The Revenge Of Apple… And Tesla Clears A Key Hurdle In China 4/29/24

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. Shining Apple, the tech giant surging to its highest level in two weeks as one top analyst says by the fear, is the long-lying stock of the iPhone maker about to stage a comeback or earnings put a damper on the parade? Plus, a Tesla turnaround, shares of the EV giant seeing their best day in over three years as CEO Elon Musk scores a big win in China. Can the stock keep accelerating or will it hit the brakes again? And later, Paramount pressure, mixed earnings, a longtime CEO stepping down in a deal potentially moving closer to fruition.

0:39What it all means for the streamer and the streaming space. I'm Courtney Reagan in this evening for Melissa Lee. Coming to you live from the Studio B at the Nasdaq Market site on the desk tonight, we have Tim Seymour, Bono and Eisen, Dan Nathan and Guy Adami. We will start with Apple's revenge. Shares jumping about two and a half percent in the session and adding nearly 65 billion dollars to the company's market cap. Just today, by the way. The stock closing above its 50-day moving average for the first time since January. The latest move coming after Bernstein upgraded the iPhone maker to outperform, telling investors to buy the fear.

1:13The stock had been down 12 % 2024 before today's call. But can the momentum carry Apple into earnings coming in on Thursday? Will it hold through all those numbers? Many of the big tech names that reported last week were under pressure today. Meta is down 12 % since its report on Wednesday, for example. So should investors worry that Apple will fall into the same trap after its report or will it gain some appeal as a defensive play? Tim, you're nodding your head. What do you make of this call? They're saying, look, be Buffett like at Bernstein. Buy when it's low. Well, Tony Sakanagi is somebody we all respect.

1:48He's had a great call on Apple and I think he's picked out these moments. And I think the core to his thesis is that Apple is relatively cheap to the market, relatively cheap to itself. But that his call that China is more cyclical than structural, I think, is interesting. I think that could be challenged. But there's no challenging the fact that Apple has really underperformed the market. It's really underperformed the other Mag 7 other than Tesla. So today was like the revenge of the Mag 2. And Apple's underperformed the Nasdaq 100 by 20 percent from early December. So, you know, you can you can track this thing.

2:21It has been a big laggard. It's certainly something that's needed a catalyst. You never count Apple out. There's certainly no AI or the these to the extent you're going to have a refresh in the iPhone cycle and there's something coming up. Great. Let's see. It's certainly not a bad call, given how much Apple's underperformed. I like that kind of a call by an analyst. Yeah. Bottom line, I was thinking, I mean, it couldn't necessarily be a bad bet, but is it defensive? I mean, do we even want to count it as magnificent anymore? I think it's so magnificent because, you know, you look at that balance sheet, there's still a margin of safety.

2:53I think perhaps we're kind of going to change our definition of what exactly as magnificent is, right? That was, you know, out of this world growth coupled with a margin of safety. I think now, given a market that's shown some ebbs and flows and some puts and takes, perhaps the margin of safety is what's going to cause you to still label it as magnificent. With that said, you know, I'm just not sure I see the upside. I do think the downside is mitigated. Tim pointed out how it's been a laggard, and you definitely want to kind of look at those type of contractual trades. But in terms of the upside, and that's really where the magnificent question really comes in, you know, I doubt they're going to come out on earnings and say, listen, we've absolutely knocked the cover off the ball in terms of China sales.

3:31In fact, we're expecting, you know, there's we've been keeping this this AI tool under wraps forever. And now we were going to release this. And this is going to lead to a reacceleration of growth and a reacceleration of service service revenue growth. So I don't think that you have that rabbit in the hat, so to speak, that's going to be a surprise. With that said, I do think expectations are relatively muted. And I think the news with Tesla and China might bode well for at least there being some warm spots and what's shaping up to be a bit of a cold technological war. Those are some really good points.

4:01I mean, Dan, you're not really expecting any fireworks out of this Apple report to really move the stock higher. Listen, my panelists made some great points right there. There it is. I think you kind of nailed it, too. One thing I want to say about Tony, and I know we've all followed his work for over two decades. He is not afraid to make contrarian calls. He's not afraid. He has been on the right side of Tesla now for a couple of years. You know why? At Bernstein, they don't care about investment banking business, right? Because that's not what they do. And Tony's a great analyst. So I like him getting in front of it.

4:32I don't think there's any catalyst that's going to come out on the call. I just don't think that there's anything about their China business, 19 % of their revenues. Some expectations are that iPhone's down 19 % year over year. So the fact that you have that whisper number out there, that's pretty good. I would be surprised if it's down more than that. But the point about, you know, generative AI and what they come up with, there's been lots of reports that they're talking about to open AI to license that. Whatever they do will be on the phone coming out in September, October, November. I don't know if that's much of a catalyst right now.

5:02I'd love to see this company kind of de-risk from a guidance standpoint right now. Maybe they give cautious guidance for the balance of the year. And then you could say, all right, I want to buy this stock at$160 or something like that into WWDC on June 10th because you know you will get some announcements. Whether they're positively received or not is another story. But to me, I actually think the stock is kind of expensive. If you think about this, earnings growth at best, high single digits, sales growth at best, mid single digits for the next couple of years, trading about 24 times. It's just not that cheap.

5:34And I know Tony spent a lot of time talking about free cash flow generation and the way he looks at it from a valuation standpoint. He thinks it's cheap relative to itself. What Tim just said, I just don't know if there's anything right here right now that says to buy it. I'd rather buy it a little weaker with worse sentiment into WWDC. Guy, does it feel defensive, though? It has been, without question. On horrible market days, you know, Apple is one of those stocks that will go up regardless of what it had been doing in the prior couple days or the prior couple weeks. So I think at times it's very defensive.

6:03I don't think in terms of valuation it's defensive at all. We've all talked about it and throw in the fact that margins have been flatlining for probably the last year, year and a half. And you say, you know what, this is probably expensive stock. We get I think we get seduced by the fact that it's Apple. If it's any other company, I think we would look at an evaluation, say this is expensive. And this stock has not performed now since July of last year on a broader market that's done pretty well. And I think what will happen is and I admire Tony as well. But if they come out and miss or the stock trades lower, they will defend that call and they will reiterate that call as they should.

6:35The question is, you know, can you stomach$12 to$15 a downside? Or is this something you say, you know what, I want to be in it. I don't care if the stock goes lower because this is sort of a, you know, this is one of those transential stocks that you need to be in. I still think there's some room to the downside. I keep thinking about AI and how Apple plays into this. We've all sort of danced around this. And obviously they've had Siri for a long time. But, I mean, what else could they possibly say about generative AI or AI, I guess, of any kind? We would really jazz up investors. I mean, maybe they don't have to be first, but maybe they can be best.

7:07Maybe they can do it better than anybody else. Yeah, I think that's fair. Ultimately, the AI trade is not directly associated with what Apple is going to give you. But I do think that the handset, the ability to also have the computing power at some point to really deliver on a lot of the underlying app strength. Sure. I just I get back to a company that guys talking about its defensive nature and down days. Absolutely. A couple of those big down days, Apple was flat. And the risk-reward on a down tape to Apple relative to its peer group, I think, is very compelling. If you look at the dynamic around their services business and the gross margin support that it gives the company and the free cash flow generation that Tony at least references, you know, you're talking about 45%, 46 % gross margin.

7:50This is something that's really attractive. The services business isn't as sexy of a driver to the company and to the valuation, and it's something that I think will be very defensive in difficult times. I think we're all saying something similar, which is that the company is not priced to perfection, although it's not cheap. And so you have something here going into those numbers where I think nobody's expecting anything. I think the bar is very low. And I think we all know that the refresh cycles, it gets into Dan's comment about in the fall. That's really when you're going to expect this company to do something, but maybe you get something in June.

8:20Bonwin, I mean, shares are only up 3 percent over the past year. Bigger risk, they go down and they go up after this report. Probably go up. But again, it's really about order of magnitude. I wouldn't really call a 3 % move the grand revenge tour, right? And I'm just not—I do think it's positive they've broken through that 50-day. That gives you some type of short-term catalyst that you can kind of hang your hat on and ride that momentum. But even he is suggesting that you trade this between a range of 25 and 30 one-year forward numbers. And so keep in mind, this is not him saying back up the truck.

8:50The valuation, you know, compels one to add this as a core position. He's saying this is now an entry point, a compelling entry point for a trading position. And I think if you're approaching it from that standpoint, you understand that, sure, you know, I think that the risk reward is more compelling. However, the stock has not gotten to a point where you're now reallocating and taking dollars away from something. Yeah, I'll just say this. You know, the stocks that gapped up last week, I mean, look at Google, look at Microsoft. I mean, they look like good reports. I mean, Google, I think, you know, was a better report and a better guide relative to expectations than Microsoft was.

9:23but they've actually filled in or, you know, Google's on its way to filling in the gap. Microsoft's filled in that gap. And then we saw on the flip side what Meta did, what Netflix did and a few others. There was just downright horrible price action. So if Apple were to have a little bit of a relief rally because it's not as bad as feared, I don't think that sticks. And I think that, you know, we're probably getting to a seasonally weak period. We're getting to a point where I think a lot of investors and we're going to get a lot of color on interest rates this week with the Fed meeting and obviously the jobs report on Friday.

9:52But if we have a 10 year that's marching on its way to 5%. I think that this is the thing that has been a cooling agent for a lot of these big names over the last month or month and a half or so. And I think it will continue through the course of the summer until we have better clarity when I think some investors can start to price in lower interest rates. But right now, I don't think it's here. So if this stock were to pop and get back above, I don't know, like get towards 180, I think you'd probably sell it and you look for a better opportunity into WWDC, which again, is not that far from here.

10:20But that phone refresh cycle is a long ways away. And anything that they do, licensing someone else's technology to go on their phone, they have not been great at doing that in the past. So I don't expect it to be a big driver for this 16 cycle. Fair enough. You've kind of opened the door to a macro discussion. So I do want to talk about the yen, which is falling to another 34 plus year low against the dollar, the currency weakening to more than 160 yen per dollar for the first time since April of 1990 that were treated from its worst levels amid reports that Japanese regulators could be intervening to prop up its value.

10:54So, Tim, what do you make of the volatility in the end? I mean, I remember in 1990 when this happened. I'm just kidding. I don't remember that. But what do you make of the volatility here? No, you cannot. You were not born. I was born. Come on. First grade. You know. BOJ's credibility is shot. And so that's what's going on here. And to the extent that everybody knows an intervention doesn't really work, historically hasn't worked, to some extent the market then pushes as hard and hard as they can, whether there actually was one or not. I think Guy's got a view that there was. I'll let him talk about that.

11:24I just feel like the ultimate message, though, for where interest rates are and for where central banks are around the world is something that's scary. This is not something that's sending a lot of confidence. I do think that yields have to go higher in Japan. I think the good news is also the bad news. They want inflation. They've had three decades, four decades of deflation. And ultimately, as we've talked about many times on this show, Japan is the largest buyer of U.S. treasuries. And that doesn't bode well here, especially when they're buying power at 160 or 155 or even 145 is not what it was.

11:54And I do think it's a case where markets will push and push and push. That's what's going on in Japan right now. And it's not positive for the sense of volatility in markets overall. Something happened last night because it traded up to 160. I think it was like 10 o 'clock our time. And within minutes, it was down to 156 and change, 155 and change. So whether or not it was an intervention that they're going to announce or something happened to that, something clearly did happen. Number one, Tim is spot on. Their credibility is shot. I mean, they can intervene all they want in their currency. It's not going to work.

12:24In order for something that work, they have to raise rates in a meaningful way. But that will crater an economy that's already sort of on the brink. So they face a huge dilemma here. I mean, their currency is going to continue to weaken, which is really bad for the people that live there. or they're going to have to raise rates to defend their currency, which, by the way, is really bad for people who live there. And his point about owning treasuries, that's one of the many reasons, I think, that U.S. yields continue to go higher. So the fact that this is the third or fourth largest economy in the world and nobody seems to want to talk about it is staggering to me.

12:55Yeah, but bringing it back to U.S. and bringing it back to a company that we were just talking about, Apple, almost 60 percent of their sales come from outside the U.S. Just think about that. This is already a very expensive aspirational product in most parts of the world. So you have a dollar, at least the U.S. Dixie, the U.S. dollar index, is up 4 % year over year. So we're going to start hearing constant currency. We're going to hear that again and again. I've already heard it a lot on a lot of these conference calls. And so, again, you're trying to figure out what is the organic growth, what is the organic demand.

13:23But some of that demand can be thwarted by the dollar translation here. And I think that's something that's here to stay for the balance of the year. That's a really good point. And it isn't just earnings and the dollar on investors' radar. this week. We also have the Fed decision, by the way, on Wednesday, the April jobs report on Friday. So for more on all of what this could mean for markets and stocks, let's bring in BMO's chief investment officer, Young Yu Ma. Young Yu, thank you so much for joining us. I mean, obviously, we've got a lot of economic data on the calendar. Recent economic data, we saw some surprises with the GDP number, for example, but then the PCE came in pretty much bang on.

13:59What are your expectations this week and which economic data point is most important to the equity market? It's great to be here, Courtney, and definitely a lot of data this week. We do think that probably the most important thing will be some of the under-the-hood numbers with the jobs report. We actually think when we look at hourly earnings, when we look at labor force participation, we think that's going to set some of the tone for whether or not the market thinks that the inflation pressures will ultimately be on a downward trajectory over the medium term, or if we just face a very protracted battle, which Chairman Powell is probably likely to point to in his messaging on Wednesday.

14:38So we do think there's a lot of data that's going to come out. The Fed will probably be us signaling a little bit of hawkishness to the markets, and the markets might reprice a little bit the prospect of actually having no interest rate cuts this year. Wow. Yeah, obviously, we've gone down from six, and so we are We are far away from those initial expectations. We're almost at the end of April when you put everything together when you're looking at the economic data points. Do you think it's going to be a sell in May type of year? We don't think so. We don't think that's what's advisable here.

15:10We actually think the growth drivers are in place for the second half of the year. We think corporate spending is starting to pick up and that will be a big driver for the year. And we think that as long as inflation can remain relatively stable, that the investors in the market can focus on that growth and profitability that's starting to improve. And we can overall see a favorable trajectory. But we are going to have some push and pull because the more growth we get, we'll probably see some upward lift in those long-term treasury yields, which is just going to cause some tension in the market.

15:39So it's not going to be a straight line. But we do think ultimately that growth is going to win the day and provide a healthy backdrop here. Young U, it's Tim. Thanks for joining us. So maybe that's framing the answer to my question, which is you're a CIO. You're managing risk. You're thinking about allocation. Seems to me that the market has kind of decoupled with the reality of not only not five cuts, maybe not any. And so do you think that and do you think that changes the thesis for equities here? You know, it's definitely not a Goldilocks scenario anymore. I think it does change the backdrop.

16:14We don't expect the markets to just be this constant grind higher. But I think that overall, if we think about how do we want to allocate risk, we still want to have a healthy allocation of risk and we still want to look for areas we think can outperform. But no, it's no longer the Goldilocks scenario of having falling inflation, a Fed that's cutting rates aggressively and strong growth. That just wasn't going to last for very long. So you heard us hopefully had the conversation about the Bank of Japan and yields. and you don't have to agree with us, but how important are 10-year yields? And, you know, I think we're on the way to 5%.

16:46The market doesn't seem to care right now. Should it or where will it? I do think it's important. I think the market will start caring if we get, start knocking on the door of 5 % and certainly if we get beyond 5%. We hit 5 % in late October of last year. So there's a little bit of experience we've had now of 5 % that definitely jarred the markets at a time, perhaps caused the markets to be a bit immune to another trip toward 5%. But I think that if we do get a push past 5%, that's going to be much more of a wake-up call for the markets that that level that we reached before could be surpassed and perhaps substantially.

17:29So we do think it's a big risk in the markets here. And it is something that we think the markets are going to be very sensitive to the 10-year Treasury yield over the next few months. A lot of factors to balance. Thank you for helping us try to do just that, Young You. Appreciate you being here with us. Bono, what do you make of everything that's to come on the economic calendar this week and how you're going to put that sort of into your calculus? We also have to balance Amazon earnings and Apple earnings, NVIDIA also coming up. I think heading into the week, this is a huge earnings week, and I think that's really where the focus tends to shift.

18:00I think we've gone from expecting five to six cuts almost unanimously across people polled, to now saying zero. And now there's actually whispers about possible more hawkish or, dare I say, rate hikes. So I think that macroeconomic backdrop has kind of shifted. The GDP number also, I think, throws in a bit of a question mark. You know, we're expecting, you know, 2.8, 2.7 percent. And I think we came in around 1.8. Right. Couple that with PCE, which was slightly hotter. I just think it's hard for us to now say that we're clearly still in this soft landing Goldilocks scenario, which makes me, again, refocus on earnings.

18:35And you asked earlier in the segment about, you know, whether or not I'm looking at margin of safety, either magnificent seven example. I still am looking to that complex to an extent. I mean, clearly, you know how I feel about NVIDIA. I mentioned, you know, Meta. I think that's, you know, a bit of a unique situation there where they're now re-accelerating spending, and we saw how the stock reacted there. I do expect that to present an opportunity. You know, Apple, again, I think there's a defensive aspect there. And I think Google, I think that was a surprise. I think that stock has been pretty flat for some time.

19:05And I think they had strong earnings there, a new dividend. I still think there are pockets of the market where you can play. I just think that it's going to be a lot more earning dependent and not so much about a thesis around when and how much the Fed is going to cut. All right. Well, coming up, we are watching Paramount After Hours, Shares on the Move, after the company's earnings report, how the CEO stepping down will impact the future of the company, and the latest on deal talks. That's next. And by the way, speaking of earnings, SoFi getting hit after their report this morning. What is investors heading for the door on this fintech heavyweight?

19:36We will explain when Fast Money returns. We're back in two. Still got a lot of show for you. You're watching Fast Money here on CNBC. We'll be right back.

19:54Welcome back to Fast Money. Earnings alert on Paramount. Shares volatile after the company reported an earnings beat, but a revenue miss for the first quarter. Paramount also announcing the departure of CEO Bob Backish and outlining a new leadership plan. Julia Boorstin has the details. What did we learn from the conference call, Julia? There's a lot of moving parts in this story. We learned basically nothing from the conference call. It was only nine minutes long with zero Q &A. The company just reiterating its big news that CEO Bob Backish is out, replaced by a newly created office of the CEO, which consists of CBS CEO George Cheeks, Showtime MTV Entertainment and Paramount Media Network CEO Chris McCarthy, and Paramount Pictures and Nickelodeon CEO Brian Robbins.

20:35Now, these three men are meant to work closely with CFO Naveen Chopra and the board, but there was no comment on who Chopra reports to, who oversees streaming, and whether this is meant to be temporary or permanent. Now, today's changes do seem designed to make it easier for the company to do a deal. But there was no word on Skydance's best and final offer for Paramount Global made yesterday or whether Sherry Redstone, controlling shareholder, will entertain an offer from Apollo and Sony, which is expected to come as early as this week. There was also no word on tomorrow's deadline for Paramount to negotiate a deal with Charter, which, Courtney, is a very big deal for its value.

21:14Absolutely. There's so many questions unanswered, only nine minutes and no Q &A. Well, fascinating stuff. Thank you, Julia, for keeping us up to date on that. Dan, what do you make of this? A lot of news flying around this company. What's best? What did you want to hear? What do you still want to hear? No, I don't really care what happens. But I would say this with Berkshire, largest shareholder, you know, I'd take the Apollo Sony deal and walk away because it seems like a big stinking mess. Yeah, it does seem like a big stinking mess. Well, what's interesting is National Amusements, this is the Redstone family entity that controls 80 % of the stock, can do whatever they want anyway.