Pinterest CEO on AI Initiatives, Amgen’s Obesity Drug Trial Results & Google's Gemini Chatbot 2/8/24

0:01Live from the Nasdaq market today on a day when the S &P500 top 5000 for an instant. This is Fast Money. Here's what's on tap tonight. What is wrong with Google? Shares of parent Alphabet far underperforming the rest of the Mag 7 this year. And the company's latest AI offering being met with a yawn. So what can Google do to turn things around? Plus, mind the gap. Shares of Arm, Disney Today, Meta last week, Netflix last month, breaking out to new highs in a big way. Why one of our traders says this kind of action should be concerning to investors. And later, a Pinterest pivot. Shares down more than 20 % at its lows after hours, recouping most of the losses.

0:36The company announcing an ad partnership with Google. The CEO will join us exclusively later on in the show. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Karen Feinerman, Dan Nathan, and Guy Adami. And we start off with the S &P hitting a major milestone right at the close for moments, just a moment, ticking above 5 ,000 before ending the day just two points below. The index still finishing the day with a record close. The Dow did as well. The S &P setting, the NASDAQ, excuse me, setting a fresh two-year high. The S &P strength comes on the back of rallies and the mega cap names, NVIDIA, Meta, Eli Lilly, all up 25 percent or more so far this year.

1:12So now that we've hit this big round number, where do we go from here? Higher, Mel. Now, look, congratulations. I mean, for everybody bullish on the desk, everybody but me, that's an amazing run. But I'll say this. I took the math in college for at least a day. And, you know, 5 ,000 divided by 250 of earnings, which you're not going to get, is still a 20 multiple. So then ratchet down earnings, which are probably closer to 225. And we're looking at a market that's probably trading close to 22 and a half times, which historically is pretty expensive. Now, you could say, you know what, it's justified.

1:44The rest of the world's slowing down. United States, you want to be there. You should pay up for the growth. You should pay up on the multiple. I'm not one of those people that believes that, though. Well, first of all, I haven't been one of those people you're talking about have been bullish on the desk. But when you think about just what's gone on here, I mean, we talked about the multiple expansion that we saw last year. We saw the concentration of the top names in the S &P 500, which really just blew out the multiple of the S &P 500. There's plenty of sectors, and you guys have identified them that trade at very cheap multiples.

2:13But here's the thing about that expected growth and guys talking about, OK, if S &P earnings estimates for this year are probably too high. You know, we had 3 percent GDP growth last year. The Fed told us they're expecting one and a half percent, you know, this year. So with that, you would assume that earnings for S &P 500 companies would come down at a time where we've seen the dollar rally. We've seen crude oil just rally, what, 7 percent or so on the week. So a lot of those inflationary pressures that may get aggravated by further geopolitical issues, that sort of thing, further supply chain issues, it just seems like it's really not discounting a whole heck of a lot of headwinds that we might see in the not-so-distant future this year.

2:49Isn't it all about rates, though? And the fact that we know that rates are going to come down, that we've probably seen... Wait, do we know that, though? because we knew that, we thought we knew that at 3.8 % a few weeks ago, but I just looked at 4.15 in the 10-year. I think rates are still on an uptrend. I think if you look at a two-year chart of the 10-year, and I know we had that spike down to 385, but basically we're here around 405, 4%, excuse me, on the 10-year, I actually think is the bottom of this uptrend. And until proven otherwise, I think rates are still potentially at risk of moving higher.

3:19It gets back to also equities at 5 ,000 on the S &P. You'd think it was Tina time. In other words, there is no alternative. There is an alternative. And asset allocation provides that alternative. And volatility is extremely cheap. So buying protection right now is also, I think, a very bright thing to do. If you look at the Nasdaq, which is where most of this growth is coming from, at least a lot of it, that CPI where we peaked on inflation in October 13th of 2022, the Nasdaq's up 65 percent. OK, 65 percent in about 15 months. And if you look at where we were even just going back to kind of the October 26th inflection in the markets, again, these moves are shocking.

4:03And you've got chips up almost 45 to 50 percent. So the question is, is the market pricing in advance this type of growth that I think on some level has been validated in the CapEx spend and in the tech sector? But on some level, as these guys point out, there's there's a lot priced into what's going to happen in terms of earnings in a world where apparently equities don't care about discount rates and don't care about the functional way you value companies. Because stock 500 basis points higher are up. We're probably up 50 percent from that pre-COVID level when rates were a lot higher. Fifty percent on the S &P from pre-COVID.

4:39Well, I think the market's not a monolith, right? We talk about that all the time. So you've had this very, very dense concentration and they put up some very big numbers. And when you're saying you think rates have bottomed, are you saying that you don't think the Fed will cut or you just think the supply demand dynamic or whatever it might be or inflation will have us have rates higher? That that may be what you're saying. Are you saying but if you're saying the Fed's not going to cut, that's sort of a different thing. I just said I think the upward the uptrend in rates is still with us. I'm not saying I think the Fed's going to hike.

5:14I'm not saying I think the Fed's going to cut. I think the 10-year has a chance to get through the levels that we saw. I mean, just around 5%. When that happens, I don't know. But some of the same issues on deficit dynamics and the size of the refunding supply and some of the corporate governance issues, they're not any different. They're probably worse. But the GDP numbers are well above where I thought they would be. Well above, I think, where most people thought they would be. So something's going on in the economy that's good, right? So I think that that deserves somewhat of a higher multiple.

5:47Now, I don't know, is it 20, 21, 22, or 18? I don't know. But I think we have this divergence between ones that are so much higher and plenty that are attractive still. From a record high to an announcement, an AI announcement met with a yawn. That is, Alphabet closing just above the flat line after CEO Sundar Pichai officially rebranded its AI chatbot Bard as Gemini, launching a new app and subscription option in the process. Vijay talked about the move this morning on Squawk Box. BARD was the most direct way people could interact with our models, right? And so it made sense to just evolve it to be Gemini, because you're actually talking directly to the underlying Gemini model when you use it.

6:29And I think it will also be the way by which we will keep advancing our models and users can experience it directly. And so we thought the name change made sense. Gemini was supposed to launch last November, but ran into delays. Alphabet's been trying to keep up with Microsoft in the AI space and has so far underperformed its peers in the Mag 7 with the exception of Tesla. So what is wrong with Google? Why the yawn? Why didn't it get any credit for the sort of rebranding, this new product, subscription service? Should all be good in theory. In theory, it should be good. I mean, a couple of times they've been sort of it's almost a Charlie Brown kind of thing where, you know, Microsoft put up some huge numbers.

7:11I think they kind of should be a little bit embarrassed by the meta numbers for, you know, the comparison between the two is just, you know, the year of efficiency was wildly, wildly great for meta. Google's year of efficiency was hardly efficient at all. I think they cut four percent of the workforce. I don't think I don't get this rebranding thing. I don't really, they knew it was Gemini all along, sort of. I don't know why they came out with BART. I don't know that that really matters, but they just seem to be sort of a step behind, even if the product will end up being as good. More successful.

7:45Right. And so it's disappointing. The cloud growth was decent, but not as good as some others. So multiple sort of disappointments. I was really happy when Ruth Porat came in and it sort of ushered in a new era. We're going to have more transparency. We're going to understand what's losing money. We're going to start doing a buyback. So long ago. It was 2015. I looked it up. Yeah. And so that was a huge, huge run for the stock. They need Ruth Porat stepping into a different role. They need another reboot like that. Well, here's the thing. I'm going to say, I'm going to take the other side of this thing.

8:18And I'm going to say Alphabet has nine products with over a billion users. They obviously Google search with over three billion. Android with three billion. Chrome with two and a half billion. I mean, the list goes on. Gmail, you know, YouTube. When this company finally gets their act together and they have this chat bot that they can kind of integrate across all of those sorts of products and they're charging this price point. And it seems like twenty dollars a month is the price point because that's where, you know, a chat GPT is. That's where perplexity is and the like. And so I feel like they will get their act together.

8:49But Microsoft really got, I guess, that push, that last trillion dollar push. It was about across 365. It was across their products. It wasn't about that open AI chat GPT-4. Now, they obviously have a foothold into that technology, and they're going to be kind of benefiting from that. But so to me, I think Google will have an opportunity. But they literally started out last year with that really bad BARD launch, and then they ended last year with the bad Gemini thing. And then this one just fell like a lead balloon. So sooner or later, they're going to get it together. And I think the valuation that you hold dear to your heart will probably appreciate that at some point this year.

9:25I just I mean, I'll get back to the stock and the performance. And I don't see this underperformance. I mean, I see a stock that's outperformed the Nasdaq, at least as a group, by 10 percent in the last year and has underperformed the Nasdaq over the last two years by 11 percent. I'm sorry. This company, which is extraordinary, trades at a market multiple. That to me is an underperformance. OK, but we're kind of dropping this into the context of AI and why they seem to be like losing out and why, you know, the Gemini is not all that exciting. Is it a part and parcel, though, to the multiple? Well, it may be part and parcel of the multiple, but Google's traded at this multiple forever.

9:57In other words, there's nothing different today than yesterday. Well, yesterday it did, yeah. Okay, but again, Google's underperformance to the NASDAQ, which we just talked about the moves that the NASDAQ have had over the last couple of years, it's underperformed by 11%. I mean, I'm looking at the chart here. That doesn't really, I mean, you know, when you consider the extraordinary moves that you've had in Microsoft and certainly NVIDIA and Apple's kind of sideways run. I mean, I understand then we bring it back to, you know, what's wrong with Google? Are they not innovating? Are they not, you know, are they going to get their lunch eaten by Microsoft in AI, whether it's search, their core business?

10:30I don't think the market's telling me that right now. And I think Google's multiple is attractive. So, I mean, and I agree with the Ruth Porat and I agree with the black box and some of the issues around governance. And would you agree that the multiple should be higher and should be more aligned with some of its mag seven peers? I'm not sure. I'm not sure. I mean, look, I don't think the multiple should be anywhere close to the predictability of the revenue stream that Microsoft has on the software side and the margins there. And NVIDIA is in its own world. Look, market multiple. So was it a little north of 18 ish, right?

11:02You're talking about a company with 14 and a half percent revenue growth ish. Same about revenue growth, 14 percent ish. It should trade it reasonably at 22, 23 multiple without question. What's wrong with Google are the names we talk about every night. NVIDIA, Microsoft, these other names are just going parabolic. So in comparison to that, yeah, that's a problem. But my grandmother used to say to me, little guy, you know this. And was she talking about, was she calling you a little guy or was she talking about a smaller version of you? I was small at one time, believe it or not. But she said, little guy, slow and steady wins the race.

11:33And she's right. I mean, these other things, they're off to the race. It's good for them. They're obviously pacing the field, lapping the field. But don't give up on Google here. I mean, maybe it hasn't performed like those stocks, but there's nothing not to like in terms of the company. All right, well, let's bring in Mellius, head of technology research. Ben Reitzes, who says Google's new chatbot Gemini is evolutionary, not revolutionary, that Google needs to prove that it can monetize its AI technology effectively. Ben, great to have you with us. What does Google, what does Alphabet need to do here to close that gap in valuation?

12:02Can it? It's going to be hard to close the gap with Microsoft. I look at Google and Microsoft a bit. I try to pair trade them and talk about both. And Microsoft's in rarefied air right now. You know, you've got to remember, Microsoft's revenue is mostly recurring, mostly subscription, like almost all of it. And in Google, they talked in this call about 15 percent or so of their revenue being subscription. So the light bulbs come on here and they say, you know, we've got to get our subscription revenue going, like Apple re-rated with that. Right. Maybe, obviously, Microsoft's already re-rated. So that would be something that this announcement is aimed at revving up.

12:44The subscription revenue is key to re-rating this multiple, and they've got to get that recurring revenue up. So how is this a first step in terms of the packaging of, you know, you get access to this chatbot, to the AI product, you also get free storage? I mean, how does this bring people into, you know, spending more on subscription services from Google? Well, that's one of the advantages Apple has with its ecosystem is that when you're in the iOS ecosystem, you buy Apple services. But, you know, Android, it's a little forked. It's a little fragmented. It's not as obvious to all these Android users to just upgrade to the Google subscriptions.

13:23But they need to market it. They need to make sure people are aware of it. I personally think people are confused. I mean, two months ago they had an event saying, you know, all these other models, and now they're rebranding it. It feels like they're throwing spaghetti at the wall and seeing what sticks. And the other companies in the Mag 7, even Apple, are focused. And we're going to not have as many doubts about what they're doing. Google needs to focus and make sure we know what's going on and increase that subscription revenue. So, Ben, we've just talked a little bit about this relative underperformance to some of those peers.

13:54And when you think about it, on my iPhone right now, I have Perplexity and I have ChatGPT and I'm paying$20 for both. Now, I'm trying them out. And at some point, I will have Gemini on my thing, too. But can I tell you one thing I'm doing a lot less of? Searching on Google right now. So if you get tied to one of these apps, and it's probably only going to be one of them for most consumers, especially at that subscription price point, that is likely the headwind that I think a lot of investors are focused on as they think about Google. Does that make sense? Absolutely. The big overhang here is that search is going to be disrupted by AI.

14:28And by the way, I've talked to a lot of people. No one exactly knows what it's going to look like. But people think you're going to speak into a phone and get an outcome rather than a search. And Google may be cut out at least a little in some way, shape or form in that. They need to tell us this year. I'm talking this year to make this stock really a winner. They need to say, this is how we're going to monetize this thing. And here's the tool. Here's how it works. Here's how it dovetails right into Google ads. And then everybody needs to have the aha moment. We thought we had it with the SGE announcement way back, but we still don't know exactly how we're going to monetize it.

15:03So of the different buckets that they have, advertising and cloud, and I mean, they do have some subscribers, YouTube, for example. But where do you I mean, none of them seem to be sort of hitting on cylinders that are that others in that particular silo are. And why do you think that is? Well, I think that actually, I mean, YouTube is fantastic. They have YouTube. I mean, but it's not big enough piece of pie. I mean, it's search is what it is. And you've got to go into every quarter and build that search business and do it. And, you know, Microsoft's recurring. But, you know, search isn't as recurring.

15:38You think it is because they dominate and everybody needs it. But it's not technically a subscription revenue. I think, in general, the cloud they have is subscale compared to the other two big guys, even though it's huge business, 37 bill run rate. They need to they got to take that margin from 7.6 to like 15 plus 7.6 is not acceptable. You know, you got to get serious here. I mean, AWS is close to 30. You know, Microsoft is able to raise margins almost every quarter. God knows how Amy does it. But that's what you're competing with for dollars. And now you have Andy Jassy looking like he really cares about profits on the retail side.

16:18So dollars can go there. So on they need to get the profits up there. Other Bets loses about, you know, 30 cents a year. A lot of people, you know, would like to see that, you know, real, like not just announcements. And it feels, you know, Ruth's really got to get in there. We got to feel that Ruth's really running with this thing. Look at look at what Zuckerberg did. You know, you're competing with capital with all these. So when you talk about Google, guys, you got to understand there. People are with the mag seven to say, do I put my money here or there? And they got to start doing what the other guys are doing.

16:53So let me ask you specifically about search then. If there is some sort of threat to the search business, how do you think about the addition of subscription revenues versus the loss potentially of advertising revenue as a push-pull in their business model? There's no magic model. Sure. But, I mean, in terms of the rates, will it be enough to offset as this transition is happening? I think the fear is no. But there is also my view that search is going to be pretty stable. It's just a question of upside. You have all the other companies upsiding all the time. But search, the way I read it from Google, they are going to infuse more AI features into search.

17:33All this is to augment search. We need to have that aha moment that search is going to keep growing pretty close to double digits so it doesn't drag us down. And we just don't have it yet or else it would be trading at a premium. Ben, thanks for coming by. I appreciate it. Yeah, thanks so much. Great to be here. Amelius. Appreciate it. I think Ben says it's spot on. They got to get that to improve their margins. But that's not an entire indictment of the company as a whole, which still trades at a very reasonable valuation. At least you can sort of game out where Google is going to be. The last couple of quarters disappointing.

18:03Stock comes raging back. Why? Because valuation wise, you can still wrap your head around it. Well, Ben mentioned reference and Andy Jassy and his focus on the retail business. I just see overall margins at Amazon are coming up. I think of the mega caps again, whatever group that now is. I think Amazon's as interesting as anybody. And it's a combination of what you're seeing in cloud, what you're seeing in terms of AWS, that margin. Whether it's not a lot of growth, they've got a little bit of growth. But the free cash flow here is something that I think is very impressive. I think it's the best chart of them all.

18:31I don't know if you guys remember when Suzy Orman was on, and it was the night Microsoft reported and was up. And Google reported and was down. And the question was, at the end of the day, which would you rather? And a lot of us seem to rather. I certainly did. Rather Google than Microsoft. it would seem to be lofty levels. Well, it's loftier now. Google's a little loft, not much. So, you know, shout out to Susie. Good for her. Good stock picking by her. Turning now to a couple of movers, rocketing higher today on the back of earnings. Shares of Arm soaring more than 50 percent after an earnings beat and strong forecast.

19:02And check out Disney. That's almost 12 percent after beating the street, raising guidance and announcing a 50 percent increase to its dividend. It was its highest close in over a year. Meta and Netflix, remember had similar pops after their latest reports. But are these monster breakouts a cause for concern or should we just cheer them? Dan, you know, listen, I think the Disney one's very different, right? So Disney is well off its highs. It's had a whole host of issues, you know, its own issues, competitive issues. There's, you know, challenges to the board and all that sort of thing. But that gap, you know, again, is something that, you know, it didn't really see a downtick for most of the day today.

19:36It just tells you that investors, once these stories get going and they break out. They just keep buying them. So to me, it really speaks to something about sentiment. The thing that was going on with Arm today is really scary to me. OK, so SoftBank, you know, they had a hard time getting this deal out of the right price back in September. They sold 10 percent of the company. The thing has been literally left for dead. It's been going sideways for a while, left out of this whole AI boom. And, you know, the revenue guidance that they gave, I'm telling you, I'm like shocked that the stock was even moving up 20 percent when you guys were probably covering it last night based on that guidance.

20:08So when I see a company that IPO 10 percent at 51 dollars and at one point today was almost up 51 dollars, up 60 percent or something like that, I see something's kind of going haywire here in the markets because and it's not the companies doing it. They gave the guidance. They did the conference call. They went on TV and they talked about it. It's what investors are doing. And so to me, I think that's the thing that I just really want to be careful because we've seen a lot of these stocks break out to new all time highs on massive volume, people are piling into it. And at this at some point, they just can't go much higher.

20:39Well, when they came out, though, it was like August when they started the roadshow, maybe. And it came out in September. But it was a different chip market then. Right. The expectations were we were still falling. So I don't know that. Is that worth 100 percent more? Probably not. This was scary, I thought. The broader point, though, is that it is not uncommon to see double digit percent increases or decreases on the back of earnings, which was not necessarily the case a couple of years ago. But arms its own freak show. But, you know, Disney, I mean, come on, you know, they cost savings are going to exceed the seven and a half billion by 27.

21:12You've got operating income that's now up 23 percent. You've actually got the dynamic GM. Like think of all the companies that gave you these double. These are companies that have done zero. We talk about these companies that have done a lot. I mean, these are companies that valuation they were. GM was less than four times when they reported their numbers. Disney, you get the entire DTC business for free and just own the parks at a great multiple. That's what's going on. Sometimes it takes a catalyst. All right. Coming up, we've got some after hours action as earnings season rolls on. Shares of Affirm, Capri and Pinterest, all in the move after, move lower, I should say, after reporting the numbers are out.

21:44And we'll get them in the trade ahead. And we will get more on Pinterest from the CEO himself. Bill Reddy will join us to lay out why his shares are getting hammered after hours. That exclusive interview later on this hour. Do not go anywhere. More Fast Money in Two. This is Fast Money with Melissa Lee, right here on CNBC.

22:12Welcome back to Fast Money. Earnings alert now for Capri Holdings, the company behind Jimmy Chu, Versace, and Michael Kors posting a miss on the top and the bottom lines. Shares are lower after hours. Courtney Reagan's here to take us inside the numbers. Hey, Court. Hey, Melissa, you know, shares are down, but down only about 2 percent. Feels kind of like a muted reaction to me for some pretty disappointing results, really, for Capri Holdings for the quarter. So this quarter ended December 30th, so earlier than what the other retailers will in their quarters when we hear from them a little later.