Microsoft’s AI Pullback… And Intel’s Semi Shift 7/2/25

0:01Live from the Nanzac Market Site in the heart of New York City's Times Square, this is Fast Money. Here's what's on tap tonight. An AI pivot. Microsoft reportedly scaling back on its chip ambitions and cutting thousands of jobs in the meantime. What it means for the tech giant and the future of the hyperscalers. And a foundry shift for Intel. The chip maker may be shaking up its contract manufacturing business. One top semi-analyst will weigh in on what it means for the future of the company. Plus, Tesla shares jumped despite a drop in deliveries. Sentience guidance pulls up. Sends managed care stocks, excuse me, sinking.

0:34And Nike continues its post earnings run thanks to some good news on trade. We'll break down the headlines on all those moves. I'm Melissa Leak. I'm D-Lock from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Karen Feinerman, Dan Nathan, and Bono and Eisen. We start off with Microsoft pulling back again today, now down 2 % from the record hit earlier in the week. Today's action comes amid a report that the company is scaling back plans to develop AI server chips and news that it could cut as many as 9 ,000 jobs in its biggest round of layoffs since 2023. For more, let's go to Steve Kovac, who's got all the details.

1:06Steve. Hey there, Mel. Let's start with that AI chip story. This is coming out of the information reporting that Microsoft, which, by the way, is one of NVIDIA's top customers, it's slowing down plans for its own AI chip. It's already been in development. They've been deploying it a little bit. Now, Microsoft tells me work will continue on its own chips, but this pretty much guarantees that NVIDIA is going to have Microsoft as a customer for some time now. By the way, NVIDIA closing in on that$4 trillion market cap. That would be the first company to hit that milestone. Also, a new fiscal year for Microsoft right now just started on July 1st.

1:41We should get some more detail on the CapEx spending for the next 12 months. Microsoft has already said it's going to grow CapEx from the$80 billion last fiscal year, but at a slower pace. Meantime, Oracle hitting new highs today after Bloomberg reporting OpenAI will rent its data centers as part of that Stargate project. More good news for NVIDIA there. Outside of chips and AI, though, Microsoft's still cutting costs. 9 ,000 employees laid off today across the company. That's less than 4 % of overall employee base. That brings the total to 15 ,000 employees laid off at Microsoft so far this year.

2:17This would be the biggest cuts at Microsoft since 2014, when Microsoft laid off 18 ,000, mostly from the Nokia acquisition. So lots going on at Microsoft there, but still moving forward on AI, Mel. All right, Steve, thank you. Steve Kovach coming on Microsoft. What do we make of this news? Well, I think more importantly than the layoffs, because they've been laying folks off, and this is what you would expect to do, especially as you're maybe getting better productivity from some of these applications. You know, I think the pushing out the chip designs, right? And so we know that, again, like all of NVIDIA's major customers, which are meaning to be their major competitors at some point, the fact that they are doing that just tells you that the capabilities internally are probably not the sort of thing that investors who've been buying stocks like Broadcom would think.

3:09So some of those TAMs that we heard from Broadcom late last year and reiterated by Marvell earlier this year, maybe they're not there for them. Maybe it is the sort of thing that NVIDIA continues just to dominate. But at the end of the day, I think about NVIDIA and I think about the customer concentration and, you know, Microsoft's their biggest customer. And, you know, NVIDIA is going to be competing with them in data centers, too. So it's becoming like a pretty— Eventually. Eventually. I mean, but, you know, it's all happening. So it seems like there's a little bit of a love triangle here. It all points to probably pretty decent news for NVIDIA, though.

3:45But then you say to yourself, Kovac just said it,$4 trillion in market cap. Who thought NVIDIA would be that one, right? And so it's kind of all happening there. I'd go a different direction because I think all of the ANN news and the names that we know are getting a little exuberant. I'd start to look at some of these chip manufacturers. Like I would look at not TSM, but I'd say the suppliers of that would be an AMAT or something like that. Those guys are coming off the net chip equipment providers. So I think you've got to kind of go further afield at this point because I think those names are kind of forward.

4:13Doesn't this show you that it's much harder than you thought to compete in database chips? I mean, the bread and butter of NVIDIA. And then maybe NVIDIA's mode is actually pretty decent at this point, even though there are all these reports that Amazon and Microsoft and Google, they're all making their own chips. Yeah, well, it sounds like Amazon is well on their way to making chips that they use. But it also speaks to the demand for processing power, right? And so, you know, with NVIDIA being right in the center of the picks and shelves, we talk about it all the time, it doesn't seem like the demand part, which would be the real thing that would make the stock turn, is changing at all for the worse.

4:52In fact, I think it's getting better. Yeah, I think it does bode well for the supply chain, the infrastructure. So I like TSM for this and their advanced packaging capacity. And they talked about how that's actually gotten stronger over the last couple of months. An arm. I think some of these players are ones you want to hold here. And I do think that there's you could look at it from both sides and just say people are kind of slowing down on Microsoft. But I think Microsoft's got their hands full in a lot of places and a lot of interesting places. And I think that's maybe just good news for everybody.

5:24I don't think this is a signal that there's less demand in terms of A.I. and in terms of chips and building up those those reservoirs of capacity. But I do think this obviously does underscore NVIDIA's leadership. I think it's also proven that AMD has had a pretty good month. And there's a reason they've had a pretty good month, because I think people underestimated where the 350 and the 400 chips have been. They've given some announcements in the last month that have been bullish. I like AMD. Was this good news or bad news from Microsoft ultimately, Bonoing? I think it's more neutral. Frankly, I would have been more concerned had they essentially conceded that they were having these design issues and continue to push forward spending money that you're not going to get an ROI on.

6:01I think that's where you would have seen probably a decline double of what we saw today. Like the rest of the group, I definitely think it's a positive for NVIDIA. Essentially, the complexity around the design and manufacturing process, we're going to hear about Intel later. Like, clearly, that is something that probably wasn't yet priced into the stock. I know a lot of us were looking out to 26 numbers and saying, OK, that's probably where we – the extent of the visibility. I think this probably buys you another 12 to 18 months in terms of understanding that that revenue level will probably remain where it is.

6:32Does the Microsoft News change your view at all, positive or negative? when it comes to Oracle, which has seen a massive run, as Steve pointed out? Not really, but I think Oracle on its own in that move and that valuation is something you had to question, even though, again, I think Oracle's done a great job of articulating a strategy that is higher on the top line, lower on the bottom line. We talked about that. That's not great. I think it's also interesting to know if you go between if you go look deeper into this Microsoft announcement, A major part of this cut is coming at Xbox, too, the gaming side of their of their business.

7:06It almost seems as if that was really the takeaway I would take from this. So, I mean, Microsoft didn't announce, excuse me, didn't present themselves as a chip manufacturer yesterday. They're not today and they're no worse off. They're very well positioned in A.I. They're the one that really does have a high margin business that, if anything, is growing slow and steady. Yeah, I just mentioned, though, the last time we've seen major cuts from companies of this size was in the lows in 2022. right? And you think about where these stocks are. You think about where the sentiment in the market, you think about where valuations are.

7:35And that was really an unlock. You think about like some of these names, like Meta started cutting people, Microsoft did in a meaningful way to cut costs. Now, look at how far these stocks have run over the last three years or so. And I think it's really interesting to also fourth quarter of 2022, when all these folks were down for the count, these stocks, and they started cutting costs. That's when ChatGPT was launched. And that was really the sort of thing that has kind of brought this thing full circle in a way. And you think about Microsoft's relationship with open AI that is fraying right now.

8:03So Azure has been great. They've been spending a lot of money. They went from like $55 billion two years ago to$84 billion last year. We know that that's going to slow down a little bit. At some point, other than their actual cloud business, they're going to have to be able to articulate some sort of meaningful growth as it comes to co-pilots across the enterprise, right? And then we're going to start thinking about, you know, agentic, you know, sort of operations, that's the sort of thing that's going to be like the unlock, I think, for their profitability. And they're basically, you know, just their demonstration of all that investment that they have made and the partnerships that they've made, what they start to get from their own customers, because as of now, they're not seeing a huge uptake.

8:41Well, the meta thing, I mean, I would say I think they could do a lot more in the efficiency on the productivity of their own employees. However, if you spend several billion dollars for one, that's going to you know, you've got a lot of overhead, right, that, you know, clearly Zuckerberg's taking a huge bet. I still think there's a lot of efficiency to be had. We haven't even begun to see it. And I also think that's sort of part of the story in the banks, where you will really see efficiency. And we haven't really begun to see it at the companies themselves. I was talking to a bank analyst this morning from TD Cowan when I was in Squawk Box, and he was all bowled up on the banks, So J.P.

9:19Morgan can go even higher, could be a three price to book ratio because of the power of AI. And I thought that was really interesting to go out there and actually put a valuation number to that cost efficiency. I think that's probably the next industry to get disrupted. A three times book value seems aggressive. I know that there is a cohort that typically buys at one or sub one and sells north of two. So you just may have some of those systematic trading strategies that put a cap on its ability to run further. I guess he's saying that you can't have a historic – there's no historic multiple for this time, which is not a – you know, it's something new, this age of efficiency.

10:01I just think the momentum in the banking sector is extraordinary in terms of the capital market stuff we spent a ton of time talking about. J.P. Morgan, you know, their buyback is going to be 66 percent bigger than it was last year, et cetera. But 100 percent agree. AI and even Cowan had a note. I forget what they about stable coins and how it relates to banks. And it was something along the lines of banks are ready to disrupt themselves. If you think banks are not going to be exposed to stable coins and have a big exposure here, that's actually infrastructure that's being used to settle trades and be available for industry specific.

10:37I mean, I just think financials here. And I said this yesterday. But I think it's important to think about where we were with the banks before SVB, before Silicon Valley blew up. Banks were re-rating quickly. And we had to take a year and a half off or maybe two years off. But their ability to buy back stock and grow earnings even through that is impressive. I think it's worth noting that 25 years ago we heard a lot of the same arguments about the Internet and what was going to happen. It goes back to, obviously, that very famous quote from Bill Gates is that we kind of overestimate the near term and we underestimate the long term.

11:07And I think that's what's kind of going on in the markets right here. And so I think it's just important to kind of recognize the fact that, yes, a lot of these companies are trading at high valuations. We know that AI is going to do a whole heck of a lot for productivity. We just haven't heard a lot about it. And it better come soon because where the valuations are right now, I mean, you're talking about J.P. Morgan at three times a book. I mean, because of AI, like that's the reason. One of the reasons, yeah. Yeah, I mean, that doesn't make a lot of sense. All right. Sox mostly higher today with the S &P 500 and Nasdaq closing at records as President Trump announced the framework of a trade deal with Vietnam.

11:38The gains coming despite some weak jobs data. ADP private payrolls unexpectedly fell by 13 ,000 in June. The Labor Department jobs report comes out tomorrow morning. For more on what it all means for markets and the Fed, let's bring in Jack Genesiewicz, lead portfolio strategist at Natixis. Jack, great to see you. Thanks for having me back. Where do you stand on where we are in the markets right now? Fully valued? Overvalued? You know, I think the big risk going forward here over the next couple of months really comes out of that labor market. And that's why I think tomorrow's payroll print will be somewhat of a turning point here.

12:12You continue to see ancillary data showing potential weakness coming out of that jobs market. And the Fed seems to be at least sitting on their hands in the interim. And so you could get a little bit of a weakening in the labor market. The Fed a little bit maybe slow to react to that. And as a result, maybe you get a repricing in the near term here, knee-jerk reaction of maybe the growth scare kicking in. And as a result, maybe we get a little bit of a sell-off in the interim. Oh, I would have gone the other way, Jack, and I guess this is sort of like a Rorschach test. If the jobs market came in weaker, that would underscore the need for the Fed to actually cut.

12:47And so, therefore, the markets would like that. Yeah, I think there's a timing mechanism there. And I think longer term, I think that's probably the right path to take. And I think before we went to break there, Mike Centelli was sort of walking through the same case that we were outlining. So my guess would be that maybe the knee jerk reaction right off the bat on a weaker payroll print would be a sell off. But again, the market would then start to probably reprice in higher rate cuts going forward. And so give it a little bit of indigestion in the interim. And you're probably looking for a pretty good setup until the end of the year.

13:18Jack, I saw from your notes that you're neutral to slightly underweight on the equity side. What about this rotation of this week, though, at least is encouraging to you? Do you believe that there's opportunities in some of these sectors that have had a pretty good week and have not been the obvious MAG-7? Yeah, I think it's a little tricky because you're looking at the quarter end, potential rebalancing here. And so we certainly saw yesterday it was sell the winners, buy the losers. You got a little bit of that pull through even today. You've got small caps, which were doing well on the back of higher rates.

13:48So that kind of makes you squint and say, hmm, I'm not really sure what's going on there. So I still think it's more the same. You're going to have the growth complex likely continuing to lead going forward. And I still think, you know, and you guys were just talking about this, the tech complex, the comm service complex, and even maybe outside of that, the financials continue to sort of be the leadership as we continue to push into the end of the year. So, you know, I think it's still more of the same in here. Jack, continuing along the theme around equities, can you kind of speak to how your balance between U.S.

14:18domestic and international stocks? We've seen quite a bit of a rotation or broadening out, if you will, from U.S. domestic to more Eurocentric or international stocks. Can you kind of give us your view on what that proper balance is and where you start to see money flows going into the second half of the year? Sure. And I know we've had a pretty good rally in European equities, for example. And I think a lot of that was just a function of positioning, right? You've had some pretty big overweights that probably got extended because the tech trade has really been that leadership factor going forward for at least a couple of years now.

14:50And so a lot of investors probably overweight where they probably would like to be from that perspective. And given the sort of the Trump news and off of Liberation Day, it made some sense, I think, to rebalance back to something more normal. But I'm not sure that we're having a dynamic change underneath the surface here where you're going to see Europe continue to lead. Where do you get growth and earnings coming from? It's still coming from that tech complex. And when you just look at the constituents within the indices there, that still favors the U.S. equity market. And so we're not necessarily buying into this idea that, you know, you should start to be allocating.

15:21And this is sort of Europe's time to shine, so to speak. We still think it's a U.S. story. And the growth, that backdrop is still supportive for U.S. equity. So still overweighting U.S. equities and underweighting international in our portfolios. Jack, good to see you. Happy fourth. Same to you. Thank you. It's not Texas. Oh, Tim, time is running out for Europe. Your mega trade. I mean, I don't think so. I know. Look, Jack's I think what he's saying is suddenly Europe overnight doesn't become this incredible growth story. He's absolutely right. If suddenly overnight, there's an assessment that foreign investors are significantly overweight the U.S.

15:57relative to historic benchmarks. So, in other words, U.S. at 22 to 25 percent and peaked at 30 percent in December. That's part of my view. The other part of my view is that I think dollar weakness is something that at least we have for a reasonable amount of time. But more importantly, I look at the ability of Europe relative to itself to be able to stimulate its own economies. And I talk about how Germany, that's a historic move in terms of deficit spending and rearming Europe and also deregulation. So these are all things you don't go out and get 50 percent Europe or international on your portfolio suddenly.

16:27But a little bit and 15 years of underperformance means this isn't a 15 day trade either. This is probably a period to be putting more on. Do you still want to be more levered to technology and to growth in the second half of the year as opposed to playing the broadening of this rally? RSP versus SPX, let's say. I mean, that's sort of. I like that. No, I still like the growthier names. I think if we were to get a hiccup, I think there's an argument to be made that there is still a, you know, a level of certainty and protection within that MAG-7. And so even if you're not really stepping out on the risk curve, per se, I still think you can play those tech names from a more defensive posture.

17:09Yeah, I agree. I think there's also the growth is there, but I also think there's some protection. Some of them don't have some of the tariff or any of the logistic issues, supply chain, things like that that I find interesting. And I don't know. I love those asset light, some of those businesses. Really great. Let's turn now to Apple rising another 2 percent for its fourth straight day in the green. Jeffries upgrading the stock to a hold, with analysts writing that the company could top June quarter estimates thanks to better China iPhone sales. Still, they cite long-term risks with investors underpricing the impact of tariffs.

17:41Their updated price target of$188 a share, implying 12 % downside from today's close. Of course, this is a move from sell, so it's not exactly a pound-the-table upgrade here. But it is interesting. It times also with the call from Carter, which is a reversal of him saying sell Apple, what, three years ago. Yesterday, he said it's a buy for the short term. Yeah, and he said a short term buy up to that moving average, about$223. It's a good call. I mean, it really held that$200 level. I think that there's not a lot of catalysts right here. And I think you could say, well, the sentiment's really bad when you have someone like this guy who's one of like five sells on the street, which is kind of weird for Apple, by the way, that it has five sells.

18:19You look at the rest of the Mag 7, I think like 90 percent of the ratings are buys on all of them. So, you know, kudos to this guy, depending upon where he put it on. There's going to be a pull forward. I mean, the Q2 for a lot of these companies is going to be better than a lot of folks thought in early April, right, when they're selling stocks or tripping over themselves to do so. But the back half of the year for a company like Apple is going to be a problem. They still don't have an AI strategy. So that means that a product that has not been growing for the last three years is not going to grow again.

18:48I mean, like literally they're going to miss an entire year of a product cycle. So I think there's probably better growthier places to be. So I find myself agreeing with Dan, you know, which is obviously not. Well, he has a ray of sunshine, so I like that. So great call by Carter. Also, Katie Stockton as well. But just in the last thing we just talked about, asset light and some of the other problems that they don't have. When you think of who has a supply chain issue the most out of the MAG-7, right, and, you know, tariff issues, and they're just in the crosshairs of that, not my least favorite, I think, of the MAG.

19:21Another element is just the service revenue slowdown or threat, that looming threat, whether it be regulatory or just in terms of, like, gross dollar amount. I think that's really what's concerning because I think, at least from my vantage point, that's really what gives it the premium multiple. And so unless we continue to have momentum where it's strictly about allocating, but Apple specifically, I think that is the looming threat that I see. That's a big reason why Craig Moffitt is still at a sell on this one. But you're a little bit more bullish. I tend to be more glass half full on this one than the folks around me.

19:51And it's because I just don't think Apple's priced in anything other than a services business that's made the multiple overall very expensive. But there's there's no there's certainly no valuation to AI in here. There's no ability to say that they've really rallied on what's been the driver for tech for the last two years. There was some there was some headlines today also that the Chinese are bringing home some of the developers from India, which is going to complicate Apple's plans to actually be able to to really outsource a lot from China. And who knows? I still think we've priced a lot of bad news on China.

20:23The biggest issue with Apple, the biggest issue is its multiple. And that that should be enough for most people. But again, there's nothing here we don't know about this story. There's a lot of upside to the world's biggest handset maker at a time when at some point, AI in your handset is what you're looking for. Coming up, Tesla delivery is in reverse, but shares still charging higher. The latest numbers from the EV maker and why investors are breathing a sigh of relief. That's next, plus a managed care meltdown. Centene's warning hitting the group hard. The prognosis for the insurance space is coming up.

20:51Don't go anywhere. Fast Money is back in two.

21:01Welcome back to Fast Money. Tesla up 5 % today, despite reports of a bigger than expected drop in vehicle deliveries for Q2. But even with today's pop, shares are down 22 % this year, the worst performer in the so-called Magnificent Seven. Let's get more on the latest numbers with CNBC's Phil Lebeau. Phil. And Melissa, the reason Tesla shares moved higher after these numbers came out today, and look, they weren't great numbers, but there were some analysts who thought, look, we might see 365, 360 ,000 in terms of total deliveries. Yet when you look at the final numbers for the second quarter came in at 384, 122, about 2 ,000 or 3 ,000 shy of the estimate of 387 ,000.

21:4013.5 % decline compared to the second quarter of 2024. First half deliveries coming in at just over 700 ,000 vehicles, 702 or 720, 803. If they are going to hit the number of vehicles delivered last year, they're going to have to deliver just under 1.1 million in the second half of this year. Not impossible, but they're certainly going to have to increase from where they've been in the first two quarters of this year. And remember, these shares are under pressure in part because it's not just deliveries in the U.S. and Europe, but also in China. There was a bit of good news there. In June, sales were up 1%.