Mag7’s Earnings Kickoff, and a Game of Would You Rather - Archrival Edition Description 7/23/24

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. An earnings palooza. Alphabet and Tesla kicking off Mac 7 reporting season, but they're not the only stocks on the move tonight. We've got all the numbers and are bringing you all the trades. Plus, a game of our tribal, Would You Rather. We are pitting some of this morning's big earnings movers against their chief competitors. How do they stack up and which one should you add to your portfolio? And going flat, shares of luxury retailer LVMH dropping as champagne sales disappoint and high-end consumers pull back.

0:33Can this stock get back in fashion, or is there even more pain to come? I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Karen Feinerman, Dan Nathan, and Guy Adami. We start off with tonight's big earnings movers from Tesla to Alphabet to Visa and Texas Instruments. We've got all the details and all the action. Leslie Picker, Seema Modi, Steve Kovac, all standing by. But we start off with Phil LeBeau on Tesla. Phil. Melissa, this was a report for the fourth straight quarter where Tesla's earnings fell short of expectations. The company earning 52 cents a share.

1:07The street was expecting 10 cents more, 62 cents a share. They did beat when it comes to revenue coming into twenty five point five billion, a little better than the street expectation of twenty four point seven billion. The numbers within the numbers, this was a 43 percent slowdown in earnings per share compared to the second quarter of 2023. Free cash flow did come in a little better than a year ago, coming in at$1.3 billion. But automotive gross margins, excluding zero emission vehicle credits, that was expected to be about 16.5 percent, came in at 14.6 percent. In terms of deliveries, they once again use the language of notably lower delivery growth rates for 2024 than 2023.

1:50So no change there. Not surprising, given the fact that we've seen some challenges in terms of deliveries over the last couple of quarters. Remember, the company plans to deliver a lower priced model. That's all they're saying about it in the first half of 2025, perhaps during the conference call, which comes up at 530. We'll get a few more details in terms of what the company is expecting. Also, the robo-taxi, that will also be a topic of, well, certainly of interest for analysts when Elon Musk gets on the call. And again, that starts at 530. Melissa, back to you. A couple of things, Phil. First of all, on the gross margin, I mean, was the driver that the lower ASPs across their models?

2:30I believe so. I think when you look at those, I think that's one of the primary drivers there. And in terms of their zero emission vehicle credits, much higher than what we have seen in the past there. So that obviously weighs on, you know, when you look at the company's revenue. But then when you strip that out and you compare everything, that's that's a couple of factors to consider there. Yeah, it also felt like they were sort of laying the groundwork for a delayed robo-taxi rollout when they say the timing of robo-taxi deployment will depend on advances in technology and the regulatory approvals there, sort of, you know, cautioning people about getting too excited about this thing.

3:12I would agree. Look, they've already pushed it from August to October. What does Elon Musk say during the call in terms of how much we will see in October? Look, if it's their vision and it's a sort of a 50 ,000 foot view in terms of what's possible and what they would like to do, I'm not sure that's going to move the needle that much. But if they can get very granular, very specific, if they can show a specific vehicle and give us a timeline in terms of the robotaxi, that's a completely different story. But you were right. That language made it very clear there that there are a number of caveats that they're throwing out there that people should keep in mind when it comes to the robotaxi.

3:50Yeah, and caveats that they may not be able to control. Phil, thank you. Keep us posted on this call coming up in about half an hour's time. Dan, you walked in here, sat down on set and said there's nothing good about this Tesla quarter. Yeah, it's hilariously bad. I mean, there's really it's really hard to find anything that's good about this quarter. And I'll bring you back to early June when, you know, Tesla diverted, you know, 500 million high end GPUs from them to XAI. And if you think about RoboTaxi, yeah, they pushed out that event from early August, right, to October. That probably gets pushed out there.

4:22To your point, Mel, it seems like some of the commentary feels like it's not coming. But when I think about this as an$800 billion market cap and you look at the fundamentals of the actual EV business, you say to yourself, there's something way offside. So you better be into RoboTaxi. You better be into humanoid robots. You better be into supervised full self-driving. It's not full self-driving anymore. They have to call it supervised. Right. And that keeps getting pushed out. And the other point I'll just say is that, listen, they have like low single digits percentage of Tesla owners who actually subscribe to full self-driving.

4:57Right. And so if you think about their push towards lower end cars, do you think if you're buying a twenty five thousand dollar EV that you're going to spend ten thousand dollars on full self-driving? No. So like to me, I think all those things are wrapped up in that valuation. And after the stock has rallied 80 percent off those recent lows, it just doesn't make any sense. Now, it's never made a lot of sense here. But the point I'll leave you guys with is the fundamentals of this company are really bad. And the things that people are buying the stock for are way in the offing. This guy has never delivered on any timeline.

5:29I don't know why you would expect him to do so right now because he seems busy doing a whole host of other things. Hilariously bad. That's the first time I've heard that term here. So, look, it's to me, it's always a margin story. So 20 percent of their gross profits came from regulatory credits. It was 12 percent in the first quarter. So when you do the back of the envelope math, it suggests that margins actually were about 14.6 percent. And the street was looking for north of 16 and a half. So if it's a margin stories, the margins continue to deteriorate. And given the fact that the stock is just going up basically 90 percent from those recent lows, it suggests to me that it's probably that's not my phone.

6:09I'm just saying. No phones on set. So just to me, the stock is too rich here. So I wouldn't say hilariously bad, but I think the stock should be sold here. Well, maybe bad considering the climb, right, and what people want. Great Miley Cyrus song, as you know. I know it's on my Spotify playlist, The Climb. One of two Miley Cyrus songs, by the way. All right. Back to you. Anyway, let's keep moving from mine. So Phil was talking about caveats, and watch what I do here. Caveats in the case of Tesla have always been caveat emptor, if I may. Remember that Brady Bunch with caveat emptor? You see, again with the phone.

6:47That's people at the NASDAQ. Nobody can hear this phone except for us. Oh, I'm sorry. Please go on. Okay. Even though that is a tangent. You were asking, right, it was a Brady Bunch where Greg was buying a car and Mike said, no. The point is with Tesla, I agree with Dan wholeheartedly on humanoid robots. Suddenly, we're talking about this on a day when sales grew only 2%, profits dropped 45%. This is the problem with Tesla. It's a growth company without the growth. I'm not here to tell you a whole lot more than that. I'm telling you that the valuation makes no sense. And at this point, it's almost absurd that we believe anything Elon says in terms of the timeline for products that may or may not be part of the revenue stream.

7:24The revenue stream right now is that they sell cars and that ultimately they may have an FSD high margin dynamic. The analyst community is already pricing that and they probably should because the margins basically free money. And they're usually putting about half 50 percent of that number into the cars. That's fine. That makes sense. And I would make an argument that if only 9 % or so of the people that own it are actually using it, it may mean that there's a lot more to go. But in the meantime, this is a stock that's way too expensive relative to the space at a time when I think all the early adopter stuff, all of the subsidy stuff, the margin profile is something that's under pressure.

7:57That's really it. The free cash flow actually came back. So it's not necessarily that horrible burn story. Either way, it was never going to be about solvency, which it really was four or five years ago, if you ask me. But it's not that issue anymore. I'm just not paying that for this company. Yeah. I mean, on those two issues for full self-driving, they were giving out those free, not samples, but yeah, like a trial period to anybody who wanted the trial period. So they are saying that they are anticipating that full self-driving attach rates will go up. They're also saying that in Q2, EV penetration returned to growth.

8:29So if you believe these predictions, maybe we've seen sort of the worst of it in terms of the EV market. Dan is shaking his head, of course. But that's what the company is saying. Well, OK. I mean, he said a lot of things, right? Some of which really came to pass, some of which haven't. I mean, to me, we did see them sort of facing bankruptcy. Remember that tweet of Elon by the side of the road with a bankrupt sign? But to see the cash at$30 billion, I think that was partially because they produced a lot fewer cars than the street expected. So if you're not producing cars, you're not using that money.

9:01But I've also, like the gentleman here, never been comfortable with the valuation at all. Does anyone else get any kind of credit for full self-driving? Right? Do we think about... In China, they do. I mean, that doesn't exist here. And the other point I'll just mention, last year they had 60 % market share here in North America, you know, and now that's dropped below 50%. So, again, you're, you know, a small percentage of the people own the S and the X, okay? Those are the high end cars. And those are the people who are more likely to actually pay for full self driving. So, well, a couple other things.

9:35I mean, it's interesting. The Elon love fest with Donald Trump. You have to assume that this is a somewhat of a quid pro quo for some kind of that Tesla somehow going to benefit in some way. And OK, that may be putting all of that together, though. I'm very skeptical of the humanoid robots being a significant driver of revenue anytime soon. And I mean, ultimately, one day full self-driving. But we've been talking about this for a long, long time. So don't own it. Again, the conference call gets underway in about 20 minutes time. In the meantime, let's get to Alphabet. Shares really fluctuating in the after-hours session now down by just a fraction of a percent.

10:12The company did beat on the top and the bottom lines but missed estimates for YouTube ad revenue. CNBC's Steve Kovacs got all the numbers. Steve. Hey, Mel. Yeah, kind of an unassuming quarter here for Alphabet. Shares not moving too much. They were just hit the red. So we're going to see what happened on the call to cause that. But first of all, let's go over the results real quick. It was a beat on the top and bottom lines with the EPS coming in at$1.89. Street was looking for$1.84. Revenue, just a teeny beat here, $84.74 billion. Street was looking for$84.19 billion. CFO Ruth Porat, by the way, says there was a lot of that revenue growth driven by search and cloud.

10:47YouTube advertising revenue was a slight miss,$8.66 billion. And Google Cloud revenue was a tiny beat,$10.35 billion. By the way, that's the first quarter that that unit has hit$10 billion in sales. Google also says$1 billion in quarterly operating profit for the cloud unit. Conference call is happening now, but let me give you some highlights that we got so far. According to CEO Sundar Pichai On AI Overviews, that's the new search product. Not a ton of specifics, though, but some highlights here saying increased engagement in searches, higher engagement from younger users, ages 18 to 24. And those who use AI Overviews, he says they come back for more.

11:25Also seeing good ad engagement on the AI Overviews when an ad is shown either above or below the AI response. On cloud, saying he's seeing a lot of momentum from artificial intelligence with startups building models or companies building their own AI assistants. Meantime, CFO Ruth Porat talking about CapEx on the call, saying, quote, We continue to expect quarterly CapEx throughout the year to be roughly at or above the Q1 CapEx of$12 billion. Meantime, they're also announcing a new$5 billion investment in the self-driving division Waymo. That's going to be a multi-year investment. By the way, guys, Q &A is happening right now.

12:04The call is going on still about 15 or so minutes left. So any updates that move the stock, I'll be here and give them right to you. Steve, is there any understanding as to whether or not the ad engagement that happens above and below the AI generated response offsets the ad revenue, which may not be made from clicking through because you're not scrolling down? Literally no more details than what I just gave you. That was just super high level. I even asked the CFO, Ruth Porat, on a call before this earnings call about that. What kind of benefit are you guys seeing from this new AI search product?

12:37Remember, they're rolling that out globally. I think they said they're expecting to hit a billion users who should have access to that product soon. So, you know, definitely going to want more details on that. Maybe they're getting to it in Q &A, so I'll go back and take a listen there. But that is a really good point, Mel. Is this new AI search product really driving more growth within search? All right. Thanks, Steve. Steve Kovac, you must post it down about 1 % right now. Karen? Yeah, so a lot of little puts and takes, nothing really major. I mean, the YouTube being a little bit light, but I thought the cloud beat was slightly more important than the YouTube missed.

13:10But to me, that almost billion dollars of additional CapEx beyond what the street was expecting, that's interesting. You wonder, okay, does that go to NVIDIA? Where does that money go? So this was not a really monumental quarter in any way. They're sort of chugging along. We haven't seen it. I do like that cloud growth, though, and they're really starting to be profitable, which they hadn't been until two quarters ago. Yeah, and that's where the stock's really reacting here, which is that these numbers were more or less in line. The ad revenue was okay. I mean, if you think about the environment we've had where you think that ad spend, all we heard about was ad spend was moving higher.

13:45Advertisers were leaning in. There was some sense that the consumer might be weakening, but people were willing to actually kind of beef it up on the advertising side. That's interesting. And you have to wonder whether things can be as good. The question, again, is are they outgrowing in digital ad faster than the industry? And so far, you know, it looks like they are. But year over year, up 14 percent on revs gets to a place where people start to question. We did this yesterday. You know, Google relative to itself, not relative to the market, isn't cheap. Now, the whole market relative to itself isn't cheap.

14:14But Google relative to itself, relative to the market, is actually more expensive than it is to the market than it has been in a while. You know, cloud revenue up 29 percent year over year, I think is good. I think that's Karen's point. Is it offset? Look, YouTube missing by$300 million to me is not a big deal on a company that did$74 billion of revenue. It's the spend, right? I mean, versus$12.25 billion, it's$13.25 billion. That's probably what's scaring people because the rest of the quarter to me is okay. Personally, I thought given the run that we saw, the stock potentially could sell off.

14:45We're starting to see it now, but it's not like you've run that far away from Google here. All right. For more on Tesla and Alphabet Numbers, let's bring in Gene Munster of Deepwater Asset Management. Gene, great to have you with us. Let's start with Tesla. We're about 15 minutes out for the conference call. Dan called the quarter hilariously bad. The stock is down 4 % right now. What was your take on the numbers? It was rough, especially on the profitability piece. 14.6 % margins ex-credit. The street was at 16.9%. I think, Melissa, the stock is probably going to fade a little bit here going into, as they kind of process this.

15:22Ultimately, the FSD numbers continue to cook though. That was up 330 % sequentially. So they were really making progress on the bigger picture, but that really stung the profitability piece. And I think ultimately I own this stock for what's gonna happen in the next one, two years. And that is on track. If I'll just say one other piece, Melissa, if this was a normal quarter and their gross margins, X credits, missed by 200 basis points like it did, the stock would be down probably 10 or 15 percent on that. In this case, it's down 5 percent. I think it probably fades. But the reason why it's not down more, of course, is that big picture, I believe, is still intact.

16:04But that was the one piece that jumped out. So when you say you're owning it for what's going to happen the next one to two years and the stock is looking through, it's only down 4 percent because of the big picture. What are those things that you see on track? Because, I mean, right now it sounds like they're laying the groundwork for RoboTaxi to maybe be farther out in the future. When they're talking about it's going to depend on advancements in technology, which they may be able to control, but also regulatory approval. It sounds like they're setting people up for, you know, hey, we're going to do our best, but we might not be able to get to it and it won't be our fault.

16:39So the on track piece, that's an important element here. What is on track for Tesla? In my sense, if this comes together in the next two to three years, call it 26 or 27, if that RoboTaxi comes out, that's still loosely on track. If you're going to ask me before these numbers came out, when's RoboTaxi going to be, I would say early 26. As I mentioned, that could be late 26 or 27. But in the big picture, that is still moving more forward than any other car company. And then I want to frame in the piece that was firmly on track, which is the FSD miles driven, 650 miles driven. It was 150 miles driven in the March quarter.

17:17And so that step up, that was that 330 % increase that I mentioned. That step up, I think, is most encouraging that they are doing the proper training. And so those are the pieces that the Tesla bulls are going to hang their hat on, is that eventually they're going to get these new cars out, and eventually they'll get to autonomy. Yeah, eventually, Gene. Let me ask you this. When you see the loss of market share that Tesla has had over the last year or so, and you look at the way GM and Ford are stepping back with their own EVs, but kind of pushing harder into hybrids. Elon, on the last call, I think said that they've got it all wrong.

17:54It's got to be, you know, full EV or nothing. But is that is this changing the game a little bit? Because it seems like a lot of people, at least in North America, want a hybrid as opposed to, you know, fully electric. It's definitely this the pace of adoption of EVs is different than what I would have anticipated a couple years ago and the hybrid piece I think is an element that has kind of filled that gap. I'm also in the same camp that having a vehicle that is both electric and gas at the same time is not the most efficient vehicle and I believe that eventually all cars will be electric and the reason I believe that it's not a political statement it's not a save the world statement It's about the most efficient way to move around.

18:36That is not a hybrid. That is pure electric. So I think that the free hand of the market eventually will produce vehicles that are more efficient, cheaper, that are electric. And I think ultimately these decisions that traditional auto are making, even though they are the right decision in the near term, I think they will come back to haunt them in the future. Just quickly, your take on Alphabet's quarter, Gene? It was solid. The reason why the stock kind of drifted back there is they reiterated that margins are going to come down a little bit because they're doing a pull forward to some of the pixel marketing in the September quarter.

19:08But they reiterated that that margin should improve. I mean, outside of that, it's all about monetization with their new generative search platform. They didn't give a lot of details, but just said that it's a similar opportunity going from desktop to mobile and search, going from mobile to AI search. And so I think that also is going to be a story that's going to be developing in Google's favor. All right, Gene, thank you. Keep us posted on those calls. Gene Munster, coming up, even more earnings action on deck. Visa on the move after a lackluster report. We'll bring you the numbers next. And a chipmaker moving on a top-line beat inside Texas Instruments latest quarter right after this.

19:50This is Fast Money with Melissa Lee. right here on CNBC.

20:06Welcome back to Fast Money. We've got more earnings movers for you. Visa shares falling even as the payments company saw profit climb on stronger consumer spending in its latest quarter. The stock currently at after hours lows. Leslie Picker joins us now with the details on the quarter. Hey, Les. Hey, Mel. Yeah, you're right. Stock declining on a slight miss on the top line for Visa, even as net revenue came in 10 % higher on a constant dollar basis. That$8.9 billion in the company's third quarter was driven by growth in payments volume, cross-border volume, and process transactions. Payments volume growth has been slowing, though, on a quarter-over-quarter basis, coming in at 5 % nominal in Q3 compared with 7 % in Q2.

20:48And that trend was true in the U.S. as well as internationally. Now, the conference call is underway. CEO Ryan McInerney touting the growth in partnerships, including those with Visa Direct, which allows customers to move money across the world. And that platform saw sizable growth in the quarter as well. The company also giving guidance for Q4 with an expectation for, quote, low double digit net revenue growth. The street was expecting more than 11 percent. So fairly in line with those expectations, Mel. All right. Leslie, thank you. Leslie Picker, how do you read this quarter? Fine. Just fine.

21:23You know, in line for a company that trades at this multiple is, you know, a tiny bit disappointing. So but, you know, 26, 27 times earnings. That's actually not a crazy price for a company like this, but I don't own it here. Yeah. It's a fine quarter. I mean, I think revenue is up 10 percent or so year over year. The problem, of course, is since March, the stock has been trading very poorly on a broader market until recently, at least. That's done extraordinarily well. You had a downgrade a couple of weeks ago. There's clearly something going on here that I think the analyst community is starting to figure out.

21:57And I think the stock market is starting to figure out as well. I can't put my finger on it necessarily. Obviously, it's not a credit thing. But maybe the transaction growth, which was so robust for so long, seemingly slowing down. And that 28 times may not be justified in this environment. All right. And let's get to Texas Instruments shares off its after hours highs after second quarter revenue and Q3 guidance came in in line with estimates. Seema Modis at the New York Stock Exchange with the details. Hey, Seema. And Melissa, this was interesting. The first earnings call answer or question that Texas Instruments CEO got was on geopolitics and whether a certain presidential candidate's comments on Taiwan and China was helping Texas's business, given that it's primarily based in the U.S.

22:38Salon said, yes, every time there's news out there, we are seeing more interest. Geopolitical, dependable capacity is not a new thing. Customers looking at their supply chain want to be immune from whatever is thrown at them. TI has wafer fabrication plants across Texas and Utah. In fact, about 75 percent of its business is based in the U.S. Beyond geopolitics, the company's gross profit margins increased about 60 basis points. And unlike its peer NXP semiconductor, it's forecasting an improvement in the automotive segment plus strength in China, which is rare right now. In May, activist investor Elliott Management revealed a$2.5 billion stake in Texas Instruments, urging TI's management to reassess its CapEx strategy.

23:20CEO says expect an update in August. Third quarter guide did come in line with sweet estimates and shares are slightly higher after hours, though. it's still trailing a number of its analog competitors like NXP and analog devices so far this year. Melissa. Seema, thanks. Seema Modi. I think there's comments from the CEO regarding it also being a national chipmaker, not just Intel, are really interesting, especially in this political cycle. I'd play that hand. Absolutely. It makes a lot of sense. Now, with that said, it's not a cheap stock and revenue was down, I think, 16 percent year over year.