The latest read on the semi space, and are EVs in for a mega meltdown in demand? 10/31/23

0:01All right, everybody live from the NASDAQ market site in the heart of New York City's Times Square. This is Fast Money, and here's what's on tap tonight. A semi-slump. Shares of AMD dropping after its latest earnings report drops as revenue guidance falls short of expectations. We're dialed into the conference call and bringing you all the details from the quarter. Buffs, a catastrophe. Shares of the farm equipment maker posting their worst day in 18 months despite a massive earnings beat. What's going on? The hidden warning signs that sent the company's stock plunging. We'll explore that. And later, an EV meltdown?

0:38That's the stark warning from one top analyst. So what happens to the sector if demand dries up? And will it all leave Tesla in the dust? Good afternoon, everybody. I'm Tyler Matheson, in for Melissa Lee, coming to you live from Studio B at the NASDAQ. And on the desk tonight, Tim Seymour, Karen Feinerman, Dan Nathan, and Guy Adami. Meantime, stocks eking out again today, But major indexes all wrapping up October with a third straight month of losses. The Dow down more than a percent this month. The S &P shedding more than 2 percent. Both indexes posting their longest losing streak since early 2020.

1:16And we'll get much more on that later in the program. But first, AMD earnings. Shares of the chipmaker dropping despite beats on the top and bottom lines. Q4 revenue guidance, though, coming in below expectations. The conference call just started, and our Christina Parts in Evelis has the details. Hi, Christina. Well, hi, Tyler. Much like we've seen with other chip makers this earnings season, chip stocks really seem to be reacting to future guidance. And AMD's Q4 guidance, like you mentioned, disappointed. AMD beat earnings revenue estimates for Q3, but guided Q4 revenues of$6.1 billion, which is less than the$6.37 billion that was estimated.

1:51Management does expect to see strong growth in data centers as well as client segments for the December quarter, which we're in right now, but warned of lower sales in gaming and softening demand in embedded markets, which also includes its Xilinx business. Both Lattice and Intel very recently also warned of weakness within the embedded market as well. And if we were to break down the categories for Q3, AMD did miss slightly in data center as well as embedded, but they had a record quarter for server processor sales, so that falls in the data center category. They also beat in client as the PC recovery is underway, and gaming came in in line.

2:26My contact just now told me that Lisa's CEO, Lisa Su, will provide incremental detail on the ramp of the MI300 chip. That's the AI trip. And we should expect increased expected revenue for that particular chip on the earnings call that is now underway. So that could help reverse some of the 4 percent loss that's going on. Hey, Christine, it's Tim. Quickly, any sense of MI300X and this chip that's supposed to be their ante into the ring to really be competing with NVIDIA? They had guided they're going to start to see some sales in 4Q. The 4Q guide, by the way, obviously light, as you're pointing out.

3:01So any sense on this? Can this turn the stock around? Yeah, that's it. That's just literally what I was talking about. The MI300 is what they're going to start with on the call. And they're going to talk about revenues for that particular chip. And we should expect that revenue number to actually be a little bit higher, which is a positive sign for the stock. Does that mean it's going to be stealing share away from NVIDIA? It's a little bit too early to say. But the fact that they're going to come out on this call and be bullish ahead of the December launch is a good sign, because originally I thought they would hold off and, you know, not say too much about this AI chip, because they really want to go out with a bang in December.

3:34But if Lisa Su is going on the call and already talking about it, that could mean some strength for this particular AI chip. All right. Which has begun production already, by the way. OK, fantastic. Christina, thanks very much. Let's trade this one. Beginning with you, Guy, what do you think? Well, first of all, Tower, obviously, always great to have you. And happy Halloween. And it's Halloween. Let's do this. It's spooky out there, man. It's spooky as you know what. New York on Halloween. What? Spooky as you know what. It's your tie. It's spooky as that tie. I'm glad you mentioned it. Spooky ducks.

4:05Scary ducks. Scary ducks. Ducks on the pond. Could have gone with an orange tie like I did. Nondescript. We're into the show. AMD, how do you trade it? It's fascinating. This past May, the stock closed at$90. They reported earnings. It cratered. They mentioned AI. A month later, the stock was trading$125,$130. We have round-tripped that move pretty much back to$90. I don't think now is the time to be selling AMD, though. The guide is disappointing, yes. And margins came in a little bit slightly, less than expected. 22%, I think, a year ago, it was 22.7. But this is one of those stocks that when it looks the worst is when you have to start layering it, as opposed to when it looked great in the middle of the summer when everybody was piling in.

4:49You've got to sort of zig when people zag in the stock, and now's the time to buy it, not sell it. Karen, thoughts? I agree. I agree. I actually have a small position in AMD. I think I wouldn't be selling it on this. I don't know if – I really want to hear the call, and I'll hear that later, because I think we'll get a lot – some nuance, right? If I were CEO of a company in this space right now, I would be a little bit, I don't know, conservative in my guidance. Why not? Right. Turns out great. Good. So I really want to hear what she has to say. I think it wasn't wasn't shocking. Was it? I don't think this is a giant quarter that tells the story of AMD going forward.

5:26Well, here's the deal. I mean, we were talking about what they're going to say on the call about this new graphics chip. I mean, at the end of the day, they gave their guidance. It's down, you know, four and a half percent from consensus stocks down four and a half percent. And, you know, that's the way it used to work on Wall Street a little bit. And if you think about what's embedded in Q4, they can say whatever they want about this chip. But if they're going to be competing with NVIDIA, they're going to be competing on price. OK, like that's just that's how they're going to gain share back.

5:48They're so delayed. So to me, I don't think this is going to be a huge ramp because it's going to be a chip that's all the reviews. It's not going to be what these H100 is by NVIDIA. And if they're going to get that share back, it's going to be on price. So at the end of the day, they might be being like a bit conservative. But at the end of the day, like they're they're behind the eight ball here. You know what I'm saying? So I don't know. I mean, it doesn't bode well for NVIDIA either, to be frank. Well, and yeah, they're going to compete here. Well, part of the disappointment on the 4Q is not just demand, it's on margin.

6:17And again, if they're competing, question of how much they're going to have to compete. I also think that there is some hangover, even from some of the programmable chips and some of the things that that that even Intel. I know you should not be comparing AMD to Intel, but at least, you know, in terms of some of those core segments, what is going on with CapEx and CapEx spend? And we heard a little bit from Meta. We've heard it from other people. I mean, that's going to be important to the tone here for the for the broader sector. And so I agree with those that have said AMD is not the one you want to count out.

6:44In fact, I think weakness is to be bought. I don't know that weakness needs to be bought tomorrow. And I think there's a lot going on right now in terms of the cyclicality and what we've priced in. And we're going to hear a lot more about this great ship. We've got Christina with a little bit more color and detail off the conference call. Christina? Yeah, that's because I actually have the transcription of what she's going to say. So maybe I'm just front running it right now. But it was in my email so I could go with it. She's going to say that we now expect data center GPU revenue to be approximately$400 million in the fourth quarter and exceed$2 billion in 2024 as revenue ramps.

7:15The line that stands out is, quote, this growth would make the MI300 the fastest product to ramp to$1 billion in sales in AMD history. That's all they provided for the numbers, but pretty strong savings. But that's a strong endorsement of that product. That's growth. Well, and again, part of what we've already heard from the company is you should be expecting some material amount of sales in the fourth quarter. And that's why at least the early so far has been some disappointment that it wasn't more impressive. We're going to wait and hear it all. I'd also add that the article in the Wall Street Journal today about NVIDIA having five billions of orders from China for these competitive chips, if they are not able to go through, then what might we have like an inventory situation?

7:56Is there enough demand? Where they're stuck with those chips? Well, I'm just saying that in general, they're going to have to sell them in the West. It depends if you think their supply-demand dynamic is right now in... China has been such a huge driver of all this demand this year. I mean, like the double and triple ordering. And this might be demand that maybe the Chinese didn't even need. You know what I mean? This is orders for next year. They're talking about$5 billion. And so these new guidelines are putting tighter curbs on it. We know that these guys did some workarounds. This is NVIDIA.

8:21Listen, this is just setting up for this sort of thing. There's also an article in the Wall Street Journal today, in the CIO Journal, how companies or enterprise buyers of tech are debating what is the commercialization of some of these products right now. They've all just moved in so quickly and just been buying whatever it is, whether it's compute, whether it's cloud storage, whether it's chips, you know what I mean, that sort of thing. So who knows what's going to happen here? And we know that today or tomorrow, I guess, Microsoft is going to start selling this Copilot 365, and we might start getting some indications here.

8:51But I think at the end of the day, if we know that some of these companies are already starting to cut costs as headcount, they're going to probably start rationalizing spend a little bit, too, on some of this other stuff. The question is, are you buying AMD for AI and for this chip? Are you buying them for some of the dynamics that have made them eat everybody else's lunch where they are competing? And so are you bummed out that they've talked about weakness in gaming and 4Q? I mean, so these are the things you're sorting through on these numbers, because I think there are some headlines that aren't great for the cyclicality of some parts of their business that have been very important.

9:25I don't think that's why people are owning it here. But again, that's why I think you have some time before you have to make this decision tomorrow. All right. Let's advance the conversation by bringing in Susquehanna International Group's Chris Rowland. He's a senior equity analyst at the firm. Chris, what do you think of the results you've seen? And I note that you say there are headwinds facing this stock, and that is one of the reasons why you've cut your price target on it. Yeah, this was basically as in line as I could have imagined. There are some headwinds, as I suggested, but primarily in markets that are affecting everyone, like industrial and comms through their Xilinx business.

10:07really their server is at the first point now very competitive with intel that is ramping taking share and as you guys have been talking about the mi300 gpu is very exciting for the data center and so why the price cut from 145 to 130 what explain that to me take that apart Yeah, some of this is slower server than our expectations for last year that were really quite robust. The second part is the Xilinx business that they bought. That business, according to Intel, who has a similar business, is losing about a third coming into next year. Karen, thanks for being on today. So how do you get to the 130?

10:56What's the multiple or how do you think about that valuation? Yeah, it's a great question. We are now looking at EPS primarily. For next year, we're looking at about$350 to$4. So we're looking at about 25 times overall. And really, this is going to be about growth. It's going to be about traction around MI300. and can that multiple go up from there if we do indeed see better growth dynamics around AI. Chris, since they reported all shift gears, NVIDIA, I mean, after hours, I saw a 5.16 print a couple months ago. Obviously, it traded sub 400 today. What do you make of this more now, the 20 % move to the downside?

11:48And how does that set up in the earnings? You know, if margins, they start to decelerate, this move might look like nothing in comparison. Yeah, it's amazing the discounting mechanism that the market is. For NVIDIA, very specifically, we are still expecting beats for at least the next quarter. I would see a billion dollars of beats coming for this next quarter. We're already, the buy side is talking about March or April for NVIDIA, what that will look like. And then is there indeed a correction sometime mid next year? If so, how deep? And that's really where the conversation is right now on the buy side.

12:32Dan, any thoughts here? Yeah. Chris, what do you make of the story out of the Wall Street Journal about NVIDIA and$5 billion worth of orders in China? And what would that mean for just basically just inventories in general for these chips and pricing? so nvidia was most likely shipping as much as they could to china before that uh rumored ban uh the actual institution of the ban was quicker than expected so indeed they may have been caught with some sales that did not get out the door in time but that said some of that will be fungible and can be moved on to newer players out there. And some of those products are China-specific and may have to be eaten or heavily discounted.

13:27Chris, thank you so much for your time tonight. Appreciate your being with us, Chris Rolland of Susquehanna. Let's take a look, shall we, at the AMD chart, which has just turned back. It has bounced off the lows. Can we show that chart in the after hours? Yes, we can. Of course we can. And if I ask for it, we're going to see it. We're going to see it. And there it is. It snapped back there roughly to where it was, I guess, at the end of the 4 p.m. session. So roughly right there after a dip. Let's tie it up. Well, yeah, right now the chart, the jury is the challenge to move down. I mean, in other words, the downtrend that's coming basically from those July highs when you had semis basically hit their all-time highs, certainly relative highs against the S &P.

14:10The entire sector is down. But that downtrend, you know, look, you're making lower lowers in the after hours. So, you know, in terms of where we are, we're below the 200. There's some key levels that have been breached on the chart. Really, you know, you're you're you're you're kind of looking at levels just below this 98, where I think there is some support. You know, but again, as Guy pointed out, if people start questioning some of these growth numbers, things could move quickly. Yeah. All right. Let's move from from chips to another kind of business. And that would be real estate. Shares of Zillow plunging this afternoon after Missouri.

14:41jury found the National Association of Realtors guilty of conspiring to inflate broker commissions. The verdict could result in$5.3 billion in damages. And Diana Olek has the details. Hi, Di. Hey, Ty. Yeah, the National Association of Realtors, along with residential real estate brokerages Keller Williams and Berkshire Hathaway's Home Services of America, were slapped with$1.8 billion dollars in damages after a federal jury found them guilty in a major antitrust lawsuit that could change the way homes are bought and sold. REMAX and anywhere had previously settled. Now, the damages could triple under antitrust rules.

15:20The suit claimed a conspiracy to keep broker commissions high by requiring a listing agent compensate a buyer's agent for listing on a property on the MLS, which is the biggest home listing service. Now, that means the seller has to pay both its agent and the buyer's agent. This was the first of two such lawsuits. Now, the realtors put out a statement saying NAR rules prioritize customers, adding that this matter is not close to being final as we will appeal the jury's verdict. They're also asking the court to reduce those damages. Now, analyst Jarrett Seberg wrote he worries this could be a drag on housing if buyers have to start paying commissions to their agents.

15:57That's because first time buyers are already scraping by to get by in this, as you know, Tyler, extremely pricey housing market with high mortgage rates. All right, Diana, thank you very much. Karen, this is a stock you have owned or owned. Yes, I do own. Sadly, I do own. Yes, what I like about it is the asset light model. And so it's really a platform for brokers. Now, if brokers are being squeezed, they're going to be able to spend less money on the Zillow platform. So that's why it's down. I think things like the knee jerk reaction is often overdone. We'll see how this plays out. I think they actually report tomorrow.

16:32I don't know if it's tomorrow morning or tomorrow night. So I'd love to hear their commentary on this, but I think this is far from over. It's really more we need to get a lot more residential sales. The rental business is hanging in nicely, but obviously today. This question of who pays whom in real estate transactions has been lingering with us for decades. Yes. And the seller actually pays the commission, but then the seller's agent pays the buyer's agent, who's really a seller's agent, effectively, in the same way. It does feel like every time you do a transaction in real estate, they're working for the other side, regardless of which side you're on.

17:11It always feels like they're working for the other side. Unless you hire specifically a so-called buyer's agent who is working solely for you, and you're paying that individual by the hour. This feels like it is. I mean, do you want to step in and buy Zillow here to Karen's point tomorrow after the bell? Brian Sullivan. He does that great show. Oh, yeah. I heard him. The last call. The last call. That's right. Last call. Long haul. He had a great tweet out, though, talking about, you know, the National Association of Realtors have been beating back all these different arrows over the years. This one they have been able to do.

17:43And he wonders aloud, what does it mean for commissions in the space? Which, if you think about it, if the commissions get cut in half, what does that mean again? to that sector of the economy. It's far-reaching ramifications, I think. Yeah, no, this is a biggie. This is a biggie. And as you said, or as he said, they have been able to deflect these arrows over the years very efficiently. But who knows? All right. Coming up, we're going to dig through more earnings results. It's that time of year, folks. Shares of Caesars on the move in the after hours. We'll go inside those numbers ahead. And Caterpillar grinding lower after their results.

18:16More on the weak guidance that sent shares negative for the year. That's next. Don't go anywhere. Fast Money back in two.

18:33All right. Welcome back to Fast Money. Cat getting scratched after reporting results. The company posting, I just read them, folks, posting a beat on the top and bottom line, but issuing a weak sales outlook for the current quarter. Caterpillar, the worst-performing Dow stock today, down nearly 7%. Imagine what the Dow would have done if you take out the cat. Putting the name into negative territory for the year, that would be Caterpillar. Who would like to pick up here? Well, first of all, before we go there, we have to ask the question, obviously. Ted Newton. I'm in Tim's head on Halloween. Who sang Cat Scratch Fever?

19:08Of course he was. The Motor City Madman, Ted Newton himself. up. So Caterpillar, the reversal of the stock from at least pre-market when they released these numbers and they beat and they beat, they significantly beat. And the things that are really impressive about Caterpillar here are the free cash flow dynamics. So you've got$6.8 billion in free cash flow year to date versus$2.8 a year ago. You have dynamics that look pretty strong going forward. They talked about in order book. It's the fourth quarter guide as you got into some of the margins. It's not a demanding valuation. It's certainly not demanding in hindsight.

19:40The question is, are they going to have the kind of cycle that they've had year over year. I think the comps look really tough for this company, at least over the next couple of years. But there was nothing in these numbers. The guide wasn't awful. It felt like a crowded trade where people needed a catalyst. Are we starting to see a little bit of a trendlet here of guidance being the thing that's tripping? And does that say that come spring, it's going to be a much rougher world? All the things to mention about metrics are spot on. Backlog down$2.6 billion year over year and inventory build. So dealer inventories are completely unfavorable.

20:14And that does not fix itself over the course of a quarter, which is why people sold first and ask questions later. The question you have to ask yourself is, where do you get back into the stock? And it was a$205 stock in April. And I got to tell you something. That feels like where it wants to head, given, I think, the fact that inventory build happened as quickly as it did. I'll just say this. I mean, so if you're talking about inventories, you're talking about probably weak pricing power. Right. And so like the guidance, the lack of visibility, this stock three months ago was making a new all time high.

20:44It gapped up nine percent. OK. In one day, it just kept on moving after reported its Q2 and gave their Q3 guidance. It's showing you the volatility that we're seeing in the corporate visibility of these guys. business is, we're seeing this across a lot of industries, is not good. That should be telling people something a little bit. And so we've gone to this period where people are selling first, asking questions later. And one of you guys said it's not a demanding valuation. It trades at 11 times earnings. Next year's earnings are expected to be up 100 % from two years ago. So this is what you would say an unusual value, except that it's baby with the bathwater right now.

21:21And I just think that says a lot about the market that we're in right now. Highly cyclical. And think about the environment we came out of. I just think that these are going to be tough comps. And finally, the last question I'd ask to you, Tyler, is do you think Nugent's work with Damn Yankees actually exceeded his work as a solo artist? Yes. I think so. You have to be more definitive. See, Mel would have handled that. Of course it was. You have to pretend like you even know. By the way, where are you going now of that Damn Yankees? That was one of the first supergroups, actually, if you think about Damn Yankees.

21:50Well, it's interesting you say that. I mean, not really one of the original supergroups. I mean, you think about Paul Rogers, the firm with Jimmy Page and those types of things. Yeah, you know, Tyler. Asia was one of them, too, maybe. Back to you, Tyler. All right. Back to you. Another earnings alert. Yum China shares dropping hard in the after hours. The company posting a revenues miss saying it saw softening consumer demand in China. Any thoughts on Yum China? Well, if you if you look at what's been going on in terms of quick serve and fast food trends overall here. It's really been a story of where margins are starting to run into some headwinds.

22:25It's been a very important time. In terms of Yung China, this is, again, Kentucky Fried Chicken, Pizza Hut, all those lovely things that you can do in China. This was supposed to be the high growth engine when they split this company off. And it actually has been an underperformer relative to Yung that trades over here. So I think it's a test of the times right now. I think a lot of these quick serve names are running into margin pressures as well. Cue the same theme. I don't think these numbers were awful. All righty. Coming up, we're going to hit Caesars results. Shares on the move after those numbers cross the wire.

22:57That casino trade is next. Plus, all eyes on Jay Powell as the Fed readies its latest rate decision. We'll tell you what to expect and how markets may react ahead. You're watching Fast Money live from the Nasdaq Market Side in Times Square. We are back right after this.