hearing from department stores in terms of that being a broader trend on the consumer. I mean, I think there are dynamics around the businesses that were Nordstrom on the high end, Macy's on the call at the middle tier that are more structural related to their business, how it's changed, how they've become a little bit more efficient, how digital has been a big part of it, how inventory management.

14:21I think there's an opportunity in these names. I think they're trading. I don't think that the message here by Nordstrom and the after hours is something that I'm making a big tell on the consumer with. The margins were very good. I mean, operation margins came in 5 percent. Street was looking at 4.7. So good for them. They figured it out. Now, here's the problem. I think Tim is exactly right. I don't think this is a tell on the consumer. And I don't think this means Nordstrom's out of the woods by any stretch of imagination. It's a trading call. But I'll say this quickly. You know, their inventories, I think next quarter you're going to see those margins contract.

14:51Inventory's up almost 7 percent year over year. You don't have the commensurate sales growth. I think, to back that up. And unless something happens, those margins that they're enjoying this quarter, I think we'll flip next. Dan? Yeah, you know, we were just talking about the trade down, right, to Walmart and the like. You would think that Macy's would be doing better, right, from a Nordstrom customer trading down. So maybe it is very stock-specific here because Macy's can't get out of their own way. Julie, thoughts on Nordstrom or the consumer? Yeah, I agree. I think it's exactly a stock-specific, company-specific issue where if your merchandising is correct and you're giving consumers value, Every consumer, be it high end, low end, is just looking for value because it's so much of inflation has stripped that from us.

15:30So, you know, I can understand that, you know, Nordstrom, particularly on the Iraq side, is able to deliver that. And those are the kinds of names that seem to be doing better. Bought the suit at Nordstrom. Did you? I did indeed. It's obvious. It's very dapper. It's pretty baller. You look like Dick Tracy or something. Thank you. Coming up. No insurance, no problem. Well, Eli Lilly set to offer weight loss drugs ZepBound direct to consumers at a fraction of the list price. But there could be a catch. The skinny on that one next. Plus, Amazon's new hundred million dollar men, the Kelsey Brothers, landing a landmark podcasting deal.

16:09What it means for an industry that is no stranger to the splashing cash right after this. You're watching Fast Money here on CNBC. We'll be right back.

16:28Welcome back to Fast Money, everybody. Eli Lilly out with a hugely discounted version of its blockbuster weight loss drug ZepBound, aimed at helping patients without insurance coverage access the injection. The single-dose vials priced at a 50 %-plus discount. Angelica Peebles joins us now with more. Is this a kindness of the heart on the part of Eli Lilly? Not exactly, Tyler. This is a play to reach people who are on Medicare and also who can't afford this drug and might be looking for a compounded version. So Lilly's selling vials of ZepBound for$400 or$550 a month, depending on the dose. Only the two lowest strengths are included in this, and this is all out of pocket.

17:14Now, this gives Lilly a way to reach those people who want to take an obesity drug, but they don't want to pay$1 ,000 a month out of pocket and might even consider taking compounded GLP-1s. And you're seeing that reflected in HIMSS. That stocked down 8 % today. Now, Lilly's going where the compounders are online. They're making this offer available through their DTC platform, Lilly Direct. You need a prescription, but they already have a telehealth component, so you could go on to Lilly Direct, get a prescription, and get it filled all in one place. Now, this still does cost more than a vial of ZepBound, or this does cost more than the compounded versions.

17:51So will this completely disrupt that market? Probably not, but it's definitely something that we want to watch here, Tyler. So as I understand it, unlike the, it's so new I hardly can call it traditional, But the other version of ZepBound, which is injected with a kind of injector pen, this requires you, does it not, to use an actual syringe, and you have to use a new syringe every time, right? Yeah, so the pen, which is the typical format, it's like it sounds. It's a pen. You click the button, and it injects you with the medicine. This, you actually have to take the vial, draw up the medicine with a syringe, and inject yourself with a needle.

18:31So it's a little bit more complicated, but Lilly is betting that people won't mind, and that's what we're seeing now with these compounded versions, that people are doing the same thing with a vial. Hey, Angelica, it's Tim. Thanks for joining us. What does this potentially mean for both margins? Because my understanding is that these vials are cheaper to manufacture. Is this something that the analyst community can get excited about? Because it's clear this does seem to be broadening the market. Yeah, Lilly not telling us any of those details at this point, And we asked them if this will help alleviate the bottleneck because we know that the pens have been a bottleneck here.

19:04And they're saying that this is still a complicated process. This isn't going to completely resolve the issues because there are so many steps. But, of course, it is a lot easier, at least it sounds a lot easier, to put this medicine in a vial than it is in the pen. And so we're going to be watching that closely to see how that is reflected in the margins. Angelica, thanks very much. Thank you. We appreciate it. Let's talk this one out a little bit. But what about Eli? Well, I mean, listen, they're clearly in the pole position here. We know that, you know, Novo Nordisk. We had a guy, remember that Jacobs manufacturing company that he was on the show, I want to say a few months ago, and they're talking about building a new fab to create, I think, these pens in particular.

19:45I think for all of these drugs, that is, and Angelica just said it, that's one of the biggest bottlenecks. I think at this point they're getting production of the drugs. But Eli Lilly is a tough one, man. We know that competition is coming from everywhere. for a whole host of other reasons to prescribe this drug. So to me, with evaluation, it's kind of hard. Maybe Novo plays a little catch up at some point. Maybe they make an acquisition. Is this a daily injection you have to take? No, no, it's weekly. So basically what they're doing is single vials for once a week, and they're giving you the injection.

20:15It's weekly with the pen, but that's a really easy thing. You just literally put a piece of plastic. It pricks you a little bit, and that's it. You know what I mean? So the issue with these compounds is that you have to do it yourself. You have to kind of. You have to measure it. Before they had the bubbles out. Yeah, all that stuff. So, you know. Sounds lovely. Sounds like something I'm going to be doing. Not. I'll say this, Todd. I mean, as Eli Lilly approaches a$1 trillion market cap, which is staggering when you think about big cap pharma. We've never seen anything close to that. It's going to force, and we've talked about this, it's going to force other companies to do something.

20:47And I'm looking at Merck. I'm looking at Pfizer. But Viking Therapeutics, which traded lower today in sympathy to the story we just did, they're in the crosshairs. And if you want to play a binary outcome, that's the one that will get you done. Julie, I can't remember, but I think it's a triple digit valuation on Eli Lilly. I can't. Correct me if I'm wrong or if you even know. What do you think? Yeah, I think at this valuation, everything really has to work well. Right. And we all agree that this market is very large and has a lot of opportunity and is pretty meaningful. But the competition is not insubstantial.

21:22Right. And the fact that we're having to resort to measures of people injecting themselves, it just tells you, A, how strong the demand is, and B, how desperate Eli Lilly is to maintain it and keep it and offset everything that's happening with the compounders. I think, you know, longer term, you really have to, we still don't completely understand what the long-term impacts are of people being on these GLP-1s. And I think that's the part that's really tricky to be able to forecast and measure against. And when you have a valuation this high, that really makes it hard to feel confident about those forecasts.

21:55Julie, thank you. We're going to go back to Angelica now, who has a statement on these drugs from the president, I understand. Angelica. That's right, Tyler. The White House putting out a statement talking about how they want to see drug prices across the board lower and that the prices are still too high for Americans. But they are praising Eli Lilly for this move today, saying that they are pleased to see Eli Lilly taking steps to lower their price by offering a direct-to-consumer version of their medication for less than half the price they used to charge. This is a welcome first step for American families struggling to access these drugs.