Semi Selloff… And Tech Giants Caught In The Middle Of U.S./China Tensions 4/19/24

0:02Live from the Nasdaq market site in the heart of New York City's Times Square. This is fast money. Here's what's on tap tonight. A semi slide triggered by a major drop in Nvidia. The SMH down nearly 10 percent this week. And that's why I'm taking the Nasdaq and S &P down with it. Can this bull market keep kicking if the chips continue to crack? We'll break it down straight ahead. Plus, Apple's no good rotten week. The tech giant falling over six percent and now fears growing that as Washington moves to ban TikTok, China's going to target Apple and others in a proverbial tit for tat. We'll debate that.

0:34And later, Netflix brushed the day after earnings. The options action on Microsoft ahead of results and the Bitcoin halving. Where does the cryptocurrency go from here? We'll talk to the Kraken CEO. I'm Melissa Lee coming to you live from Studio B at the Nasdaq on the desk tonight. Tim Seymour, Bono and Ison, Steve Grasso and Mike Coe. And we start off with that massive meltdown in NVIDIA, the one seemingly unstoppable semi-stock plunging 10 percent today. It's worst day since the start of the pandemic. The drop cutting more than$200 billion from NVIDIA's market cap today alone and taking its value below the$2 trillion mark for the first time since February.

1:10The rest of the chip stocks getting hit hard too. The SMH semi ETF dropping four and a half percent, logging its worst week since Jan 2022. It is now down 17 percent from the record hit just over a month ago. And every single stock in the fund is in correction territory, down 10 percent or more from their 52-week highs and down more than 34 percent. Intel dropping 32. NVIDIA itself now down over 20 percent from its March 8th record high. And broader tech struggling as well. The Nasdaq down more than 2 percent, hosting its worst week since November of 2022. And here's one more staggering stat for you.

1:46Uh-oh. Uh-oh. Since Monday, the MAG 7, the so-called Magnificent 7, has lost nearly a trillion dollars in value. Let that sink in for just a moment. So as you get set to enter the heart of tech earnings season next week, How nervous should investors be about these cracks that we're seeing in the bull market right now? Tim, what do you say? Well, they should be nervous, especially because this is where leadership has come from. I've tried to point out for a long time that the leadership, first of all, from the Nasdaq has come from the semis. You talked about this move in semis, kind of an eerie 10 percent on the nose move lower on NVIDIA.

2:21Nasdaq's up 87 to 90 basis points year to date. So in other words, this massive rally has almost been taken out completely. semiconductors, as you said, down 17 percent. If you think about NVIDIA, just relative. I'm sorry, semiconductors just relative to the S &P. So, again, where's that leadership gone? It's collapsed in the last three days. It's down seven and a half percent in three days to the S &P, the SMH, whatever you're following, the SOX semiconductor index. So it's a pretty extraordinary deterioration and going into earnings when all we do is talk about, all people complain about is the lack of breadth in the earnings profile of the S &P.

2:57Well, next week is a big week. Comes on a day. We're going to spend a lot of time talking about another pressure on mega cap tech and one we talk about all the time with China. And so you've got exogenous factors. You've got earnings that have to hold up. And you have this kind of a day again. Momentum into a weekend. We know what war does to risk taking going into weekends. That's where we are. We saw the rollover and semi start long before this week started, but this week in particular, we got a number of data points today. For instance, Supermicro announcing its Q3 earnings date, but not pre-announcing as it has done seven of the last eight quarters.

3:34We had ASML yesterday with disappointing bookings numbers. We had TSMC cutting their semi-growth forecast for the year. So it's not like this is based on nothing, that this is just sort of just a shift. I mean, it is a shift in sentiment, but there are data points to be concerned about when it comes to this really hot AI semi-trade. Yeah, I think I agree to an extent. So in terms of like the ASML, I think that was a warning shot across the bow. But I still think there's some bifurcation there. I think the things, you know, your NXPIs, your OMs that are exposed to EVs, I think those are the ones that are probably bearing the brunt there.

4:08I think Qualcomm somewhat sits in the middle. NVIDIA clearly is still top of class. But I mean, listen, the 10 % correction today is painful. I will say, though, that you have essentially quadrupled and now you're taking off 10 percent. So you've got to understand that there is going to be an elevated amount of beta to these type of plays. You know, Supermicro, I think, you know, it's much like the Netflix situation where when you refuse to reveal a data point that you have made a habit of doing, I don't understand what you expect investors to do, particularly when that stock, I believe, is up six or seven times over the last 12 months as well.

4:43So, you know, I do think that the moves are quite exacerbated. But when you take a step back and kind of look at them from a perspective of where have they come from, I just don't think that you can be surprised at investors. This velocity doesn't bother you? No, no, no. I mean, it bothers me, but it doesn't surprise me, I guess is what I'm saying. So you can't, we've all said, listen, when we have these parabolic moves, it's hard for me to get behind trend. But you do understand the reason why is because you know that there is going to be a sharp pullback at some point. I'm just saying still compare a 10 percent move down with a 6x move up.

5:18You've got to expect there to be some some beta there eventually. Yeah. Got to finish. No, I'm just saying, yeah. And to Tim's point, there may be a shift in leadership. But again, I'm still inclined to probably buy ahead of earnings. Now, if earnings come out next week and the week after and they mail it in, that's when the concern really brews. But the tech stock, this complex has really been the area where earnings growth has supported the moves higher. versus just PE expansion. And so if they can't hold up, then I am quite concerned about the market, but I'm still willing to give them the benefit of the doubt in terms of them being able to deliver on earnings.

5:52So when you look at how many of NVIDIA's clients are looking for other choices with chips as well, right? So NVIDIA still has 80, 85 % of the market, but they might not be able to supply the whole market. So you're going to need other choices. Then you have a negative headline or a negative article in Barron's. AMD, their biggest competitor or their most active competitor. So you had mentioned Qualcomm, but AMD and NVIDIA are replaceable for this components. If you look at tech, to Bono's point, this is where the earnings came from. So this is where the earnings are going to be taken out. The market goes up.

6:32It's on, you know, Tim always points out the semiconductors led the market up. The mega cap led the market up. They're going to lead the ones down. Now, go to technicals. Got USA something? No, no. If you go to technicals, it's very rare that the market breaks just the 50-day. It breaks the 50, then the 100, and then it tests the 200. We're a couple of hundred handles off the 200. It's going there. Your NVIDIA is probably going to – You think it's going there on this run? I mean, because, again, that's a pretty – that's a massive move, and we're back in October to do that. Yeah. And when you look at the 50 day at 5118, basically, we ripped through that level and then everyone was sort of readjusting.

7:12And then there was Powell and then there was mega cap tech. Then there was geopolitical. So you had a recipe for not disaster, but a recalibration. So I think we probably should head to 4675. All right. So we are lower and they are leading the markets lower. Mike, I mean, you know, layer onto this, the move that we've seen in volatility, the anticipated higher range that we will be in in volatility. Maybe there's some seasonality aspect to this in terms of sell in May going on. And then, of course, there's the uncertainty surrounding the Fed. There's a lot to pile into this semiconductor meltdown.

7:46Yeah. And, of course, geopolitical risk as well. I mean, if you take a look at what the futures did overnight, obviously, that didn't turn out to be quite as concerning to the market when it opened today as it was in the overnight hours. But there's plenty to worry about. Look, you know, the market rallied basically on the strength of these stocks. Rather than just thinking about whether or not there's a lot more air potentially under them, and I believe that there is, just think about is a 10 % correction in the S &P so far-fetched? First of all, they happen with great regularity. Secondly, the run that we had from the end of October to the end of March, up about 28 percent in the S &P, especially if you include some of the dividends as well.

8:29A pullback of 10 percent from that level, and I think that's probably what Steve is talking about, makes a heck of a lot of sense. I mean, we're about halfway there, if you think that's what's going on. Yeah. I mean, a 10 percent decline in the S &P. We're in a bear market, though, for NVIDIA. I mean, I'm just, you know, you can say that it's par for the course that we see a 10 percent pullback in the indices. Yes. But should we be more concerned that we're seeing it so sharp in what had been the poster child of what is hot, what is growing? Yeah, no, you can be concerned about it. And I would just say let's go to the cause of it.

9:03It's just not because things were overdone. Mike gets into some of the geopolitics, which are just a risk off. I mean, there's a lot of things. The Fed came out today with comments that we kind of knew were coming, and they were kind of quietly received, but they had a semi-annual testimony that came out. And in that, there were some interesting things that I thought were not even focused earlier, including the Fed pointing out that hedge fund gross exposure is way up there. In other words, that the risk-taking they see in the markets is out there. But we have made that 5.5 % move. There are geopolitical dynamics.

9:32and think about the move that semis and high multiple tech, so again, longer duration assets, companies that aren't necessarily, I mean, obviously NVIDIA's and certainly Apple and Meta are generating significant free cash flow. But the whole move in high tech and high multiple companies, when the Fed started moving aggressively, part of this move is a week where we've cemented the fact that the Fed, you know, and Steve may or may not believe it's still going to happen, but the bottom line is the Fed's out of play here. I mean, they are not going to move in June, in my view. I think they're very unlikely to move in September.

10:03But that's what this week was about. This was a week when we got the combination of a better economy. So good news should be good news. But good news is kind of bad news and bad news is bad news. So it's a strange week and it doesn't end well when geopolitics have you needing to kind of cut risk. Yeah, I don't I don't discount the Fed's ability to be wrong on both sides of this. So I think that the Fed could very well be off the table and things, a shock or CPI doesn't come in enough. And then and then we lose June. I don't negate the fact that they could be wrong. But you have 400 economists within the Federal Reserve that are obviously under the impression that we have to see weakness before we start cutting.

10:45There's a long and variable lags. There's a reason why that phrase exists. If you wait until unemployment ticks higher, you've waited too long. you need to start cutting to get ahead of it so that it's not it's got it has to feel like they're early so it feels like it's early for them to cut right now that's the proper time to be cutting so i think they will be late and i think tim makes a great point the market has has done what i've been saying they're going to talk hawkish and then they're going to act dovish and i think the market Are you still saying that they're going to cut like in May?

11:22No, not in May, but I do believe that they will. We're gone. You would agree the market has said no cuts now. I would. A slim chance in December, let's say. Right. So we went from seven to one or none. I think that it's a nonpolitical body, supposedly, but I think that they're going to be forced to cut. I think they're somehow. November's got 25 bips in it. I don't think they'll cut November. It's after the election. So there's no reason to cut November. So they'll have to cut once or twice before it. And I can hear you in terms of them being late, but I don't think the extent of lateness is is all equal across the board.

12:02So what they don't have to do is wait like they did with inflation and saying that it's transitory and allow it to essentially be burning at 11 or 12 percent and then finally recognize. So I do think that there is a bit more wiggle room in terms of the unemployment rate that they're going to be willing to tolerate before making a move and allowing inflation to rear its ugly head, re-entrench itself. And then you have that. You have oil hire, which, again, isn't in the X data. And then you have the geopolitical risk. So I hear what you're saying. You know, I'm kind of in between the two of you because I understand that Tim is saying that, you know, some things have been incorporated this week.

12:39I would argue that the Fed funds futures have been shifting for the last two weeks. And in fact, from, you know, March, really. So we've already started to incorporate some of that some of that issue. To Mike's point, moves of 10 and corrections of 10 to 20 percent are standard. These should not be should not not be expected. But again, I want to be very clear. I'm just not surprised. And I think that that's really where I'm coming from. The last time we had a geopolitical risk, that was October. And that was your prime opportunity to buy. So what I'm saying is I'm approaching whatever jitterishness is in the market with an opportunity to.

13:15Are you adding to Nvidia? No, no. You still have your position. I still have some of my position. Am I still adding to it now? No. Why? That would just be fighting the trend unnecessarily. So where are you looking for the opportunity? You're just talking about opportunity. I would probably wait for it to stabilize. Like, I'm not going to sit here and catch a falling knife. OK. Right. I'm still long. I guess that's what I was getting at. Do you see this as a falling knife? Do you see this as continuing to go lower? And for a decline of NVIDIA of 20 % so far from its peak, from that key reversal day.

13:49I would be willing to sell 200-day moving average puts in NVIDIA. Well, let's not forget that there was a good old-fashioned index that was up today, and that's called the Dow Jones. And I know we poo-poo what's going on, but the real economy, banks finished. BKX was up almost 1.7 % today. Banks like this. Again, a stronger economy with people with jobs. And right now, the consumer dynamic, we're all over the map. But, you know, the market was up there. For more on where semis could be headed, let's bring in the chart master, Carter Braxton Worth of Worth Charting. So, Carter, what levels are you watching?

14:23Yeah, there's so much to watch. I think you referred to a key thing, that key reversal day in the biggest one of all, and it's been downhill since. Before we get to the charts, what's also important is that the semis have peaked before the market. it weeks ago, in fact. But let's look at four identical charts of the SOX, the Philadelphia Semiconductor Index. These are mathematically parallel lines. They're not my lines. The lines draw themselves. They're done by a computer. We blew out through the top, and now we're back down into the channel. That move from the low through to the top, of course, up some 60-plus percent, better than the S &P up 28 or the Qs up 32 or even MAG7 up 45.

15:0460 plus percent, the best area of the market. And so it is a beta trade. Now it's the worst area of the market. Let's look at the next iteration. This is the same chart, but we bring in the midpoint. Now, right now we're down about 16, 17 percent. I think you'll see that on the next chart. It's all the same chart with just different annotations. That's a big 16.5 there. And then where might we be headed? Just to get to the actual midpoint, it would be 20%. And to get to the lower band, you're talking about something in the order of 30. Now, Nvidia is down already 20, of course. There's every prospect that this is headed lower.

15:46Every prospect that the stock is heading lower and Nvidia is going lower to a correction of down 30 percent. Yeah, I mean, that's remember, that's remember, the whole notion of 10 percent to correction and 20 percent, none of it is not. And you can't find that anywhere. That that was made up one day by somebody and everyone's embraced it. It's beta. It's how much you go up. It often is how much you come down. It's equal and opposite. So given that semis are roughly 20 percent of the Nasdaq, what does this do to that? Where do you see the Nasdaq heading? Well, that's right. And it's the area that was so loved.

16:19A lot of capital pushed into it. The issue is when something gets crowded, whether it's a home builder or it's a bank, JP Morgan, and at some point it's just full rich or you want to say expensive. That's the fundamental term. But what we know is they're all bets are off once there's a rush for the door. And we have a bit of a rush for the door going on here in the market. I heard him say fundamental again. He's making fun of us. No, no. I started out as a funny mental analyst. It wouldn't work without somebody doing that. But Carter is great at pointing out the logic of the charts are telling you something.

16:58And if you look at that chart, the NASDAQ 100, the most exciting index in the world, has been flat to the S &P now going all the way back to the end of May of 23. So you've done nothing if you've been there to outperform. Carter, always great to see you. Have a good weekend. Carter, Braxton, Worth are worth charting. So, Mike, are you looking for opportunity? Are you battening down the hatches? How do you approach this? Yeah, I mean, I'm certainly not going into the space that's been hard hit, but there are some areas and single names, actually, that have shown some relative strength. And that's really what I've been looking for.

17:31There have been a lot of stocks that were washed out for idiosyncratic reasons. United Health comes to mind. Actually, it's interesting, even names like Nike, which had really been punished early in the year have actually held up better than the market has, certainly a lot better than the tech sector has. So, yeah, I'm not looking to deploy in that area. But, you know, United actually is a name that we added to. So, you know, I think there are some places that you can look. These things are trading at much cheaper multiples and they've got other things going on. So I think there are places that you can add for sure.

18:06But technology is not the spot right now. All right. Coming up, A changeup in China as officials order Apple to pull some of Meta's apps. Could this be a TikTok retaliation? Plus, we'll lay out the options action on Microsoft ahead of next week's results. And a big moment in the crypto space, how Bitcoin will react after tonight's expected halving event. All that ahead. But first, we're digging into that big drop in Netflix after results last night. How the member metrics are changing and what it could mean for their growth going forward. The details when Fast Money returns.

18:39This is Fast Money with Melissa Lee, right here on CNBC.

18:51Welcome back to Fast Money. Shares of Netflix tumbling the day after earnings. The stock closing the day down 9 percent. That's its worst day in two years. Weak second quarter guidance and a decision to stop reporting certain subscriber numbers, putting a chill into investors. The company is saying during the earnings call that stats like subscriber growth and average revenue per user, ARPU, will be phased out in favor of what it calls profit-focused numbers starting next year. They want to turn the focus onto engagement. I spoke to Tom Rogers earlier today on Squawk Box, and he made a very interesting point, and that is advertisers, if they are trying to sell ads for this lower-level tier, they will want those ARPU numbers.

19:31They will demand it. And so how are they going to build that side of the business out? What do you think? You know, I think it's really a it's a this is a tough sell for them. I kind of question it. I understand at least their explanation of the logic as to why they no longer want to disclose this, because they're saying this really shouldn't be the focus area, particularly now that we have the ads at the ad tier. Right. And in terms of ARPU, now we have essentially a mix of, you know, non-ad tier, ad tier, and it doesn't really translate to a one-to-one comparison. With that said, I still don't understand why you wouldn't, particularly if investors are saying this is what you want.

20:08And I think this kind of puts a bit of an overhang on what otherwise was a pretty strong quarter, particularly from sub and revenue growth. I just don't really understand the logic behind why you would want to do this. With that said, they've given what, about a year's worth of runway, three quarters worth of runway in terms of before they're going to remove this. So, you know, I tend to think this is a bit overdone. And perhaps, you know, to the other panelists point, this is a rotation. This is a rotation out of some of the names that had leadership previously. So, look, Tom Rogers, also known as the Godfather, has been right on Netflix for a long time.

20:43This is a stock, again, back to even our previous discussion in the A block in terms of stock that doubled really over the previous four months. I mean, it did it all very quickly. I think the market is taking away from this. The metrics of measurement are what they are. Advertisers may demand it. But what the market's taking away from this is that maybe the benefits from paid sharing may be starting to wane. That's what I think. And when you look at this company at 32 times price to free cash flow, I think it's expensive again. So I think that's really what's going on. And back to the stock and the charts.

21:13And, you know, Netflix is one of these stocks that, you know, it's kind of a little bit like NVIDIA. I mean, you know, it takes it's it kind of took the elevator up and I don't know if it's going to take the elevator down, but it has done this before. And if you look at the chart, I mean, I, you know, I look as someone that sold this stock way too early on the way up. I think I'm going to get it at 480. It was a 25 percent going into earnings yesterday. If you think about this, not to go against the godfather, Tom, but if you get into that conversation where you say that they will demand the ARPU, they will demand whatever stat or whatever data metric that they want.

21:50Do we need to define ARPU right now? I feel like we're not going to talk about it a lot, so why don't you go ahead? There might be people. Average revenue per user. See how slow you have to go, because sometimes you're nervous about screwing it up sometimes. Very nervous. So if you come to Netflix and you say, I need that data, what's Netflix going to say? Where else are you going to go? They've already established themselves as the king of the hill. So I get what he's saying. Somewhere down the road, they might need those types of data points. But right now, Netflix is king of the hill. No one's going to ask for anything from Netflix.

22:28You just say thank you when they offer you a spot to advertise. So you buy on this weakness? Not yet. I'm going to go with Katie Stockton's mark, 500. She's looking for it. There's a lot more Fast Money to come. Here's what's coming up next. A TikTok tit for tat? What Chinese officials are ordering Apple to do? And the social media giant getting the short end of the stick? Plus, Bitcoin's big moment. Another potential halving expected tonight. So what will it mean for the space? How prices, volatility, and crypto miners will be affected? You're watching Fast Money, live from the NASDAQ market side in Times Square.

23:04We're back right after this.