Energy's Nuclear Revival? 9/20/24

0:01Live from the Nasdaq market site in the heart of New York City's Times Square this is Fast Money Here's what's on tap tonight. Breaking news. Qualcomm approaching Intel about a takeover in recent days. Shares of Intel spiking on the report before coming back down to Earth. We'll have the latest on this developing story straight ahead. Plus, Apple officially putting the iPhone 16 on sale. Lots of pomp and circumstance, but will sales match all the hoopla? We'll talk to one analyst who is still bullish on a coming super cycle. And later, going nuclear. Constellation Energy working to turn the power back on at Three Mile Island.

0:32You heard that right. Microsoft signing a deal to get its hands on all that power for the next 20 years. The details on the deal and the flood of funds for nukes coming up. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Courtney Garcia, Dan Nathan, Guy Dami and Mike Coe. We start off with that breaking news in the chip space. Reports in the last hour that Qualcomm approached Intel about a takeover in recent days. This as investors continue to doubt Intel's costly turnaround plans and its ability to design and manufacture next generation chips. If a deal were to get done, it would be one of the largest tech mergers ever.

1:06For more on all of this, let's bring in Bernstein Senior Semiconductor Analyst Stacey Rasgan. Stacey, great to have you with us. Good to be here. Could this happen, in your view? I don't know. I mean, you know, there was a story or a rumor a few days ago that said Qualcomm might be interested in just buying the client business for them. And so I wasn't sure how that would work. So maybe this is, you know, we're willing to take the whole thing. Look, I think the rationale, if I was to come up with that, Qualcomm is still primarily a handset company. It's primarily an Android handset company. And there's a big diversification play there, auto and industrial, and crazy, even PCs.

1:46And so I guess this would accelerate that diversification story and, you know, would make them a very big, important compute player. and frankly their PC business right now is K-Small so there's not a normal model out there. So I mean, I guess you could argue but I'll be honest, there's a lot going on here. I really wonder, the biggest is what happens to the manufacturing assets at Intel? That's the biggest problem, right? I mean, their manufacturing business right now is losing$12 billion this year and it's questionable to me whether or not Qualcomm can run those assets better than Intel can.

2:22I kind of doubt it. At the same time, I don't think they can just sell the manufacturing assets. I don't think anybody else really wants to run those fab assets for them. And I think while hypothetically you can think about, well, you just scrap them, you just sell the tools for whatever they want. I don't think that's politically viable. I think any deal that had them completely getting rid of the manufacturing arm so that was no longer available, I just don't think that passes muster with the U.S. government. Their whole thing right now is to try to get local, like, leading-edge semiconductor manufacturing really off the ground here in the U.S.

2:54So I think it's just – it's tough. It's tough. Intel's – I mean, they're in a tough spot. It's like, I don't know, maybe I'm just not bold enough to, like, think through, like, what could happen here maybe. But I think it's a tough deal. Just given the message. You also have to remember, like, Intel's already in the middle of a major restructuring. So that begs the question, like, how much incremental synergies, if any, are there? Like, how much more is it going to take out? Can you do it without disrupting the business? Is this just another major distraction that's going to happen now on top of everything else?

3:29Like, I don't know. I don't know. Well, you know, whenever you see a report like this, I mean, you think maybe it's a trial balloon by at least one of the companies, probably Intel in this case. And I'm just curious, Stacey, if you think that maybe this indicates, in your view, a level of desperation that's not already priced into the stock. I'm not so sure. I hear you on travel, and I'm not so sure it would be from Intel's side. I'll be honest. They haven't really seemed to be eager to sell, unless things are much worse than I think. I will be honest. I don't think they're in a desperate situation from, like, a cash standpoint.

4:06Like, I think if you add up, you know, the tax cuts and the OPEX cuts that they're doing, the suspended dividend, the governmental funds, as well as the partner contributions, they've been selling portions of some of their factories to private equity and getting cash. That shouldn't give them enough of a cash one, which I don't think they're in danger of running out of cash from that standpoint. Now, look, are things just much tougher in terms of executing on the strategy? I don't know. But I mean, they've effectively been sort of betting the company that their process roadmap, that they're past in what they call 18A, their next iteration process, is on track.

4:40And that process will save the company. And everything that they've been saying publicly suggests that that process roadmap is on track. But like if it's not on track, like why would you want to buy them in the first place? Right, right. Amazon seems to believe that it's on track in some fashion. But Stacey, let's go quickly off the board. Our connection is not that great, but let's go off the board for a minute. If you were to engineer a deal for Intel, what would that look like? Would that solve some of Intel's problems? Again, I don't know because for me, and I'm not going to, I'll be careful what I speculate here, but for me the biggest issue is what really happens to those manufacturing assets.

5:21I think with the fabs, this becomes very difficult because they're not running well now. I don't know that Qualcomm can fix them or run them better than Intel can. And I think any deal that would involve those manufacturing assets no longer being available to manufacturers, I think is just very difficult for my regulatory staff. That, to me, is the biggest unknown, on top of a lot of other unknowns that are here. I just don't know what happens with those assets. All right. Stacey, we're going to let you go. Thanks so much for phoning in. I always appreciate your insights. Stacey Raskin of Bernstein.

5:52I mean, Guy, what do you, I mean, Intel basically gave up the games initially on the back of this report. A couple, we have to get some, what do they call that when you do housekeeping things? Happy birthday, Dan Nathan, number one. Let's just get that out of the way. Number two, Wednesday was National Cheeseburger Day. I don't know if you knew this. Oh, really? Do you have cheeseburgers? Well, I don't, but John Fort, before we came on, mentioned that he likes hamburgers, so he got me thinking about that. The more you know. I don't understand why this would happen. It reminds me sort of in the sports world.

6:19I mean, GMs make calls to each other all the time. Is this person available? Is that person available? Nothing typically comes of it. I think this might be one of those things. It doesn't make a lot of sense to me in terms of what Qualcomm would be getting out of this deal. I mean, quite frankly, they'd probably be better off if Intel went away as opposed to sort of trying to gobble them up. So I think the knee-jerk reaction the last two days, think about what we've heard this week about from Intel. We've heard about the Amazon deal, right? We heard about the deal with the Pentagon and now this, and the stock still is basically nowhere.

6:50So I think any pop on this stock, we've said it before, you've got to sell it. Yeah, I think it actually does make sense. And I remember for years there was like, you know, people were speculating that Intel should buy Qualcomm because they missed the whole mobile thing, right? So now turn the thing around. I mean, wherever Intel is, as you think about, you know, these high-end GPUs, they're, okay, they're nowhere, right? But at some point they'll get up to speed. And this push towards manufacturing, I think they already told you they're going to slow this sort of stuff down. Qualcomm is fabulous.

7:16They're in mobile. This would really not have a ton of overlap. You could say, well, there's not a lot of synergies, but it could kill their whole plan to manufacture. And then the chipsack money probably goes away. Right. But at the end of the day, Intel has nearly half the enterprise value that Qualcomm does. Very little overlap. I mean, I think it could make sense. And then you think about we're just talking about this last night in the context of, you know, Nike and the CEO shift. Like Gelsinger is not long for the world here. So this might be like a good last act. You know what I mean? The stock's trading around 20.

7:49Maybe you get 35 bucks for it and you drop the mic and you move on. Yeah. And I think that a lot of the problems here with Intel are going to be the fact that long term, their foundry business is going to be an opportunity. But the amount of capex that is needed to get there, that's really a big problem for them. And I think the question is, like, is Qualcomm the person to do that, which we brought up here? And I think that that does beg the question. I don't know if that is going to solve their problems short term. You're saying they're having to cut employees. They're having to lower their guidance.

8:13I mean, they have a lot of issues here that I don't think are going away in the short term, even if this were to pass. So long term, yeah, it has some opportunity here, but I don't think this changes the needle. Mike, your thoughts? I mean, what would the number be and how would they structure the deal? I mean, you have significant negative cash flow for the reasons that were just discussed on the Intel side. There's only about$11,$12 billion worth of free cash flow on the Qualcomm side. And Intel trading at around$21, I mean, it has lost most of its share price value. So what's going to be the magic number that would actually even get the Intel board to say we're OK with this?

8:48Usually you're going to do a year look back. So it would have to be some kind of a stock deal. I think if somebody wanted to speculate on the upside and buy some calls because I think it would have to be a stock deal, that would be OK. And it seems like that's where the flows are going, because that would mean that you would still preserve some optionality thereafter because you'd actually have options on the merge company stock. If I were a viewer at home listening to this conversation in its entirety, I would walk away with a conclusion based on what you all have said and what Stacey has said, that Intel's only real path is to go it alone.

9:22And so, therefore, if that is the most likely option, is that worth anything at this point? Now with the stock down 60 percent or so this year. The go it alone option. Is it worth it? So, OK, so. You have faith that Gelsinger can execute. Look, it's Friday. I'm not looking to get anybody's bad side, although we've done that before with Mr. Gelsinger. But I'll say no, it's a short answer to that. I mean, I think he's done a good job in the past. I think this is a little bit probably bigger than what he thought. Maybe the problems were a little bit bigger in Intel as well. But I'll say this. It is possible to turn the ship around.

9:55Microsoft was nowhere for years, and they were able to figure it out. And IBM, right before our eyes, that's Sandy Canold's eye in his whatever trade. I mean, look at what that stock has done over the last year and a half. And that is because new people were brought in that were able to figure it out. So it's not like it can't happen. I just don't think it happens under this regime. All right. Let's get to the broader markets now. Another record day for the Dow to end this big rally week. The industrials closing above the 42 ,000 mark again. The S &P and Nasdaq ending the day slightly lower, but all three major averages finished higher for the week.

10:26The Fed rate cut a key driver for the gains. And today, Fed Governor Waller told our Steve Leisman that policy will be flexible if economic risks grow. He voted for the half-point cut this week. The data starts coming in soft and continues to come in soft. I would be much more willing to be aggressive on rate cuts to get inflation closer to our target at 2%. He was clear, though, that he and the other Fed governors who voted were pretty confident in the strength of the economy. And on the other hand, we heard from FedEx, and the CEO specifically said that the Fed's 50-point rate cut, 50 basis point rate cut, signaled that there is a weakening in the economy that we did not foresee.

11:07So which is it? Who's got it right? The FedEx, the company that is dealing with the economy right now, or the Fed governors at the Federal Reserve? What do you think? Listen, we've been talking about this, about these two different economies that exist here in the U.S. So there's a high-end consumer that's still doing pretty well, a middle-end consumer that's still doing pretty well. It's the lower end consumer that's having such a tough time. So when you think about a FedEx, you know, it's really hard to get a sense of like what's going on there until we start seeing a degradation in S &P earnings that would give us some sort of indication that companies are feeling it, that we hit peak margins and the like here.

11:41And that the 2025 earnings estimates, I think per fax is up 14 percent year over year until that is in some sort of, you know, I don't know. Listen, at the end of the day, it just feels like we're in this zone right here where there's a lot of uncertainty. They said they're going to be flexible. I really would doubt anytime soon if they're going to be raising rates. That doesn't mean, you know what I mean? Like when they say flexible, it really means what is the pace of rate cuts and for what reasons. That's my take. Right. I mean, yesterday when FedEx came across, some on the desk made the point of Dow theory.

12:13What does this tell us about the economy if FedEx is tanking here? I don't know, Guy. We're a services economy at this point. So I don't know how valid Dow theory is, but it is troubling. And I'm sure some of the conversation revolved around FedEx-specific problems. And, you know, as much as you want to make it a Dow theory thing, you know, FedEx has had sort of they've had their ups and their downs. I mean, more downs than ups, quite frankly, given where the stock should be trading our valuation. And it's not. But yes, in terms of Dow theory. And I'll answer your question. I think the market and the market commentary that you're hearing is more accurate.

12:44these Fed governors to just look anecdotally at consumer spending and say, well, the consumer spending, everything must be good. I'm making it more simplistic than it is. But below the surface, they're absolutely problems. And if it was one company, it's one thing. This is a lot of companies across a swath of industries that are saying the same thing over and over again. At some point, that's going to mean something. Mike, how are you feeling after the 50 basis point cut? More bullish about the markets or more concerned? Well, I mean, I think I would have to be more bullish overall, but that's not necessarily because I think the lower tier economy, I think if we can sort of bifurcate it in that way, is necessarily any better off.

13:25I think that obviously we got that out of Dollar General and a number of other companies that were reporting. But the fact is about 35 % of S &P earnings, I think this might also be one of the things that Dan was just talking about, 35 % of S &P earnings coming from what? the top 15 constituent stocks of it, and they're not really exposed to that. We're talking about the MAG7 names and a couple others. Maybe UnitedHealth, I guess, would also fall into this. That's not necessarily an economically driven story. So S &P earnings can hold up even if some of those other names aren't doing so well. So I'm not feeling that great about the lower-end consumer.

14:01Neither are they, obviously. You can see that in savings rates and you can see it in their debt levels. Yeah. And I think what we have to look at, too, is contrary to popular belief, I mean, the economy actually has been continuing to grow. You're seeing GDP numbers are increasing. The labor force is tight. And that's really why the Fed came out and did say we're positive on the economy, even though it's a 50 point basis cut. It's not because we're worried about the economy. It's because things are going well. And I think you get this news from FedEx, which poses the other side of the question.

14:27But I think I would not look at FedEx as like a bellwether for where the total economy is going, because what you're seeing is this change in not only the high income versus low income consumer, but also what they're spending on. So you've shifted from goods to services. People are traveling and eating out as opposed to buying e-commerce, and that's going to affect FedEx. So you're actually starting to see some news come out, like a lot of the big retailers are already announcing their holiday sales right now, so they're trying to get ahead of that. So maybe you're going to see some of that improve some things with FedEx going forward.

14:55But overall, I don't think that means the overall economy is in trouble just because of what FedEx is saying. What month is this? Oh, ho, ho, guy. No, I can't even. Oh, ho, ho. September. And this is what season? It's pumpkin spice. No, yeah, but it's not. I mean, this is not this is more directed at you than Courtney, because you're the queen of the holiday season. It's the holiday season. Fa la la la la. Costco reports next week that we are going to start getting reads. When Costco sells off our earnings, it typically three, four days later, it's making a new all time high again. If you go if our crack staff and EC can put up a chart, you'll see exactly what I'm talking about.

15:30Expensive on valuation, without question. Yeah, they ramped up prices to be one of their, I guess, you know, members. But their membership rate is sticky as hell. I think it's 95 percent. Not that that's a big portion, but it just goes to show you what's going on. They work the same way Walmart works. It's their world. Everybody else is living in it. All right. Go ahead. I'm just going to say, like, when you look around, like, what are the issues here? We have a low-end consumer that's kind of in a difficult spot. You have China that is weakening. You have some geopolitical risk. You have some risk here.

16:00about the election. I don't think that's dramatic one way or another, but there's nothing out there. Oh, and then the U.S. debt and the deficit and all that sort of stuff. I mean, people keep talking about that, but at the end of the day, I don't think there's a ticking time bomb right now. Right, right. Coming up, a no-go from Novo. The pharma giant's obesity treatment, a disappointment so far. What is holding the little pill back from the big time? That's next. But first, Apple taking over the big Apple. But will the new iPhone boost the stock? We'll hear from one analyst who is still betting the 16 will kick off a super cycle.

16:39Welcome back to Fast Money. Apple's iPhone 16 hitting stores today. The launch drawing big crowds this morning at the flagship store in New York City. Tim Cook on hand to take selfies. Customers looking to get the new model, which is now sort of AI ready with intelligence features launching next month. Let's bring in Deepwater Asset Management's Gene Munster, who thinks the iPhone is entering a new super cycle. So, Gene, the launch today, the numbers, you know, that allegedly came over last weekend, any of that feed into this view or you had this view prior? Well, I had the view prior, and it's a thesis because ultimately the biggest substance, the biggest juice around this is going to come starting in the March quarter when these features obviously are more available.

17:23Well, the reviews today are largely irrelevant because this, of course, the critical feature is related to Apple intelligence, and it's not available today. But Melissa, as I think about today and think about the importance of today, and this is in the life of Gene Munster, this is a big day because since 2007, I've trafficked Apple stores on iPhone launch days and done survey work. this survey, today we found that the average life of a phone, the average age of a phone that was being upgraded is 3.1 years. And this is really important because what it shows is that typically in an upgrade day, the first day, it's about a two-year-old average age.

18:06And so I think this plays into a piece to the Apple upgrade, this iPhone cycle that that sometimes gets overlooked beyond Apple intelligence, which is just the size of the pool. And if there's one data point that Apple investors should take away from, is that in 2021, iPhone sales were up 39 % year over year. I mean, a massive year. And essentially the ripple, the echo effect of that is going to hit in the next year. And I think that's part of the reason why we saw older phones showing up in the lines this morning is because this pool is bigger, easy comps, Apple intelligence, you put all this together, I think iPhone can grow closer to 15 % about double what the street is expecting for fiscal 25, a bold bet, but that's where I stand.

18:53Gene, you've forgotten more about Apple than I may ever know, okay? So you've been through all these cycles. The day of WWDC on June 10th, we had a little split box like this. You were very excited about the stock. It was$193, and it quickly went to$225. So you had it right about the excitement that is going to come about Apple intelligence. But here we are, the phone is launching, right? And it's being delivered today. And there's no Apple intelligence. And I think the differentiator of this device was going to be that there was going to be AI on device. If there's going to be an over the air sort of upgrade, like what is this really going to be.

19:30So, you know, as far as I'm concerned, to get your 15 percent, it better be based on the knowledge that hundreds of millions of iPhones need to be upgraded because they're bought in 2021, because I just don't see this as a big upgrade cycle for what they build Apple intelligence for. Is that fair? It's totally fair. I mean, that's the beauty of what we do as investors is we don't have perfect information here. And what we have is the potential around what these features are going to look like. And we have some guesses. I have some guess of an expectation about what that's going to do to demand.

20:04And when I kind of put that all together, I agree. Like, you know, we've got a nice tailwind by the size of the pool. We got easy comps. That's going to kind of carry us to the back half of the year. But the real substance here, as you said, is about something we haven't even put our hands on. So where in the world does my confidence come from? And the answer is it's just a belief that AI is not a feature. It is a paradigm shift. if we've talked about that in the past, this is more similar to the shift from a keyboard to a touch screen to me than just a simple feature. And so Dan, that's part of where I get, but that's ultimately where I'm gonna be wrong.

20:38It's a pretty simple case. Where I'm wrong is that these features don't resonate and like I expect them to, and you just get kind of a muted back half of fiscal 25, and they probably grow closer to five to 7%. Gene, thanks so much for joining us on this most important day of Gene Munster's life. Thank you. Gene Munster. I hope he has like a dancing bear waiting for him, a cake, a hat, you know. Sounds sort of creepy. If one is to believe that super cycle is coming, when does it talk? All right, so here you go. Let's play it out a little bit, okay, because we've all talked about the valuation. 8 % revenue growth, maybe.

21:16Maybe you got 11 % EPS growth. Got it. Margins have been flatlining. We know all those things. I think in order to continue to be bullish on the stock at this price, you have to think that revenue is going to accelerate. And along with it, you can get acceleration in their services side so it can continue to grow at least to 25 percent. If you get that, then maybe the valuation is justified. That's the rub. If you believe that, the stock is a buy here. I think historically the stock sells off in a meaningful way a couple times a year. We've seen it maybe once. I think we're setting up for another one.

21:47Yeah, and I think everybody's been talking about this super cycle that everyone's hoping to have. And yes, now the iPhone's coming out. There is no AI on it. We're talking, OK, maybe in March. But at what point do you get that, OK, now it's March, April, people are starting to get excited about it, that they now push it out to the next iPhone cycle, that this could be a several cycle upgrade as opposed to one super cycle? And I think that's the big question is they're so dependent on iPhone sales as such a large portion of their revenue. They really have to have that big cycle. And I think it's starting to get pushed out further and further.

22:14That that really doesn't bode the case to, you know, buying Apple on that news. Well, that traction on revenues and services from services, et cetera, that's not for quarters. Yeah, but here's the thing. So Gene talked about easy comps, and I'll just say this about margins. And Guy is right. They did flatline for a while around 42 percent, and that was 2021, 2022. They already stepped up from 39 percent. Expectations for, I think, this year, this fiscal year, 46 percent, a little above that next year. So it's embedding, at least the expectations, a bit more of services. We know that 50 percent of their sales comes from iPhone.