Nvidia’s Mega Move… And Record Levels For Japanese Equities 2/22/24

0:01Live from the Nasdaq market side in the heart of Times Square, this is Fast Money. Here's what's on tap tonight, the NVIDIA halo effect. The chip giant lifting broader markets. NASDAQ soars nearly 3%, biggest gain in over a year, just a tenth of a percent from a record close. S &P and Dow new records. Dow tops 39K for the first time. Were NVIDIA's results the green light for the rally to roll on? Plus, a record 34 years in the making. The Nikkei all-time high for the first time since 89. That's back when National Lampoon's Christmas vacation was tops of the box office. And Phil Collins, stop it, ruled the airwaves.

0:36A lot has changed since then, but one top investor says these stocks are actually cheaper now. Later on, restaurant stocks rally. A gold miner loses the shine. And Moderna melts up. Best day in the year. All those stories this hour. I'm Carl Quintanilla. In for Melissa Lee, live from Studio B at the NASDAQ on the desk tonight. Bono and Eisen, Dan Nathan, and Guy Adami. Guys, what a day to be with all of you. Good to see you. CQ, you drew the short straw yet again. But we are thrilled to have you on this historic day. It is an amazing day. We're going to start with that massive post-earnings rally in NVIDIA.

1:07Shares surging more than 16 % to a new record close. Stock adds more than$270 billion in market cap just today. That's bigger than the size of one whole B of A. And the single biggest gain for any company on record. Now around$60 billion away from a$2 trillion market cap. It's added a trillion to its value since just last June. The gains today, ripple effects across tech with the semis, Supermicro, AMD, Broadcom, Micron Arm, all notching outsized gains. And the mega caps also seeing strength. Meta, Amazon, Microsoft, all 2 % or more. Did NVIDIA justify the rally we've seen in these stocks and the broad market?

1:45Let's bring in Deepwater Isid Management's Gene Munster. Get some thoughts. Gene, a lot of four-digit targets around today. You got any problem with that? I'm good with that, Carl. I think that we're gonna see in excess of a thousand probably a year two years out here but when I think about those price targets I think it's important just to quickly step back and think about Nvidia's business before we get too carried away Is it's a boom and bust business in the three quarters prior to this AI liftoff? The business was down on average 17 % a quarter that wasn't that wasn't that long ago The three quarters since then, of course, it's up 200 % on average, which really the central question about those price targets comes down to what is NVIDIA's underlying growth.

2:31And I think the answer to that question comes to what do you think the outlook for AI is going to be? And I started my comments on a sober point related to this boom and bust, this scarring effect that their businesses had on investors over the past five years. but my view forward is that those price targets are probably gonna ultimately thousand dollars plus prove to be conservative because AI is just that big of a deal the one nugget from Nvidia's call last night inference is 40 % of this the GPU usage that means that AI is actually being used this is not hyperscalers building out infrastructure crossing their fingers that something is gonna come we're already seen adoption just a year into this and we're at the very beginning.

3:18NVIDIA is going to benefit for this for a long time. Where does that leave those, though, who are still on the lookout for hyperscaler digestion, shorter lead times, suggesting an eventual inventory correction, maybe one day? So what we saw with analysts' estimates today, on average, they went up by about 20%. So actually, the valuation went down a little bit. But to answer that question is that most of the commentary from the sell side and investors has been that we're just pushing out this inevitable correction, this bust moment that of course NVIDIA is going to have. It just can't be that good.

3:54And again, so to answer your question is most people have pushed the bust out to 2000 calendar 26. They think it's going to grow around 20 % in calendar 25 and then 26 be a down year. I'll take the over on that. I think this is going to grow 15 % or better. And it's hard to imagine that we're just at the start of of everything that is gonna be this paradigm shift, but I do believe that. And I don't think the bus is gonna come in 26. I think this can last, they're gonna have a bus, but I think it's probably three to five years from now. The bus is gonna be epic when it happens, but I think there's plenty of room of upside until we get there.

4:31Hey, Gene, kudos to you. You've been all over this thing and you've been steadfast on it. But you just said something that's really interesting. And as I talked to other analysts and other folks who are tracking the Gen AI space very closely. We've gotten towards this inference phase. You just talked about how much NVIDIA is speaking to the usage right now. But doesn't that take much lower compute, right? So if you think of the first phase as a lot of these players in the space were training these models, the more inference we get, isn't it likely to demand less compute? And therefore, once we see better supply-demand dynamics, If there is a drop off in demand, we might have that glut that you're talking about.

5:12And that's potentially the sort of bust. The short answer is yes, it would cause that. If if you think these ways we just we're just going to have one wave, an infrastructure wave, the hyperscaler wave, the AI startup wave that Jensen talks about. If this is the wave of AI, we're a quarter of the way through it. but we are going to have that less need for the GPUs because like you said, inference requires less compute. If you believe that there's going to be an application wave, which is going to need more building around this and also more GPUs for inference. And what Jensen talks about this heavy industry wave, I don't fully get this one, but he says that heavy industry is the largest opportunity.

5:55This is like big industry using generative AI. And the last of course is sovereign AI, which would be countries developing their own AI. If you believe that there are these four waves to it, then you're gonna see this cycle continue where each wave starts to ramp. You're gonna have a build-out on infrastructure and then a dip down for inference to your point and then another build-up. And so that's why this comes down to just a philosophical question that investors need to ask themselves. How much do you believe in AI? I think AI is a 99 out of 100. Electricity is 100. The internet is 50. Mobile is 25.

6:30I think this is, we're just going to get going. That doesn't mean it's up and to the right for the next three years. There's going to be ups and downs in the market. But I think that this is that big of a structural change, and NVIDIA is going to benefit from that. In terms of metrics, there's a bit of a paradox here, Gene. And again, congratulations, because you've been on this. On one side, price, you know, earnings, look at the P.E. multiple at 31 times. It's more than reasonable, probably cheap, without question. The flip side of that coin is current valuation is trading 19 times-ish revenue.

6:59So something's got to give. I understand it because they have 77 percent margins. But one of two things is going to happen, I think. Either margins are going to contract in a meaningful way, which is going to ratchet down EPS, or you're not going to see, I don't think, maybe the growth in terms of revenue. What am I looking at incorrectly or correctly? How long can this last, I guess? You're looking at it exactly like you should look at it. And And the question comes down to this duration, duration of growth. And ultimately, that event is going to happen. There's going to be a dark day when it comes to NVIDIA investing.

7:31I think it's three to five years out there. But what you just described is exactly what's going to happen. There's going to be a glut of inventory at a certain point. Pricing is going to go down. It will get hit, double hit. We're going to be back to all this scar tissue that investors have had. I don't think we're near that point. I know it sounds like I'm talking out of both sides, but I think we still got a way to go. Gene, appreciate it. It's good seeing you. Gene, once you're talking some NVIDIA kickoff the hour. Guy, can an investor ride these cycles? The answer is yes. Bono has done it.

8:01Other people on this desk over time have done it as well. I have not been one of those people, clearly, because this flies in the face of a lot of the things that I grew up in. I still have the scars of 08, 09, and I'm sort of gun-shy without question. The answer is yes. The flip side of that coin is when is this going to take place, right? That's the rub. If you think this is two, three years out, then, yeah, you ride the wave. If you think these boom-bust cycles happen a lot faster, like I think I do, then you've got to be extraordinarily careful at these levels. We haven't really talked about China risk or what that does to data center, at least in the last quarter.

8:34Is that a lingering risk? Listen, I think China is always a lingering risk, only because, like, it's very idiosyncratic and it's whimsical. So, you know, we don't know necessarily what the politics are going to be coming in, coming in November. So there's just like a lot of moving parts there that I think makes it very hard to quantify. Despite what China has been or has not been for them, you've seen the strength in the numbers. And I acknowledge what everyone else is saying in terms of there likely being a boom-bust cycle. This is a hardware company. But I do think that there is like a bit of vertical integration that allows them to diversify and get into more annual recurring revenue type of businesses.

9:08Think about Apple and services. You talk about, like, the data center services and how these people are going to need them to come in, service those centers, add, you know, silicon kind of like customization around there. So I do think there are multi-prongs to the business. I understand in terms of Web3 and that boom-bust cycle, I think that was much less tangible than this situation currently is. They're actually monetizing on this. And now you're seeing with the transition into into inference, while there will be more competition, there is a use case that is presently present at the moment.

9:43Yeah, and it is. And again, I think we have to kind of look out and see what's next. And today's I mean, this stock barely saw a downtick today. I mean, like it's truly extraordinary. So, Carl, you just said it's the largest market cap gain of any stock ever in a single day. That speaks to me to a mania. Now, I said that a week ago. I said it a month ago. But one thing that I've learned in my 25 years, I started the business in 1997. I saw the Internet bubble inflate and there was plenty of peaks and valleys in that whole period. You know, the S &P was skipping up basically 30 percent a year for five years until then the Nasdaq crashed and lost 80 percent over two years.

10:19And I'm not saying that we're on the cusp about anything like that. But we've seen the S &P now in the last 25 years get cut in half on two times. Right. So Guy just mentioned the PTSD he has from the financial crisis. I still have it, believe it or not, from the dot com because writing it up was really interesting. Watching a very long extended bear market for two and a half years was actually devastating for an investor psyche in a way. And so all of that stuff speaks to me when I see what's going on right here. And you can say it's different because there's real profits in the way that this company is growing and the secular shift that's going to happen and how it's going to transform the economy and the global economy.

10:54But that's going to take time. And when Gene says in three to five years, I say maybe three to five months or maybe three to five quarters. It's not going to be there's going to be a bust before three years when I think of this. So I'm never going to get a mania like this on the upside. But I can assure you, I'm never going to be writing it down the way a lot of retail investors do when they get the timing wrong on some of these sorts of trades. You have fast money fans, CQ. You can you can lie and say yes, you can be honest. Yes. Well, that's false. But on January 30th, we were in Florida and AMD reported earnings.

11:27And I got to tell you something. It was not a great quarter and the guidance wasn't particularly good. I think the stock that day closed at 172, traded down to 165 or so. Nothing has changed in that universe other than the fact you talk about the halo effect, I think, the way you started. So look at AMD now. It's a fantastic company without question. But the last couple of quarters haven't been particularly good, yet that's getting dragged up as well. So when other stocks are getting the benefits of these, again, halo effects and these ETFs and mutual funds, that's when you've got to say, wait a second.

11:57You know, valuation is going to matter at some point. And with each passing day, I think it matters a little bit more. That's a good point. On that, our next guest does say that an increase in options activity following NVIDIA's earnings is just the beginning of changing investor interest. Let's bring in Mandy Zhu, head of derivatives at the SIBO. It's good to have you, Mandy. A lot of charts circulating this week about call volatility and NVIDIA separating from the NASDAQ VIX. What is that about? What I found this week in the lead-up of NVIDIA is that NVIDIA volatility went up going to earnings, but actually had the halo effect in terms of dragging all the other stocks higher as well.

12:34So average stock volatility this week actually went up. And that was surprising or very unusual because we're almost through earnings season, right? So typically at this point in the earnings season, you'd expect volatility, stop volatility to decline. Let me have them just picture, Mike, really quickly. I wonder what you make of that, though, and sort of what it suggests about the market's reliance on NVIDIA delivering them. Yeah, and listen, I think that there was a couple things that were going on in the options market that kind of made it attractive to at least bet to the downside or protect your long positions.

13:06And we'll talk about that with the SKU with Mandy a little bit without getting too technical. But again, I would say this is that, you know, in an environment where we've had a 13 VIX, right, there's been so much concentration on a handful of names. You could say, well, defining my risk and playing with options is cheap in a 13 VIX. It has not been in NVIDIA, especially on the call side. Mandy, can you speak to that a little bit? Because, you know, Guy and I were talking about this on the desk the other night. We were looking at like an equal percentage out of the money call versus the out of the money put.

13:35And the call was nearly 2x the price. And usually that's the opposite. People will pay up for protection. Speak to that dynamic that was heading into the print here. Oh, yeah, absolutely. So the bid to the call side volatility, exactly to your point, skew, which measures demand for puts versus calls, actually became inverted in NVIDIA. Which, you know, for a tech name, a high flyer, it's not that unusual. We see it sometimes going into earnings. But certainly, I think inverted skew is a sign of just how bullish the sentiment had gotten in the name. But again, taking a step back, it's not just NVIDIA.

14:04We see that, you know, very flat skew, that extreme high demand for calls across a number of names and single names right now. I think this speaks to the general bullish sentiment that investors have. Does that extend to small caps? Are we getting bullish activity in the Russell, for example? Yeah. So what's interesting to me is that investors are still bullish tech, large cap, mega cap tech in terms of what they're holding in terms of stocks. But what they're using options to play is a potential broadening out of that rally away from the mega cap tech names towards the small cap. So we're seeing it in Russell index options, for example, a huge surge in upside call volume.

14:39Skew and Russell actually got inverted recently, which is even more unusual. You have to go back 20 plus years to see the last time index skew became inverted when calls were trading at higher volatility than puts. Is that interesting at a time where we're no longer talking about rate cuts as much? Yeah, it is because of where we are in the cycle. So you talked about the inverse skew or smile. We saw the similar type of situation with Bank of America and Citigroup. But that was after those had absolutely collapsed. So you could actually argue that there was asymmetric risk to the upside. Here, I'm with you, it feels a bit extended in terms of continuing to play.

15:13I would say the other side of that coin is I do think that bodes better for the retail investor because as opposed to continuing to pile into the stocks, they are, in fact, defining their risk. And if they are going to take bets that might be a little bit long in the tooth, they're at least doing it in a defined way. Mandy, to the extent that you can want to answer this, what effect do these zero data expiry options have either on the dampening of the overall volatility or the enhancement of? I think it's a dampening, but I'm curious what your thoughts are. That's a great question and a very common question that we're getting.

15:42And I think a lot of times when people look at the impact of zero day options on the market, they focus on the gross volume. Right. So like 500 billion a day trade in these products. Of course, they must have an impact. But what really matters in terms of impact on the market, impact on the VIX or on volatility in general, it's the breakdown in that flow. If the flow is very evenly balanced, there's actually very little hedging that market makers have to actually do on the back of that option flow. And what we see as SIBO, again, all SPX options trade at SIBO. What we see is that it's very balanced between buys versus sells because investors, both retail and institutional, are actually finding a diverse set of use cases for these options.

16:19So it's not just speculating. It's not just FOMO. what we saw during the pandemic, people were actually selling these options for yield, selling call spreads, put spreads. So you do get good two-way traffic in these flows, and that's why it's so balanced. Mandy, we'll talk some China next time. Thanks for coming in. Good to see you. Thank you. I'm Mandy Hsu. So talk about some ideas, Bono, coming out of that discussion. Let's trade it. Well, listen, she mentioned there's a spread between, I believe, small caps and S &P as well as the single stock price and S &P. I don't think that I would be a better seller of options post-earnings.

16:52I don't think that that situation can continue. But when you get moves like you get today, it kind of justifies it in the extreme short term. What I think you do is you probably move out a week or a month, and you give yourself a little bit more time for the decay to kind of rot those options. You mentioned the small caps, Carl. The rust, the IWM measured through the IWM, made an all-time high. I think it was November 2021. If you look at it over the last year and a half, two years, this 205 level, you can throw a chart up and see. I mean, that's been resistance now since April, I think, of last year, if not longer.

17:21For whatever reason, small caps are not validating this move in the broader market. There are a number of reasons why. None of them matter necessarily. But the small caps, I think, are telling you something about the underlying economy here. And not in a good way. I don't believe so. What do you think? No. I mean, think about the underperformance that we saw today, guys highlighting this right now. And I think it speaks to the fact that, you know, the reliance on, credit and their lines on cost of capital, the quality of their balance sheets and the like here. And just look at it again, like the money that's flowing into the stories that are working right now.

17:54I just think it becomes that much more acute, this concentration. So you're going to keep hearing these, you know, these, you know, these comparisons, the nifty 50 or other periods. At some point, it's going to matter. And I'll tell you why it's going to matter, because it's always mattered. Like, you know what I'm saying? So it's not different this time. It's just from a matter of where it happens. And so that's why I think when an NVIDIA or a Microsoft or an Apple or these five names that are making up more and more of the S &P 500, and it's not just the weight within these indexes. It's actually the earnings contribution.

18:23One of the things that we learn about this earnings period is that there's a whole host of sectors that actually were under-earning. You know what I mean? So we have a reliance on the weight in the index and then also their contribution to the earnings. Do you have any problem, really quick, before we go, where they're overlaying NVIDIA with Cisco back in the day? I don't, because psychology is psychology. And so you can say, and you can be surgical about it, well, this company is so much more profitable. But they have the same customer concentration. They're funding their companies. They're buying their product.

18:51It's the same stuff again and again and again. It's going to wind down differently, but it will wind down, I can assure you. Coming up tonight after hours, Action and Block, Live Nation and Carvana. Shares moving in decidedly opposite directions. We're going to dive into the earnings reports behind the moves next. Plus, a golden buzzkill. Newmont Mining closing in on a five-year low today. We'll dig into the miner's disappointing performance after this. You're watching Fast Money here on CNBC. We'll be right back.

19:31Welcome back to Fast Money. We have an earnings alert. shares of Block surging in extended trading. Company reports a surprise profit for the latest quarter. Let's get to our Kate Rooney for more. Hey, Kate. Hey there, Carl. Yeah, the stock is really reacting to the higher profit forecast for Block. It's focused on cost cutting and getting leaner has been paying off, executives say. That's going to continue into 2024. On the call just now, CFO Amrita Hoosha says they expect gross profit growth of about 15 % year over year. They intend to exceed their initial guidance, helping the stock Block raise its full-year profit guidance by more than$200 million.

20:04Revenue grew 24%. It was stronger than expected, thanks in part thanks to a surge in Bitcoin revenue. If you strip out Bitcoin, revenue was up closer to 15%. Adjusted EPS came up short. That was thanks to a$132 million impairment charge around Block's investment in Tidal. That's Jay-Z's music streaming service that Square bought back in 2021. In a nod to Tidal on the earnings call, there was a Beyonce song playing in the waiting room. You don't see that every day on earnings calls. It's usually kind of elevator music, smooth jazz. But anyway, CFO Amrita Hoosia told me the title and that write down.

20:38She said it reflects our latest thinking about the landscape in the broader streaming industry, which informs the current value of that asset. But she says it doesn't change their long-term vision and strategy for that company. Cash app revenue, meanwhile, was up 25 percent. The seller business grew 18 percent. And then volumes for buy now, pay later were up 25 percent, thanks to a strong holiday shopping season. Carl, back to you. Maybe Jack Dorsey chose some of the old music there, Kate. We'll see. Let's trade it. Guy, we've had some upgrades of Block lately. Basically, pricing leverage, maybe more involvement from Dorsey.

21:11Correctly so, by the way. The number that I take away, the margin improvement year over year, is staggering in a word. So the question is, where does it go? So it's up big in the after hours. You go back and look at a chart. I mean, valuation-wise, you can wrap your head around this one. It's not 2021 square. It was a$270 stock, but it is a modern day one, which valuation is reasonable. This has room to 85. Now, if that sort of floats your boat, I think there's room left in the stock. Despite this run, it's had difficulties in that area a couple of times over the last few years. Yeah. So first year of gap profitability last year, this year, obviously, they're getting some leverage on some of these cost cuttings.

21:45And so the ability to guide up two quarters in a row like that is pretty impressive. This is a company expected to grow low teens revenue growth, 35 % gross margin business. You know, not great, right? So it's going to actually trade. You know, if you look at the out year next year, trading about, you know, 17 times or so, it's actually not getting the sort of multiple that we were expecting out of these sorts of companies a few years ago. So it's probably pretty reasonable. I'm not buying it up, you know, 10%. What do you think, Ronald? Listen, I still think at 22, 23 times, it's still reasonable.

22:13And the thing that stuck out to me was the fact that buy now, pay later didn't have to make up room for cash app. You had growth in both areas, and I think that's what surprised investors to the upside. Another earnings alert for you tonight. Live Nation reporting a huge revenue beat, topping estimates by more than a billion dollars. Shares just turned positive in the last few moments. Our Julia Borsten watching that one. Hey, Julia. Yeah, Live Nation reporting a massive revenue beat fueled by a more than billion dollar beat in concert revenues. Shares did initially dip after hours. The company's adjusted operating income was a bit light, with concerts posting a bigger than expected operating loss despite that revenue beat.