Meta’s Big Quarter… Plus The Latest Fed Rate Decision Description 7/31/24

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. Mega Meta shares of the tech giant jumping after its latest earnings report as CEO Mark Zuckerberg aims to offer the most used AI assistant in the world by the end of the year. Will his efforts pay off? Plus, the Powell bounce markets jumping after the Fed chair suggests a September rate cut is truly in the cards. The tenure hitting its lowest level since March. Did the central bank just give the green light for investors? We'll debate that. And Boeing shares take off as a company selects its next CEO.

0:34What the former head of Rockwell Collins can bring to the embattled aerospace giant, and will he be able to turn things around? I'm Melissa Lee, coming to you live from Studio B at the NASDAQ. On the desk tonight, Steve Grasso, Karen Feinerman, Guy Adami, and Michael Cantopoulos, director of fixed income at Richard Bernstein Advisors. We start off with the two big events for the market today. First, the Fed leading rates unchanged at the latest meeting, but keeping hopes alive for a cut in September, if that is, inflation continues to cool. We'll get more on that shortly. But first, Meta earnings, the stock is up about 4.5%.

1:05After reporting a beat on the top and the bottom line, the call just getting underway at the top of the hour. CNBC's Julia Borson's got all the numbers. Julia. That's right, Melissa. Meta beating on the top and bottom line and giving third quarter revenue guidance in a range ahead of the analyst consensus. The company also narrowing its all-important CapEx guidance, bringing up the lower end of its CapEx range to between$37 and$40 billion. That's up from the prior$35 billion to$40 billion range that the company gave last quarter. Now, in the earnings release, the company reiterating its commitment to investing in AI, saying, quote, while we continue to refine our plans for next year, we currently expect significant capital expenditures growth in 2025, as we invest to support our artificial intelligence research and product development efforts.

1:51Now, the daily active people on Meta's family of apps increased 7 % year over year to 3.27 billion, while the number of ad impressions and the average price per ad both increased by 10%. We are sure to hear more on the call about how much AI is boosting these results. And we may hear more about the impact of regulation. Melissa? All right, Julia, keep us posted. Julia Borsten with the lowdown here on Meta. Again, the stock is up 4.4%. Karen, what'd you make of this quarter? So I liked it. As Julia pointed out, the highlights of it, the revenue was good. The guide was good. The CapEx was in line-ish, tiny degree of difference.

2:30So all that was good. Every metric was good. However, I caution, I mean, I'm excited about where it's trading, but so much can happen on the conference call. And we've seen that, you know, Microsoft last night was a good example. On the call, they actually said they were supply constrained, which was a very different field than we had going into that. So I definitely want to hear what he has to say. It is sometimes very much a market-moving call. But I liked it, and I think it's interesting that even with the Pinterest numbers last night, they're not seeing the same thing. And I think what they're able to do is just deliver better ads, and advertisers will pay for them because they deliver.

3:08And even better ads thanks to AI. Yes. I mean, that's the thing about this AI model. It's not just investing in AI and selling it. They're actually utilizing it. They're utilizing it for people who buy ads. And, you know, there's lots of videos you can see, but one of them, Ads Manager, how they just, you know, it's very simple now. Create a very different ad. Choose that ad for different people, different times, and change the text. And it's so easy to do. So I like what I'm seeing, but I'll have to listen to the call. The setup was good. We've talked about it. It was down almost 17 % from the recent all-time high.

3:40So that sort of augured well, and we talked about that. Average price per ad up 10%, which is significantly better than the street. It was looking for 7%. And as much as this is a U.S.-Canada story, and it is a U.S.-Canada story, look at the Europe numbers. Europe was surprisingly good, and year-over-year growth there suggests that, you know, maybe there's something there as well for them. So you could always wrap your head around Facebook in terms of valuation. You still can. Karen's right to focus on the call. It's been a messy stock now for the last couple years, but you don't run too far away from meta here.

4:10When you have over 3 billion active users, it allows you a wide berth for other ventures that you would like to do. Remember what killed Facebook? The metaverse spend. Over$13 billion in metaverse spend. Now they're spending$10 billion. And for the foreseeable future, who knows what that level is going to get to? So where the CapEx spend hurt Google and hurt Microsoft, what is it doing to them? Not hurting them at all because they have that core base. It's almost like Google other ventures. So you have your core business, which is search. They have their core business, which is ads, but they're both the same thing.

4:47And then they could shoot for the moon now with AI spend. That's why you saw NVIDIA stronger on the back of this, because they are one of NVIDIA's top clients. Well, the ROI on the spend seems a little bit clearer and more linear for this case, as opposed to a Microsoft, for instance, where we're not getting co-pilot revenues, for instance, right? Here we are actually seeing ad revenues improve, and that's thanks in part to this spend. So people are able to connect the dots between the spend and the increasing spend and the payoff. 100%. And you're seeing it in terms of what we just talked about.

5:22Now, the flip side of that coin is the enhancements on AI and the ad spend. Well, is that going to be offset by a slowing economy? We talked about this. Facebook, think about the majority of their business or their ad spend is small and medium-sized businesses. If the economy is slowing, the most economically sensitive companies will be those small and medium-sized businesses. The first thing they will cut back is ad spend. So to a certain extent, I think you have to feel the economy is on stable footing to consider, again, to still want to be long-faceted, which, by the way, you should be given the valuation.

5:52But that's sort of the existential risk out there. Although I feel like we've seen, we've been down this road before where we say the small and medium-sized businesses will cut back on ad spending. And it's not cutting back at Facebook. It's cutting back other places, spending on Facebook because they're getting the best return on investment. So when you think, Michael, about CapEx and AI and the return, you know, is this going to be something that helps us through the slowdown? Is this going to be, you know, how do you view this, a boost to the economy? Yeah, I mean, I think, listen, long term, there's no doubt that AI is a productivity enhancer and most likely helps the economy.

6:24The question is whether or not it's a good investment story. Right. And I think definitely over three, five, seven, ten years, AI is the future. But I do think you're going to see a broadening out of performance from stocks based on broader earnings. And it's not just an A.I. story right now. But it doesn't mean A.I. is bad. And you have seasonality as a tailwind for them going into the back half of the year. You have the elections right now. You have the Olympics, which is probably still not going, not going to decrease. And who knows how much people start to view the Olympics again, start to increase their spend, even though that's somewhat notated in their budgets.

6:58you might see another ramp going into year end as well. What are you afraid about when it comes to the conference call? Well, last time they dropped the sort of bigger spend, right? That was a critical point. But now bigger spend is like, yay, bigger spend. Well, now they've defined it in the release. So if it's something very different than that, that won't be great. I don't know. Just, I guess, his take on the economy, getting to your point of, okay, maybe Meta might be the last place they would cut their spending. But if overall everyone's cutting spending, you know, I think maybe they get a disproportionate but still lower dollar.

7:33That would be unless you drop some other kind of unusual thing. Where's the growth coming from in Europe? Is the ad price per the average price per ad up as a function of what we just talked about? Or is it something else? I mean, those are interesting things. And the spend without question. But, you know, I don't know what the first question will be. It's going to be AI related. And we'll see how the market handles that. All right. Again, the Meta Conference call underway. The stock is still up by about 4 percent. Let's get to the other big story for us today, and that is, of course, Fed Chair Jerome Powell signaling progress on inflation as well as more moderation in the labor market.

8:07Stocks adding to earlier gains during the press conference, though, close off the highs of the day. The Dow up 100 points. The S &P up a percent and a half. The Nasdaq surging 2.6 percent. Those two indices each having their best day since February. Meantime, the 10-year Treasury yield dipping below 4.1 percent for the first time since March, while the two-year hit its lowest level since February, and gold turning positive to settle at a new record. For one today's Fed decision, let's bring in Steve Leisman. Steve. Hey, Melissa, I'm just looking at that 403 on the 10-year. I didn't realize it fell that low.

8:39But the Fed today, holding rates steady, 5.25 to 5.5. But in its statement, suggested that the economy had moved considerably towards a place where they could cut interest rates. And Fed Chair Jay Powell, he drove it home in his press conference saying explicitly that a September rate cut was on the table if the inflation rate continued to decline or remain the same. If we were to see, for example, inflation moving down quickly or more or less in line with expectations, growth remains, let's say, reasonably strong and the labor market remains, you know, consistent with its current condition, then I would think that a rate cut could be on the table at the September meeting.

9:26Powell acknowledged some policymakers, hey, they wanted to cut today, but that was not the view of the majority. In the end, all agreed with a statement that noted there were more balanced risks out there. They said the risk during the employment and inflation goals of the Fed, quote, continue to move into better balance. They were attentive to risk to both sides of that mandate. They'd originally said the Fed was focused only really on the inflation risk. And they, of course, saw better progress towards that 2 % target, along with a moderation in the job market. So the yield on the January 2025 Fed funds contract shows the market went into this meeting pretty aggressively priced for three cuts this year already.

9:59It actually took the statement as somewhat hawkish. It wanted more explicit language. Then it rallied and became more confident in cuts you could see with the yield falling after Powell's press conference. Pricing the implied yield at 559. That's 80 basis points lower than the current level by year. And some of that confidence may have come from Powell's answer to a question I asked him where he made no promises, but he did affirm that he sees rate cuts as a process, Melissa, not likely a one-off move by the Fed. What was your take overall, Steve? Do you think that he leaned more hawkish? I mean, I thought the sort of tip of the hat to the risks to both sides of the dual mandate seemed a little bit hawkish in terms of highlighting the risks to the economy from employment.

10:39You know, I'm interested right now in what's going on on the committee. I feel like Powell is more or less on board with a rate cut in September and a series of rate cuts that maybe start to move the funds rate towards normal. But what stopped them today? I think that's an interesting question. Apparently, there are some members of the committee, I think I know who they are, who maybe wanted to cut today. But who didn't want to cut? I'm interested in how strong this more cautious or hawkish wing of the Fed is and what their makeup is. Now, agreed, they are going to have two more inflation reports before September and a couple more employment reports, including one this week.

11:18And that could really seal the deal. I don't think that the burden is especially high, though, for the data itself to keep the Fed from cutting. So, Steve, what do you think, though, when you're exactly where you left off? If we do get a hiccup on a CPI print, you don't do you think that they still go? So as a trader, I think they're trying to be too cute here. They're trying to thread the needle too tight. What's the difference between September with the same data and right now? And to your point, Steve, when you asked your question, he had said before 25 basis points isn't going to do anything to the economy.

11:54Right. So you want to do a series of cuts. Look, he said several times they're going to look at the totality of the data. And it's important for you guys to understand the kind of inflation math that's coming our way, which is that there are a couple big numbers in the past that are going to roll off the year over year rate. So there is some tolerance in the year over year rate for a couple of those bumps that Grasso was talking about. So it doesn't have to be perfect. It has to be in line and not suggest a reacceleration. So I think there's some tolerance. And that's why, by the way, I think it was Gina Smiley from The New York Times asked a question about what the default position was.

12:31And it sounds to me like the default position is to cut. So, Steve, when you ask that question, I think there's higher tolerance for a bump along the way. Steve, it's Karen. Thanks for being on today. I agree with you. It seems like the default is a cut. But how much wiggle room? He gave himself a little wiggle room. Doesn't have to be perfect. They don't need to exactly meet or beat expectations. But can you quantify what you think is the amount of wiggle room they have with inflation data and maybe putting in labor data that could counteract inflation data? Well, I could. I haven't opened my PCE spreadsheet that calculates the three, six and 12 month rolling rates of inflation for the core, the super core and the headline, which I do have, by the way.

13:14You think I'm making that up. I actually have that here. What I think you're looking for, Karen, and I'm not sure this is what you're looking for in your answer question, but look at that 0.2 place. That 0.2 place is an OK place if we go up by 0.2s, a little tolerance to get at Steve's question for 0.3. And we're going to be slashing rates if we stay at 0.1 or 0 or below. So that's where I would think the delineations are. I think it's amusing to me that the fate of the nation rises on the decimal point of an uncertain number that could be revised away in future numbers. But that's where we're at.

13:51Point one is great. Point two is OK. Point three, there's some tolerance. If we get back to those point fours, then we're going to have some trouble. Steve, Mike Cantopoulos here. You know, well, first I'll say, you know, to Steve's point earlier, what's the difference between November and September, too? You can make that argument. But but do you think there's a little bit of a contradiction to what Chair Powell said today in terms of, you know, he stressed normalization in the unemployment rate, in the economy, but then says that they're restrictive. So which one is it? Are we slowing down because of restrictive policy or are we slowing down just because of normalization and post covid sort of distortions coming back down, you know, coming back to normal?

14:33That's an interesting question. I'm not sure I completely know the answer to that. I think that there's a couple things going on. One is that we are starting to see the higher interest rates bite. Remember, it's a year from now. It's a year ago that the Fed hit these current rates right now. So I think the Fed believes it to be restrictive, believes that there's scope for normalization without really igniting or accelerating the economy. I think that's the way they feel about it. They had talked for a while about this idea. hey, if we don't cut and inflation falls, the real rate rises. We become more restrictive than we want to be if we don't adjust the rate.

15:13I think we're going to be hearing a little bit more of that talk in the coming weeks. Steve, thanks. Pleasure. Have a great day. Steve Leisman, you too. And if you didn't notice there on the 10-year yield in the after-hour session, we're at 4.03 percent. So we're down 10 basis points after the official close of the bond market. Michael, what is your answer to the question you asked Steve? Yeah, I think we are clearly normalizing post-COVID, and I think the Fed recognizes this. I mean, listen, there's a little something for everybody in today's statement and the press conference. If you kind of assume that the Fed was going to cut in September, well, you got enough to think they're going to cut in September.

15:49And if you think that they should hold because of some of the base effects that Steve mentioned earlier, and that this is more normalization and not actually a slowdown, which is what we believe at RBA, that we're more in a normalizing process and actually the economy is quite healthy, then, you know, maybe you wait to November. But I do think it's clear that the Fed wants to cut. And whether they do it in September or November, you know, who knows? But also, who really cares? At the end of the day, you're going to have a Fed that most likely cuts policy here at some point. You know, in the beginning of the show, you mentioned that gold's at an all-time high.

16:17I mean, say what you want about the gold market. It is absolutely flashing some warning signs, I think, for the broader markets as well. And what you're getting is the green light for gold to go higher. And throw up the gold mining stocks. Just look at the run that these names have had. Historically, the mining stocks will not move. Well, now the mining stocks are saying, you know what, we actually believe what's going on. So everything looks great on the surface. Rates are coming down. One has to wonder why that is. Is it because they're winning the battle on inflation? Or is the economy slowing?

16:43Regardless, the gold market says we don't care. We see something else. Can I ask Guy a question? Sure. Yes, of course. So if I were to tell you, for sure, cutting 25, that's what they're doing in September. Does the market go up or down on that? Yeah, I think that's a great question. It's to be careful what you wish for, right? I think the event itself might trigger a sort of sell the news without question. And if it's more than that, if it's 50 for whatever reason, they're obviously doing something because they see some weakness that maybe the rest of us don't see or choose not to see. So it's not, again, Michael can speak to us.

17:15I know we're up against it. It's not the inversion in the yield curve that gets the markets. It's the re-steepening, and it's happening right before your eyes. So historically, it's when they start cutting rates that the market starts getting a little dicey. And I know we're up against it. Really quick, five seconds. I think if you wait too long in November, the reason why November versus September matters is because there's long and variable lags as it was in the beginning of it. So they're messing around with a potential recession. So they're trying to be too cute. If it feels like they should cut, they waited too long.

17:42But we're not messing around with the recession here. I mean, the economy is quite strong. We have 4.1 percent unemployment, 2.8 percent GDP. If it feels like you should cut, you've waited too long. It should feel like you're early. Or it could mean that you're stoking inflation pressures once again. Sure. Coming up, we will keep an eye on Meta and bring you all the headlines from the conference call. Fast Money friend Gene Munster will join us in moments to help break down the results. Plus, soaring semis, why Microsoft's earnings weren't as bad for chip stocks as initially thought. NVIDIA leading the group today with a huge move higher.

18:13What is driving all those gains next? And sticking with chips, Qualcomm and Arm on the move after reporting results, bringing the details from the quarters. Plus, a lot more after hours action in Etsy, Carvana, MGM. Don't go anywhere. Fast Money is back in two.

18:34Welcome back to Fast Money. Microsoft shares rebounding sharply from yesterday's after hours lows, closing the day down just a percent after falling as much as 8 percent immediately after its report. The company is suggesting there are no plans to slow spending on AI, and that helps send chip stocks soaring today. NVIDIA leading the pack, surging almost 13 percent. Broadcom up nearly 12 percent. The SMH Semiconductor ETF saw its best day since May of last year. So did Microsoft's turnaround give the all clear for the AI trade? They're still going to spend, right? That still benefits NVIDIA and all those hardware guys.

19:08Well, I was going to say, I mean, you know, if you look at NVIDIA stock and it hit that high of 140, And I think it traded a 103 and change yesterday. So that's a pretty big drawdown. So I think it was sort of ripe for some kind of positive news. There was that. And then so the big spend. And then also AMD with some good numbers as well. So that sort of created enough of a bottom for a bullishness. And then, I don't know, it was sort of a vacuum up$10. But I think you mentioned the best line that was the analysis that the market did on it. It wasn't a demand issue. It was a supply issue. And I think everyone looked at it.

19:43You guys were talking about on the desk last night. Everyone looked at it the wrong way and they thought it was about a spend. And they thought about a dollar is going to get you how much on the back end. And there wasn't enough on the back end. But now that they know there's an unlimited amount, what perceived to be an unlimited amount of demand right now. Let's stick with chips here and get an earnings alert in on two names in that sector that reported earnings just last hour. Qualcomm and Arm Holdings moving in different directions. CNBC's Steve Kovacs got the details on those quarters. Hey, Steve.

20:12Yeah, Melissa, these two major chip names are reporting after that rally in the sector you just mentioned today. Let's start with Qualcomm, though, building on its 8 % surge today after hours, up another less than 2 % now, is up as much as 6 % earlier. Chipmaker posting beats on the top and bottom line, showing a surge of 12 % in sales for the important handset business to$5.9 billion. Now, you can take that as a signal demand is starting to come back to smartphones. It's an important data point ahead of Apple results tomorrow as well. As for the automotive segment, also a very strong beat there, though still a tiny part of the overall business.

20:45Sales there up 87 percent to$811 million, smashing expectations of$641 million. And good guidance there, too, expecting between$9.5 billion and$10.3 billion this quarter. Street was looking for$9.7 billion. And now let's go over to Arm Holdings. Those shares sinking after hours. It's really brutal now, down almost 11 percent. Following today's earlier gains, despite those healthy beats on the top and bottom lines, revenue was$939 million, up 39 % from the year-ago quarter. And revenue guidance for the current quarter was largely in line with estimates, but it was light on earnings guidance. And lots of talk in this release about the future potential for AI devices running ARM chip designs, but that's a ways off, Mel.

21:30All right, Steve. Thanks, Steve Kovac. What do you make of that? I'll take Arm. Okay. Because Qualcomm we talk about. So let's just look at Arm. It's had a huge sell-off. It obviously bounced today. It's back to basically where we started the day, if not a tad lower. It's a company that's going to do$5 billion of revenue next year, trades about$160 billion market cap. You can do the math. That historically is excessively high. And they guide it down next quarter in terms of EPS. So it's not an indictment of the company at all. It's an indictment on the valuation. And I think when people really look at it and say, wait a second, I can own other companies a lot cheaper, they're going to go there.

22:08Qualcomm, I think, is a very good example of a more reasonably priced semi-stock. But going back to the market action today, sitting here on this desk yesterday with Microsoft down 6 % to 8 % in the after-hour session on this conference call, would you have guessed that the Nasdaq would be up 2 % plus today's session? No, but quickly, and I don't want to – but we talked about it last night. I remember what we said. We said collectively you're not looking for a place to sell Microsoft. off. You're looking for a place to buy it. I thought it would trade 390. It got really close. So to answer your question, emphatically, no.

22:37But did I think it would bounce off that level? Absolutely, yes. So one of the things, going into some of these earnings, we had a pretty nice setup. Things had really gotten crushed. You know, it might be a little bit harder tomorrow when we listen to, we got Apple and Amazon tomorrow night. Steve? Arm holdings, the market share in smartphones. Every time I read this number, it's shocking. It's 99%. That to me is shocking. And then when you say, well, where's the stock? Because everyone thinks now they have to diversify. Now they have to go into PCs. And then when they think that AMD put up a great number in PCs, they're not going to be 30 % of the PC market in the next few years.