The “Big Short” Reunion Kicks Off on Fast Money, and Counting Down to Big Tech Earnings 7/22/24

0:01Live 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. All eyes on earnings. Investors turning their attention from this weekend's political headline to the heart of Q2 earnings season. Alphabet and Tesla headlining the action tomorrow. What we can expect from those reports, what it means for the rest of mega cap tech. Plus, CrowdStrike crush shares the cybersecurity stock sinking for a second straight session after Friday's massive outage. Is there any reason to be positive on this name right now? We'll debate that. And a big short reunion.

0:32We've got three of the original traders who spotted the 2008 financial crisis before it happened. Danny Moses, Porter Collins and Vincent Daniel all here with us on set to break down what they are seeing in the markets right now and where they are putting their money to work. I'm Melissa Lee coming to you live from Studio B at the Nasdaq. On the desk tonight, Tim Seymour, Dan Nathan, Guy Dami and Moses Ventures founder Danny Moses. He is with us for the full hour. And we start off with a shift in investor focus after this weekend's pivotal announcement out of Washington. markets seemingly taking things in stride after President Joe Biden stepped aside as a Democratic Party's 2024 nominee and endorsed his vice president Kamala Harris.

1:09The S &P 500 up more than a percent, snapping a three day losing streak while the Dow gained 128 points and the tech heavy Nasdaq leading the gains up a percent and a half. So-called magnificent seven stocks heading up today's tech rebound. Nvidia, Microsoft, Tesla and Alphabet having the biggest positive point impact on the Nasdaq today, shaking off, at least for now, recent rotation headwinds as earnings season heats up. Two of those names, Tesla and Alphabet, release earnings after the market close tomorrow, the first of the MAG-7 to report. And while analysts expect Tesla earnings to drop 30 percent from a year ago, they are expecting Alphabet to have grown profits by nearly 30 percent.

1:46Shares of the AI heavyweight are up 30 % already this year, while Teslas are basically flat. So can Alphabet and other tech titans meet the high bar that has been set for second quarter results? And wasn't it a good thing to have that rotation last week, Guy? Take a little air out of this. Yeah, no, I think that was a good thing. I think today's, you know, you got a lot of it back, if not the entirety of it back. I mean, for me, Google's the one you want to look at for sure. I mean, I think it recently made an all-time high. It's the one you could wrap your head around in terms of valuation. You've been able to do that for quite some time.

2:15Of course, the problem is, if you go back over the last couple of years, you've seen some pretty big peak to trough decline. So are you setting up for another one of those things? I think the answer could be absolutely maybe, given the run that it's had. Again, it's not a valuation call at all. It's the way the stock has performed. So this is one that you're not going to run from if it sells off 7 % or 8%, but we've seen it before, and it feels like it might be setting up for the same type of move again. There are a lot of businesses within Google that you will want to track, Dan, but I feel like the one that you're going to focus on is it's cloud business.

2:45I mean, the cloud business is the one that everything's going to be built on as it relates to generative AI. And, you know, this was a late comer as far as the trade is concerned. When you think about some of the launches they had with Bard and Gemini, and they don't go particularly well. But to Guy's point about valuation, it trades about 24 times this year, expected EPS growth of 34 percent. 21 times next year, a market multiple versus expected EPS growth, about 14 percent. Here's the thing that I really want to know. When you think back to Q1 earnings, remember when Meta guided CapEx up$2 billion and guided sales down$2 billion?

3:19The stock got hit pretty hard. So when I look at Google or the Alphabet, I look at this year's expectations for gross margins at 68%. Next year, they're expected to drop to 62%. I can't remember the last time I saw a mega cap tech stock with that sort of embedded decline in gross margins. That's about CapEx. Let's see what they have to do or what they say about CapEx for the balance of the year, because that may dictate what a lot of analysts are expecting for next year. I think there's comfort in owning these big tech companies that aren't that expensive on a relative basis to the other tech companies that are out there.

3:51So I think if it is weak off of the print, it will probably get bought. And I think because it's liquid, because it's large, it gives people immediate exposure. It'll be by the dip if it does drop on the quarter. Yeah, I think it's interesting because that rotation last week didn't feel very comfortable for people. We often talk about breadth in markets as being something that you wanted to see here. Well, you got it. And if you think about this 2Q setup for Google and Bernstein in their note that we all read going into this pointed out that the comp on the guide is going to be very tough. That third quarter, it's 750 basis point comp that they have to get through.

4:22And that's part of where we go, because while on a relative basis, not expensive relative to itself, it is expensive. It really is. I mean, we've said for years that Google and Meta and these are two names that are not cheap anymore. The existential question, whether we are in the AI rush for Google, is what is the ROI on the spend here? And are they going to continue to outpace the growth in ad tech? And again, some of the notes that you're reading from the street, it's actually interesting as they see advertisers leaning into possibly some consumption headwinds. And that's actually pretty good right now.

4:55It's not what you want to hear. And I go all the way back to even kind of even pre-Fed. But some of the things that Google and Meta ran into before almost everybody else to me was some of the cyclicality of their ad spend and their media businesses. And I think that's something to watch for. Well, I think what's interesting also for Google and for Alphabet, I should say, and for Meta is that AI isn't just a product. It's something that actually makes their business work better. It helps them sell more things, generate more revenue. So it's sort of a different animal a little bit than a Microsoft, which is much more product-oriented, as well as Amazon here.

5:26So in terms of what is worth the investment, you're going to see it here. 100%. You're also going to know that if the economy is slowing down, who's going to feel it? A company like Google will feel it without question in terms of YouTube and some of these other things. So for me, it's a huge tell. Look, again, it's not an indictment of Google at all, but go back to January of this year. I mean, the stock went from 153 down to 125 over the course of a month and a half. pretty much in a straight line. So you've seen, as I mentioned earlier, peak to trough declines before in a stock that's been lower left, upper right for quite some time.

5:58So I just think the setup is similar to what we saw earlier this year. Yeah, to Tim's point about difficult comps in the quarter, I just say this. So the last couple of months, they've been rolling out Gemini in the search. You guys have probably noticed it. You put a search term in. You used to get 10 blue links, okay? And that was really their ad business model for the most part. Now, above the fold on a browser, you're getting a contextual answer that doesn't have those blue links. So near term, there might be some digestion in their ad business. How are we liking that contextual answer? I like it.

6:27I like it. You don't like it? I'm not sure how I feel. I mean, it's answering a question I'm not sure I was asking sometimes. True. Was that question how much for a razor? Where can I find a razor? My razor broke? Where can I get one? You know, it's interesting. I mean, Tim's been doing this show as long as anybody. He's always clean shaven. Always. Always makes you wonder what's going on. I don't know. You know, it's interesting because we've been doing this show. Did we split them up here? I don't know why. I'm not arguing. We've been doing this show for 18 years. And invariably, it's just like the family dinner table.

7:01You don't shave for a couple days. You're going to hear about it. So good for you, Guy. But I think, you know what? Predictability. Markets like consistency. I like consistency. And that's... Present company excluded. This is handsome man night on the show. And we've got Vinnie Porter. I mean, Danny. But look at Tim. I mean, the rugged look, the rugged drummer. I think he should. Sorry, we just sort of went over the rails. Let me say one more thing about Google. Can you keep moving? This is silly. Ruth Porat, when she came in as CFO, it was a big re-rating moment for Google. All those little pieces, what do they all mean?

7:33Transparency. That's something. It's not the headline coming out of this, but we've got a new CFO as of June 5th. You've got a CapEx cycle that we want to hear a lot more about. But there was a time that Google was a black box in terms of outside of their search business. What's going on there? So I still think the company has some things up their sleeve that they could actually the market could could be could be happy about. If, in fact, we get a little bit more clarity on what's going on. But to Dan's point, the other thing up their sleeve can be that maybe the click throughs to some of the other links are not coming through this quarter because of that.

8:04I generate the thing that you don't like at the top. You get your answer. You don't scroll down. You don't click on any other links. You're not seeing any other ads. Your talk about this, though, if it does end up dropping substantially, that's going to be a real shock for the market, in my opinion, because it'll be the reason some of these stocks that have missed numbers or missed guidance, they're getting unduly, not unduly punished, punished. And the problem is, where do you buy these stocks if they drop 10, 15, 20 percent? What is the right valuation to go in and grab them? That's the scary part when stocks are trading in this type of moment.

8:31To you, what is the right valuation to grab them? I mean, probably Dan talked about growing at 14, 16 percent, probably thing and trading at 24 times is probably a little bit off kilter. they're going to get the benefit of the Dow in AI again. If they're going to spend in CapEx and they say it, they're going to be fine. That's how I view it because it is cheaper relative to the other big names. And it's a fascinating time to be looking at these stocks to see from at least a technical perspective because a lot of these stocks, if you look at Meta, you're up against some support. You've filled some gaps.

8:57You've got a couple below it. In the case of Microsoft and Google, you had to bounce off the 50. These are at least short-term things to watch because that next move, and remember how violent it felt at times last week, and last week was nothing. And so if you think about the move a lot of these stocks have had, I mean, I agree with Danny. If there's real disappointment, it's hard to believe. We would know if there's disappointment coming, I think, in the case of Google. But that guide is not going to be great. A lot of churn going on still. I mean, NVIDIA closed up today, but it's still a$124 stock.

9:27And it's basically been sideways since, again, we continue to bring this up at that June 20th, that day, where you had that outside reversal. So that set up to me the same way we saw it in early March in terms of the stock then subsequently trading sideways for a month or so before cascading lower. And, you know, you're within a couple weeks now of, I think, potentially very similar price action in NVIDIA. This tape has been all macro, it feels like. And when you get 31 percent of the S &P reporting in a period of a week, you get to focus on the micro again. And that's good and bad. So I think we'll have separation of winners and losers this week.

10:00Let's get more on what to expect from Alphabet and the rest of tech, the heavyweights that is to come. We're joined by Evercore ISI's head of Internet research, Mark Mahaney. Mark, great to have you with us. What are the key issues to you out of Alphabet's quarter? Well, the search revenue growth is sustained at the level that it had in March quarter. Our guess is that you're not going to see any deceleration. So you'll probably see a little bit of modest revenue upside because of that. Google Cloud, I mean, all the checks that we've done on cloud suggest that the optimization cycle we saw last year was a last year event.

10:32that Gen.AI is starting to boost demand for workloads and that the overall enterprise environment for cloud has gotten stronger too. So we should see some hopefully healthy, accelerating growth rates out of Google Cloud. And then YouTube, I think there's a really interesting product cycle going on there. By the way, and of course, search too. Melissa, I agree with you. I think the product's better. I think you've got a product cycle right in front of you at Google now. And I don't think that's reflected in the stock or in the estimates. That's why it's our top pick. But I expect to see generally positive news on all three of those fronts.

11:03And I got a fourth front for you. That's margins. I think people have underappreciated there's a major change at Google since the beginning of the year and last year. One, they're playing a dividend. And secondly, they're committing for the first time ever publicly to margin expansion. This is not your mom or your dad's Google. This has changed. And I don't think that's correctly captured in street estimates. So I think there's, you know, I like the stock going into the print. I know we've had a nice run. I realize the bar's higher, but I like Google right here, right now. Hey, Mark, you literally wrote the book on the Internet bubble.

11:33It's called Nothing But Net. And I remember reading it. It's about 10 timeless lessons. OK, how would you compare? I've known you for 25 years. How would you compare what's going on in and around generative AI right now to some of the vibes that you got in the late 90s into the early 2000s? Well, the good news is, Dan, you and I look exactly the same as we did 25 years ago. The other thing is, I don't this is not the recreation of the Internet. This is not as impactful as mobile phones. But the analogy I like is it's more like this transition maybe from narrowband to broadband. And these are just a lot of tools that are being rolled out that are materially improving the performance of products and services.

12:14And there was a point that somebody made. I think it may have been Melissa or Tim about, you know, the advantage that Google and Meta have is that they're content companies. And, you know, like they create content for advertisers. They're called ads and content for consumers. It's search results or news feeds or what have you. And I think we're going to see the greatest innovation in terms of how Gen. AI improves, makes interest, makes more engaging, makes more entertaining, makes more useful content. I think you're going to see with these two companies, Google and Meta. So I think they're great beneficiaries of this Gen.

12:49AI trend. And it's going to be the case for a couple of years. Mark, we typically don't get into politics, but the events of this weekend. And again, one day, it's not a trend make. But does the potential for a Harris presidency help technology? Because today's price action suggests maybe some of that's on the table. Well, I'm actually more struck by it's unclear to me that how strong of a point of view she has on big tech. I mean, it seems it seems like she's more favorable towards it, towards big tech than than President Biden and former President Trump. So she seems like she's slightly more of a friend of big tech.

13:26I mean, that's all in context here. Generally, I think there's bipartisan distrust of big tech. I think it's been overstated, but I think it's been exaggerated. But I think there has been this distrust for a variety of reasons. These companies are super big now and they should be scrutinized very carefully. But I get the sense that Harris is also generationally more up to speed with tech and more open to the improvements that they bring. And my sense is just because it's hard to find any strong statements she's made one way or the other. My guess is that she's a little bit more neutral than a lot of the current political set is.

14:03So that's a positive for big tech. Mark, great to see you. Thank you. Thank you, Melissa. Mark Mahaney. Do you think that today's bounce was a Harris bounce? I think a large part of it was. In that the uncertainty is settled to some degree or that it is because she is the front runner? Because she is the front runner. I don't think it's about the uncertainty being settled, I think, because, listen, I'll say it again. Politics bore me, but I think when candidate Trump seemingly emerged as the odds-on victor for this race, I think that's when you saw technology softened in a pretty meaningful way.

14:36Whether that's justified or not, it doesn't matter. It happened. And I think when she emerged as the potential candidate, she sort of polls better. I think that's what the relief rally today was. You know, I'm a big fan of sports gambling, but within that, on all these sites, there's all these political odds that are out there. So for the last two weeks, it was already being priced in that Biden was probably going to step aside. I think the one thing that happened today potentially would be a split Congress, which Wall Street loves. They love stalemates. So no one having complete control. So I think that was part of the move today.

15:03All right. Speaking of politics, Vice President Kamala Harris racking up the endorsements and the donations after President Biden's announcement on Sunday that he will not seek reelection. CNBC's Emily Wilkins joins us now with the very latest. Emily. Hey, Melissa. Yeah, Kamala Harris is continuing to gain momentum. Now, she has yet to get the backing of two key Democrats, House Democratic Leader Hakeem Jeffries and Senate Democratic Leader Chuck Schumer. But the duo do plan to meet with her soon, according to Jeffries, who told reporters that Harris was bringing a new wave of energy to the party.

15:36Vice President Kamala Harris has excited the community. She's excited the House Democratic caucus and she's exciting the country. That enthusiasm has been showing up in donations as well. The Democrats' main fundraising apparatus raised almost$67 million on Sunday, and that does not include the tens of millions raised by other PACs associated with Harris and with Democrats. Former House Speaker Nancy Pelosi, still a heavyweight on Capitol Hill, also endorsed Harris, saying she personally has known Kamala Harris for decades, has rooted in strong values, faith and a commitment to public service.

16:16Politically, make no mistake, this is Pelosi, Kamala Harris as a woman in politics is brilliantly astute and I have full confidence that she will lead us to victory in November. Now, at this time, Harris still has no serious competition for that Democratic nomination, which will make it very interesting to see how Democrats go forward. They don't want to see this as a bit of a coronation. They want to see her earn it. But, of course, that's going to be a little interesting if we don't have anyone else throw their hat in the ring. Melissa? I mean, it really is a coronation, basically, Emily, isn't it?

16:48Because there's no other process in place, potentially even to explore other candidates. and people are already endorsing her without even another choice. Yeah, that's the thing. I mean, the folks who we were thinking they might throw their hat in the ring, Pennsylvania Governor Josh Shapiro, Michigan Governor Gretchen Whitmer, North Carolina Governor Roy Cooper, Gavin Newsom, Pete Buttigieg. I mean, there was a whole list of folks that people were thinking, hey, maybe they would throw their hat into the ring and see how they perform against Harris. But at this point, we just haven't had anyone.

17:17And I think that leads a question as to Democrats. How do they make this? Make sure there's still momentum behind Harris. Make sure that she's still going forward towards the Democratic convention, but also don't make it seem like it's just a coronation and like they're not listening to voters. All right. Emily, thank you. Emily Wilkins. I think the key point is what Danny had mentioned in terms of the less likelihood of a red sweep, which was what was being priced in prior to Harris stepping in. Yeah, look, that's there's no question we price in politics. And I agree with Guy on today's price action.

17:48But I think the most important thing is the Fed. And I think the most important thing was that CPI back almost two weeks ago, which sold off big cap tech. And there's some dynamics around that trade, I think, in terms of the rotation that was good or bad for the market, depending on what you're. It's not good for headline indices if you can't add up the numbers around the six biggest stocks. But ultimately, again, it goes back to the Fed, goes back to CPI. You know, it's interesting. And to Guy's point about tech here, you know, West Coast tech has really gotten behind Trump all of a sudden. You know, the cryptocurrency people have gotten behind Trump.

18:20And if there was ever somebody to actually now go back to California and try to woo some of these people. She was a DA in San Francisco. She was the AG of California. She was a senator from California. So to me, I think she has a real opportunity. Granted, to Mark Mahaney's point, I mean, there should be scrutiny on these companies. OK, but the way that the FTC under the Biden administration really leaned into it, it was probably a really bad move in an election year. So I think she has an opportunity here to kind of win back some of the tech folks. All right. Coming up, crowd strikes tumble. The cybersecurity stocks meltdown gaining steam today.

18:54Just how low this name could go. That's next. Plus, we are kicking off big short week on Fast Money. Stick around to see what the gang thinks about the upcoming election and whether they're still all in on the trades they laid out on the show back in January. This is Fast Money with Melissa Lee right here on CNBC.

19:24Welcome back to Fast Money. CrowdStrike shares plunging for a second straight day as a fallout from Friday's global tech outage continues. Just this afternoon, The Washington Post reporting that the House Homeland Security Committee is calling CEO George Kurtz to testify on Capitol Hill. Shares of Delta also down today as the airline canceled thousands of flights as it struggles to get its systems back to fully functioning. So we brought up Crouch. I mean, obviously it's a mover, but Tim, you said at some point, somebody's going to say it's a buy. For sure. You say that at this point. I say it's always worth looking at a company that if even if you're not someone that's able to drill incredibly deep, there's four or five analysts out there that'll tell you what's the impact on ARR.

20:05In other words, their annual, their contract revenue for a company that is the largest in global security, about 15 % market share. And what I'm reading so far is it's a loss or it's a downgrade of 2 to 3 to 4 to 5 %-ish somewhere in terms of what that means. That's not going to make up for a stock that's gone from 450 down to or 400 down to 250. So at some point, you paid a lot of money to own a stock like CrowdStrike. You paid probably 50 times and you paid for a company that was growing dramatically and had market share significantly more so than the competitive landscape. But I mean, you go back to like Okta had a big adjustment.

20:44There's a bunch of examples of this. And I think at some point, unless look, unless we're hearing from major, major companies in play that they're dropping this service, it's going to create an opportunity. To your point, Morgan Stanley was saying 5 % AR, negative impact, of course, and they're taking their price target down to 396 with an overweight rating still. Which is remarkable if you think about it. So and then Guggenheim and BTIG downgraded the stock today, citing the potential for Fortune 100 companies to sort of switch vendors. We'll see. We haven't heard it yet. Now, valuation, which nobody cared about a couple of weeks ago, everybody's focused on now.

21:20It probably trades at 13 times revenue or so north of 50 times next year's numbers, which is clearly expensive. However, when you see a day that it trades 10 times normal volume, basically gets down to and sort of trades around a prior all-time high from a couple years ago, it's going to get interesting pretty quickly, I think, for CRWD. Stock was already selling off into the incident. And as I mentioned before earlier in the show, when you traded that type of valuation and something like this happens, what is the buy point? But it should scare a lot of people that one company's mistake can cause all of this.