Did Apple Just Sound the All-Clear for the Mega-Cap Tech Trade? Plus the Wall of Worry Mounting for Commercial Real Estate 1/18/24

0:01Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast analyst on the future of the commercial real estate market. What's got him so concerned and what it means for the rest of the financial markets. And later, shares of coin get flipped after more than doubling last quarter. The stock is down nearly 30 percent already this year. Can the company turn this around now that Bitcoin ETFs are on the market? One of our traders hope so. We'll see if they've changed their minds. I'm Melissa Lee. Come to you live from Studio B at the Nasdaq on the desk tonight. Tim Seymour, Karen Feinerman, Dan Nathan and Guy Adami.

0:45We start off tonight with the Apple upgrade that sent shares jumping today. Analysts at Bank of America raising their rating on the stock to a buy from a neutral, saying new AI features could drive a refresh iPhone upgrade cycle. The firm putting a$225 price target on the stock, almost 20 % higher from here. The call sending Apple shares up more than 3 % on the session, their best day since last May. But it wasn't the only tech name rocking. Shares of Taiwan Semi soaring nearly 10%, hitting their highest level in almost two years. That after the company posted better than expected revenue and profit for its latest quarter.

1:19The move's pumping a little mojo back into the broader markets with the tech-heavy Nasdaq leading the gains, pulling into positive territory for the week. But is the optimism around big tech getting ahead of itself? It feels like, it feels like, Guy, just two, three weeks ago we were all saying, oh, nobody's going to buy a new iPhone. They're going to hold on to their devices longer. China's a real problem. You know, semiconductors have an inventory issue. And here we are. Everything's coming up roses. First of all, welcome back. Thank you. And happy new year. Happy new year. Welcome back. Thank you.

1:51Number one. Number two, Mojo. Tim looked at me when she mentioned Mojo. When I hear the word Mojo, I think of Jim Morrison and I think of Guy's acronym. Or Friday Night Lights. But also, so I'll answer your question. I'll play your reindeer games. I mean, Taiwan, yes, the Apple upgrade. Yes, the stock performed very well. They report on February 1st. We'll learn a lot more, obviously. Then it's still an expensive stock. Taiwan Semi is fascinating. It's all about the guide without question. And it's an extraordinarily important company. We talk about it collectively here on the desk. But just for a little reality check, profits were down 19 % year over year.

2:23Profits. Last year this time, this was a$90 stock. Today it's$113 stock. Now, I know it's not that easy with the math, but that's the market we find ourselves in now. A lot of people, just the enthusiasm around the guide and the importance of the company and maybe a refresh cycle and Apple's their biggest, all those different things. But for perspective, I mean, this stock, which is still reasonable, you just have to look back and see where things were. I'll say this real quick. If you want to play in the semi space and we've talked about this company, Broadcom might look expensive with the price tag, a thousand dollar stock.

2:56It's probably the most reasonably priced semi stock out there. I mean, Taiwan Semi also said that they're going to raise CapEx, which is really good for the chip equipment makers, too. I think it bodes well for everybody. And I think it even bodes for Apple. And I think it bodes for Nvidia. And if you listen to some of the analysts on the street, they basically said this was an all clear for a new multi-year cycle of essentially of semi growth with TSMC at the leading edge of being an AI enabler, especially in data center and some of their technology. People think that they are in kind of the generic commoditized world of chips.

3:30They're really not. And there's certainly a high margin part of their business. So back to the multiple, you know, depending on what you're looking. I agree semis trade at an astronomical multiple relative to the market and to themselves. But but Taiwan semi trades at a 32 percent discount to the stocks. So it's it's seemingly a must have stock if you're going to be positioned in this part, whether this is the time to do it. We've had different points in the last year and a half where a Taiwan semi earnings announcement has been a very important moment to look at the entire industry and to look at tech spending and to look at it overall.

4:06all. And I think this is one of those numbers. And I'll let Dan speak about it. I mean, there should be some cautious about the outperformance of all these big cap names. Good handoff. Maybe our people can put up a chart going back to the start of 2022 or really, you know, a five-year chart at Taiwan Semi. In that Q4 report in January, the company made a new all-time high. It looked like it was off to the races. A lot of similar sentiments, you know, were kind of being expressed at that time. Well, the stock over the next, call it 12 to 18 months, got more than cut in half, right? Because a lot of those kind of drivers didn't come to pass.

4:37So when I think about the quarter they just reported, I think about the guide they just gave. I think about the CapEx that they just gave. It does sound good. It does sound like the narrative that data or data center, that PCs, that smartphones are doing a bit better. That's giving them more confidence there. But these sorts of things can change fairly quickly. Right. When we're talking about end markets like China, when we're talking about complex, you know, supply chains and the like here. So to me, you know, the jury's still out on this one. Closing up 10 % is one of the largest market cap companies in our market.

5:09I think that coupled with the Apple upgrade, and Wamsi is a very good analyst over there at Bank of America. And I think it's really good that you're positioned as a neutral, where you downgraded the stock at a point for fundamental reasons, and then you have the ability or the flexibility to kind of change that. I think these things coupled together, they make a pretty decent narrative. I'm just not sure how long they're going to stick together, one for one. And just to be clear, Taiwan Semi, obviously 20 % of their business or so is Apple. So I think these companies are obviously very closely tied.

5:37Yeah. Do you believe the narrative that things are actually better? I mean, in the Bank of America upgrade, part of it was better than expected or better services expected for this year, that they're going to better monetize the base, that a lot of people who hold an iPhone right now, they're old iPhones. I mean, mine's like an 11 or maybe, I don't know, nine, really old. But the majority have 13 or older. And so they will have to upgrade for AI purposes if they want to participate in those features. Yes, I believe that. The question is, what's the right price to pay? And when I think about the Magnificent Seven, even if you look at something like a Microsoft, yes, the multiple is higher, but the growth is much better.

6:14And so I think I'd rather pay for growth than pay less for, you know, Dan always, you know, talks about where is the growth here? And in fact, there hasn't really been great growth. So I think the multiple is beyond the story, even if you buy the story, even if you say, OK, all that may be. But I think that it's still too expensive. I'd rather be in the other. Let me take the other side of that. You're taking the other side, but I'm supporting you. I understand. No, but think back to just a year ago when Microsoft had only invested$2 billion in open AI. And they were just on the cusp of making a$10 billion investment that was going to secure this technology that they could use through their productivity tools and through their search.

6:56And they were going to have an ownership stake. Just think of Apple were ever to find a generative AI tool similar to that on their$2 billion installed base, on their margins that already have a really good shift away from their heart. What I'm saying is I think there's going to be other opportunities for mega cap tech companies to realize some real big gains in generative AI. And Apple, there's nothing in it for it right now. So when you think about a company expected to grow earnings and sales mid to high single digits for the next couple of years with a 45 percent gross margin that doesn't move, they will need something extraordinary on one of these new technologies.

7:29And it's not likely to be Vision Pro right now. I mean, that's one of the things you have to look beyond AR and VR and you have to think about something in general. So are you saying they'll find it? What I'm saying is they'll have to if they're going to justify trading at 30 times versus these other companies that are growing faster. Let's say it's even something not that great. But I mean, like, OK, and interesting. If you are in the Apple ecosystem, it's so easy to then say, I will pay X dollars per month to get this AI feature. Their own co-pilot, whatever it is, to help you. And I think that would be an easy monetization case.

8:01It doesn't have to be like the next great AI thing. It just has to be enough. Move the needle. There is AI in there already, of course, right? I mean, Siri is one of the worst products ever. There she is. Get up there, Karen. I have English guy Siri. We make fun of Siri all the time. I think he's hard of hearing, which is a really, really big problem. But your point is they've spent billions and billions on machine learning over the last 15 years. But they do. I mean, you see it in an email, and it suggests, you know, put it in your calendar, whatever. It's already there. But you're talking about that.

8:34Something extra. That application that is so fantastic. Karen, will you pay$5 or$10 a month extra for this, which will help you? And maybe you will. Maybe I will. Apple services business benefits from people either have a cumulative effect. There's an aggregate effect, whether it's even just storage and whatnot. People don't realize and they're lazy about the fees that they're paying to Apple. And they are. I don't think the story today, as much as you compare semis versus Apple, I commend the upgrade because it's an analyst who's been a little bit more tactical in their Apple call, which is great.

9:09I mean, downgrades followed by upgrades. I think that's kind of interesting. The multiple in Apple, to me, is the biggest challenge right now in a world where they had the same AI business yesterday. I'm not sure it changed today. They're saying that the five-year historical range, 16 to 34 times. And right now, the price target implies 32 times. The price target implies. The price target implies 32 times. Fair. I don't know if this is a joke. This guy just came on, said on it. Siri. What did? Yeah. The British Siri guy. On what? It's off. But what? Whatever. That's why. I mean, the entire thing is lost on me.

9:45We've talked about this. I mean, Dan mentioned it, but just for the math portion, I mean,$400 billion of revenue this year, 417 next year. Do the math, it's less than 5%. EPS growth, I don't know, maybe 6%, 7%, 8 %-ish at max. Margins have been flatlining for a while. I mean, yes, they're install-based. It's 25 % now services of overall revenue, which is why they get the valuation. But you tell me, I mean, this is 28 times next year's numbers for a company that's been sort of, I hate even saying it, but muddling along over the last three or four quarters. But you can believe the TSMC narrative and not believe in the Apple story, correct?

10:22Yes, because the TSMC is data center. It's leading edge other technologies. I mean, look, by the way, the numbers today also show that Intel is not closing fast on technology. I mean, they talk about adoption on their their three nanometer. They talk about where Intel is actually outsourcing more of their foundries. So as much as I want to, you know, I'm an Intel shareholder as well. And I didn't love that announcement. But today was all about excitement you should have for tech and for tech spending. And again, getting back to the markets, the fact that semiconductors make a fresh all time high and a new relative high to the S &P is something that's notable.

10:58Because that was the story for 23 at a time when people really felt like we needed to see a broader market. And I know we don't have that broader market participation here, but it's taken the market higher. Does it make you feel more bullish, Guy? Why are you laughing? No, of course not. No, I mean, yes. I mean, everything on the – listen, very impressive day-to-day without question. The VIX move yesterday has me somewhat concerned. You had a spike in the VIX on a relatively benign market day. We've seen worse, and the VIX hasn't done nearly as much. So there's some things out there that definitely are concerning.

11:32But, yes, when you see this on the margins a day like today, on the back of what Tim talked about, yeah, you can't discount it entirely. Yeah, it's funny. It's not great. So here we are, three trading weeks into the year, and we thought we were getting it broadening out, right? We thought that we saw some money in the first week of the year come out of some of this MAG-7. Now I would make the argument, and we've been talking about this, Tesla's out of there, should be out of there for good. If you just look at the way it's acting and really how they're able to kind of defend their business right now, They don't really seem to have those capabilities.

11:58But I'm looking here. Energy is down in the year. Basic materials are down in the year. Real estate is down in the year. Consumer discretionary is down in the year. Industrials is down in the year. Utilities is down in the year. So you're not having a broadening out. You're actually having a re-concentration back into semis and the mega cap techs that were working. Because the narrative has changed in terms of the rate cuts. Yes. I mean, you had retail sales that were better, claims that were the lowest level since I don't know when. And then you have Bostick say he doesn't see rate cuts until the third quarter.

12:25So we have this narrative once again saying no rate cuts. And so you flee into what was perceived as safety. Here we are. It feels like here we are again. I agree with that. And again, we're at six week highs on yields and actually saw 10 years actually pushing up a little bit, even the after hours here. I think we wanted to see market broadening. But remember, the market that was so strong was led by the highest market cap names. And ultimately, I think the same analog will catch up to the broader weighted. I mean, there are all these statistics apparently about where the underperformance of equal weighted is year to date.

13:01But I mean, think of the outperformance in the last two months of the year. I mean, it's hard for me to get too worked up about stocks when, in fact, the rally we had for not just Santa Claus. Does that bother you? You know, that's a rhetorical question. What doesn't bother me? That would be a better list. And Happy New Year, by the way. But, I mean, I do think you have a case where, you know, the move in stocks year to date, yeah, I actually believe in health care. I believe in real estate. I believe in utilities. I really believe in utilities and health care and energy this year, less so on real estate.

13:30But I'm not sure you give up the ghost based upon this. I don't think anyone's suggesting you do. But, again, higher rates, higher, you know, outlook for the Fed is certainly not good for equities. Agree, although I did cover some bonds today. The TLT and sold some TBT, which is the same bet, basically, because the move in the 10-year has actually been pretty swift, pretty dramatic from 380 to almost 420. So I covered some. All right. Bank of America believes in big gains for Apple. But what do the charts say? It's like dividing into the big tech technicals of a name. Our next guest says is about to fall from the tree.

14:03The chart master, one and only Carter Braxton Wirth of Wirth Charting, joins us now. Carter, what are you looking at? Well, we can get right to the charts if you want. But I mean, you referred to as a group, Apple's sort of muddling along. Apple's relative performance to the market actually peaked five quarters ago. Let's look at this first comparative chart, just two lines. So this is, again, from the end of September 2022 to present. The tech sector is up more than 100 % versus Apple. One's up 25, Apple, the other's up more than 50. Now, that's a problem, meaning its stock is up, but you're underperforming other choices.

14:45That's the definition of no alpha. The other way to look at this is instead of two lines, one line. The next is a relative chart. It's a ratio chart. It's simply Apple's relative performance to the S &P. And you can see where that vertical line is drawn. That is the peak. It's 27 September 2022. And since then to right now, again, Apple has done half as well as any other choice that one could have made by buying the tech sector. And there's some auto correlation there because Apple's a part of the tech sector. So if you took it out, Apple's relative performance is even worse. But the chart itself, let's just end with that.

15:22Apple here and now, I've got a sideways arrow for a reason. I think It's a pair of twos. At some point, having underperformed to such an extent, yes, you can get a news-related pop such as you saw today. But the burden of proof remains on the bulls. The bears simply have to point to it's done half as well as the tech sector since Q3 2022. At the same time, Carter, you still like semis. I do. And guess what? Sometimes you just stick with what's working, right? So semis have been exhibiting impressive relative strength. NVIDIA broke out from its range two weeks ago, and now you're seeing the Sox and the SMH also moving to new highs.

16:07All right. Carter, great to see you. Thank you. Carter Braxton of Worth Charting, which goes back to our original conversation, which is you might like one story, but not like the other. And that's what Carter sees here in the charts. I think it's fair. I mean, Tim, you asked Tim that question. He answered it, I think, the way Carter answered it as well. You don't have to, by definition, if you love Taiwan, some of you don't have to love Apple, although you could do both. I do. Listen, I think Apple's expensive. I think there have been periods of time where Apple does sell off. The last two times we've seen sell offs, if our crack staff and EC can look at it, go back in October.

16:37We traded down to and held the 200 day moving average and bounced. And that's exactly what we did recently off those couple of downgrades. So technically, it's actually traded relatively well the last few months. Let's see what happens in earnings in a couple weeks. And listen, there's other names in the semiconductor space that maybe we haven't been talking a lot about. If you think about, okay, if smartphones are bottoming, then Qualcomm. You know, Apple's a 27 % customer. Samsung's a 21 % customer. Your Xiaomi is 21 % customer or something like that. They got a great, you know, phone going on over there.

17:05And so you say to yourself, okay, well, if phones are going to be the next, like, kind of product offering where these things are demonstrated, because that's really, this is the generative AI stuff that you're going to be using, then there's going to be upgrade cycles for the chips before people really start focused on the phones. And that's a relatively cheap stock and, you know, it's got a good balance sheet and the like. So that would be one I'd focus on this year a little bit. All right. Coming up, out of pocket pain. Health insurers dropping hard as medical costs creep higher. The impact on earnings and the prognosis for the rest of the year next.

17:35Plus Coinbase's crypto hangover. We are one week into a Bitcoin ETF world, but shares of coin haven't joined the party. How the new funds are impacting the crypto exchange when fast money returns. This is Fast Money with Melissa Lee, right here on CNBC.

17:58Welcome back to Fast Money. Shares of Humana plunging today, hitting its lowest level in nearly two years. The move coming after the company warned that higher medical costs would hit its bottom line. The news echoing a similar sentiment from UnitedHealth last week in taking down other insurers, too. Let's bring in CNBC's Bertha Coombs for a checkup on these names. Bertha. You know, Melissa, until now, Medicare Advantage has been a growth juggernaut for UnitedHealth and Humana and others. That trend is looking a little more challenged right now. Like UnitedHealth did last week, Humana says that higher inpatient costs and outpatient surgery volumes drove their medical loss ratio, in their case, up to 91.4 percent late in the quarter.

18:39Now, that's how much of the premium that they spend on medical care. That 91.4 percent is about 240 basis points above what the consensus is and over six points higher than what UNH saw in its fourth quarter, which was higher than expected. UNH has its own outpatient surgical center, so that might have helped them lower their costs. But unlike United, Humana is also lowering its full year 2023 earnings outlook and says this could weigh on 2024 results. On top of that, Humana is warning of lower growth during the recent Medicare Advantage open enrollment period. So they're now projecting just 1.8 percent Medicare Advantage growth this year.

19:25And a note again, that number just surprised me, that nine handle on the medical loss ratio. It's exceedingly rare, apart from some of the smaller Medicaid insurers, according to CFRA data. And analysts at Stevens tell me that it's been about 10 years since one of the major health insurers has notched an MLR of 90 percent or more. Melissa? Wow. Bertha, thank you. Bertha Coombs. So it's almost like looking at it's basically how much per dollar they spend, right? Exactly. 91 cents on the dollar they spend to cover costs. Yeah. So the margins are thinner. And Bertha was trying to convey the magnitude of that miss is really enormous.

20:04I mean, that is so much of their profit, right? So they have the MLR. That's what they spend on medical loss ratio. Then they have other expenses, leaving a very slim margin, but on a giant number. So a miss like that is so big, it does make you wonder, okay, are they kitchen-sinking this MLR look for next year? I mean, they're experiencing it for sure, so they're seeing it. But are they projecting forward that it will continue to be that bad? I think maybe they are kitchen-sinking it a little bit. Also, the AEP, the annual enrollment period that she talked about, that was disappointing for them.

20:39So a lot going wrong. And remember, they've already been hit once on UNH. So now they're getting hit harder even. I don't own Humana. I own Elevance, which got hit somewhat today as well. They're reporting on the 24th. This sort of intrigues me. I think it could be a little bit of a kitchen sink. So maybe a bottom. Yeah, maybe look at, yeah. I mean, this is a three-day one, three-day rule here, but I'm intrigued. But when are we going to get these numbers? I mean, aren't these guys reporting actual the fourth quarter numbers in another week or so? Yes. They better not be different than this, right?

21:14That would be terrible. That would be so dumb and terrible. I don't know why. But it feels like it's setting you up for, you know, again, concern about whether the adjusted 23 numbers are going to get knocked down, but certainly as you look to 24. So, I mean, they're calling for 37 bucks, I think, on adjusted EPS in 2025. And, you know, that's something that I think the analyst community is going to start to do right now. That's what was going on today. I think you wait until you get more. You look at UNH reported on the 16th. They had it's obviously very similar, but they had obviously the stock sold off.

21:49But then the analysts came around and said, you know what? We understand what's going on. The average price target is probably close to six hundred dollars. I think I saw a six ten flip side of the coin. UNH was now at trading levels we last saw in June of last year, they have seemingly a lot more problems than UNH does. And this is, I think, from my opinion, the have and have nots. UNH is holding ground here. Humana is breaking ground here. And this level that we held today on 9 million shares is a good sign. But go back to January 22 if you want a real level, 365, that low we made then. I don't know.

22:20Given everything that Bertha just said, that seems to be in the crosshairs. All right. There's a lot more Fast Monday to come. Here's what's coming up next. Is there space for Coinbase? One week into Bitcoin ETF trading and shares of the crypto exchange have been feeling the heat. Where investors are choosing to go for their Bitcoin fix. Next. Plus cracks in commercial real estate. The wall of debt coming due. And whether there's any opportunity in the sector. You're watching Fast Money live from the NASDAQ market side in Times Square. We're back right after this.