Meta Scrapping Moderation.. And Charting Rotation Opportunities 1/7/25

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. A late day sell-off as yields hit eight-month highs and NVIDIA sinks from records. What sparked the moves and how to trade the action coming up? Plus, Meta's moderation moves. Mark Zuckerberg making a big change to how it monitors content. The facts on getting rid of fact-checkers and the impact on the stock. Then, caveat emptor. That is the warning from one top analyst on the market's biggest stock. While he is raising the red flag and later fighting lords from the CEO of U.S.

0:31Steel, McDonald's debuts its McValue menu. And we reveal the winner of our 2024 acronym challenge. I know you've been waiting for that one. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Karen Feinerman, Steve Grasso, and Katie Stockton, founder and managing partner at Fairlead Strategies. And as we mentioned, markets selling off late in the day, closing near their lows of the session. The NASDAQ down nearly 2%. The Dow also going negative on the year. The pressure coming as yields spiked on new economic data. But it wasn't just rates on the move.

1:02NVIDIA plunging after hitting a new record early in the session. CEO Jensen Huang just wrapping up an analyst Q &A in the past hour after unveiling his AI roadmap. Christina Parts Nevelis joins us now with all the highlights. Christina. There are a lot of highlights. Let's start with supply and demand, because that was the first question that I got from Stacy Rasgun, who's often on our network. And they confirmed that they're not changing their guidance. They are shipping both Hopper and Blackwell this current quarter, which fiscally ends in January, the end of January. They said that they probably will do a bit more, but they weren't going to change the actual number for guidance.

1:33And they said supply will always be a situation. There's nothing we can build that will be unlimited. And but so that's for the hopper stuff, because everybody really wanted to hear about the data center sales that we didn't really get in the keynote yesterday. For future growth, they spoke to two major drivers. The first one is general purpose computing is dead. Hand coding is dead. He's saying that all of these data centers, which we've heard before, need to be updated. And he was, dare I say, a little bit, not aggressive, but maybe more affirmative in all his commentary, saying that if you're not putting accelerated computing and machine learning, you're doing something wrong.

2:09It makes no sense. He went on to say if you don't have just AI within your system, all of his software engineers need to use AI chatbots. They mandate it. And that was a quote. So he went on to say that if you're not incorporating this into your business, into your cars, into, you know, your manufacturer, then you're behind and you are going to lose. That was the tone that I got from this entire Q &A. He talked yesterday in the keynote. And what's interesting is that he had this Q &A and yesterday he had the keynote. Analysts were very bullish in reaction to the keynote. And one of the, you know, there are a couple of areas, the robot, which who knows, you know, how commercial that can actually be.

2:46And then the GPUs for the laptop. And I was wondering for the laptop, that didn't seem necessarily like it should be a growth area. I mean, who wants to be in the PC market at this point, unless it's a corporate PC. Well, I guess the argument he would make is that they're creating these personal supercomputers so that researchers, students eventually can do everything, you know, in an office, in a research facility or university for the actual laptops. He did, and this was an interesting line, he said, I'm going to have to wait to tell you when he was asked specifically on the Q &A part, if he was going to be entering or expanding within the PC market.

3:24So that leads me to believe that maybe he is going to announce something at GTC in March or at Computex in Taiwan. But it is a market that won't move the needle for them that much, considering data centers contributes 88 % of total revenues. Gaming is about 10%. You know, PCs, we know the refresh cycle has been very slow. Look at AMD, look at Intel. So it's a good point. Christina, just the announcements were, I think, as bullish and positive in tone as you could have expected. It seems like a lot of these dynamics and things were discussed are somewhat long tailed. So as we think about what's in it for the market right now for a stock that, you know, is it priced to perfection?

4:03I don't know. I actually think that it's not priced to perfection. But I know that that's an easy criticism, that there's not a lot here that really is for here. Yeah, that was there only two notes that I read today. And one of them pointed that it's not going to have a near-term impact on models because it's really contingent on data center revenues and all that. And to your point, maybe that's why the stock did sell off 6 percent. But then the bulls were arguing, no, think of it. The company just hit an all-time high. Why are we so aggressive to find or, you know, trying to pinpoint a reason as to why it was down so much, why it was a laggard on the Dow, why it was a laggard on the Nasdaq?

4:38I think, though, there is some truth to it. That's what was missing yesterday. and it is the hype, but he, in his commentary, this is the future. And if you're not getting on board right now, if every single EV is not going to be autonomous, and that's literally what he said, it's not going to sell. It's a good-looking snakeskin jacket, by the way. Oh, yeah, Tom Ford. Tom Ford,$8 ,990. It's currently on sale on the website. For the Q &A, he did shift away from the patent. No, I don't know. I don't know who you're hanging out with. There's some tech bros that made a lot of money in the store. I think a lot of millionaires at NVIDIA, I think, according to a Forbes article, so very possible.

5:18But I think we can get the imitations maybe on Sheen or Timu. So a couple of things stood out of me. Talking about, you know, the chatbot, the agents, all of that. But then the shift into the physical, how manufacturing writ large will be absolutely transformed and how much learning needs to go into that, which seem to be sort of setting another stage for maybe not to your point right now, but for not so long and for a long time, that's going to need a tremendous amount of compute. Yeah, that would utilize their Omniverse product that they're expanding. And what that creates is to a virtual world, to your digital world.

5:58So if you're a manufacturer or if you're a car, you can literally simulate the real world on your computer and not have to actually stick the car on the street. And you can figure out all of these possibilities. And so that's how you'll get all of the synthetic data. And so to your point, that hasn't really evolved yet. So that'll be a whole other level of extra data for large language models to train on. And that's the argument for those that say that scaling hasn't hit a peak and that scaling law is another debate when you get a little technical. There's not enough data. Well, in this case, Omniverse is going to allow them to provide all of that with the digital twin.

6:35And you can do this in a manufacturing warehouse as well. A lot of companies will eventually have to deploy this. So you can see where your box is moving, you know, how productive this section is compared to this section, the speed of which products are being executed out on a runway. I don't know what the word is. Benefactoring line. Conveyor bill. Conveyor bill. Thank you. All right. Christina, thank you. Christina, parts of Nevelis. All right. Record high, reverses, closing the lows of the day, two and a half times average daily volume. And Katie, you know, you never want to see what we call an outside down day, which is what that was.

7:07It's an all encompassing price bar that takes out the previous day's low and then you see a week close. So that is a short term setback for NVIDIA in particular. We did also see it, you know, sort of widely among technology stocks today. And we feel like the market with that in mind is somewhat fragile and we'd just be really mindful of short term support levels. So for NVIDIA, we can see some support around 134 in our work. Resistance is pretty evident around 150 on the chart. And the stock has been losing upside momentum since the summer months of last year. But thankfully, it hasn't led to a breakdown yet.

7:45So we're watching that support close. So the 100-day is 132. The 200-day is 119. We're a long way from 119. But with NVIDIA, it could happen overnight. We're used to this one-way moves. But I think what you were talking about, it's almost like back to the future. They're talking about what got them here. So gaming, we're not talking about their major customers anymore. We were talking about Uber and Toyota, not Microsoft, not Google, not Amazon, not all the things that got everyone excited in the last year. Sort of what's a smaller piece of the pie. So Christina said data centers are 88 percent.

8:23Gaming is a 10 percent. So if you look at that, why are we concentrating on gaming and PCs that are a very small piece of the pie and not the growth areas? To be fair, this is a keynote at the Consumer Electronics Show. So the keynote could have been tailored for that. Well, it was client-side stuff, right? Which is a much smaller part of their business, which I think that's exactly who the audience is. By the way, they probably love the jacket there because that's the kind of people that showed up there. Vegas. But I think you get back to it's great to point out the charts. I think, in fact, we all would think about 2025, trying to look at through the lens of what happened in 24.

9:00First three months of the year, 24, we're all about semis. I think it's going to be another great year for semiconductors. I think it's a year where we're going to start to see the broadening of that semiconductor trade. And we started to see that even with broad calm as we got into the last couple of weeks of the year. But the trading action here is something to be worried about, especially when you think about how little cash, I think, if you look at fund manager surveys the market overall has and how much mega cap tech led that spurt into year end, which we know stalled a bit. So I wouldn't be jumping off the train here, but I think you could be short term cautious.

9:35You don't look like Guy, but you sounded exactly like Guy with the outside reversal, the volume, all of that. So I get that. I mean, I'm still, you know, I still think there's a longer term story here. So I'm staying in it. NVIDIA sold off. It started to sell off when we got that data at 10 o 'clock, which I think was important for the market, not in a good way. Right. We get higher rates and then obviously, you know, future cash flows get discounted and become smaller. So that to me was a bit of a bummer. I think that rates sort of came back into focus again. They've been shifting, you know, higher, higher.

10:10And now, oh, is it really going to be a problem? I hope we see rates level off. All right. Let's get to that big move in rates today because it was a big move on the 10-year yield. The yield there touching 4.7 percent, highest level since the end of April. The move coming after the latest ISM services data came in hotter than expected. The spread between 10 and two years, now the highest since May of 2022. So fears about inflation remaining out there as something for the markets to grapple with. So we've all talked about this. And if you have higher rates because of growth and you're looking at, there's a reason why you have higher rates.

10:44There's a bullish reason. There's a bearish reason. But we all have to remember QT is still going on. And QT is still supportive of rates. So you can't have cutting and QT on the other side. That's a push-pull or a tug of war. So I think the market is on pace to see QT end in March. That's where you could see rates sort of come back in again. I think that we should be talking about rates today. I mean, if you think about a 10-year auction where this auction, by the way, was pretty came out was fine. It was a non event in a world where it could have been eventful. And yet we printed the highest yield since 2007.

11:19It's the first auction that's printed that high since 2007. We know back in April, 470 was the close. And that was the close to watch for today. And I think we're going to get there. I mean, ISM services, we know that's the biggest part of our economy was was robust. The dynamics around the technical components, though. And I think that's the part of this that, you know, I think Steve's also referring to. It's not just it's not just about growth. It's not just about inflation. I mean, there are technical components here. And when we think about, again, the administration's what they've articulated in terms of policies, whether they're going to be it.

11:50We've walked back tariffs and this and that. It is something that I think puts upward pressure on rates. Trump out there also saying rates are too high, far too high is what I heard. Not too high. Right. But we are in a different place in terms, I mean, if we are worried about inflation, you know, remaining out there, the Fed is on a cutting path. They may be paused for a while, but we know that the next move is most likely a cut by the Fed. So isn't that different? There's a different prism through which to look at this move in rates. No, Karen? I mean, are you concerned about this? I am concerned.

12:22I think the Fed, what are we at now? Two cuts is most likely priced in. And I was going to say, they don't seem to be so committed to that. So it gets back to your point, though. Is it inflation for the good reasons or not? I think one of the things that we don't have a good handle on yet is productivity gains. That can help. That could be the sort of, I don't want to say magic bullet, but that could help. Although I am concerned, we talk about all the time, about this potential tail risk of a terrible auction and getting into a crisis. Don't you have the power put again? If things get worse, don't you have the ability to cut rates in a more aggressive fashion?

13:00We saw it in September. If we get higher in unemployment. Higher inflation. They can't. What are they going to do? Inflation comes from two things right now. It's energy and shelter costs. And the shelter cost seems like a cyclical battle because you need rates to come down for shelter costs to come down. But energy, I think, will come down. So that will be half of it. I think it's services. And again, the ISM is what has people worried. I mean, if you think about some of the prints that we've been getting and when you look at some of the regional Fed surveys, when you listen to companies, it's really it's not that there's a scarcity of jobs.

13:31It's that the wages and those dynamics. We have a big payroll number on Friday. I think wages are probably going to be kind of flat coming at point three percent or something. But I do think that this is the part that we can't really handicap here. That's not coming down. They've been very sluggish. We'll see. All right. Meantime, Katie says it may be time to rotate out of last year's high flyers and into the 2024 laggards for the technical take on this trade. Let's go off the charts, Katie. And certainly we saw some of that rotation that you're predicting today. Yeah, I would say that we're already starting to see this rotation.

14:02And first and foremost, it's come from software stocks. Those were among the biggest outperformers of late. And all of a sudden we've seen sort of a reversal, of course, in that relative performance. If you look at software versus semis, I agree with you, Tim, that semis may resurface as an outperformer. Now, in a more neutral tape, maybe that doesn't mean too much. But that relationship certainly seems to have shifted. And that would be from one leading sector into a lagging sector like semis. Now, also, we're seeing it elsewhere. And it's a bit more defensive in the rotation where health care, specifically pharma, has caught a very short term bid.

14:40And I think that's pretty interesting also in relative terms. It seems to be occurring at the expense of the MAG-7, for one, and also software. And we're also seeing it in defense. So defense stocks, which have really been under pressure, both in absolute and relative terms, have negative momentum. And yet they're oversold, and they've largely come into very strong support levels. So we're kind of interested. You see Merck, you know, inch above its 50-day moving average. You start to see some of these stocks find their footing. And to us, that seems to be a bit of a trade. And all this within the prism for you that we are due for a correction in the first quarter.

15:15Yeah, you would expect to see those defensive sectors start to outperform, at least in relative terms, versus the S &P when you're getting into a more skittish environment like we believe we have right now. So we think that defensive positioning is correct on the sector front, but we've been recommending to our clients to be hedged, to be hedged from a top-down perspective when you see the volatility pick up like it has done. And that doesn't mean you go buy those pharma names necessarily, but, you know, be more open to them as we see them find their footing. How are you hedging? Or are you? Well, I mean, I have some triple Qs against what's a pretty tech heavy portfolio.

15:54I have short bonds, which I view as one of the big risks. But I was going to ask you a question about small caps. Do you see any hope for small caps? You know, the long-term setup on the Russell 2000 index is pretty promising. We didn't see a decisive breakout to new highs. We did get those new highs briefly. But I think for now, while the relative performance may also improve there, we're starting to see a little bit of that. And it is timely seasonally to see that small cap effect or the January effect that tends to see small caps actually do better than large caps into February. And yet, to me, it's hard to make a strong case for them right now in absolute terms.

16:33The momentum has really faltered intermediate term behind the Russell 2000, but that's also shared by the S &P 500. So it's this broad based loss of momentum that we saw in December that I take issue with. I always find that when you hedge or when you go with the underperformers, you lose less money. You don't make any more money. On a relative basis, the market comes in, everything gets dragged down with it. So I always think the best way to hedge is cash. and then you wind up seeing a rotation back into large cap tech again because energy, 3 % of the market, is not moving the market. Yeah, and tech has such a huge footprint, right?

17:09It's become the most essential sector to the market, and that's only grown as of last year. Last year was another year in which we saw those mega caps really take charge and outperform, and that influenced the sector leadership big time. So we'll hopefully have a different year this year, I think, with the breadth having shifted. Yeah, I think it's rotation for not for rotation's sake, but for fundamental sake. I look at the energy space and again, you know, oil prices have been largely very stable over the last 12 months. That's great for big integrators. And I think as you look to the higher quality names, there's places to play there.

17:41I think the farmer fallout both from the election dynamics and also just again, you look at a Merck. It's had its test last year with Keytruda. You've got dynamics around valuation. But, you know, J &J to me is another name which had a lot of overhang from from the talc cancer dynamics. But I look at names and I've certainly Tim's Pfizer is out there, too. But Bristol Myers started to make a run towards the end of last year. These are names that I think are long term investors. They're paying really solid divs. It's not a reason to own a stock for me. For some people, it is. But that's what the rotation is about.

18:11There's a real story. Coming up, a rare sell call on Apple. Why one firm is downgrading the tech giant and why they say no news might be bad news. That's next. Plus, steel producers getting scrappy. The lawsuit out of Nippon and U.S. Steel after their blocked merger. and how fellow steel producer Cleveland Cliffs is getting roped in. The details when Fast Money returns. This is Fast Money with Melissa Lee, right here on CNBC.

18:44Now to our call of the day, Muppet Nathanson downgrading Apple to a sell, calling the iPhone maker decidedly unattractive. The firm cutting Apple's price target by 14 bucks to 188. That implies a 22 percent decline from today's close. Analysts citing rich valuations, disappointing in the disappointments in the AIA upgrade cycle among the downside risk. They say that it has the slowest growth, but the highest P.E. amongst the Mag 7. China problems, regulatory problems, the threat of losing the 25 billion dollars a year that Google pays it for search. I mean, it's a laundry list of reasons to be neutral to sell Apple here.

19:20Karen, what do you think of it? Yeah, I agree. I mean, I have a small position. It should be either zero or much bigger. But I agree. Those are all points we talk about all the time. You have valuation that's high, and it's higher than it appears because we have this hardware, software, you know, services, much higher multiple for the services. That China is a problem. A big, you know, the new upgrade isn't really, doesn't seem to be happening at all. But it will. The only thing, but I do think if they end up, Google ends up not paying that, somebody else will want to pay it. So I feel like that, maybe that's much lower down the laundry list, but kind of good for them.

19:56It's a bold call. I like it. Yeah, it really is. Well, the title of the report is Caveat Emptor, which is one of the great Brady Bunch episodes of all time, folks. We just actually did it on the commercial because I was fascinated. You did. Greg, your dad was not sympathetic at all, and he shouldn't have been. I'm sympathetic to the Apple cause. I think, you know, what Moffat Nathan, who we have a ton of respect for these guys, they're on our show a lot. I think Apple has not priced in a whole lot of anything. That's the flip side of this. I don't think Apple's priced in the AI revolution. I think Apple will certainly be the platform in the way most people actually experience the AI.

20:33I think Apple's proven time and again that this really is that installed base that is the gift that keeps on giving. My goodness, seems like someone's just talking to me again. It's great. The other side of this is, can you not tell me that we haven't worried about Apple in China? For a long time. Isn't that in the price? Don't we know what Apple's growth target is? Apple really has underperformed that group over the last couple of years. You know what's not in the target? India, Vietnam, all things, Thailand, Malaysia, all things that are the bullish call of them moving away from China or the dependency on China both for manufacturing and for consumption.

21:08Well, the consumption end doesn't offset the loss of consumption in China to Huawei and the other local brands. Not yet, but they have another. India is going to be, India is number three right now or number four, number three or four. It will be number two or three sooner rather than later. And then you have$2.3 billion of an install base. That's got to be worth something for Apple. I'm not quite on board with, and it's odd because we're fairly close together. about 33 times earnings is not priced in for anything. If you think of the software portion, which is only 30 percent, the hardware is 70 percent.

21:45So the margins on I mean, the multiple on that, let's say 20, that would be a really high multiple, means the services multiple is trading much, much higher. That seems like a lot is priced in. But if I'm going to buy a software company and a services business with a high, high multiple, I'm going to buy apples before I'm going to buy a lot. Look at the software companies, and I won't refer to where the charts are, but I think I'm paying more for Apple than anybody else. I'm not going to sit here and argue that Apple is cheap. And relative to itself, it's kind of trading in line with where it's been for the last three years.

22:17I think about the drivers for the mega cap tech space around AI, Apple's priced in zero of that. What do you see? Well, I have to say it's nice to see a downgrade when a stock is near its highs, right, instead of after the fact, after you've already seen that loss of momentum. So to me, the stock is poised for a corrective phase, but still within the scope of its secular uptrend. And that should be welcomed by investors. It does look overstretched. It does have some countertrend indications with validity for about eight weeks from here. Coming up, a steel skirmish. The lawsuits piling up after Biden blocked U.S.

22:49Steel and Nippon's deal. What rival Cleveland Cliffs has to do with it next. Plus major changes out of Meadow, why the social giant is ditching, fact-checking, and the new addition to the company's board that could really pack a punch. You're watching Fast Money live from the Nasdaq market site in Times Square. Back right after this.