Chips Trade At Its Peak?... And UnitedHealth Drops After Earnings 10/15/24

0:02Live from the Nanzac market site in the heart of New York City's Times Square this is fast money Here's what's on tap tonight. Sliding semi. Shares of ASML hammered as the semi equipment maker reports a 50 percent drop in bookings and cut to their forward guidance. The news hitting all the chip stocks hard will break down what happens next. And United unhealthy, unhealthy, insurance company dropped too soon. Insurance company dropping over eight percent after cutting guidance. Carter has called this stock godlike. Can it recover, though, from this ungodly decline? plus Apple within a whisper of all-time highs.

0:35What's behind the surge? Time to sell Tesla, what one top technician is saying, and a bright spot with the banks. My financials keep flying. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Dan Nathan, Guy Adami, and Lori Calvasina, head of U.S. equity strategy at RBC. We start off with chips getting checked in a big way today. Shares of ASML sinking 16 % for its worst one-day drop in over four years. It is now back in negative territory for the year. The move coming after the semi-equipment maker said bookings for the current quarter came in well below expectations, gave a weak sales forecast for fiscal 2025.

1:08The news taking a toll on other chip stocks. KLA applied materials dropping double digits. NVIDIA sinking 4.5 % today after recording a new record close. The SMH semi-ETF seeing its worst day since early September. So is this a signal that yesterday marked the top in the red-hot chips trade? Dan, you were sort of, you know, saying be cautious about this trade yesterday. That's for the very reason. I mean, we're talking about many of these companies that are obviously buying these high-end GPUs, putting them in these servers, building out these data centers, basically training these models. They really want to ask for forgiveness rather than permission to spend.

1:42This is what it relates to their investors. And at some point, they're going to overbuild, and the orders are going to slow down. And I think what ASML, who obviously supplies the machines that help make these sorts of chips, you know, Taiwan Semiconductor is a 28 % customer there. So at the end of the day, when you see this sort of bookings decline, I think it was just it was eye popping. I mean, like, you know, you would expect and they guided revenues down 10 percent. Fine. But to guide bookings down more than 50 percent right now, it has to tell you something about what their customers are thinking about demand and the not so distant future.

2:12And by the way, when you're buying machines, it's not like you're just plugging them into a fab. And, you know, I mean, this is like looking out quarters out, if not years sometimes. They did try and make the distinction that the A.I. market seemed, you know, to still have a lot of upside, a lot of potential in the future, but it's the other markets that are taking much longer to recover. And so do you buy that sort of delineation in terms of where the decline is coming from? Cited slower than expected recovery and non-AI semiconductor, to quote. So I guess there is a glimmer of hope in terms of what you can glean from that.

2:42You could say, you know, maybe the AI trade is sort of, you know, it's, I guess, immune from some of the ills that we're seeing in other sectors of the market. However, one has to ask, is it just sort of a matter of time now. But that was an eye-popping guide in terms of revenue. And this is a stock, by the way, that's now down almost 30 percent-ish from the all-time high we made just in July. And this is not a small company. At its peak, this was probably a$350 billion company. So it definitely is something to watch. I think you're buying this weakness. And again, there's no surprise that there is a difference between AI demand and everything else.

3:16So the ultraviolet tools that they're a major player, and Dan talked about, Taiwan Semi and Samsung are their two biggest customers. Taiwan Semi a week ago gave you fantastic guidance for the fourth quarter, by the way. And again, we're talking about some of the areas that also, I think, are areas that would be implicated by today's ASML warning. So, you know, the fact that there was a major shortage of chips, that there was a massive, massive bill, that there's a glut of inventory. This is the cyclical side of the chips business. The AI is the secular side. I mean, there's two different things going on.

3:48So it doesn't it's not a whole. This is why Micron is trading where it is why I wouldn't be buying weakness in Micron. So, you know, there's also a little bit of this beggar thy neighbor thing that's going on globally with you're not going to export chips here. And the Dutch have been putting export controls on ASML, just like the U.S. is at the top of the list there. Top of the what, Heath guy? You can't say that on cable television, Tim. So anyway, I think huge, huge reaction. Terrible, terrible numbers in terms of that 50 % cut to consensus, no question. But you're not giving up on the semi-trade today because of this.

4:23So on our work, I mean, which is really more quantitative, but we look at the medians PE relative to the broader market. And this is across all market caps. So we're not just talking about one particular name. It's been an overvalued group, and it's going to take a lot of work to get that pressure relieved. We also look at earnings revisions for this group really, really closely. And I think you've had a premature peak in the earnings revision cycle. So we've been actually seeing revisions for the group kind of oscillate between positive and negative territory. And when we look at the trend over time, it looks to me like you probably hit the peak and you're starting to enter a period of weakness here.

4:54So I'm on the sidelines. How do you explain the TSMC, what TSMC told us just last week versus what we're hearing tonight? Yeah, I guess here's the deal. I mean, so if 28 percent of ASML sales come from Taiwan, another 22 percent come from, you know, Samsung. I mean, you can do the math on a 50 percent, you know, bookings decline in the quarter. I mean, it has to be something to do with it. It's got to be just, it can't only be PCs, smartphones, you know, servers, that sort of thing. It's got to be some other sort of chips that are related to AI. So, again, maybe Taiwan Semi is kind of looking at a couple different customers that are really important to them that obviously, you know, we know who they are.

5:31NVIDIA is one of them, right? But at some point, I just have to think that, you know, we're going to get someone else that corroborates this over the next few weeks in their Q3. They talked about, Taiwan Semi talked about momentum in their N3. Ultimately, this is what's in iPhones. And so this actually, on a day, we'll talk a little bit about Apple later on in this block, I think, which went to near all-time highs. But TSMC, part of what they were saying was very good for Qualcomm, not bad for Apple, therefore maybe positive. So this is where they're seeing high single-digit fourth-quarter growth and where, again, you can make an argument that they are the most important chip company in the world on some level.

6:10So there was a reason around where, you know, they had decent numbers. And again, it was, I think, around iPhone launch and Qualcomm and application processor for Qualcomm. But how do you impute this in terms of the spaces that are seeing the severe slowdown not turning around as quickly? I would think automotive for one, industrial, right, industrial use, like a Texas Instruments, for instance, or Cypress. It makes a lot of sense. I mean, the underlying economy is probably slowing down, which I think leads you to believe that what ASML saw and is guiding to makes a lot of sense. But the AI trade on the flip side of the coin is seeing something entirely different.

6:47With all of that said, I mean, if Carter Braxton Worth were here, he's not. But if you put up a Taiwan semi chart, because it's a trillion dollar company. I mean, look at the double top this potentially could have just formed. The high back on July 10th, that sell off down about$140. The subsequent move we saw and now signs of weakness, the same signs we saw in NVIDIA after making an all time high in the same high we made back in June. So just something to throw out there for you armchair technicians. All right. For more on what's next for the semi space and mega cap tech, let's bring in Dan Niles.

7:18He's a founder and portfolio manager of Niles Investment Management. Dan, great to have you with us. How do you impute, if you do, ASML's news and their guidance on the rest of the chip sector? Well, I mean, I think you have to take a bigger picture view on that. And we've been saying this since about June, where we had concerns over the revenues of the ultimate end customers. And who's that? That's Microsoft, Amazon and Google. All three of those companies reported their June quarters. All three of those companies had the forward estimates go down. So at a certain point, this starts to back up through the food chain of they're getting their chips.

7:58from somebody, those people then get that from a foundry, and the foundry then gets it from, they have to buy equipment. Now, if you look at ASML, obviously, it's not just NVIDIA. NVIDIA, as we heard from Jensen Long, recently, demand is insane, supposedly, at least for now. And so if you look at what happened with ASML, this is not a tiny miss. They missed their orders by over 50%, 5-0. So it tells you that, yes, on the margin, you've got these other sectors weak, but it can't just be these other sectors because we've been cutting numbers on analog sector, the microcontroller sector for most of this year.

8:43That's already been weak. So what it tells you is if you order a piece of ASML equipment today, that's producing a chip about a year from now. So it says that somewhere along the line that all of the other stuff that's been driving this, probably on the margin, the outlook is a little bit slower than what people were thinking before. It's not a disaster, but when you kind of stick a ruler through something and you say, well, demand's insane and it's going to continue forever, which I think a lot of people are doing, they're forgetting the fact that ultimately you have to generate revenues from all that billions of ASML equipment you're buying.

9:22And if it's not generating revenues, then maybe you're thinking, well, my CapEx is up close to 60 % for the hyperscalers this year. Maybe next year it's more like 10%. It's not a disaster. But if you're thinking it was going to be up 40, you've got a problem. And I think that's how I'm looking at this in its entirety, because it's clearly not the non-AI stuff alone that has to be doing this, because that hasn't had big forecasts for all of this year. Hey, Dan, I've known you for a long time. Back in 2000, you made a epic contrarian call about what was going on under the hood as far as the dot-com and a lot of the suppliers that kind of made that all happen.

10:01So when you look at this and what's going on right now, the euphoria around this trade is very unique because it's very concentrated among, you know, let's say a couple dozen stocks in the public markets. What would you like? What would be the thing? Like how many other things other than this ASML would have to kind of pile up for you to make a similar sort of call on this whole secular shift right now, at least in the intermediate term? Well, I mean, again, I've been sort of talking about this for a bit now, really since June, July, which is I think NVIDIA is going to be strong through this year.

10:35But when you get into the first half of next year, my belief is unless you see Microsoft or Amazon or Google or some killer app that everybody needs to have show up that generates a ton of revenues, as well as the profit picture is starting to improve, I think you're going to get into the first six months of next year and you're going to go through an AI digestion phase. Now, by the way, for the next six quarters, consensus is that NVIDIA revenues grow 7 % to 11%. But for the next three months, six months, do I think things are probably fine there? Absolutely. But, you know, I think you've seen the front of this AI trade with Microsoft, Google, and Amazon being already weak when they reported back their June quarters.

11:23Now you've seen the end of that, which is ASML on the other side, missed by 50 % on the order books. And so I think that's what people need to keep in mind, because I'm sure as we go through this earnings season, NVIDIA is going to have another beat and raise quarter because they haven't been able to deliver the black world chips that they wanted. So people are going to say, see, I told you the AI trade is fine. But don't forget, we already went through this with COVID, where NVIDIA's revenues were down over 20 percent year over year after all of these same customers digested their COVID spend.

11:59Then this thing called, you know, generative AI came along and revenues went from down over 20 percent to up 84 percent at the beginning of 2021. And so I think, sorry, getting the timeframes confused, but it went up to over 80 percent during COVID from down 20 before COVID. And I think you're going to see a same kind of digestion period as we get through to the other side of this. I'm sorry, I was going to say real quick for lay people, what is the warning sign when NVIDIA reports, if there's any? I would imagine it would come in a form of margins, potentially a deterioration of margins. What would you look for?

12:39I don't, NVIDIA is going to be the last person to see this. And so for me, I try to look out to the front of the food chain. So I'm going to be very, I mean, you're going to see NVIDIA react when Google, Amazon, and Microsoft report. Microsoft in particular to me is very interesting because if you remember last quarter, they missed their Azure numbers. And by the way, that's where OpenAI feeds through the model for Microsoft. And so if there's another problem there, people are not going to like it. Amazon's the other one because they are the biggest of the hyperscalers. And so I'm going to be watching very closely what AWS has to say, because that's going to be the leading indicator of a problem.

13:17NVIDIA, much like after that digestion following the COVID buildup, they didn't see it. And people forget. They pre-announced negatively when they were digesting all that COVID buildup. That's, you know, they're not going to see it because their customers on, you know, the front of this, They just want to get as many chips as they can right now, given the Blackwell chips were already delayed. Dan, always great to get your take. Thank you for joining us. Welcome. Dan Niles. So if you think NVIDIA hits the skids or has some sort of trouble in the first half of next year, how do you trade it now?

13:52I don't think you need to chase it. I think a lot of a lot of investors that I talk to want to own NVIDIA. They want it in their portfolio. And those that are thinking in a traditional allocation approach are not thinking I have to have it all today. Having said that, you know, I need to start buying it if I don't have it now. So pullbacks are nice. But ultimately, NVIDIA is going to continue to be the dominant or a dominant part of the tech trade. But what Dan's talking about, I think, is really what it comes down to. The CapEx spend that we're going to see out of hyperscalers is what this earnings period is all about.

14:25And the irony is, of course, that those stocks may go higher as they talk about less capex and less spend on AI. And those are some of the names, frankly, that have reasserted themselves. I mean, look at the move in meta. If they tell you it's the year of efficiency in AI spend, they've got all this other good news and things that are going for them. And one of the few that is pointing to AI revenue base. And I think it'll go a lot higher. All right. Meantime, Apple getting within a whisper of an all-time high. The tech giant rising over a percent, closing less than a dollar off its record. I've heard the company announcing a new iPad Mini that can be ordered now and will be available in stores next week.

15:00The guy's got an iPad Mini. Look at that. It's just an old iPad. It's like the first form factor of the iPad. Oh, I thought you were on the leading edge. Typically, I am on the leading edge. I thought you were saying something else. Please continue, Melissa. So, Apple here. Do you like it? I've been a skeptic for a while. I mean, I'll say since June, what was that, that June 10th date, I guess, when the stock closed at 196. They had the Apple event in 193. That night's been off to the races ever since. And a lot of that has been on multiple expansion, clearly, in the hope that, obviously, they've caught up on the old AI thing.

15:32Maybe they have and there is this super cycle. But I will say for the hundredth time, I mean, Apple is expensive on almost every metric that we look at. And today didn't change that once so bit so ever. I would just say, you know, putting it in a bigger context, I think AI, you know, Dan talked about digestion. I think we're in a very messy phase of this AI story for a while. That was certainly the feeling we got coming out of the last reporting season. And so looking at something that's a little more consumer driven and old fashioned seems refreshing right now. So that's something that you would like then.

16:00Yes. OK. Coming up, we're diving into bank results after some of the sector's biggest names reported this morning, how those stocks reacted. And you should play this financials into year end. But first, we've got United Airlines results fresh off the wires. The numbers from that quarter plus Boeing's latest move to help shore up its balance sheet. All that when Fast Money returns.

16:22This is Fast Money with Melissa Lee, right here on CNBC.

16:39Welcome back to Fast Money. We've got an earnings alert on United Airlines. Shares are lower slightly in the after-hour session after the company posted a top and a bottom line beat. The airline also announcing a$1.5 billion buyback plan. CNBC's Philip Bowes got all the details. Hey, Phil. Hey, Melissa. This was a relatively strong report for the third quarter for United Airlines. As you mentioned, the company did beat on the top and the bottom line, earning$3.33 a share. The street was expecting$3.17. Revenue better than expected at$14.84 billion. And the metrics within it, it was a mixed bag of sorts.

17:11Yes, it was negative revenue per available seat mile, but that minus 1.6, it was actually better than many analysts were expecting. Premium revenue up 5 percent, basic economy up 20 percent. You mentioned the stock buyback. Be interesting to see what the street makes out of this. The company had a stock buyback in place before the pandemic. They're now once again doing this. 1.5 billion in stock being bought back, up to 500 million this year. Lots to discuss tomorrow morning in a Squawk Box exclusive with United CEO Scott Kirby. But again, Melissa, United beating on the top and the bottom line for the third quarter.

17:47Back to you. All right, Phil, thanks. Phil LeBeau. So why isn't the stock moving higher, Tim? Because it rallied 30 percent into this number. Into it, yeah. And I think it rallied along with other airlines who are delivering similar messages about their core business and possibly a margin profile. And, you know, you get a 10 percent move lower in oil. You get a little extra boost over the last couple of days. Yeah. $37 stock in August. I mean, look where it is now. And if you look at the levels we're sort of stalling out at, I mean, it's the same levels we topped out at back in 2021. So it's not necessarily a valuation thing or so much the quarter thing or the guide.

18:20It's the fact that you've had the run that it's had. Tim is spot on. How do you feel about airlines? So it's actually the only group in industrials that's had both positive revisions and attractive valuations. So we've been interested. I checked in with our digital intelligence strategy team. They're our data science guys, and they track all these travel-related metrics. And they said it's actually kind of boring right now. Things are pretty steady state in terms of flight searches and stuff like that. So, you know, maybe there are still questions lingering out there, right, about the consumer, business demand, that kind of thing.

18:49But I think they're interesting. Meantime, Boeing announcing it could raise as much as$25 billion in shares or debt over the next three years to strengthen its balance sheet. It also reached a$10 billion credit agreement with lenders as it continues to grapple with a production strike and regulatory issues. shares were up today, but still down more than 40 percent this year. Shoring up the balance sheet is great, Tim. They still got a massive debt problem, but at least this gets them to live another day. It's interesting because it would be easy to say that the market had priced this in. And actually, this is a small relief.

19:21And at least for the short time, it takes the credit agencies off the radar screen. But I'm not so sure that people were thinking about the need to do a cap raise three months ago. I think at least before this strike came front and center and the cash burn that we've chronicled over and over here. So I think in the short run, this is a great thing. I think a little cost efficiency over there isn't a bad thing either. It's pretty clear you've got a new CEO who has the ability to do more than the old CEO. But still regulatory issues, still obviously sentiment issues. But I think it's going to take something to turn the stock.

19:54You know, it's interesting to tie Boeing into the transports a little bit. If you look at the components there, obviously Uber is one of the largest, but you have, you know, the truckers, you know, the rails and you have the airlines and, you know, some other industrials. Look at this IYT chart. It made an all time high at about 70 bucks back in 2021. It's kind of banged up against that on a few occasions if they want to pull out a long term one. This thing has been in an epic like four year base right now. And, you know, again, if you are in a soft landing sort of economy that at least the stock market is pricing, maybe not today, that thing looks like it could really break out.

20:25So if you look at some of the largest components, and they're doing pretty well, IYT looks interesting to me. The longer the base. The higher and outer space. I've heard that from some smart young lady. That's Louise Yamada. Louise Yamada. Yeah. By the way, can we have a second? Lori said something that was interesting. She said her data science people, she was talking to them. Yes. They, whom I'm sure are a bundle of laughs, they found something boring. Think about that for a second. Think of how boring it must really be. For them to find it boring. The more you know. That's the only comment you have?

20:53Yeah, pretty much. They're quite engaging. They're quite engaging. You just made fun of an entire department. I was going to say, I think that's pretty mean-spirited. I was going to say that data scientists are kind of boring. They said steady state. Steady state. Wow. Disappointing. We've got a news alert meantime on Qualcomm and Intel. SEMA Modi's got the details. SEMA. Melissa, Qualcomm, to wait until the U.S. election to decide on a takeover of Intel. That's according to Bloomberg quoting sources. Remember, it was reported earlier this summer that Qualcomm was exploring a takeover of Intel as the chipmaker looks to turn around its business.

21:26Now, as to why the election could play a role, well, there is the regulatory antitrust concerns with a deal of this size. And judging by the Department of Justice's history, this would likely raise some alarm bells. We're looking at shares of Intel slightly up here in after hours. Intel moving in opposite directions here. Back to you. All right, Seema, thank you. Seema Modi, what does the lack of movement tell you on the back of the story? It's pretty interesting, right? I mean, this would be interesting. You would think that the U.S. government, though, regardless of the administration, would want Intel to be taken over.

21:59Except that maybe not so much. And now you have to wonder, like, who is the better candidate for this deal to actually happen? You know, my instincts suggest it would be former President Trump winning would be great for this. But then I'm saying he's not a huge fan of big tech, so maybe not so much. So I don't know how this whole that's probably why the stock is trying to figure it out as well. We've heard every investment bank who at least has talked about the environment and said that the environment's been everything from predatory to not happening, even though there's some demand. So I think it's clearly a message towards this administration and what's been going on in Washington.