Intel Soars After Hours, and Apple’s iPhone Concerns Description 9/16/24

0:02Live 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. A record-breaking day. The Dow's oriented new heights as the Fed gets set to decide whether to go big with its first move on interest rates. Could a 50 basis point cut really happen or is this just a Wall Street fantasy? We'll debate that. Plus, breaking news. Intel landing a big new customer, Amazon. And the two companies will co-invest in a new chip for AI computing. All the late-breaking details coming up. And later, an old tech favorite hitting another record, cruising to a record high despite travel slowdown fears and get back to work inside a new edict from Amazon.

0:38I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Karen Feinermann, Steve Grasso, and Guy Adami. We're going to get to the record market close in just a minute, but first we start off with Intel. That stock is jumping almost 8 percent right now after announcing an expanded partnership with Amazon Web Services, saying it would create a separate entity for its foundry business, a move that would allow it to raise outside funding. That is on top of a 6 percent gained during the regular session after the company solidified a$3.5 billion deal with the Pentagon.

1:07John Ford just spoke with Intel CEO Pat Gelsinger last hour on the OT. This is a big announcement today. Amazon's been a partner of Intel for many years, but we've just taken it to a whole new level. Obviously, the 18A foundry agreement for their AI networking is a big deal, and Amazon is a discerning customer. They are, you know, really sent us through our paces to prove that 18A is up to snuff and it's up to snuff. John joins us now with more on the story. So, John, what exactly does this mean? What is the outline of the partnership here? Well, there are a lot of different pieces here, Melissa, kind of new stage throughout the day.

1:48But on this partnership specifically, Intel and AWS already had a relationship. It was more based on existing process notes. So manufacturing processes that Intel's already comfortable with. Part of what's significant here is that Intel's talking about 18A, which is its most advanced manufacturing process. Pat Gelsinger has been talking about how they're going to do five nodes in four years, which is much more than Intel's used to doing. And there's a lot of investor skepticism that Intel's going to be able to cleanly do that. We most clearly saw that in recent days with headlines about Broadcom perhaps not being happy with 18A.

2:25But Intel put out a statement and Broadcom put out a statement after that saying that they're still pursuing 18A. So for AWS, which is a huge customer as a hyperscaler to be working with Intel on 18A, perhaps has some investors reconsidering the viability here. So that's on the revenue side. Then on the cost side, you had the announcements here about stopping down some of the European expansion and manufacturing, pausing that for a bit. And then on the structure side, for those who are concerned about maybe they should spin off manufacturing, Gelsinger is saying, well, we're not going to do that, but we are going to shift the governance of it so that it's more of its own separate thing.

3:07And, of course, investors will read what they like into that. In terms of 18A, and you mentioned on the revenue side, do we know that revenues come in thanks to this AWS partnership? Or could it be that they're working with Intel and it's sort of, you know, on an as-we-go basis? It depends on what you deliver for us. Well, 18A is not shipping yet in the sense that it's a product that customers have in their hands and they're placing in their data center. So it's a multi-year, multi-billion dollar deal, Intel says. But of course, they still have to actually deliver those chips in volume to AWS specs.

3:45But AWS would not, Matt Garman would not be making this deal if he hadn't seen anything that makes him think that that is likely. So it's not a total all clear. They have these chips. They're operating. They're shipping them out right now. But it is some sense that Intel's progress on this is enough for one of the biggest customers in the world to say, yeah, let's do this. All right. And then on the foundry side of it, outside investors can now come in because it's a separate entity. Doesn't that change sort of the financials for that business considerably if that happens? Well, there have already been these deals that Intel has been cutting on the manufacturing side where there's been outside money coming in in the sense that they will get some of the revenue profit out of the manufacturing business as they stand up these new facilities.

4:32that kind of smart manufacturing strategy, as Intel calls it, has already been in place. This will make it easier to do with the Foundry business specifically, but it's not exactly clear who's going to line up to do that. There's been a lot of talk in the analyst community, certainly over the last few days, about how long can Intel invest this amount of money into Foundry while still kind of struggling on its own design product side as the NVIDIA bonanza has expanded. And this perhaps puts a different wrinkle in there. Well, maybe without entirely spinning off the foundry business, Intel could still take in some more capital and build up this resource that clearly the U.S.

5:13government wants to have access to, that domestic manufacturing. And we know that there are some other names if this works out, as Gelsinger has said, including the likes of, you know, your AWSs, your Qualcomms, et cetera, that would like to have more domestic manufacturing options. All right, John, thanks so much for joining us. Appreciate it. John Fort from the overtime. All right. So how do you feel about Intel now? Much better? Not much better. I think the 18A kind of validation or the dynamics here, I think, is actually very important because even before today's announcement, there was some sense that longer term tailwinds could be in 18A and that there's a serious technology gap, innovation gap with Intel, certainly as it relates in the AI space.

5:56But as you get into server, but in Foundry, You know, this is a case where I think they can regain their competitive edge. And I think they can actually start to complement that with, again, a product line, whether it's server, whether it's Gaudi, Sierra, whether it's Gaudi, it's coming out. I think this is a it's an important moment for the company. It's also a moment where just two weeks ago we were hearing about massive cost cutting. We were very worried about some of the dynamics here. But they have done very interesting things in terms of these JVs. And I go back to that$11 billion deal they did with Apollo to sell 49 percent of their Ireland foundry, 34B.

6:33I mean, some of that is actually the kind of stuff that they've been doing, the$3.5 billion that comes from the government. The U.S. wants them to succeed. And, again, the argument sometimes at least has been that this is kind of semiconductor USA, and that was a reason to buy the company. It's not a reason to buy the company, but this is good news. Yeah. Number one, I dig the glasses. Number two, typically when we lead with Intel, it's because the stock is down 15%. They said something other, some other catastrophic thing. So this, I guess, is interesting. I'm with Tim. It's not a reason that there's going to be some trajectory change in the stock, but it's a reason enough to get this bit of a rally here and maybe get to 25, which, by the way, was a prior low a month and a half or so ago.

7:10With all that said, I mean, 15 ,000 people, they're blowing out by the end of the year. They're halfway there. They're trying to save$10 billion by the end of the year. They're paring down two-thirds of their real estate. I mean, that sounds like cutting our way to prosperity, and they're putting all the eggs in this 18A foundry basket, which may work. You know, the Pentagon news as well today, great day news-wise, but does it move the needle? I'm not sure it does. If you go back to, I'm sure Guy has pointed this out, 2012, 2010, that's the levels that the stock is trading at technically. The question is, though, we were probably, and I don't know about any, was the CEO's job in question in the last month or two?

7:49Yes, I would say so. I would think so. It might still be in question. Yes. Right, right. So the question is, is this enough to sort of take the focus off of him and move forward? And the answer is probably not yet. I mean, to Tim's point, there has to be a lot of execution between here and the actual execution of 18A and delivering chips to an Amazon or other customers. Right. And that hasn't been their strong suit executing and delivering. Right. Especially with their cutting costs. Yes. So, I mean, you know, the shortage is actually much smaller than I thought. So I was originally thinking, oh, any, you know, big pop on this would be short covering.

8:30But I don't think it is. I don't know, Tim, if you would think that this is things going from terrible to just bad or not really reading that through. I don't think things as I want to say that things never got to terrible. And again, I mean, terrible in the context of buying a stock because things went from terrible to just bad. But there's no question things have been close to terrible. And I think this news is the kind of news that actually is the news that where the stock actually, this is real. This is where there's actually an improving story or a good story, not a great story, But a case where, again, someone like Amazon, who will hold them to a standard in terms of the technology, in terms of the execution and the delivery of the ramp on this, that's the good news.

9:14Let's get to Apple now. Shares tumbling almost 3 percent after reports that demand for its latest iPhone 16 may not live up to expectations. Analyst Ming-Chi Kuo saying first this weekend, first weekend sales of the latest model look to be nearly 13 percent below last year's iPhone 15. The new iPhones became available for pre-sale last Friday and will be in stores this week. But the highly anticipated Apple intelligence AI features will not launch until next month. So does this tepid demand suggest refresh cycle isn't enough to drive demand? Is that super cycle not going to materialize? Is it too early?

9:48Not this quarter. I mean, but as Gene will say, this is a long time. Gene Munster will say this is a long time story. And this is the beginning of that super cycle. But we've thought, I think collectively is, the market's probably gotten a little ahead of themselves in terms of what it means for the quarter. And I think these numbers or this story bears that out. So where's the level? Well, I think the August 5th low was like 205 or so. I mean, that makes a lot of sense. But I'll go back to the sort of the June 10th level. I think that's when the, whatever that day was, the Apple day, where everybody gets all excited and waits online, something I would never do in my life.

10:20But, you know, the stock went from$193 up to$230 over the next couple of weeks. $193 inevitably makes the most sense to me. So to me, the question remains the same. Will the AI functionality, will the services part of the story be really sort of catapulted forward by AI? They did a very good job of lowering expectations of when that would happen, right? They were incredibly vague on some of them, and several were a few months down the road. So they really set up for a very, very modest open or, you know, launch. And so to me, this doesn't that that it was a modest launch gives me no information about what this will be.

11:03Right. Yeah, because there's no measure of the uptake of its AI. Right. It's just the plain old iPhone, which I wonder, though, why I'm not quite sure about the idea of, all right, let's launch it before we have any before we have what is really going to accelerate the story down the road. I don't know. You don't even have the iOS yet, really. So in other words, you need that 18 iOS to actually see whether the functionality of even some of the existing hardware, in other words, or a chance for people to go into stores and actually try it out on the new hardware and actually determine whether there's something different.

11:32But there's no question that this release was so different than other phone releases because it was all about hardware, not about the software. And so this doesn't bother me at all, by the way. I mean, I do think there's going to be a massive refresh. I do think that Apple, if I look at chat GPT, I look at the people that ultimately are falling over themselves to partner with Apple. I think Apple is in the driver's seat to deliver to the consumer. And I think they will. I think it's a question Karen always asks, delayed or denied? I think it is delayed. I think to your point, they should have had much more AI stuff embedded in it.

12:07But I think once people start to feel around with the hardware, they will buy the phone. I haven't ordered mine yet, but I will upgrade. All right. Meantime, shares of Oracle continuing their post earnings run, hitting a new all time high today. Mellius Research upgrading the cloud company to a buy thanks to the leadership of founder and CTO Larry Ellison. Analyst Ben Reitzes says he sees an EPS run rate of nearly eight dollars and 50 cents within two years. And that it's hard quote not to put a 25 time multiple on the company. He's got a two hundred and ten dollar price target, which represents nearly a 24 percent upside from today's close.

12:43He was very, very, very bullish, Larry Ellison, on AI spending over the next five to ten years on that call. Yeah, old tech. I mean, I think we've talked about Oracle for a while, and I think we've done a decent job. I mean,$8.50 two years from now, that's off what the street is looking for next year. I think$7.15. You can do that type of growth. That is deservative, that kind of multiple. And you start doing back-of-the-envelope math, and it suggests, you know, maybe not$250, but definitely low$200. But, I mean, look at the straight line the stock has been on over the last few weeks to the last month or so.

13:14It's going to take a bit of a breather. You just got to look for another entry point. Love the story. Love what they're doing. We've talked about it for a while, but I think it's gotten ahead of itself in the short term. I agree. I mean, as you said, Larry Ellison was a couple of times wildly bullish on their conference call. And I guess it was a dinner with Elon, Jensen Wong, and Larry Ellison. That's funny that Jensen's the poorest guy in the room. It probably doesn't happen that often. But anyway, I think wildly bullish. However, part of their business is going to be somewhat hardware. There's some hardware in there, right, with this different multiple.

13:51So but obviously the top line looks great. However, it feels really Dell-ish in the Dell run up. And Dell actually delivered a very good quarter. But that traded up to almost 180 in the stocks. I don't know where it is today. won 13, 14, I forget where it went out, but it feels like that, just like you're saying, this straight up, I mean, this is a massive move in a very short amount. This was hype galore. And I'm not saying it's not justified. I'm saying 104 billion revenue go on 29 is aggressive. And it's aggressive for a company that at times has come up short. Now, they seem to be in the place where they're delivering 15-ish CAGR in terms of earnings over the next, excuse me, in terms of revenues over the next four or five years.

14:36If that's the case, the 25 multiple that the street, and some are certainly going to go higher than that, is something that's warranted. But again, it's an extraordinary move after a 10 % gap on earnings to then put another 10 % slowly over the last four or five days until today's big, big move. This feels like growth at a reasonable price. When Guy said old tech. So when you have a move to go from 140 to 170, I do think you're going to be able to get it cheaper. But I also think that the multiple is very soft on an investor that ultimately goes higher from here. But I think it backs up a little bit, maybe 15 bucks.

15:09The multiple soft on an investor is not very high. Yes. So if you look at this chart and you look at NVIDIA's charts, the inverse of each other, basically. So that was in the spotlight paying way too much. This one is probably just right for a growth stock. Coming up, 25 or 50. The question on everyone's mind, what you can expect out of the Fed rate decision Wednesday and how stocks will react next. Plus, cruise lines making waves. A group in the green today adding to its recent run. Can they keep it up or has this trade already set sail? We'll debate that when Fast Money returns.

15:46This is Fast Money with Melissa Lee right here on CNBC.

15:59Welcome back to Fast Money. The Dow gaining nearly 230 points to close at a new record. The S &P notching its sixth straight day of gains, while the tech-heavy Nasdaq fell half a percent. 93 stocks are nearly 20 percent of the S &P hitting 52-week highs today, including a number of all-time highs in rate-sensitive housing plays like D.R. Horton, Lennar and Pulte Group. All this ahead of Wednesday's Fed decision, where markets are pricing in a more than 60 percent likelihood of a 50 basis point rate cut. For more, let's bring and a Texas lead portfolio strategist, Jack Genesiewicz. Jack, great to see you.

16:32Thanks for having me. So which camp are you in, 25 or 50? Because 50 is getting more crowded these days. Yeah, we're in that crowded camp. We're in the 50 camp. And so there was a concern initially that a 50 basis point cut would send a bad signal to the market that the economy is actually worse than expected. You don't think that's the case anymore? It's now accepted and it would be fine? Yeah, I think that's a little bit of an overblown concern because when you take a look at really some of the peripheral data, whether it be retail sales, look at credit card spending coming from the banks, whether it's Bank of America or J.P.

17:05Morgan, looking at layoffs, they're just not happening. And all of this still, I think, points to the fact that we're cutting rates simply because inflation is down, not because we're about to basically roll into a recession. JJ, it's Tim. Thanks for joining us. So I guess the bottom line is if we've got 242 basis points of Fed funds cuts to the end of next year, if the Fed actually ends up doing that, isn't that bad for the economy and our equities mispriced here or bonds mispriced? And I do mean treasuries. I don't mean credit. 100 percent agree. And I think our base case is something along the lines of what we saw back in 1994, right, a mid-cycle adjustment.

17:41And any sort of mid-cycle adjustment, I think, would lead us to certainly some rate cuts in here. But if you're looking going out to something like close to 200 basis points plus, you're certainly not pricing in a soft landing at that point. So 100 percent agree our base case for a soft landing. And if we get to 200, we're probably a little more trouble than what we're thinking about. Mr. Janisiewicz, we try not to play politics here, but this will be politicized if they go 50. I saw Richard Fisher on Squawk Box last week. One of the reasons he didn't think they would go is because of exactly that.

18:14One side is going to say you're trying to help the other side. Is there any semblance of I mean, is there any notice truth to that idea or did even think about that? Do you think? Listen, the Fed is always going to be the punching bag, whether it be for the economy or for the elections. They're always going to get the short end of the stick here. But I think from from a rate cutting perspective, if you really wanted to influence the elections, you should have been cutting basically at the beginning of the year. By the time those rate cuts worked away into the system, you want to see the economy starting to reaccelerate.

18:42That's the time to do that. So I think those political accusations are a little bit misguided. The Fed's pretty much an easy target for any of this stuff. So we ran through the sectors that were acting well in anticipation of whatever size rate cut there is in store for us on Wednesday, Jack. And yet, you know, and that may look like a good reading of the economy. And yet you also have what one of our traders last week called the face of fear market, which is you focus in on the record highs seen in gold and utilities and all these defensive sectors. How do you read the market message right now?

19:13You know, I still think we're getting into what's called the growth scare, right? I think when you see some of the defensive names starting to really do a little bit better more recently, some of the economic data has been more on the soft side. Yeah, it makes sense to maybe price in a little bit of that concern. We would really call that more of a slowdown, not slowing, maybe a soft patch more than a potential for a recession. But I think as we start to continue to move past the uncertainty with elections, uncertainty with regard to rate cuts, you're going to see a little bit of, I think, a floor put in here.

19:42And if anything, you know, we'd be looking at this as a soft patch and maybe an opportunity to actually put risk back on once we get past maybe the election drama in here. It's Karen. Thanks for being on. I can't pronounce your last name, but JJ. I'm sure you get that a lot. Sorry. That works. So I am a relatively new member of the 50 basis point cut camp. I wonder, though, how much do you think is sort of priced in the market already? And how much does Powell care about what's in the market already? Well, I think the markets, like we talked earlier, it's still, you know, a little bit better than a coin toss for 50-50.

20:18But, you know, I think we're going to get the messaging that's going to be very important here. What does Powell say on the press conference? What does that SEP, what do the dot plots look like? Because if you start to think about something more along the lines of 25 and the SEP is showing 100 basis points worth of cuts, you know, you're going to have a lot of questions there. Well, if you're saying you're going to end up having to do a 50 between now and the end of the year, you're only doing 25. Why aren't you doing 50 now? So there's going to be some, I think, language and a little bit of communication that's going to have to be, you know, threading that needle, so to speak, once the announcement comes.

20:48And, you know, hopefully Powell can navigate that. He's done a pretty good job recently of doing that. But this one's going to be a tricky one, I think. Jack, thanks for joining us. Appreciate it. Thanks for rolling with the punches on the JJ and the Mr. Janicewitz and the Mr. J, all that. Dr. J. Dr. J. Maybe Dr. J next time. Thanks, Jack. Does it matter? We're wringing your hands over 25 or 50. Nobody really has an edge on this. It just matters if they cut. That's it. They are going to. But it's totally against everything Powell has done thus far. I don't think they could do 50 basis points. They'll do 25.

21:24They could always do 50 in November. They could always do 50 in December. How can't they do 50? I don't understand. Because then it would admit how late they are. They should have been cutting. On average, you usually cut. So not fixing it, though? What? We don't want to fix it because it looks like. No, well, that's the Fed. The Fed normally cuts historically eight months after the last hike. So that would have brought it to Jack's point. In March, they should have started cutting. So I think if they've waited this long, it might be seen as a little panicky to go 50 first. Well, I agree with Steve here.

21:58I just think that the optics after last week's CPI, again, it was hardly hot, but the optics are not easy for a data-dependent Fed to go 50. And I think back to the market, and not just what Fed funds have done. And so rates have priced in recession, commodities have priced in recession, equities and credit have not. But look at what made all-time highs today. Dow Jones, all-time highs. S &P value, if you buy that ETF, SPYV, all-time highs. The outperformance of the Dow Jones to the Nasdaq going back to June is 9 % for the boring, stodgy Dow. You talked about 92 S &P constituents going to all-time highs.

22:36What do you think is happening? The real economy is rallying on the expectation that the Fed moves. And it's not just rate-sensitive stocks. It's a lot of other parts of the economy. And I think that's really what the Fed's all about. Just one thing I want to add, though. It doesn't matter 25, 50. I don't know if it really matters. But I think the talk about, well, they're pricing in so many cuts, that's the problem. Last year, they priced in six or seven that never happened. Right. Right? And the market did just fine. So I don't think it matters so much. There's a lot more Fast Money to come.

23:03Here's what's coming up next. Smooth sailing for cruise lines as the group adds to a winning month. So can these names make waves in your portfolio? Or is this trade already lost on the horizon? Plus, the fallout from Boeing's factory worker strike, how the company is looking to conserve cash, and the aerospace stocks surging amid the planemakers' headwinds. You're watching Fast Money, live from the NASDAQ market site in Times Square. We're back right after this.