The Next Moves in Oil & Rates, and Can Recent Rebound Stocks Keep Their Momentum? 12/6/23

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. The drop that won't stop. WTI falling to its lowest level since June, now back under 70 bucks a barrel, while the yield on the tenure keeps falling as well down 90 basis points since its October peak. Should investors cheer or fear these moves? Plus, up in smoke. British American tobacco taking a massive write down, saying their traditional tobacco business has no long-term future. This lights out for the sector. We'll debate that. And later, from burned out to bouncing back, we'll break down a host of names with beautiful rebounds after sickening slides.

0:37A little traded or faded on these stocks coming up. How do you cough the hints here? I'm Melissa Lee coming to you live from Studio B at the NASDAQ on the desk tonight. Tim Seymour, Karen Feinerman, Dan Nathan and Steve Grasso. We start off with a bold prediction from the CEO of semi-giant AMD, Lisa Su, saying the market for so-called AI accelerator chips could hit$400 billion in just the next four years. That's double the estimate she gave just in August. The comments coming as AMD unveiled its hotly anticipated MI300 chip lineup. Shares of the company were up nearly 4 % earlier in the day, but closed down over a percent.

1:12Christina Parsineblus spoke with the CEO in just the last hour on overtime. She's got all the headlines. Hey, Christina. Oh, hi, Melissa. The selling off may just be sell the news kind of event, but AMD, like you mentioned, actually launched two versions of their AI chip, the X for cloud users, the A for supercomputers, as well as the next generation open source software, which they hope will be a great compete with for NVIDIA. The market, like you mentioned, is growing much faster than anticipated, according to Lisa Su. And that's why AMD also doubled their total addressable market. You mentioned that to$400 billion by 2027.

1:46But with that demand, you'd expect a bump in 2024 sales estimates. But I asked you this and she told me they have more than enough demand to hit that$2 billion sales target, but no updates to the actual estimates just yet. Listen in. This market is moving faster than anything that we've seen before. And we've accelerated our roadmap, too, because we're spending a lot of time with our largest customers. And they're saying, hey, MI300 is great. We love it. Now, we're also talking about the next generation and the next next generation. The takeaway from Sue and from the analysts I spoke to at this event, many of them are behind me right now, is that this market is just so big right now.

2:26there's enough demand and enough room for more than one player. That means both NVIDIA, AMD, and the hyperscalers like AWS or Meta, who are also building their own custom chips. Speaking of hyperscalers and cloud players, Microsoft, Meta, Oracle, all took to the stage as well to talk about their MI300X partnerships, which is a good sign, especially since several of those players buy NVIDIA chips. NVIDIA chips, I'd like to point out, they're great for treating large language models. That means learning all the material. But AMD aims to dominate the next part of the equation, which is inferencing, aka shooting out the answers to people's questions in chat GP style format.

3:04And every company wants to be able to provide that. And that's going to be the major competitive advantage for firms in the coming years. So, Christina, it's not that NVIDIA necessarily will have the lock in the market. They'll have the lock in the market in terms of that particular portion of AI. But it is possible that a company will also order AMD chips. So it's not one or the other necessarily. Precisely. So AMD can provide the training part of the equation, and that's where NVIDIA has a stronghold. You can almost liken it to the PC market back in the day when you had just one player, and then the market grew, and then more and more players came in.

3:38So it's going to be the same situation for GPUs. NVIDIA has the stronghold. AMD is coming in with the second portion of that equation, which is learning how to provide answers to questions and queries. And that's because their memory capacity is a little bit higher than what NVIDIA is providing. And so, yes, right now there is a market for both. But I'm a little skeptical in the, you know, three years from now when all of these players are providing their own chips, especially when the hyperscalers do it in-house. That's the threat to AMD NVIDIA and would question the crazy growth rate that we've seen in both companies.

4:13What's the point of updating your total addressable market by such a degree, Christina, if you're not going to update your own guidance? I don't really understand what that gets investors to know that AMD's total addressable market is this much more versus August. But the update, there's no update here on our own forecasts. So I asked Lisa Su that not only on camera here, but also in a press room. And I am confused about that as well. A lot of analysts were expecting that that probably would have helped the stock bump higher today. The fact that there was no commentary about that$2 billion threshold, even just saying, oh, yeah, we're going to be on the high end.

4:49She did tell me in a press conference that, yeah, we have enough demand to hit it, but there's going to be no changes just yet. The only other interesting thing, too, is that they are trying to speed up their roadmap. I asked, does that mean 12 months like NVIDIA? And then she said, oh, it's coming. So a little vague on that point. All right. Christina, thanks. Christina Parts Nevelis out at AMD's event. What did you make of that, Dan? I thought that was a little puzzling. Yeah, great question. I would just also say that by the time that they double the TAM, right, like the investors already figured that out, like meaning like the stocks would have been trading much higher.

5:22But I think that's built into the stocks. And if you just look at AMD and the move that it's had over the last kind of month and a half ago in anticipation of this, there's been a story every day about these chips, you know, coming out and how they're going to compete with NVIDIA and the like. And I'll just go back to a point. I think a lot of those TAMs are kind of built into the stocks right here in the valuations. We had a good conversation on Monday night about how NVIDIA has grown into that valuation as consensus was slow coming up. So if you're looking at the trailing, it looked expensive and the like.

5:49I think they'll be slow to cut if there's any meaningful competitive advantage or there's a drop off in demand in 2024. And then those stocks in this one, too, in AMD, they'll start to look expensive again. So, again, I think the TAM is kind of built into the stories right now. And now it really comes down to demand. And the last thing I'll just say about AMD, if you look at consensus estimates for gross margins, they're expected to go up meaningfully over the next few years. Right. As they get to a doubling of their revenue, I think from like two years ago or something like that. So all of this stuff is really important to them.

6:18If it doesn't play out, if they start getting bad performance reviews, if some of the competition heats up from even their customers, right, are making better progress than they are on their own platforms for these sorts of chips. I mean, AMD does seem a bit vulnerable right now because it's not really reacting on any of this news. I think we're so early in this process that the sky is the upside for all these names. But NVIDIA had 85 % of the market. Now you're starting to hear about AMD potentially taking some of that market share. So I think it's a sell NVIDIA by the rest of the group. What is the rest of the group?

6:52AMD would be the number one. Christina said that AMD is probably the best positioned outside of NVIDIA. But if it's going to be a data center play and you're going to need DRAM and NAND, the first thing you think about is Micron. Micron has been under the radar, headwinds from China, but I think that's not going to transpire as far as cutting into 25 % of their profits. Micron would be my bet. I'm just not sure what we really learned today. I mean, we already kind of knew from Lisa Sue that these chips were out. We knew that it was going to be a$2 billion, you know, assessed dynamic. We know it's about 8 % to 10 % of revenue total.

7:24We know where they are relative to NVIDIA. We know that AMD is up over 80 % since ChatGPT came out last year. it's priced a lot of this stuff in. I think we're all addressing the competitive landscape, which we realize is going to change dramatically. And even Intel. And again, Intel's been the best semiconductor stock to own over the last six months. It has been. If you look at semis overall, again, you know, I go back to the group and I think, you know, the group started to give some ground. I'm not saying it's ready to really cave, but it's given up 5 % relative to the S &P over the last 15 days of a market that's really had a major move.

7:58So, you know, I don't want to call this a non-event, but it's not an exciting event. Makes good TV. Yeah. I think, you know, to the question about, okay, if the TAM is so much bigger, why not change your, unless you're building as fast as you can? And that is the limiting factor, not how much the TAM is. But how do you view that? I mean, if you can't increase your revenues anyway. I think they will be able to increase their revenues. Right. But, you know, she I think of her as somewhat playing it conservative, although she's pretty pumped up on this. I got to say about this is like, you know, of her kind of lifetime.

8:37This is the biggest kind of change that we've seen to get to Christina's analogy of early on in the PC business. Right. There were a leader and then more and more competitors. But that pie grew and grew and grew for a really long time. Now, maybe things happen quicker now. But I think that this pullback in NVIDIA and, well, AMD is hardly really a big pullback. But to me, I feel like they're just kind of at the moment sort of trading vehicles. And they will get pumped up again as we get closer to earnings, which right now we're in the sort of limbo between earnings. And that, you know, I normally don't like to trade around, but I think these are vehicles made for that.

9:18If you look at, sorry, but if you look at the technicals on NVIDIA, going back to June, to Karen's point about trading vehicles, if you go back to June, it gives, it runs up 50 to 100 points, then gives back 50 to 100 points. It's been leveling up. But if you go back to June, it looks like it's setting up. It's already started that decline, but it looks like it's setting up for another 50 points to the downside. But you have to believe that the NASDAQ 100 is going to go higher. I mean, trading vehicles, to the extent that they're not necessarily trading on their own fundamentals at this point, And if we see a continued rotation into sort of the more value areas.

9:51Yes, that's a good that is a very good point. Right. I think there's a part of the valuation here that is tied up in the Magnificent Seven. And that whole space is sort of, you know, at the moment behind and the market's just broadening out, which I think is a good thing. Well, which is really the story of today's market. And I don't know when we're having our markets conversation. This is not that moment. This is what we do behind the scenes. It's our market conversation. Well, I mean, banks really outperformed today. And if you think about it, and we had this chat last night about where banks can have this window of opportunity, even if you think the consumer falls under some pressure next year.

10:23So the broadening of the market, we've all been waiting for you. You can't really say it's broadened. I mean, if anything, small caps have outperformed from that move. The CPI bottom, if we're calling it that, even though the market bottom was back on October 26th, I think, of this cycle, you've seen small caps outperform the S &P by over 6%. You've seen the equal weighted S &P outperform by about three and a half. It's hard to say it's been like full scale ahead. Yeah, well, let's have a market conversation. It was overall a muted day for the major averages, but we did notice two key market barometers making sharp moves lower.

10:55WTI crude falling below 70 bucks a barrel, notching its lowest settle since late June. The commodity on pace for a seventh straight week of losses, its longest losing streak since 2018. Meantime, the 10-year yield also continuing to retreat, hitting a low of 4.109 percent today. That's its lowest level since September 1st. So is it all downhill for rates and crude, or is there something else ahead for these trades? Let's ask the chart master, Carter Worth of Worth Charting. Carter, what do you see? Well, what we know is we have the equal and opposite circumstance of just, what, six, seven weeks ago.

11:28You had crude at 95 and streaking to 105, 110, according to consensus. It's done the exact opposite. You had 10-year yields at 5 percent plus, and it was higher for longer. We're going to six, and it's done the exact opposite. But let's look at some charts and try to figure out the way forward from here. So this is price, right? This is the actual 10-year Treasury bond futures, which you can trade in CBOT. And we've rallied to a well-defined downtrend line, in effect, for the past two years. My hunch is that this rally sort of pauses here, which is to say, if we look at the reciprocal chart, we look at the yield chart, yield, we've come down to a very well-defined trend line.

12:06And the thinking here is, again, having moved six weeks. That's a long time. It's a fairly mature intermediate move from five plus to here, almost 4%. I would be sort of reducing my TLT longs or some of my bets in the Treasury market. In terms of the trend line, though, is that intact? Or at what point do you say it is broken and we are in a downtrend? Right. So it all depends on your timing. I mean, on a short-term intermediate basis, we've come down to a level where you would expect some sort of countertrend, some bounce. Do we break that trend line? And again, we remain, and you will know this, of course, in the camp, that rates will continue lower, oil will continue lower, dollar will continue lower, and the one holdout, equities, will ultimately succumb.

12:49Yeah, you brought some charts on oil as well. Can we go through them? Sure. One is a short term, and I think it says a lot about a lot of things. At the end of Q2, June 30, 69 a barrel. At the end of September 30, 95 a barrel. Here we are back at 69. on. What happened? A lot of change in OPEC, a lot of change in rates, GDP reports. Guess what? Sometimes it's just price action. What we've done is we've round tripped. And remember, down there at June low, the expectations were much lower. At the highs of September, the expectations were 110. What's critical here is this trend line. My hunch is we do breach it.

13:25All right. Which would mean a breach of what here? I think we're going to the low 60s. Okay. Carter, thank you. Carter Braxton Worth of Worth charting, low 60s, and rates are down. I mean, this is great for the consumer, right, Dan? Yeah, well, listen, I mean, we're going to get a look at November payrolls, right, and the jobs report. And I guess the point here is that is this reflective of the 10-year coming down the way it has? Is crude in the face of what really, and we've talked about it a lot on the desk over the last, you know, four or five months, it's round-tripped that whole move, just some of the supply-demand dynamics.

13:59It really seems that those two indicators are suggesting that things are about to slow down. And going back to what Carter just had to say, I mean, the one thing that really stands out is the S &P 500, very near these, you know, 52-week highs or so, a VIX at 13. You know, I'll just point you to the Shanghai Composite, because I really feel like some of the stuff that's going on in the kind of non-bank lending around there, some of the, you know, as it relates to demand and the consumer and the like there, I really think that's going to be exported over here and basically abroad in 2024. So I wonder if the Shanghai composite, you know, down, you know, the way it is, very near 52-week lows.

14:35The FXI is down 30 % from its January highs of this year. I just wonder if that's a 2024 story in an environment where we are very complacent. A lot of folks got really locked into the fact that, yes, we nailed this soft landing, or at least the Fed did. We avoided a recession in 2023, which a year ago at this time was nearly a certainty. If you looked at almost every risk asset, that's what it was pricing. That was the consensus. So I just kind of feel like 2024 is going to be a lot harder in the stock market. You know, just look at a lot of these other risk assets we talked about. These were not great trading environments if you were trading yields, if you're trading commodities, if you're trading, you know, FX and the like here.

15:11So to me, I just think that that's probably a 2024 story. Soft landing consensus seems scary at this point, Tim. And that's what everybody thinks. We're going into a soft landing. The worst is behind us. We've priced in all the rate hikes. It's always concerning. And recession first quarter of 23 or late 20 late first quarter in the second quarter was seemingly also consensus. And it was very wrong. And, you know, the labor market that, you know, Dan's referring to, so ADP numbers, by the way, no correlation. In fact, reverse correlation to what's going to happen on Friday doesn't mean, though, that the ADP relative to itself.

15:45Again, these are private payrolls that came out today. The three month average is under 100000. The six month average is almost 200000. So we are seeing weakening. I think we're going to continue to see that in the payroll number. We saw the jolt study yesterday's job openings. We see what's going on. The labor market is slowing and it's actually slowing really fast based upon the week we've had. It doesn't necessarily mean it's going to continue to accelerate at this pace lower. But if it does, it kind of gets you to a lot of places that I think a lot of people said back to those parts of the market that are very interest rate sensitive.

16:18I mean, look at what happened to airlines. I mean, they are interest rate sensitive. Look what's been going on with utilities. Look what's been going on with all these parts of, I think, the market that also were big, big underperformers during the part of the year when rates were going higher. And even when the rest of the market was going higher, I think you have more of that. And I think you can watch that. Right. And by extension, REITs also. For NATO has had a big move. Regional banks have had big moves. It's interesting to me, though, that normally or not normally in this last year, we've seen as rates come down, the Magnificent Seven trade really, really well.

16:50And that's actually not happening anymore. As rates go up, the Magnificent Sevens trade really well. They seem to trade. They're all weather Magnificent Seven. But I think this broadening is really a good thing. I think that there's that dichotomy between small cap, big cap. That valuation gap was just so large and it's narrowed a little. But I still think there's there's a lot to go. I don't know whether they're going to have a recession or not. I think that there's still value out there for someone who has to be long. I'm always optimistic to find something, even if it ends up going down. That's OK.

17:22But I do think that we need to start looking beyond the Magnificent Seven, which I am long. Right. So do you trim your position, Mag-7, and go elsewhere? No, I don't think so. I think there's just such an outsized passive investing, and people are buying the triple Qs. Hence, they're buying the Magnificent Seven. I think rates are going to go lower, continuously go lower. I think oil is going lower. I think dollar is going lower. I still think that's a tailwind for the equities. Coming up, rising on the reorg. The headlines out of Citigroup CFO that sent shares soaring today. The breakdown, whether the gains will be long-lived.

17:58Plus, up in smoke, shares of British-American tobacco sinking after taking a massive charge. Is the industry being snuffed out? They're going for Fast Money back in two.

18:14Welcome back to Fast Money. Shares of Citi topping the tape today after the company said its billion-dollar restructuring could wrap up in Q1. CFO Mark Mason giving the updates at the Goldman Sachs U.S. Financial Services Conference. The overhaul first announced in September is Citi's biggest reorg in decades. Mason did also warn that revenue could be on the low end of guidance this quarter and that it plans share buybacks of half a billion dollars in Q4. Tim, this was your final trade just yesterday. Well, and it was not based upon an expectation that a reorg is a big catalyst for the stock. Cost savings in bank land is what their world's about.

18:49I mean, there's no question that fintech and banking is really about removing a lot of back office and middle office jobs and changing the cost structure of banks and making them leaner and meaner. The dynamic around Citi as a stock is just relative to itself on valuation, what you do with banks in a world where I think you've seen stabilization on net interest income and actually some of those margins. Even actually coming back, you've seen improvement in their capital markets business, certainly in their sales and trading businesses. And you've seen stickiness in terms of their core commercial banking.

19:20So I like it on valuation. I like the fact that banks, despite all the things that might happen and the focus on them in Washington, is that they are giving back capital to investors. And for the first time, if you look at where Citibank, I think it is a 58 or 60 dollar stock pre covid. The whole story for the banking sector was you were starting to see this capital distribution dynamic of banks begin again. Then covid hit. Then you got back there and then it's been kind of a mess. And obviously, SVB. Yeah. You, though, did not like the close. Yeah, I mean, listen, you know, 5 % gap, I mean, on its open, it was trading really well.

19:53And to close like that, I mean, the stock, I think at its highest today was, you know, 28, 29 % off of its 52-week lows just made, you know, just a few weeks ago, if you think about it. So, you know, not a buyer. I mean, like, you know, I think they're like utilities now. I think we spent a lot of time, like, are we going to talk about the XLU the way we talk about these going forward? I just think that the regulatory environment next year is going to change a whole heck of a lot. And you think about just all the stuff that we heard out of this conference when people, these bank CEOs or CFOs are talking about fintech and the lack of regulation there or what went on or didn't go on as far as regulatory, as far as regional banking crisis that we had earlier this year and some of the things that are going to change going forward.

20:29I just think they're not going to be that interesting of investments going forward. Will regulations be tighter no matter what kind of administration comes in? Oh, yeah. I don't know. I don't know if I agree with that. But I do think they're facing tighter regulations. We saw them really push back today. I think maybe they'll get a little bit of success in the pushback. But, I mean, Citibank, which I have a very small position in, more just to keep me focused on it than anything else, it's amazing to me that it has been restructuring since 2000, maybe earlier than 2007. So here we are, 16 years.

21:002007, that's like when they got into or out of Mexico. Banamex. Banamex, right, right. So, I mean, I guess, you know, it's a tough job. I think she's doing as good a job as one can do. The valuation is always astounding to me at 80 something book per share at, you know, 50 something times book tangible book value. That's just too appealing for me to own none. City is up 6 percent year to date. It's been in a declining trend line, give or take, since 2021. I think it's still Karen's favorite name. J.P. Morgan still outperforms everybody. Chart is definitely different. But I agree with Dan. I don't think there's tremendous upside to owning banks.

21:43There's a lot more Fast Money to come. Here's what's coming up next. A real drag. One tobacco stock sinking after a massive write-off. The details on the eye-popping charge the company is taking. Plus, Walmart weighing in on the state of the consumer. Thoughts from the head of the retail giant as we head into the holiday shopping spree. You're watching Fast Money live from the NASDAQ market site in Times Square. We're back right after this.

22:20Welcome back to Fast Money. Shares of British-American tobacco getting burned today, down 9%, touching its lowest level since 2010. The cigarette maker taking a$31.5 billion charge from writing down the value of its U.S. cigarette brands, which include Newport and Camel. The company is saying its traditional market has no long-term future. It's quite a statement. The rest of the cigarette makers out there, tobacco companies, also taking a leg lower today. Grasso, you flagged this. It's painful. Everyone's moving away from smoking. And everyone's trying to move into smoke less, literally and figuratively.