Countdown to Big Tech Earnings, and Will X Mark the Spot for Twitter? 7/24/23

0:01Right now on Fast, ticking down a big tech. We are on the clock for earnings from Alphabet, Microsoft, Meta, Snap, and much more. After a hot start to the year, many in the sector suffering through a sluggish summer. Will earnings revive this run? We'll debate that. Plus, giving the bird, well, the bird. Elon Musk rebranding Twitter and calling it X, part of his plan to make the social media platform an everything app. Will it work? Will regulators allow it? We'll break that down. And later, one of our traders talking the tape on a steel stock from Korea that is actually a way to play the global EV trade.

0:32Inside the monster move in Pasco coming up. I'm Melissa Lee. This is Fast Money. We're live from the Nasdaq Market Sight on the desk tonight. Tim Seymour, Karen Feinerman, Dan Nathan, and Guy Adami. We start off with the countdown to big tech earnings. Alphabet and Microsoft headline the Q2 kickoff tomorrow with Meta and Intel quickly following suit. Apple and Amazon on the docket next week. The reports come as the group's meteoric start to the year seems to be losing some steam. The stocks led by monster gains in Meta in the first half are flat or even down so far in the month of July. And they're far lagging the broader market this month.

1:03And so will this quarter's reports reignite the rally for big tech? Could we see more rotation out of these names? And that's what we've been talking about, a broadening. We saw it even today. Financials were the big gainers in today's session. Small caps even did better than the broader markets. Well, first, we have to welcome Tim back. Of course. We're sailing. Takes me away. Thank you, Mr. Cross. Not long enough. I'm kidding. Great to be talking. It's a joke. It's actually an encouraging sign that there's obviously some rotation. We've talked about that. I'm not pretending I'm bullish. I'm not.

1:33But the fact that the rally is broadening out is a good sign. These high growth valuation names should pull back a bit. And you should see rotation in other things. Energy has been incredible over the last couple of weeks under the radar. So I do think this is a good sign. However, valuations in a lot of these names you mentioned, Microsoft, suggest they better knock the cover off the ball and say about 75 times for them to continue this rally. Because for Microsoft specifically at 31 times next year's numbers, it's getting to levels we haven't seen in quite some time. I mean, Microsoft has really let out a lot of details or as many as one could expect at this point about the AI product in terms of the monthly fee and also what they expect from the services side of things.

2:14So really interesting. I was talking to a fast money friend, Gene Munster from Deepwater earlier today, and he made a great point to me. He's like, listen, they kind of pre-announced the pre-announced the thing that everybody wants to hear is what the pricing is. They're not going to have any visibility about how many seats they're going to sell and, you know, any of that details and what it's going to cannibalize. But that was the good news. We were talking about it on the desk last Tuesday. We were all remarked that stock rallied$20 in a straight line, 5%,$130 billion. It's round trip that entire move.

2:42So the way the whole space kind of sold off after that, they gave back some of the gains. We talked about Salesforce announcing pricing, the Apple, it was just the news in Bloomberg or something about how they're scurrying around to get some competitive problems. It feels like the fever might have broken. And whatever they say, I actually think the more they say AI, the less they say about some of their other businesses might be a problem right now. Well, advertising and some of their media stuff are actually rallying. What we're hearing about Azure, I'm looking at some of these partner survey checks that we've seen from a couple of brokers are all coming in great.

3:15This co-pilot at 30 bucks a month street was expecting 10. Back to the technicals of the stock, which is I think where Dan's going. And I would agree that mega cap tech has not made new relative highs to the S &P since the end of May. And if you look at, Yeah, Microsoft actually probably of the few actually set a new high last Monday, traded three times normal or at least ADV, 30 days, 60 days, 90 days, what you want to look at, twice at the end of the week. So going into mega cap tech earnings, we know how important they are to the market from a weighted perspective. But you could make an argument.

3:45It's a terrible setup. If you think about it, we close within nine points of an S &P closing high. And yet we haven't been able to make relative new highs. And as I said, you know, we've kind of front loaded the news with with a handful of these names. I think the other dynamic, though, is this cyclical value stuff. So energy banks, small caps, industrials have been working and they've arguably been working since the day NVIDIA hit that high. Yeah, I agree. I mean, I feel like the bar is really high and I agree. So that's great. They put out that number. Really, the question is times what times how many how many people sign up for that?

4:22So we don't know that. But there's a lot of hype built in. And I feel like the rotation is more important than than what's happening in these stocks. I think it's going to be really hard for them to to really beat by a lot. All that I've been said, though, they hang in. OK, considering a rotation has sort of started. Right. Right. They're not they're not terrible. So that's pretty strong. But, you know, if I wouldn't be putting more money in right here. Right. I'm sticking partially with what I have. I sold half my Microsoft. I sold some Apple calls. I had sold some Google calls. I bought them back.

4:59I don't know. I feel like it's going to be hard for them to really, really knock it out of the park. Which is the most vulnerable guy in tech land on Earth? Well, NVIDIA we have in August 23rd, I think. So we have a ways to go for that. So let's back that out for a second. But Microsoft, since we seemingly are drilling down, I mean, look at the levels we're trading at now. Now, this is where it prior made an all-time high in November of 2021, when a lot of these high valuation stocks did. Obviously, that was when the Fed made their announcement. So armchair technicians like myself will say there's a chance for a double top.

5:32I think they're extraordinarily vulnerable in terms of just some evaluation. But what are they going to say moving forward? To Dan's point, and look at the last quarter. It was fine. But by Microsoft standards, it was not what we've seen historically. It was an OK quarter, bolstered by the fact that, obviously, AI came into the dialogue, and they got the price momentum behind them. But the quarter wasn't particularly great. Yeah, I think Apple's the most vulnerable, and that's next week, August 3rd, after the close. And just think about what we heard from Taiwan Semi last week. They guided smartphones down 20 percent, OK, in the quarter.

6:02And when you think about just the exposure that Taiwan Semi has to Apple over the weekend, I think the information I report that Apple's having a hard time building the screens for their 15 pros that are expected to come out in September, maybe start selling in October. And just think about what that means for supply. The biggest issue is China. I mean, it really is. If you think about what demand is going to look like for Apple products in China at a time where they are scurrying around to diversify production, at some point you have to think that some nationalistic tendencies towards certain products take hold.

6:35And you can say, well, we're not seeing that in other things. Well, we did see it in Tesla. I mean, Tesla lowered prices multiple times over the last six months in China, and there is plenty of competition there, and they haven't really rebounded to this sort of level. So to me, I think Apple runs the risk right now. If you're just looking at a lot of their suppliers, the data is not particularly great. I mean, the complicating factor here is we've also got a Fed meeting to layer on top of this whole, you know, trying to quarterback what's going to happen in terms of the earnings, Tim. So how does that factor in in your head?

7:07I mean, does that impact how the stock trades out of earnings? No one is discounting the importance of the Fed here. The Fed is the most important ingredient in the markets and has been for a year and a half. But we know we're getting 25, or there's an 83 % probability we're getting 25. We're probably going to get another 25. We're going to get a lot of Fed rhetoric about, you know, higher for longer. But we have hit peak inflation. We have hit peak Fed. I think we've maybe hit peak rates, and there's some debate out there. We've seen rates actually come back in the last week and a half or so off of that rally back.

7:41But ultimately, I think the Fed is an important ingredient to why mega cap techs have outperformed. If the Fed is seemingly less dominant of a theme, I think you get to cyclical value. And I think you get to small caps and industrials and banks. And again, the banks, the regional banks today and the move they've had over the last couple of days, pretty impressive. Again, we can't call the flight, the capital flight and how quickly it can happen. and everybody's always going to be fearful of that dynamic. But what we're hearing from the regional banks has been extraordinary. And credit's not an issue right now, despite what we all know about commercial real estate.

8:15Yeah, and up 20 % in the past month, the KRE. I mean, it's an extraordinary move. And it's no coincidence that it's happening on the back of the drawdown in the quote-unquote Magnificent Seven, which is a term I absolutely despise. I know Guy loves the class. Can I say, we've got to guess. I apologize, but it's Monday. So are you one of the most overrated bands in the history of what? No, he's talking about the Clash. Do you know what? Tim brought it up. You said Magnificent Seven. Magnificent Seven, Sandinista. It's a great song. The Clash are a great band. Aerosmith is overrated. That's for another show.

8:48I would have never made this connection. Sorry, Mel. But let's say the Fed's still in play and they are hawkish. Is that does that mean that tech is still the safe haven? I don't think. Or will I hire? I mean, I don't think that changes anything. A hawkish Fed. Because I feel like that's already baked in. It would be something different from that. Super hawkish? I don't think they need to do that. And I think super dovish? I don't think they will do that. All right. Well, bonds from Microsoft and Alphabet have been lagging the underlying equities ahead of earnings. Our next guest says to get ready for a rally.

9:20Ben Emmons is senior portfolio manager, head of fixed income at New Edge Wealth. Ben, welcome. What have you been noticing in terms of the performance of these bonds? And which bonds are we talking about? Yeah, I was looking today at Google bonds and Microsoft bonds. And you want to make a comparison to maturity. The equities are low maturity assets. So I looked at the low maturity bonds. A big dislocation now between the price of those bonds and the stock. Now, you could argue this is just rates and this is mathematics of bonds itself. You have a low coupon bond with low maturity. The price is low.

9:50But if you're trading at 60 cents on the dollar on these bonds, high quality borrower, that seems to me quite dislocated from what you otherwise would expect. And I think if you look at the history of this, it tends to track the stock pretty close. You saw last year the bond price went down with the stock. And this year, I think it deviated really because of this rate environment being sideways. And that's why these prices are sideways. But if we're getting this AI story coming through these stocks, as you were just talking about, these earnings could be strong. This credit should actually be reflected in there.

10:21You should see higher prices on the bonds. So you think that we're going to see a rally off the back of earnings in the equities? I think it could be both. Yeah, you could actually have, like before, like every time we had earnings particularly surprising stocks rallied, but the bonds went along for the ride. So it hasn't happened since March. I think that's an opportunity. So we can pull up maybe the graphics so you can visually see what you're talking about here. I mean, there's clearly a dislocation or between the bond price and the equity prices. So the naysayer in me would say, OK, the bonds are telling you a story and maybe the stocks have gotten ahead of themselves.

10:56There's a good example with Microsoft right there. And I'm not suggesting I'm right, but could that be a viable outcome? It could be. I mean, you know, if you if you look at it that way, guys say, yes, the creditors are seeing a completely different idea. You know, they think that these companies could end up in distress even if you think of that type of low pricing. But that seems to me not really, you know, that seems like not really the case. I think this is partly a function of people have not really bought into the rate story enough. They probably have not looked at this closely enough, these type of bonds.

11:29You should see some level of catch up here, I think. You know, you would not think if a company produces that good, strong earnings that the credit lacks that much behind in terms of price. So where do you think, I mean, to see a bond like a Microsoft 27-year bond with a six handle, that's sort of surprising on the face of it. but the yield is only foreign change. Where do you think the yield should be? And so what does that translate into the risk-reward for the bonds versus what you think the risk-reward for the equity might be? Yeah, and fair enough that that is lower yielding than where the average investment grade is.

12:04I think there's also a part of the story is, I think. If investment grade is trading at 5.5, 6, still reflective of a higher rate environment, these bonds are probably better reflective where the rate environment should be. perhaps lower. So I actually think that if you take these bonds as a macro story, if AI pulled us out of this recession somehow, or at least out of the thinking of recession, you know, these credits should improve. So I think your yield should actually go down for that reason from a credit perspective. All right. Ben, thank you so much for stopping by. Good to see you. Ben Emmons.

12:39Karen, you dabble in bonds. I do. Is this interesting to you? It is interesting. I I mean, just the six angels is surprising, but I'm really at heart an equity girl. So it's an interesting play on it. But I guess I feel like, all right, I'm an optimist as well. And if you're a bond investor, you're more of a pessimist and hope to get par. If you're an equity investor, you hope to get more. Right. I think some of this is a function of duration, too. And people just wanting to be at the shorter end of the curve. There's no question if you took the Magnificent Seven, Guy, can we do that for a second?

13:15Because those companies are the best credits in the world. OK, you can make an argument, certainly on a debt to GDP, they're better than every government in the world. So I don't feel any concern about owning those credits. And what's great about the environment we're in, it's a higher yield environment. It's also an environment where actually some credits, it's a great time to be moving up the credit curve and to be getting a hold of companies. Somebody like Apple, I mean, part of the reason why their stock could be defensive, even though I agree with Dan's smartphones, we've pulled forward a lot of stuff.

13:43It's not a multiple I care about, but they're buying back stock right and left. And it's goosing EPS, but ultimately it's credit positive. So is it? Well, I think so. I mean, ultimately stock. Well, I think if they have the ability to actually improve their earnings by taking shares out of the market, they've assessed where they see growth. You can make an argument. It means it's a company that's not going to grow as fast. In Apple's case, it's not a credit issue. It's if anything, it's only bolstering the argument. But in a world where we're kind of concerned about the backdrop, All of these companies will be defensive.

14:13Their debt should be defensive in a world where I think people would be concerned about the macro. Yeah, on the buyback thing, I mean, you think about Apple's net cash position. And with a$3 trillion market cap, if they're just maintaining the levels of buybacks that they've been doing, they bought back a half a trillion dollars worth of stock since they initiated this buyback, you know, 12 or 11 years ago or something like that. It's just having a much lesser sort of effect. And if you were to have some sort of contraction on their cash flow, let's say there were some real issues with the iPhone cycle or whatever, or some issue in China, a geopolitical issue in China, this company is going to be in a very different situation because they've been massaging that earnings growth for 10 years.

14:51If there was ever a meaningful decline in that, I mean, I think you have a situation where maybe that balance sheet doesn't look as fortress as it did for the better part of the last 10 years. Coming up, this housing stock up more than 45 percent already this year. One Wall Street firm says there's even more room to run. Should you start building a foundation in this name? The stock and the details next. But first, an earnings alert on Whirlpool. The stock on the move after reporting results now about 2%. We'll dive into the numbers next.

15:26Welcome back to Fast Money. We've got an earnings alert on Whirlpool. Shares lower after falling short of revenue estimates in Q2. The company, though, did beat on earnings. Whirlpool CEO also saying the company is well-positioned to benefit from the housing recovery. Let's get to Steve Kovach for the details. Steve. Hey there, Mel. Yeah, mixed results for Whirlpool's second quarter. Revenue was a slight miss at$4.79 billion versus the$4.82 billion expected, but a solid beat on EPS coming in at$4.21 adjusted versus the$3.76 adjusted the street was looking for. Whirlpool also reaffirming its guidance for the rest of the year, saying it expects over$19 billion in sales and adjusted earnings up to$18 a share.

16:06Shares likely down, though, because the company not raising its EPS guidance despite that solid beat in Q2. Now, behind that guidance, commentary from CEO Mark Bitzer sounding optimistic about the housing market, saying in the company's release, quote, we are well positioned to benefit from housing driven demand recovery. Bitzer adding Whirlpool has deals with eight out of 10 of the top national home builders, Bill. And finally, company highlighting slightly improving margins sequentially thanks to some cost controls. Everyone look at that number two, Melissa. All right. Steve, thanks. Steve Kovach.

16:41A housing-led recovery, that implies that the bottom is in, which is pretty good. Yeah. Well, they have a broad geography that they serve. So I think of Whirlpool as an under-promise, over-deliver kind of management team, which I really like. That's one of the things I like about them. The other thing is, we'll hear on the call, which isn't until tomorrow morning, this could have a very different color. I thought the release was pretty good. You know, they talked about running more efficiently. They've been on a savings program for a long time. They've restructured a lot of businesses. So, I like the name.

17:13It is hardly a, what would be the word, Guy, when it's not a overly expensive multiple? What would be the word? Reasonable. Not reasonable. That's not what you're looking for. I apologize. I wasn't in your head it's only monday so maybe by when when reasonable was reasonable as did i it works that was decent not deer or something like that ah okay fair enough well i'm long whirlpool and and and i i like the multiple i mean and again at 18 bucks a share in earnings you can all do that math where we are right now you're trading less than 10 times this is a company that's regaining market share has the ability to actually get uh products into consumers hands and what we've learned is There may be places where even if people aren't trading houses and velocity is significantly down in terms of housing, there's no question that people are investing in their homes.

17:58And I think right now there was a lot of pent up demand coming out of COVID that were not sales that were lost. I actually think they're getting their market share back. So this was their second quarter. They beat EPS by about, what, 12 percent, give or take. So the only two quarters left. I can actually do that math, believe it or not. I mean, actually, I went to school. You can't. They reaffirmed guidance from$16 to$18. You could drive a truck through that. They should be able to narrow the guidance. And given that beat, you have to tweak it up just a bit. So this is an underpromise. Clearly, maybe egregious was potentially a word.

18:30It's not an egregious valuation. But this, to me, they've got to do better on the guidance, I think. And I think that's probably one of the reasons the stock is lower in the after hours. It's not lower by much. I mean, now it's down 1.4%. So meantime, sticking the housing trade, D.R. Horton nailing down our call of the day. Get it? Raymond James upgrading the home builder to outperform following its earnings beat last week. The firm citing a rebound in home building demand and storing revenues from its rental portfolio as a means toward double digit EPS growth. Analysts upping D.R. Horton's price target to 160.

19:00That's about 23 percent higher than today's close. And specifically in the note, they're talking about how everybody on the street is going to be chasing numbers higher. Everybody's behind on these home builder names, which is crazy given the runs, Guy. Clearly, they've been watching Fast Money, or maybe they weren't watching it enough, because this is exactly what we've been saying for not for months. I mean, I'd say going back to the fall of last year, we said the fundamentals and the valuation made sense and the supply-demand imbalances were there, and these stocks should perform. I mean, this is late to the dance, without question.

19:31It doesn't mean they're wrong, but the reversal we saw in a lot of these names on Friday suggests, at least in the short term, that maybe things have turned a bit. I mean, better late than never, I guess, but they're really late with this call. All right. I find many ways to lose money trading stocks, as many of viewers know here. But one way I don't do is buying like single digit PE stocks, like two that we've just talked about here, because I feel like I learned that lesson long ago. When I'm buying something just for value, I kind of find myself just kind of leaning in that direction. And these things are valuable after they've made huge runs, not as much a whirlpool, but some of these home builders are.

20:05And so to me, I think when you think about the supply-demand dynamics and all the changes that we're just seeing as far as, like, the way work is going here in America, I just don't get the – I mean, I don't get it. So, like, have at it, people. I would have thought this has gone too far too fast, but it continues to work. So I'm going to stay out of this one. How work has changed, though. People are at home more. So doesn't it make sense? Maybe. But, I mean, maybe all it takes is a good recession to get people back into the office. Maybe it takes, like, some different demographic shifts to get people back into the big cities.

20:34I mean, like, again, I'm just saying, like, I could buy this because I think they're cheap, but the stock's doubled in the last six months or something like that. And it just seems like that's probably not a great deal right here. I think part of what's going on here is that their financial services segment is doing really well. And they're able to actually offset some of the higher mortgage costs. And at some point, that's going to hurt them. I think an upgrade of D.R. Horton here, and I realize they put it now 20 percent above the target, but it feels like chasing. I mean, this is I'm not going to say that this analyst was out of the game.

21:00In fact, my guess is that there's been a lot of folks that have been correct on the fundamentals for the homebuilders, which is that these were not companies with difficult balance sheets or difficult valuations, that we're all worried more about the macro. This is a case where I get it, but I don't know why I'm chasing this one here. I think you've had a great run. There is a lot more fast money to come. Here's what's coming up next. Open Sesame. Investors finding some treasure in Alibaba shares today. Will the good fortune continue? that trade next and later will x mark the spot for twitter elon musk shedding the iconic bluebird logo in favor of an all-encompassing new brand but will the company find its wings as a super app that debate ahead you're watching fast money live from the nasdaq market site in times square we're back right after this

21:59Welcome back to Fast Money. Alibaba surging more than 4 % today, touching its highest level since April. The Chinese tech giant also announcing it will not sell its 33 % stake in Ant Group. One of our traders is long the name. It must be the emerging market specialist on the desk. Well, so I think we've had a similar conversation about Alibaba that's not necessarily even unique to EM as an asset class, although I would make an argument international investing is open for business with a weaker dollar, etc. Alibaba is the third or the fourth largest pick in the EEM emerging market ETF. The story here is really some of the parts.