Markets Shrug Off Some Mag-7 Weakness… And A New Player In The AI Chatbot Race 3/4/24

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. Riding high. AI keeps booming. Obesity drugs keep climbing. And now transports and industrials are joining the parties. This is a good sign that this rally has more room to run. We'll debate that. Plus, a new AI upstart, the CEO of Perplexity, will join us. His chatbot has some big time fans in tech land. Jensen Huang and Jeff Bezos use it. How he thinks his AI company can compete with the likes of Google and Microsoft. And later, ringing the register today at Macy's inside the new offer for the retailer.

0:34Another draining day for Tesla. The stock is now down almost 25 percent this year and the crypto climb continues. Bitcoin now up 56 percent in a month. 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. But we start off with a trifecta of trouble in the so-called Magnificent Seven. Tesla, Alphabet and Apple sinking today, losing a combined$160 billion in market cap, three one-time market heavyweights all down sharply this year. And yet the broader market seems to be OK, shrugging off this weakness. The S &P closing the day basically flat, while the Dow and Nasdaq were down less than a half a percent.

1:11And look at where the strength came from. NVIDIA up another 3.6 percent, setting a new all-time high. That stock is now up more than 250 percent from a year ago. Lilly in the GLP space also continuing to gain. That stock quickly closing in on the trillion market cap club itself, but it's not all the same old stocks. Transport's also at a record. With today's move higher, driven by Lyft's 4 % pop, the IYT up nearly 20 % in the past year. Industrials also want to tear. Names like Caterpillar up days in a row here. So what does this broadening out, or dare we say rotation, tell you about this market, Guy?

1:48It's important. It's impressive. I mean, the Russell closed effectively unchanged. That's good above 205 in the form of the IWM. The transports, if we can throw a quick chart. Tim's been flagging this for a while. I mean, we're at levels we probably saw three and a half-ish years or so ago. So it's critical, I think, that we sort of get through this 282 level, close above it, and for the next leg higher. But in terms of the broader market, again, we talked about this on Friday. I mean, the fact that Apple is now 175, Google double-top selling off, Tesla was awful today. All three of those things happen on one day, yet the market basically closes unchanged in terms of the S &P.

2:21Even I have to admit that's pretty damn impressive. Even you as a long time. Long time. First time, long time. Yes, yes. Tim. So imagine watching the Magnificent Seven and seeing. 61, 2? Yeah. Charles Bronson, Steve McQueen, and Coburn get gunned down early. And suddenly, because that's Tesla, Apple, and Google. And the dynamic here is that whatever we're saying about the other 493, 493, which Guy's pointing out, I think there's a lot to do there. There are very specific reasons why we can point to Apple running out of gas. I mean, think about Apple's issues in China. Think about their issues competing with Huawei.

3:00Think about their watch issues. Think about the lack of AI. Well, a lack of AI and then obviously all the antitrust stuff that's going on. And frankly, a lack of growth even in their core product. And it's all been about multiple expansions. So we could go on, but I think we've largely been pretty cautious about Apple for a long time. I think the dynamic that the broader market is really moving at a time when it's a massive week, too. It's the Fed. You've got Humphrey Hawkins. You've got the Senate testimony. You've got non-farm payroll. You have a lot of Fed speak. And I think what you're going to hear from the Fed is they're going to have to talk about they've got to be careful about the financial conditions that have gotten so out of control that they're not helping them right now.

3:41I think they're going to be as cautious as they can be, I think they should be. What do you think, Karen? I agree with that. I think, no, we've talked about this a lot. Why should they? Why cut? I feel like they're giving it away for free. No reason to do that. And also some of the data doesn't even really fully support it. Some does, some doesn't. But I like to see the broadening out, though. I do have a very, you know, tech heavy or mag seven ish heavy portfolio. But if you look at, you know, we're talking about the IWM. If you look at banks today, I mean, really doing well. And then this NYCB thing, which really was a tempest in a teapot, and really there didn't seem to be any consequences, nor I don't think there should have been.

4:20It seemed to me a very specific problem. So it does feel frothy, though, I got to say. I mean, you know, you just saw how NVIDIA just levitated. I didn't really see any particular catalyst. So it does feel frothy, But, you know, I'll look at upside calls. But the fundamental thesis of AI being in the early innings, I think, is still there. Can you admit that the market broadening is actually a good sign, Dan? Because for a long time you said tech heavy, you know, MAG-7, all bad news. It's going to work in for a fall, et cetera, et cetera. Here we are. Yeah. And we have some major components not participating.

5:01And we're OK. Yeah. Better than OK. Better than OK. But Karen is a bull, and she's ridden a lot of these kind of trends over the last, you know, call it year or so. And you're starting to feel a little nervous about it. I mean, the broadening out, you know, to a lot of these other sectors, I think, is very good. But, you know, I read a stat today. I think it was Bloomberg Intelligence that suggested that the top seven stocks, Q4, okay, had nearly 60 percent earnings growth in the quarter. The rest of the 493 had a 1.5 percent drop, right? So the stock market is a discounting mechanism, right? So right now, I mean, like you're basically suggesting that the rest of the 493 are about to inflect from an earnings standpoint.

5:40And that's not exactly the case. I mean, estimates have been coming down for all of 23. And then you saw these companies beat them a whole heck of a lot. So I guess what I'm here right now is like, OK, we're at 20 and a half times on a forward basis. That's higher than the 10, 5 year, all that sort of stuff. Valuation, not a great timing tool. But to your question is like, I think the narrowness of the market is getting increasingly narrow. That's the story of today. That's the story of losing Apple on fundamentals, losing Google on fundamentals, losing Tesla on fundamentals. What do you lose next?

6:09If you lose Microsoft on fundamentals, and I'm just saying, I'm not saying that's going to happen, but if for some reason they start to disappoint or they can't kind of guide the way that they have, at some point that stock will come in. The rest of the stuff is just not going to make up a lot of the slack. So the fact that we closed unchanged today after making record highs in the S &P and the Nasdaq, great. Have at it, people. But that doesn't make me feel like we're going to be up for another 8 % in a straight line if you start losing the leadership, because the leadership is the leadership.

6:35Well, 8 % of a straight line anytime it happens is always scary. And so there's no question that we have a lot of overbought charts out there. You can work that off pretty quickly, though. And so what's fascinating about this market is you could have missed the entire semiconductor rally, the entire one. You could have been asleep. You could have woken up in AI and it invaded at a few great quarters. And October 26, which was that day I refer to as when the markets really started to move, and you just bought that day, you're up 66 % in semi. 66 percent. But what is encouraging to me is that the XRT is breaking out and that we're also seeing staples come around.

7:09And so, you know, and I think some of this is earnings resilience. I don't get it. These stats you're bringing up, Dan, are right. And I think I pointed out that I think if you if you look at the return of the S &P last year, two thirds of that came from multiple expansion. If you look at it this year, it's probably about the same percent, you know, four and a half percent of of of the eight that we have. So maybe it's closer to 55 percent. But you have a dynamic here where it's hard to get bulled up about earnings. But at the same time, what we're learning from a lot of these big industrial companies is they're running their businesses better.

7:41These were bull. These were industrial companies that were in very bad bear markets for a year and a half. So the price action to me in the broader market, I think, is very encouraging. When you look at the semis and you look at NVIDIA, Karen, you're right. I don't know what went on today. I don't know why NVIDIA got another four and a half percent today. I don't know why Taiwan Semi is quietly doing the same thing as NVIDIA is every day. And that doesn't surprise me because Taiwan Semi is arguably one of the most important companies. And I want to make one really important point. So two stocks today driving this action.

8:08At one point, Taiwan Semi was up 5%. They make 90 % of the high-end GPUs on the planet. And so does NVIDIA, right? So when you think about it, NVIDIA, obviously different. They're a fab Taiwan Semi. Or NVIDIA. Right. OK. And we know that NVIDIA has four customers that make up 50 % of the revenue. I mean, what I'm saying is it's like an enigma wrapped in a riddle. It's like one of those Russian little dolls in a way. You know what I'm saying? It's like super concentrated. It doesn't end well, guys. I mean, that's it. So the bubble can keep inflating. It can keep going. But I look at Supermicro, which is up 1 ,000 % in a year.

8:41It just got added to the S &P 500. Here's a company that has like 15 % gross margins, okay? So on the other end, we're talking about NVIDIA we're really excited about because they just got to the 77%, and that justifies that sort of thing. This is going into the S &P 500, okay? With a$60 billion market cap and it's going up like this. See my finger here, people? It's a straight line, okay? How do you think that's going to fare in the S &P 500 from a performance standpoint? Like this stuff, we've seen this before, and it's at periods that probably, you know, precedes something. But you equate what we're seeing right now with the Internet bubble, which not many people are willing to go.

9:13Forget the valuation. It doesn't matter. It's the sentiment. It's the psychology around it. It's that no one can see it ending. That's what's important. You can say that Cisco is so different than NVIDIA right here, but they're really not. But the outcome will be different if it's based not on valuation. I mean, if it's just sentiment, fine. But if you're making the comparison on valuation, then it will. I'm not. Have I said that? I haven't said that. I mean, like what I'm saying. But you think that's an underpinning, though, of that? Valuations that are just so untethered from reality. But I'm not saying that.

9:43Hold up under the weight of their own, you know, expectation. Right. Well, listen, convince yourself that NVIDIA is dirt cheap right here and keep buying it. It probably goes to$1 ,000. OK, like I'm just saying it probably goes to a thousand, but then it's going to be going to 500 at some point. It's not dirt cheap, but but with the kind of growth that they've shown and with the head start that they have, you know, you're talking about you. We could throw a lot of numbers around, but the reality is it's probably somewhere between 35 and 50 times 2024 and 2025. And that's a big bit ask. But the point is for a company that's growing this much, that's changing the world and is at the center of it.

10:20And it's, you know, I just think a lot of people have found themselves having to really make significant adjustments in how they're looking at this. And that includes me. So I look at other periods we've had over the last 15 years when we've seen companies. This is probably as unique. We've seen Tesla do weird things. And at times we've even seen Apple do this. But, you know, this is as extraordinary as we've seen. And I can appreciate that that part of the market right now, to me, is extraordinary. It's not just NVIDIA. It is AMD. It is, you know, Taiwan Semi is really not that expensive. But I get back to some of the companies that were, I mean, when GM was trading less than four times earnings, was that right?

10:58You know, when Citibank was trading at zero times.45 price to tangible book, was that right? And I don't think those things were. So that's the part of this that I can feel pretty good about. Like this broader market and allocation to health care and energy and utilities and consumer staples, I think it should continue. And I think the Fed's going to give us a lot of reasons this week why that will continue. Well, we also brought up Friday. You don't see it all that often, but we've seen it before. I mean, Apple now has become a source of funds. Clearly, Tesla has been. And to a certain extent, Google as well.

11:27All three for very different reasons. Doesn't matter. It's happening with all three. Apple may be just sort of in terms of multiple terms of valuation doesn't make sense in this environment. Google may be a technical thing, some of their own problems. And obviously, Tesla is a China thing, I believe, and other issues as well. Yet with that said, it's clear people are fleeing those and getting into the stocks that move 2 % and 3 % a day. However, you know, we talked about the IYT. Pull up a Taiwan semi-chart just because, and look at it over the last three years. I mean, it's had a gigantic move, but it gets us right back to levels that we saw probably three and a half years ago.

12:00We've seen a number of charts, if you go longer term, that look exactly like this. You know, these double tops that keep sort of cropping up out of nowhere. They're evident all over the spectrum of stocks we look at. I was just, you know, Dan and I were fighting before the show. We fight before the show, during the show, after the show sometimes. And we were talking about the same thing, this bubble, you know, sentiment. And I just come back to Cisco, which was the NVIDIA of its day in that last 99-2000 bubble. It was the infrastructure for the Internet. The backbone of the Internet and the bellwether for everything.

12:34And it was trading at almost 400 times earnings. And that's just a different universe than where we are right now. So ultimately, will it find a period where it's cut in half? Yeah, that is highly likely. I just don't think it's in the near term. All right. Our next guest says the Mag 7 should be rebranded as the Fantastic Four, with NVIDIA and Meta hitting fresh highs today. Amazon, Microsoft, also solidly higher for the year. Satori Fund founder Dan Niles joins us now with more on where big tech is going from here. Dan, great to have you with us. And I just want to start off with the debate that we've been having here on the desk as to whether or not you think this AI-led rally is anything like what we saw back during the Internet bubble.

13:16I mean, you lived through those times. You worked through those times as well. I mean, it is and it isn't. I guess the way I would look at it is the following. Netscape Navigator was launched in December of 1994. And so if you think about from that period, when did NASDAQ peak? It peaked in March of 2000. So it took you a good five years for that bubble to really build. And did you get corrections along the way and drawdowns? Of course you did. But like the peak took you five years. And so we only heard about chat GPT in November of 2022. And so you're into this a year and a quarter. So from a time perspective, you haven't had really what you need for a good bubble to build up.

14:03Now, that doesn't mean that the NASDAQ can't go down 10 % to 15 % come this summer. Wouldn't surprise me at all. But from a valuation perspective, it's nowhere near that either, where if you look at Cisco, it was growing revenues at 59 % in 2000. The forward multiple was about 138 at its peak, 138 times. And NVIDIA is trading at about like 38 times, growing 90%. So evaluation, you're not there either. And so it depends if you're talking short term, is the market frothy and are some of the estimates make no sense? Like NVIDIA is going to grow revenues each quarter for the next eight quarters at 6 % each with no down.

14:42Yeah, that makes no sense. I would bet you anything that NVIDIA will have a down quarter in the next two years and it could be substantial. But from a valuation perspective or a long term perspective related to time, you can't say that we're there. So you want to cut out three of the Mag 7 or what's known as a Mag 7 currently, Apple, Google, as well as Tesla. Do you think that there's no hope for them, that they're permanently out? No. I mean, I think it's I'm an earnings driven investor. So I'm not somebody that's going to be buying something with no earnings and expecting the multiple to double, triple, quadruple while margins are going down.

15:17So I like earnings. If you look at Apple, if you owned it last year, you made money. But you made money with the estimates getting cut every single quarter that they reported. Why? Because people went from the Fed raising rates at the fastest rate since the 1970s to the rate cuts stopped. And then we were discounting seven rate cuts at its peak looking forward into this year. That's why Apple went up. Tesla's a similar situation where EPS went down 50 % from the beginning of last year through the end of last year for the December quarter that they reported. And then they missed that. But the stock doubled.

15:51So this year, I think the difference is sort of, you know, those rate cuts have gone from seven cuts to three. We're now focused more on earnings. And Apple missed yet again in terms of the forward numbers got cut. Tesla, the forward numbers got cut again. But people actually cared. With Google, you've got a different situation where, you know, based on internal politics or whatever, they are doing a bad job of moving to this AI generation. Now, they could change that overnight if they just fired probably 10 % of their workforce and said, look, we're going to provide accurate answers, not politically correct answers, because they have more data than anybody on the planet.

16:29They can give you what you need for an AI conversational search product, but they just won't do it. So with Google, that's the one I have the most hope for, because it's them just changing the way they operate, and they could fix the issues overnight if they wanted to. So but Google, again, missed their search advertising revenues. They missed their YouTube revenues because don't forget you have things like TikTok and ad supported tiers and Amazon, et cetera, taking time, ad dollars and time away from things like YouTube. And so you have an earnings related thing going on there as well. Dan, it's Karen.

17:09I just wanted to drill down a little bit more on Google, which is a big position for me and painful. Is the catalyst for you that they start to get something right and you buy it higher or is that it comes in to a level where you're like, you know what, this is just discounting the business too much? Well, here's the thing you have to think about. I think, Karen, they have over 90 percent market share and you're going to have perplexity on later. It's really good product. They provide accurate answers. ChatGPT provides accurate answers. And when you put in something into an algorithm, you get an output and you go, these are the images of our founding fathers?

17:49And you go like, that makes no sense. You know, you're going, it's easy to give up some of that share to something that gives you accurate answers. And so that's what I would be concerned about with Google as it relates to search. But don't forget, YouTube has got its own set of issues that they can't get around.

18:11or Disney's not going to show an ad tier or Netflix, et cetera. And so those are pressures that are just going to kind of continue. The multiple, though, you look at it and you go, really? Trading at one multiple point below the S &P 500? You have a presidential election coming up. I really want to get long Google. But right now, it doesn't seem like they're showing any signs of fixing the problems internally with how they are presenting search when you use it inside Gemini, their search product. And so that's what I'm kind of waiting for, is to see some signs that they're willing to say, we're going to focus on providing accurate results.

18:49And then you guys figure out what you want to do with it as users. But they don't want to alienate the three and a half billion people that use their product, which is a separate issue. And so that's what makes this one a tough one. But I really do want to buy this. I actually covered my short position on that and Apple today. for different reasons. But we'll see what happens. I plan on reshorting them higher, probably. But both for different reasons look like they could bounce from a short-term perspective. Hey, Dan, so we spent a lot of time talking about this MAG7, now Fab Four, if you will.

19:20But there's a lot of other names. And Karen made this point earlier about Adele and what they had to say and how they're participating in the demand picture. Does this give you greater confidence that the whole trade, the whole – You know, when we use the term bubble, again, it doesn't have to be a negative thing until it pops. Right. Until you see some really weird behavior. I thought that Dell was trading at 80 and then closed, I don't know, up 25 bucks or something like that. You know, after the result, that seemed like, you know, a little aggressive to me. But I'm just curious. Give us a take on how this thing is broadening out.

19:52Any names that you find really interesting right here away from the mag seven or whatever there. Yeah, I mean, I think, you know, as you said, in terms of bubbles, I mean, now in Greenspan, famously, said, talked about irrational exuberance. But that was in 1996, and the S &P doubled between there and 2000. So, you know, things can continue for a period of time. For me, as you asked, Dan, you know, we are broadening our universe. We still love meta. Unlike Google, they're doing everything pretty much right with AI right now, which is, I guess, the only thing that should scare you. And we like Amazon because they're doing a really good job of being the cloud vendor for a lot of AI applications.

20:37And so we still like that. But beyond that, yeah, we're trying to find names in industrial. We talked about the XBI, the biotech ETF, being one of our top five picks entering the year. We're trying to find other areas beyond just the super heavy tech trade and AI trade that's going on. Because if you look at Dell and somebody said, hey, Dan, Dell, when they guide their forward April quarter, they're going to guide EPS below where the street is. Your first thought wouldn't be, well, the stock's going to be up 20 plus percent. So there's a lot of things where Supermicro getting added to the S &P up 20 percent.

21:15Like, there's a lot of things going on where an individual stuff. I mean, Dell's a great company. And, you know, relative to Supermicro, I'd much rather own Dell all day long. So don't get me wrong there. But there are certain pockets that really make me concerned, and which is why we're broadening. Today, we spent, you know, we took down our exposure a lot because I was just looking at how different things were acting. And I'm like, you know, I know we're in the short-term frothy phase. and I just want to sit on more cash, get rid of my more speculative stuff. We sold our Bitcoin ETF late last week.

21:50You know, it was another example. We had tweeted about liking it when the SEC approved the 11. But I think, you know, just lightening up a little bit, taking some risk off the table, it's not a bad idea at this point. Dan, always great to speak with you. Thank you. Thank you, Melissa. Dan Niles of Satori Fund. What do you make of Dan's assessment? Well, it's interesting. I mean, in terms of technology, quickly, because we're up against it, but there's an expression called outkicking your coverage that Tim probably knows a lot about, but we won't get into it. But I'll say this in terms of NVIDIA outkicking their coverage, out earning their revenues.

22:24I mean, you're talking about a company at 29 times, very reasonable, trades at 19 times revenues, though. So something's got to give. And what that means is I think at a certain point, the margins that they're enjoying at 77 percent, almost by definition, historically have to come down in that space. Coming up, Amici's markup, shares jumping as an activist ups its bid for the department store chain. Details on the new offer. And if it's enough for a miracle on 34th Street, that's next. Plus, financial flexing, big banks getting a boost. Morgan Stanley, a standout of 4%. So can these names keep climbing?

22:56We'll debate that when Fast Money returns. This is Fast Money with Melissa Lee, right here on CNBC.