Nvidia Earnings On Deck, and A Credit Card Mega-Merger 2/20/24

0:01Indeed, it does. John, thank you very much. Live from the NASDAQ market site in the heart of New York City's Times Square. This is Fast Money, and here's what's on tap tonight. A salty day for the chips. NVIDIA crunched more than 4 % ahead of earnings. The rest of the sector also suffering. So is this the start of the thundering herd exiting? One of the most crowded trades on the street. We'll debate that one for you. Plus, China rebound. Are things on the mainland so bad they're about to get good? We'll go inside Beijing's push to revive their beaten down markets. And later, a collection of collectors.

0:36how a VC heavyweight and a veteran TV producer are trying to juice the memorabilia market. They will join us to explain how this nearly half a trillion dollar business can double in the next 10 years. In for Melissa Lee, I'm Tyler Matheson. Glad you could be with us tonight. Coming to you live from Studio B at the NASDAQ. On the desk tonight, Dan Nathan, Guy Anami, and Stuart Kaiser, head of equity trading and trading strategy at Citi. And we start with a chip wreck on Wall Street. Shares of NVIDIA sinking more than 4 % the day before its highly anticipated earnings report. The stock seeing its worst day, by the way, since October.

1:16And it wasn't the only semi-stock sliding today. There you see some others. Supermicro, AMAT, AMD, and the SMH chip ETF all seeing outsized losses. Still, even with today's drop, NVIDIA is up 40 percent so far this year. But is this the first sign of the air being let out of the tires of the red hot semi trade? And could tomorrow's results cause an even bigger pullback? Guy, let's begin with you. This is a this is a company that has just lit the fire on Wall Street for a long, long time. And that's often the case, the kind of situation where if there's a nit to pick in that earnings report, it's going to get picked.

1:59You've lit the fire under investors for a long time, too. Tyler, it's great to have you here. No, you're spot on. You know, it's interesting. The magnitude of the revenue guides higher have slowly been, they've been slowing down, right? They've been getting less and less robust. It's not an indictment. It's just a fact. I mean, a couple quarters ago, they went from$7.8 billion to$11 billion. And obviously a huge guide. That was last spring and you saw the subsequent move. The guides are impressive, but not, I don't think, impressive enough. To your point, that was everybody's going to be focused on, I don't think necessarily the quarter, but the guide.

2:32And the lead times, apparently, I read over the weekend are now greatly enhanced. In other words, what was eight or nine months are now down to three or four months. That either means they're getting their act together or maybe demand isn't as robust as everybody seems. We're going to find out tomorrow. But to your earlier point, that was the first crack in the armor for sure. Yeah, I guess the problem, Tyler, is that, you know, street estimates for 2024, the year that we're in right now. OK, so this company is reporting their Q4, their fiscal are expected to be up 70 percent on earnings and 70 percent on sales.

3:04So the estimates are already really high. Right. It would be high. Yeah. So to Guy's point about these decelerating beats. Right. So you have a situation where the buy is just so high. Right. And so if there's any slippage, and every morning I wake up to a new story and guys talking about maybe there's a demand issue. We've only heard about tight supply. We keep hearing about their biggest customers. We talked about the customer concentration. It's Microsoft. It's Google. It's Amazon. And it's Meta. Make up more than 40 % of NVIDIA's sales. Right? And every morning I wake up to a new story how Microsoft is trying to diversify away from their dependence on NVIDIA.

3:38Sooner or later, that will take a bite. And then if there is a demand issue, that's when you actually have a guide lower, not a guide below what estimates are. And so to me, I just think that, listen, I think it sets up as not a great risk reward. I think it would be better if the stock was just raging into the print. You know, it sold off a little bit. I mean, some of the steam coming out of the trade over the last couple days is probably a decent thing. But if you want a meaningful pullback, then you're basically not going to want to go into the print a little bit depressed. Stuart? Look, I mean, to your point, the expectations of fundamentals are high, but I would say the positioning is also extremely bullish.

4:14This is one of the most widely owned stocks on the street. If you look at the options market, implied volatility on calls is higher than on puts, and that's over the next three months. And that's a highly unusual kind of condition to have going into an earnings print. So expectations are high. The positioning is there. The implied move on earnings is more than 10%, which if it happened would actually move the S &P almost 50 basis points itself. So, you know, I think the bar is quite high going into this print. What would a stumble by NVIDIA do more broadly to the entire chip sector? Would it just suck them down a vortex or a black hole or what?

4:50I mean, I think, yeah, I think it would have a negative knock on to other stocks in the space. I mean, this is the bellwether. This is the, hey, I don't know how to pick winners and losers in AI, so I'm just going to own the pipes. And that's what NVIDIA is. So I think if you saw a real weakness there, yeah, it would definitely spill over. And then broaden it out to the broader market. Is there a market effect that could come if there's a slip here? I mean, I think this is one of the largest stocks in the market, yeah. So, you know, you're just going to have, mathematically speaking, yes, you're going to have downside.

5:18And I think from a sentiment perspective, it would be a little bit of a knock on what we've seen. I mean, SEMUs have really been holding up the market the last couple of months. And if you knock that leg out, then, you know, without a doubt, I think it has to spread. So the SMH, VanEck SMH, we talk about it all the time. Go back. If we can do a longer term chart, you'll see that 160-ish was a huge double top made last July, and it sold off from there. Since then, off to the races. So past resistance becomes support. I think we closed at 195. NVIDIA, to Stewart's point, is 25 percent of that ETF.

5:47Think about that. You had Taiwan Semi, Broadcom, and AMD. That's 50 percent of the ETF is basically for stocks. So is there a chance? I don't think – listen, you're looking for a place to get into these names. God forbid something bad were to happen. And the level in the SMH is around 160. You can do the math on the individual stocks. Yeah, and I think, listen, if there was a disappointing guide, you would have all of their customers get hit too, right? So the guys who are buying these chips from them or have been buying them and causing these huge upsides. So there will be knock-on effects. Obviously, the semis will be the first.

6:18Semi equipment will be next. And then they're going to start looking at the hyperscalers, all these companies that have been buying all these things. And I'll just make one other point, because you were talking about broadening out. You know, the other mega trend over the last year has been these GLP ones. And we've seen that, you know, Eli Lilly and Nobun Nortis have gained hundreds and hundreds of billions of dollars in market cap. And they're similar, very concentrated trades. Right. And there's a couple winners that have taken a lot of the goods in this whole trade. And so I would be worried that if you were to see the semis fall over the next few weeks or so, you're going to see some of these other very crowded trades that a lot of folks have just kind of anointed.

6:52That's a really interesting point. I do that every so often, Tyler. Every so often you come up with a good one. But that's really interesting because they are sort of similar in the market power that they've delivered, in the gains they've delivered, and in the concentration of the. Yeah. I mean, listen, there haven't been too many other great stories in the stock market over the last, call it, 14 months or so. And obviously AI and, you know, a lot of the related stories and then these GLP-1s. But, you know, aside from that, I know we're going to talk about it a little bit. I mean, look at how some of these stocks that literally disappointed pretty dramatically just three or four months ago.

7:26This was Walmart was one of them. Had a huge gap. And look at this stock gapping to new all-time highs today on the sort of announcement that most of us, looking back on our careers, wouldn't expect to see a 5 % or 6 % gap of a stock this sort of size on an announcement like that. A Walmart size. A Walmart size. So my point is we've seen a lot of euphoric behavior in a very short period of time, really since late October. It's interesting. The Walmart moved in is right. I mean, that's a huge move by Walmart standards, but it's probably helped by the rotation out of technology into names like that.

7:57Into retail, catapult. You know what? Listen, maybe it's rich a little bit compared to itself, Walmart, but at least you can make a justifiable argument in terms of valuation. And the next question, which you were about to ask. I was going to ask it. If things come out of technology, where are they going to go if they come out of big cap pharma and technology? And I'm still of the belief that energy is a misunderstood industry that is not representative in terms of where the valuation should be. I still think they're way too cheap. You get a rotation out of tech, you get it into energy. Thoughts?

8:26Look, I think this goes back to, if you think early in my career, something like Monsanto, right? This is one of those beat and raise stories with this new innovative technology. If it beats and doesn't raise, that stock tends to get hurt. And I think that's the risk you have around the lilies of the world and the invidias of the world. There's just been a series of beaten raises, and that's raised expectations and positioning and kind of creates some risk around those stocks. Let's pivot a little bit. We'll have more on the chip trade a little bit later in the broadcast. The options actions on NVIDIA ahead of earnings tomorrow, Stuart referenced it a moment ago.

8:57Now we move on to Palo Alto Networks. That stock getting crumpled after hours. The company lowering its full year guidance. Shares are now down nearly 20%, 19.18%. That is despite beating on the top and bottom lines. But the estimates, the forecast, that is, the guidance, not so happy there. Kate Rogers has the details. Kate. All about that guidance, Tyler. You said it here. Despite a beat on the top and bottom lines, Palo Alto Network's down nearly 20 percent in this after-hours trade. The company issued weaker-than-expected guidance for both revenue and billings. It's now guiding to full-year total billings between$10.1 and$10.2 billion.

9:37That is lower than its previous guidance of$10.7 and$10.8 billion. It also expects full-year revenue to range between$7.95 to$8 billion. That compares to its prior guidance of$8.15 to$8.2 billion. Guidance for the upcoming quarter also fell short of consensus estimates here. Analysts expecting the company to guide to fiscal third-quarter revenue of$2.04 billion, but Palo Alto Networks now expects revenue to range between$1.95 billion and$1.98 billion, so lower there than anticipated. Palo Alto CEO Nikesh Arora will join Jim Cramer on Mad Money tonight, so much more, I am sure, to come. Back over to you guys.

10:16Thanks very much, Kate Rogers. Let's trade Palo Alto, beginning with you. It's a guide. All right, so basically you have three months of gains-ish, two and a half months, three months of gains from early December. I've been wiped out like this in terms of the move we've seen in the last 10 minutes, which we say it all the time, stairs up, elevator down. It's the guide, and when you're trading at 53 times next year's numbers, you better continue to beat and raise, otherwise you're going to get punished. The thing is, we have seen moves of this magnitude before in PANW. Without question, go back and look.

10:45We've had a huge run over the last couple months. Again, I don't think you're looking to figure out where to sell this. I think you're trying to figure out where to get back in. And if you go back and look, we took off from about$283, which is probably about$13 from current levels. That's the level you get back in this name. Yeah, this is not too different of a situation where we were just talking about NVIDIA. So coming into like today, you know, expectations were for basically high teens, earnings and sales growth for this company. So you disappoint just a little bit. Yeah, how bad is the guy?

11:12It didn't look that bad to me, but the stock's down 20%. Just think about that. So the stock is down more than$20 billion in market cap, which is 2x what they're expected to do in billings this year. And I mean, it's important. That math doesn't really matter. But it's just to think about that on a reaction to where expectations were high. You basically come in line. They're not guiding down really that much. But this is on investors. It's not on the company. I mean, the company came in and they delivered to the guidance that they gave three months ago. So part of it is that we're going to see that investors were just out of whack a little bit over the last few months.

11:45They were so convinced what the Fed was going to do. They were so convinced about the strength of this economy. And they piled into the things that they thought would work the best. And so I really think that now that we might be in this narrative higher for longer and may not get nearly as many of the cuts as you expected. I think investors are going to have to rejigger a little bit what they're thinking about what they paid for over the last few months in terms of valuation in the stock market. Yeah, I think that's exactly right. I mean, the inflation prints the last couple of weeks have forced people to kind of re-engineer their portfolios a bit.

12:13So, you know, for Palo Alto, they picked a bad day to have a bad day, I guess I would also put it. I mean, you know, markets are under a bit of pressure. It's a bit of a weak situation. People are questioning some of the high consensus trades they had coming into the year. So, I mean, look, if the S &P was up 150 bps today, you know, maybe they would have performed better. You're constructive on stocks right now, right? Citi is. Yeah, we are. We're actually quite constructive. We think the economic backdrop and the earnings backdrop are largely as expected and remain very positive. But the fact is, the inflation data, you know, CPI, PPI and average hourly earnings have forced people to, I guess, reintroduce themselves to a risk they thought they had left in the past.

12:50And when you do that, then you look at your portfolio and maybe the stuff that's outperformed by a bunch or the stuff that maybe has a wart on it or a blemish on it in terms of fundamentals are things you might lighten up on. And it could be that Palo Alto just kind of stepped into that trap, unfortunately. Well, I wonder, yeah, NVIDIA would be another one where you would sort of go, well, God, I've got a triple in this stock. So maybe I want to take a third of my winnings right now. I mean, yeah, I think to me, the difference with NVIDIA is I think a lot of people view this as a must-own for the AI theme.

13:20So my guess would you'd have pretty good support for that stock, assuming that they didn't really step in it. This might come as a surprise, though, but there was other cycles, tech cycles in the last five or six years where NVIDIA was a must own, whether it was crypto mining, whether it was gaming, AR, VR, data. I mean, the list goes on and on. And this stock has been that it stock to own. It's just this one now, take all of those combined, magnify them by 10 or something like that. We just gained at its highs on Friday,$800 billion plus in market cap this year before the company even said anything.

13:55OK, so like my point is, like, I've seen this before. I know how it ends. I don't know if it goes to two trillion dollars first and then gets cut in half. It will happen at some point. I mean, like, just take it to the bank. This stock lost 70 percent from its highs in 2021 because all of those great narratives were wrapped up in one. Investors were really geeked up about all of it. And then it crashed. Yeah. And it could happen again. Well, I mean, listen, but this time it's different. I know I hear it every day on Twitter. Yeah. Yeah. All right. Let's switch to retail right now. Now, we talked about Walmart a moment ago, and it's jumping 3%.

14:28Home Depot eking out a gain after fourth quarter results that largely beat the street's expectations. Walmart notably getting a boost from cost-conscious shoppers in the holiday quarter. CEO Doug McMillan sat down earlier with Jim Cramer, and here's what he said about the consumer. People are always looking for value, and so we want to offer that to them across our entire assortment. Food, consumables, general merchandise, apparel, everything. And we also want to do it with private brands in addition to brands. And they both matter. And we've done a good job, I think, of keeping our prices in a good range and trying to provide some relief from the inflation that our customers have been experiencing.

15:09You can catch Jim's full interview tonight at 6 p.m. Eastern on Mad Money with Doug McMillan of Walmart. For more on the state of retail, let's bring in former Walmart U.S. CEO Bill Simon. He currently sits on the board of Darden Restaurants and Hanes Brands. Bill, welcome. Good to have you with us. Hey, good to be with you. How are you? Let's say you're back at Walmart today and you're probably doing high fives. It's a pretty good report. Yeah, you know, it really doesn't get a whole lot better than that. Those guys have really done a good job. You know, it's really important. You tell them what you're going to do and then you actually do it.

15:44And then you tell them again and you do it again. And that's what happens. And I think they've done a good job with that. Is the economy and the consumer setting up to favor just is Walmart in a perfect place for where the consumer is and the economy is today? Well, the company was built for times like this and the economy like this. They've got a real nice tailwind with food inflation that's been pushing them along for the last couple of years. They're just so able, as Doug mentioned, to deliver on the value proposition that the customer is looking for right now. And, you know, when half of the customer's disposable income is in food and rent, you're really looking for a break somewhere.

16:24And Walmart's able to deliver that. And they've been able to do that for a number of years. What do you make of the Vizio deal? How does it fit? Yeah, it's kind of a head scratcher for me. You know, Walmart's exactly over. Well, forever on things that they bought that are not retailers. You know, you kind of got, you know, Bonobos and Voodoo and Jet. And it's sort of hard to figure out what they're doing there, especially with the, you know, the competitive brands that they sell. But, you know, I don't it's hard to second guess them. You know, they've really done a great job repositioning themselves.

16:58So they must have must have a plan. I know they've said they want to do it to try to build their advertising business, but we'll see. How big how big a factor going forward will the advertising business be? I wasn't even aware that they were that big in advertising, but evidently they are. Well, you know, if you look at their business, it's still retail. It's still just a massive retail operation. And you kind of even look back at the last 10 years. Over the last 10 years, they've added$200 billion in top-line sales, top-line revenue. A lot of that's through third-party online, but they've made a billion dollars less.

17:37Their operating income 10 years ago was$28 billion. And this year, last year, they reported$27 billion. So they're in the process of restructuring from that hardcore brick-and-mortar asset-driven retailer into other areas where they think that they can be competitive in the technology space. And that advertising is important to them for that. Bill, Target's rallied probably 45 % since the low, understanding that the stock is still nowhere near its all-time highs. They report on the 5th of March. Can you draw any conclusions for Target from Walmart? You know, I like Target. Brian Cornell is a really good retailer and a good leader as well.

18:16And so I think they're well positioned. The biggest difference between Walmart and Target is their food mix. I mean, Target doesn't have the grocery business that Walmart has. And so they don't have the inflationary tailwind pushing customers into their store. They're more general merchandise and apparel and fashion. Those categories have been struggling. But that's going to turn around. You know, the inflationary headwinds are easing. You know, so the push that Walmart's getting is going to abate. And people eventually got to buy clothes, right? And they've been reluctant to do that because of lack of a disposable income.

18:49So I think the tide's going to turn for Target, maybe not this quarter, but I think coming up. Hey, Bill, you just mentioned that the Vizio deal is a bit of a head-scratcher. You know, we've long opined on this desk when we looked at Amazon and what they've been able to do in advertising. And you just associated the Vizio deal with advertising. It's been an absolute monster. And to me, it would make more sense to look at a much bigger deal like a Pinterest or something like that. If you really want to get into digital ad space and you're doing half a trillion dollars in sales a year and you have a half a trillion dollar market cap, it seems like stop messing around with some of these smaller deals and really get in there and go after it.

19:22I'm just curious how you think about that, because you mentioned the jet deal, which a lot of folks said didn't really work, but it did kind of re-center their focus on digital sales when they made that deal. Yeah, look, I'm not going to second guess those guys. They've done a really good job with pretty much everything they've touched recently. So while I might scratch my head, maybe that's why I'm at home and they're still working. All right, Bill, thanks very much. Appreciate your time tonight. Thank you. All right, you bet you. All right, let's trade Walmart. Stu, why don't you take a whack at this one?

19:53Yeah, look, I think I'd read it positive, but I would say that these retailers, Walmart and Target in particular, early on in the sort of inflation cycle, they were canaries in the coal mine for input cost inflation. I think now they're a little bit of a canary in the coal mine in terms of consumers' ability to spend, right? So you can look at this print one of two ways. Either consumer spending remains strong or consumers are being forced to trade down. I'm going to kind of decide to focus on the positive of those two things. And from our perspective, one of the key reasons we're positive on equity markets is the labor market remains strong, wages are pretty solid, and consumer and services spending are holding in.

20:25So if you're in my seat, you're going to read this report positively as a positive sign. But I can definitely understand some people taking a step back and saying, wait a second, is this evidence that people are being forced to trade down a little bit? All right. We're going to take a break here. Coming up, we've got more earnings alerts for you. Chairs of Toll Brothers, Caesars, and more on the move after reporting this afternoon. The details and the numbers straight ahead. Plus, a check on China as stocks continue their winning streak. So is the country's recovery finally, finally starting to materialize?

20:56We'll debate that when Fast Money returns. You're watching Fast Money here on CNBC. We'll be right back.

21:14Welcome back to Fast Money, everybody. We've got an earnings alert on Toll Brothers, a beat on the top and bottom lines for that big home builder. Stock up almost 3 percent after hours, 2.85 percent. Diana Olek has the details. Hi, Di. Hey, Ty. Yeah, Toll is still benefiting from the lack of existing home supply and the fact that it is a luxury builder and its buyers aren't as affected by small changes in mortgage rates as the broader market. Now, Toll delivered 1 ,927 homes at an average price of about$1 million. Net contracts up 40 percent in units and 42 percent in dollars compared to last year's first quarter.

21:48CEO Doug Yearly said they saw solid demand in Q1, which ended January 31st. And then he said since mid-January, we have seen a marked increase in demand coinciding with the start of the spring selling season. Adjusted gross margin in the quarter was 28.9 percent, a 140 basis point increase year over year. They estimate Q2 deliveries of between 24 and 2 ,500 units, and they raised full year delivery guidance to between 10 ,000 and 10 ,500. Now, builders are pulling back on incentives. Analyst Ivy Zellman was just on in the last hour saying what we're seeing is the market accelerating into the spring.