Red-Hot Reversals… And AI’s Impact On The Insurance Space 12/9/24

0:02Live from the Nasdaq market site in the heart of New York City's Times Square, this is Fast have some investing in the region soaring today. Is it just the start of an even bigger gain to come? And later, Oracle on the move after its latest earnings report. The chart master says it is time to buy Honeywell and how AI algorithms could be impacting the insurance industry and how claims are approved or denied. I'm Melissa Lee, coming to you live from Studio B at the NASDAQ. On the desk tonight, Carter Worth, Courtney Garcia, Dan Nathan, and Guy Adami. And on a day where major averages fell modestly, we start with the outsized losses in a number of this year's hottest stocks, Palantir sliding 5 percent even after hitting an all-time high early in the session.

0:53As the software giant expanded its AI partnership with the U.S. government, Palantir still the best performer in the S &P this year. Number two on the list, Vistra Energy. With the AI beneficiary pulling back over 7 percent today, it's been rallying on surging power demand from data centers. Kava, meanwhile, dropping 12 percent after a major insider share sale. And Sweet Green down more than 10 for its worst day since May. Both those stocks have more than tripled this year. That's not all. Apple 11 down nearly 15 % for its worst day in over two years after being passed over for inclusion in the S &P 500.

1:27They're still up a whopping 760 % year to date. And even Apollo Global Management, which is slated to join the index later this month, closed 3 % lower after hitting a record early in the session. So what are these reversals signaling to you? Dan, I'll start off with you because you raised some of these issues during our call. Yeah, I did. And I'll just say this. As our chief salad correspondent here, I think it's the kava and the sweet gene. Yeah. I think it's the kava and the sweet gene, which were really interesting to me today. They're both up more than 200 percent, as you said. And they reversed like 13 percent off of a high closing down that much.

2:04You know, if you have big gainers like this and you're getting to this point of the year after the sort of gains that we had across the board, and you're willing to actually take profits and pay taxes this year, it says something about some of the gains. It says something about where investors, at least in the growth trade, are starting to focus in next year. The one that really stuck out to me, forget the tech stuff, it was Apollo. We started the day, it was announced that they and Workday are going into the S &P 500. You'll see this rush by indexers that go and they buy these stocks. It gapped up.

2:34And then the fact that it reversed and goes down in the day from an all-time high. This is a stock that's up 85%. The idea that, listen, this is a great company. You know what I mean? This is like the Goldman Sachs of private equity, that sort of thing. Everybody wants to be them. But the fact that it reversed, closed on the low like that, it is saying something to me about investor appetite. Yeah, look, Palantir is the one. And it's a time of season. That acronym, I did it right that time. Yes, it will be coming in January. If you recall, a few years ago, mine was the HOPE trade. And P was Palantir in the HOPE trade.

3:06And it didn't work out particularly well. But now it's starting to flex its muscles a little bit. But with today at one point at its all time high, this was a company that was trading about one hundred and seventy five billion dollars of market cap on top of about three and a half billion dollars of revenue for next year. I can do the math. It's about 50 times revenue. It's obscene the valuations that it's trading at. But the reversal today on more than two times normal volume cannot be ignored. It's reminiscent of what we saw with NVIDIA in March and again in June. And I think this potentially can sift its way into the broader market mounts.

3:38Back to Apollo, that was also on heavy volume. And so technically, is that important to you? I mean, that's the key to it. And it's the precondition before an intraday reversal, which is extreme strength, that seems almost unbelievable. And then at some point, no one can know what day, what particular hour. You get what is known as a reversal, which is an intraday event that actually not only undermines the previous strength, but calls into question all of the preceding days and weeks that maybe is an over. So think about anything mid—let's think about horse racing, right? If you go out too fast—there are people who spend a lot of money gambling on horses—if the horse comes out too fast, it's too fast on the first or second turn, you feel like it's over.

4:19Because they've expended too much energy, that horse ends up fading and going to the back. These stocks are just all so loved, right? They're all the most popular, the most inflows. And that's usually when it's right to start to question, is there anything more? And it's not random that they all did the same thing. Is there anything more in your view, Courtney? I mean, seeing this group of stocks sort of staged, not key reversals, all of them, but some of them. You know, what I see when I look at this is investors clearly are actually those animal spirits we've talked about, like coming after the election.

4:47I don't think they're fully unleashed because you are starting to see some profit taking right now. When you look at cash levels, people are continuing to dump money into cash right now. Those levers are like$6.7 trillion is in money markets right now, which is showing that people still are just not ready to put everything to work. So I think some of this profit taking is perfectly normal. But I would say there's probably more room for the upside here because you're not seeing that euphoria and people just throwing their money at things. Yes, that risk appetite is on, but people aren't off to the races yet.

5:14I think that's probably going to continue to go here. Well, I mean, the way I see it, there is a problem, though. If those animal spirits don't actually kind of materialize the way that a lot of folks do into the new year, then all the crap that's been rallying over the last few weeks, really, because it's been a catch up trade. Right. So if you weren't participating and I'll just say this last week and I do not think this is bullish behavior. When you see Snowflake up 35 percent, you see a Marvel up 20 percent. You know, that to me is, you know, it's kind of startling that people are willing to buy those stocks up that much after, you know, they put together a good quarter that was unexpected or something like that.

5:48So I just think there's a lot of bizarre behavior. You throw crypto in there a little bit. There's just no fear. And some of these names and especially some of them that aren't particularly high quality. I want to go back to Palantir. Palantir, I'm not saying it's not high quality, but this was$175 billion market cap at the Open today. This is a company that will do$3.5 billion in sales. You can do that math. And they're very concentrated as it relates to the Department of Defense and intelligence and the like here. So to me, I don't know if that's lumpy or not, but it just seems like that if you're dependent on the government and you're trading at that valuation, that doesn't make a whole heck of a lot of sense to me.

6:22Lumpy. Lumpy. You're going to go for a nickname. No, no, no. Lumpy was Leave it to Beaver. No, it's in Scrooged. Remember? Bill Murray was called Lumpy. Dan brings up good points about Palantir. It sounds like something I heard a few minutes prior. But with that said. Did you just say that? All right. I wasn't listening. Sometimes we don't listen. I mean, I'm looking at my screens. I hope you out there, though, are listening to all of us. If they tune in late, they caught it. Sorry. The VIX was interesting today because it was not commensurate with the broader market move. I mean, understanding it's coming off a low base.

6:56But that move into VIX today, I think, should be eye-opening. Closed over 14 on what was, yeah, a down day in the market, but not entirely panic-stricken. I mean, it was rather benign, so I think you've got to watch that as well. Another extended name that's obviously a different category on all of these, Walmart, up some 80-plus percent. Reversed that, down 2%. It wasn't just these high-flying, hard-to-value dream stocks, if you will. I mean, it's amazing. Think about Cava. They have hummus. It's incredible. Right. They have pita. Falafel. They're full out. I never heard of such thing. You must be genius.

7:27The point is, Walmart's not that, right? Walmart is a serious business, not to say the cop isn't. Maybe it's really seriously good guacamole or whatever they've got in there. But the point is, Walmart also reversed. So a lot of big extended names are vulnerable. So when you patch this together, what does this pastiche indicate to you? The question is, I think it is consensus, and rightly so, that this is a good period, seasonally, to be just long. Most people don't want to book the gains, take the taxes, and money flow is there. And so people typically run things to the end of the year. But that is not a strategy.

7:59That's not a thesis. That's just a, okay, maybe, but maybe not. And I think consensus, it's just fine. We're going to run the year. It's going to be fine. Markets reverse for no reason. And perhaps today is an important day. It wasn't a big day for the market, but it was a big day for where the fever is really high. And the fever broke. Are you looking to pair any gains at this point at the end of the year? Yeah, and I think what's happening with a lot of clients right now is if you haven't made changes this year, and a lot of people haven't, they're saying things are doing well, I don't need to take any profits right now.

8:29But especially if you're in like indexes or mutual funds, all of those tech companies are doing really well and you are overexposed to those. That is something we're starting to take a look at is saying, yeah, it probably is time to take some profits. But you have a lot of people out there. We're finding this with our clients where you don't necessarily have to take the profits if you've got all this cash on the sidelines and you can use that to buy up new shares without taking profits on your high flyers. And I think that's part of what you're seeing in this dynamic. but cash levels keep going up, which is very confusing here.

8:54But I do think you're going to, at some point in time, you're going to see that go back in. I'll just say this. We haven't mentioned semis yet, right? So a lot of the performance that we saw in the S &P 500, 25 % of the gains as of a few weeks ago was NVIDIA's performance, right? And if you look at the SMH, the ETF that tracks it, right? You look time on semi and NVIDIA make up like 35 % of the weight there. And look at what the SMH has done since June or July. It's gone sideways. Carter makes this point all the time. This is trading where it was in May. So it's made no progress versus the S &P.

9:24The S &P, I think, has had more than 55 new all-time highs this year. I think that's near an all-time high. So if you're thinking about what is the leadership into the new year, is it going to be semis? I'm not sure. Is it going to be software that just ripped the IGV, throw that up there? I'm not sure. That's played a little bit of catch-up. We've seen massive multiple expansion in all of these groups without estimates going up, commensurate with where strategists are putting their S &P targets right now. We're looking to target, I think, the guy from Oppenheimer put up 16.5 % or so. The S &P would be lucky to have that sort of earnings growth.

9:57So if it comes in at low teens, then that's all multiple expansion, right? And you better have a better macro view about how we justify those valuations. And the multiple is not, let's say, cheap, right? So to get multiple expansion. But the semis is, in a way, if you're just taking a pastiche, if the technology sector is the most important, and semis have been the most dynamic within the most important and largest, 32 percent. The faltering in semis and the great NVIDIA that the equal weight Philadelphia semiconductor index peaked in July. We're about to be Jan 1. So the number one darling has been under pressure for quite some time.

10:32All right. Speaking of semis, NVIDIA falling more than two and a half percent today after a Chinese regulator opened an investigation into the chipmaker for potential violation of the country's anti-monopoly law. This as China leaders promised more proactive fiscal measures next year to boost the economy. That's on shares of JD.com, PDD, Baidu and Alibaba jumping 7 percent or more. For more on what the stimulus could mean, let's bring in CNBC contributor Dwardrick McNeil. He's the managing director at Longview Global. Dwardrick, great to see you. I first want to tackle this NVIDIA issue in the probe there.

11:05Let's be clear. Is this retaliation? Melissa, it will certainly be perceived that way by many here in Washington and elsewhere. You know, China has spent several years building out a large toolkit of statecraft tools like the anti-monopoly law, the anti-foreign sanctions law, the unreliable entities list. And we're seeing these actions of people being, companies being added to these lists after the U.S. has taken actions that China dislike. The perception will be NVIDIA was added to, or at least the investigation was announced under the anti-monopoly law after the U.S. last week tightened restrictions on semiconductors.

11:50We've seen this with Skydio after the U.S. sold drones to Taiwan. And so I haven't seen the details. There certainly may be some legitimate monopoly issues here. This dates back to a 2020 purchase of Mellanos technology. So people will wonder, well, what took four years to get us here, lending more credibility to this being a retaliatory action versus one that's really based on the economic fundamentals of antitrust. It's great to have you here. So on top of this, the Chinese are allowing their currency to weaken in a way we haven't seen in quite some time. And J.P. Morgan had a note out recently saying, you know what, to combat tariffs, that's exactly what they're going to do.

12:31So you throw that on top of this mix and it feels like things get a little dicey between the two countries. Yeah, look, I think you're doing a great job here pointing out the depreciation of RMB. The question becomes, how can you continue to do that and match? Let's say this gets up to 20 or 30 percent. We don't have to get to the 60 percent that Trump is talking about. At some point, you're going to create a situation where capital flight is going to become a real problem. You're going to hit the U.S. with currency manipulation, which is another tool in the U.S.'s toolkit. So I'm not sure that depreciating the RMB is the answer here to address Trump tariffs.

13:15But certainly this is something that we have to keep an eye on. How do you how do the fiscal measures that China says it's going to take next year factor into this whole? I mean, next year, President Trump takes office next year. All of a sudden they're going to have more moderate policy. That's no coincidence. Well, listen, to be fair to the Chinese, they have been talking about the need to address domestic consumption. This is familiar to all of us here. Last Central Economic Work Conference, last year this time, one of the top things on the list was address domestic consumption. This hasn't happened.

13:56And so what I say to people is the rhetoric is great. The policy that they're announcing, that they're going to put in place, we have to see what the details are. The diagnosis is right. The problem is correct. It's matching the policy solutions to the problems that you've suggested and implementing this in a way nationally that's effective. And that I have not yet seen. So I would take a cautious approach and say, let's wait on the details before we jump the gun here on them having finally decided to do something about domestic consumptions and the handle deflation. I don't know yet what the details will be, Melissa.

14:36So, Duarte, you mentioned they're finally doing something. And I can go back two and a half months. And I remember then they finally did something there. We had, you know, a handful of kind of stimulus measures here. So when you think about the timing of this, and I know the Chinese are meeting right now, and the expectation was that they're going to come out with something. Do you think it has anything to do with President-elect Trump's tough talk versus China, the idea of kind of turning up the trade war a little bit? And then, like, the whole idea that, you know, we hear this again and again, the really, you know, to them, face is really an important thing, right?

15:06So the idea that the U.S. is going to start to kind of really accelerate growth, they're going to really take the upper hand as it relates to high-end chip manufacturing and design and the like here. Does this have anything to do? We talk about the Trump trade all the time. Is the Chinese response maybe part of that? Yeah, listen, I think it's fair to say that you can't ignore the Trump factor and some of the thinking around what we're likely to see in China from an economic policy standpoint next year. They're not going to be able to export their way out of this challenge, largely because the China shock is something that even the Biden administration has been on guard for.

15:45And Trump will certainly be on guard for this. And so you're going to have to turn to your home market, juice domestic consumption in order to help deal with this. But I will say, Dan, that in addition to the Trump factor, there's just some legitimate issues that China have to deal with for its own economy's sake. Again, the issue of domestic consumption has been on the list for over a year. It was a part of the agenda last year for the Central Economic Work Conference, long before we knew Trump would be president. So, yes, there's some Trump in this, but there's also a lot of reasons for China to do this for China.

16:21DeWardrick, great to speak with you. Thank you. Thank you, Melissa. DeWardrick McNeil of Longview. Interestingly, in response to the possible fiscal stimulus next year, local indices didn't really move, but it was the K-Web. It's sort of these other stocks international investors are in. Which makes a lot of sense. Carter talked about this last week. I know Courtney's talked about it. I mean, the reversals we've seen in these names over the last couple of days are really interesting. And Alibaba, for example, filled that entire gap that was created on the way up in September. Now we've filled them.

16:53I think that Alibaba easily goes back to 100, which is a 50 % retracement at 80 to 120. But I'm thinking we take out that 120 early next year. Yeah, and this is going to continue to be something with the Trump administration. There is going to be issues with U.S.-China relations, and that's where companies who have a lot of exposure in China are going to be exposed. You have something like an NVIDIA. They already can't sell most of their advance chips to China. I think it's like 12 percent of their revenues in China, which I don't think that's as much of a concern for them. I do still like emerging markets in the long run.

17:23I mean, I think the China aspect of it really takes over the whole, you know, people say, oh, I don't want emerging markets at all because it has China in it. but it's still over 50 % of global GDP and only 10 % of market cap. So I think there's still a lot of opportunity there. Yes, there's going to be short-term political headlines, but I think in the long run you want to take advantage of these opportunities. I mean, the move in FXI or K-Web, it's been almost hysterical, right? It's been spasmodic. The biggest influes on record in October, biggest outflows on record in November, people just moving, chasing, and momentum is a great thing unless you get caught the wrong way and then popping today.

17:58One of the most interesting things that I saw in reaction to the China news was EVs. If you looked at BYD, if you looked at XBEN, you looked at NIO, they were raging today. And, you know, Tesla opened up and it did close lower. So that, to me, is really interesting that those stocks were waiting for this sort of reaction, this sort of kind of they haven't even done the lower interest rates thing. And I think that probably really helps with the EV. Coming up, a number of big after hours movers, Oracle, Toll and more reporting results, details and numbers out of the quarters next. plus major developments in the UnitedHealthcare CEO's murder investigation and the slang stirring up a lot of anger about insurance industry practices.

18:32Why, our next guest says technology, algos, and AI may be supercharging claim denials. Don't go anywhere. Fast Money's back in two.

18:48Welcome back to Fast Money. Oracle shares plunging after hours. The software company reporting earnings just short of Wall Street estimates. That's a conference call now underway. Let's get to Seema Modi with the latest. Seema. Hey, Melissa. Oracle CEO Safra Katz on the call, blaming the stronger dollar for the negative impact on the company's third quarter guidance. So perhaps that's also weighing on the stock right now. However, on the topic of Oracle's growth in the AI segment, she says GPU consumption is up over 300 % year over year. And that she adds that Oracle is delivering the largest and fastest AI supercomputers, scaling up to 65 ,000 GPUs, which is basically this powerful data center that Oracle is building to run complex AI models, customers including OpenAI and Microsoft.

19:29Chairman Larry Ellison just right now chiming in, saying that the use cases really span across healthcare and agriculture, and it's all powered by NVIDIA's AI chips, which Ellison is known for having a strong relationship with NVIDIA CEO Jensen Wang. Cass also touting the success of Oracle's cloud business, which she says, faster and cheaper than its competitors, and that revenue growth is expected to accelerate further in the coming quarters, hinting at new contracts. Shares of Oracle, though, down about 7 % in after hours. After hitting an all-time high in today's trade, it's up about 75%, 70 % so far this year.

20:07Melissa. Seema, thank you. Seema Modi. And this, again, fits into that category of reversals of darlings for the year. All-time high today, heavy volume, didn't close at lows, but here we are in the after-hours session. Yeah, just for fun here, I'll read you this was at 233. What do you think of Oracle, this incoming portfolio manager? Reports tonight, steady as she goes, or getting toppy. Here's what I wrote back. Has gapped up four quarters in a row. Tough to pull that off a fifth time on the seller. Double-digit percent gains on the back of all those quarters. Quarter was fine. I mean, but when you're trading at the valuation that you're trading at, you're going to get whacked.

20:39And to Carter's point, there's some unfilled gaps. I mean, they have something called RPOs, which is remaining performance obligations. They were up 29 % over$80 billion. So it's all there. Their cloud business is growing year over year in a meaningful way. The valuation is a problem. So if you don't beat and raise, you're going to get whacked. Now, there'll be a level to buy it, but I don't think it's 178. Yeah, I think this is very simply a high bar that was set. I mean, they are really well positioned here in the AI story. Their data centers, I think, have 162 currently. They need to get upwards of 1 ,000 data centers just to meet demand.

21:10I mean, long term, they really have a lot of opportunity there. When they were up almost 80 % going into this reading here, I mean, I think you're just kind of setting up for a high bar, unfortunately. Yeah, so they're talking about GPU consumption. And, you know, I look at that and I look at kind of revenue growth in the cloud space. And I say to myself, it comes in line. So they're talking about a story here. They're the lowest price provider. They miss on operating margins. I mean, to me, it just seems a little messy. And so you better hope that those contracts come in. You better hope that pricing stays the way it is or gets better.

21:39And that is a supply-demand situation. So to me, you know, again, I could put valuation there. I put price action in there. I'll probably reiterate what you just said, because that's what I'm doing today. Repeating everything. Just repeating everything. My smart co-panelists have been saying. I don't know. It seems messy. And to your point, to open at the all-time high, reverse, close down 5 % or so, and then have another 7%, there's no reason to step in and buy any of these stocks that have done this in the last couple days. Coming up, more after hours action to bring you Toll Brothers, Vail Resorts, C3AI, and MongoDB, all reporting results of stock moves and what you need to know from those quarters next.

22:16Plus, a spotlight on the insurance industry as the investigation to the murder of the United Healthcare CEO continues to unfold, the latest details and how the surge in AI is impacting the way insurance claims are approved or denied. You're watching Fast Money Live from the NASDAQ Market Site in Times Square. Back right after this.