The Rising Tech Tide, Isn’t Lifting All Boats, and the Two Sides of the U.S./China Decoupling 5/30/23

0:00Right now and fast, a monumental may for tech. The AI trade driving massive moves in NVIDIA and semis, but the good vibes also washing over names like Tesla, Netflix, Amazon and more. So is this rotation into tech going to continue? What happens to the other once hot areas like energy and staples? Plus, split decision. While U.S. and Chinese government officials are talking about decoupling, a host of U.S. businesses are trying to strengthen their bonds with Beijing. But will rising tensions between the two nations cause more pain than profit? And later, Carvana's back from the brink turnaround, Salesforce's big run ahead of earnings, and a bold call from Wells Fargo saying bank stocks are cheap.

0:37I'm Melissa Lee. This is Fast Money. We're live with the NASDAQ Market Sight. I'm the Deaths of Night. Tim Seymour, Dan Nathan, Karen Feinerman, and Guy Adami. And we start off with the AI-led tech boom on Wall Street. What else? Chip stocks continuing to rip higher with NVIDIA topping the trillion-dollar value mark for the first time intraday. Broadcom also hitting a record high during today's session. It's now up 18 % in just the last three sessions. MegaCap Tech also getting a boost. Apple, Microsoft, Alphabet, Amazon, and Meta have added a combined$775 billion in market cap just this month.

1:09But a rising tide hasn't lifted all boats, while the S &P Info tech sector is up over 10 percent in May on pace for its fifth straight month of gains. Crude oil and energy stocks are down nearly 9 percent. Defensive plays like utilities and consumer staples also dropping. So what does it say that the great tech rally is coming at the expense of certain stocks? Where are we in this market, Tim? Well, we've seen it before. We've seen it during periods where we've questioned growth and we've been worried about the macro. We've seen mega cap tech outperform. You could take it back to 2018. We could take it back to 2016.

1:41I know Dan's pointed this out way back when we were younger men and women here. And I think if you but I will continue to emphasize what I think I've been saying on as long as Q's and semis continue to go higher, the market's going to go higher. And that may not be healthy for market breadth, but it is what it is. And what happens is you first hit your relative outperformance to the S &P or your relative resistance, which the semis went through. We talked about that last week. And then you hit all time. So semis right now, if you look at the SMH, I think the all time high was 160. So that's about 8 percent away.

2:18If you look at Qs, we haven't hit our relative high against the S &P, which is about 3 percent away. I think they're going through it. And if you look at the all-time highs on the triple Qs or the NASDAQ 100, it's around 400. So Microsoft was the first of the mega cap tech stocks to do it. Apple then followed, and you go down the line. Amazon is the farthest away, and Google a little bit better than they are. So there are places, if you're following that playbook, I do think that that's what's going on. The rotation that you talked about has been extraordinary as well. Safety of staples, safety of at least resilient discretionary, safety of health care, which makes sense in the market where you have this kind of narrowing of breadth and you're worried about the macro, I think you're going to get that trade again.

2:56But I think those trades go lower. XLP, I think, has another 5 % to 10 % lower. Listen, if you're buying this AI trade right here, right now, today, okay, you got here for the death rattle. And I'm just saying this because what sparked this rally here? I'll ask you one quick question. Sure. It's your show. That's true. Why am I asking the question? But you're polite. Would you have said that two sessions ago? No, because this is a blow-off top, okay? Broadcom, Vago, whatever the hell it's called, it sold off 12 % from its all-time highs today. Look at that. It's an epic, epic blow off top there.

3:25If you look at NVIDIA today, this is the third day since they got it up. This is the important part here. OK, for this quarter right here, they guided a quarter that was consensus. Seven billion dollars in revenue. They guided to 11. So a four billion dollar beat. OK, and raise essentially, if you think about this, cause a half a trillion dollar rally in a handful of stocks that are all the only ways that you can play this. Now, there are other ways that you can play this. I think you could buy a stock like C3 AI that John Ford just mentioned. That's a$5 billion market cap company that was up 33 % today.

3:58Okay. So there's goofy stuff going on here. If you are not paying attention and alarm bells are not going off in your kind of risk sensors here, this is for long people. Now, I'm obviously caught a little short some of these. I'm not naked short these. Okay. I buy puts. I said this on Thursday. That's good money after bad. Okay. So I'm making like defined risk bets against a bubble and trying to do that is a really hard way to consistently make money. But I'm trapped here a little bit. So I'm doing this. But I'm just kind of like trying to highlight the fact that a four billion dollar raise to guidance sparked this sort of rally.

4:31It seems fairly unnatural here. So I would also say it's also not a consistent way to make money buying things like this, especially when everything else we talked about. Look at what's going on in small caps. Look at what's going on in energy. Look what's going on in staples. Look what's going on in financials. And I could keep going here, people. I could go to resources. They are actually saying that things are slowing and the market is not reflective of what's going on in the economy here or possibly globally. But maybe those things are not, they don't preclude. They will be, Mel. I'm just telling you, I can take it to the bank.

5:01Maybe the economy is slowing. Maybe there is a global slowdown underway. But maybe this is the area that will have this spend, Karen. And maybe this is maybe maybe this spend, this CapEx spend on AI, because everybody is forced to do this, will spur this next round of cap spending for the tech sector. What do you think? Yeah, I think so. Not shockingly, I don't fully agree with Dan. I think that analysis, it sounds really great that four billion dollars has sparked a half a trillion dollar rally. It's not really I don't think the right way to look at it. It's one quarter, a$4 billion beat on their way to, you know, as Jensen Wang talked about, a$1 trillion infrastructure that needs to change, right, over the next I don't know how many years.

5:48That's a very different calculus. And I think that, yeah, is there a lot of hype in a lot of the stocks? For sure. I mean, it's reminiscent of, you know, a 3D printing bubble or some other bubbles. But in terms of the AI bubble, I think that it will become a bubble. I don't think it is yet. I think there's more to go. I feel like we're early-ish on. And I mean, you know, just if you look at what they announced last, not even their earnings, their new supercomputing ability, that's the cloud on steroids at the beginning. And so, you know, could it trade down 30 or 40 points or up 30 or 40 points?

6:26Yes, it could. But I think there's a lot more runway than just what happened in the last three months unwinding. I don't believe that that's the end of the story. Here's what our friend Savita Supermanian over at Bank of America Merrill Lynch put out this morning. Here, AI spend will likely occur within a broader CapEx cycle in automation, reshoring green, etc. This is a new bull case for stocks, Guy. Do you buy that thinking? Well, I mean, that's been the thinking. and it looks like, I'm not saying she's coming to consensus, but there have been a lot of people in that camp. It is a fascinating argument.

7:02What I would push back and say, these stocks are being rewarded for it, but then I would answer the question you asked Dan, I would have said that two weeks ago, 25%, 30 % ago, so that's wrong. In terms of just the way the stock's traded, we talk about panics to the downside all the time, and clearly that happens. But what you saw specifically in Broadcom today, I mean, that stock traded$921 effectively on the open. To Dan's earlier point, it gave back more than$100 traded five times normal volume. That's not a natural move. I mean, something weird is going on. And again, NVIDIA, we've said it for a long time.

7:38It's an extraordinarily important company. But one has to ask, are they already being rewarded for all the things we're talking about? I would submit yes. But again, I would have said that$150 ago, Mel. Yeah. Bloomberg quoted Jensen Huang, the CEO of NVIDIA, who is giving a presentation in Taiwan, saying it's too much. I know it's too much regarding the accretion in the market cap. At what point do you as a value investor, it almost surprises me that you still have NVIDIA. But at what point do you say, you know what, it is too much and I have to start pairing or, you know, increase the rate at which I am pairing my position?

8:17Well, OK, is that for sure what he was referring to, that too much was related to the stock or too much now we're looking now we're offering you this other product that's extraordinarily expensive to use and everyone's going to want to use it? So, you know, you're you're probably right about that. But I just feel like I can't trade around this and I don't think it's over. So that's so that leaves me with holding it, knowing that it could be extremely volatile. I can't make it a giant part of my portfolio, but I really do think we are in the dawn of another era. How much of this is reflected in the dawn?

8:53I don't think we're going to look back when this is all said and done and say today, you know, June, whatever, May 31st, 2023. It was fully reflected in the stocks. I don't think that's the case. I just take a more pragmatic view on the market. I look at semis that outperformed the S &P by 30 percent, even before we knew NVIDIA was going to make these types of announcements. I'm talking about from that CPI low in October through the end of really the end of March. And some of that was also a function of what happened with SVB. We know SVB, there have been different catalysts for mega cap tech stocks along the way.

9:28And they always include a market that is concerned a little bit about growth. And I know we argue and we get concerned about these multiples on a Microsoft or on an Apple. But, I mean, Microsoft's up 21 percent since earnings. Microsoft, obviously, on some level, started some of this whole hysteria around AI with their chat GPT. But, I mean, Apple right now is nearing an all-time high. Is this an AI trade? It's not. I mean, they may come out and say something. But I take it just a more simplistic view that semis are always leading the market. And semis were doing this job in a significant way before we even started pricing a lot of this.

10:02So we're having a show here today. It's the last day or second to last day of May of 2023. And so penultimate day of 2023. And we're going to have a conversation that's very reminiscent of January, February 2000. We're going to have a conversation. We talk about banks and some of the regionals. That's very reminiscent of kind of March of 2008, March, April 2008. And I've just heard some things that are really reminding me of that. OK, so the last stock to tick a trillion dollars was Tesla in November of 2021. and really we could have said a lot of the same things that we were saying about AI, about autonomous and all this sort of stuff then, and the stock lost 75 % of its market value until January of this year.

10:44So all of this stuff can happen. These conversations that we're having about this technology, next week Apple is having their worldwide developers forum. They have been using a thing called Siri that is based on artificial intelligence and machine learning for 10 freaking years. OK, so these are investments that they've been making. There's a product that a lot of people think sucks. OK, and if you're telling me that this H100 chip that Jensen Wang is telling everybody is going to need to have is going to make it finally good. Well, then I'm taking the over on that because we've been using it for 10 years and it stinks.

11:19OK, they've been buying the most advanced chips for 10 years. They've been developing the most advanced chips for years using their own R &D budgets to do that. I think Microsoft's been doing this. Google's been doing this. Amazon's been doing this. I agree. Tesla's been doing this. Okay, so my point is. Meta's been doing it. Meta's been doing this. Meta's probably as better positioned as any of these companies, and especially when you add in their reels and some of the things. Do you remember November of 2021 when, what's his name, Zuckerberg, like renamed the company the Metaverse, and this was going to be the next thing, and it almost was a trillion-dollar market cap company, and then it lost 80 % of its market value.

11:55Because he doesn't even have to talk about the Metaverse right now. So all I'm saying is, how about it, people? Go buy your NVIDIA right here at a trillion-dollar market cap. If this ends up being a one - or two-quarter phenomenon, because every major company and every small crappy company has to do this, and then they realize that they overspend, and the opportunity to commercialize it is not here, and then they pull back, like, the metaverse spending, or they pull back, like, Web3, or they pull back, like, crypto. Okay, we've seen all of this in the last five years. I do see a scenario in which— It's different.

12:25Tell me why it's different. No, no, no. Okay. I was going to actually acknowledge that there might be a scenario here where companies are going to front load some of their spend on this. And so the comps will get more difficult a year out. But that's a year out. Sure. And the momentum is clear. So the market discounts the future. I just think I'd like to bring it back to the market, which to me, we're looking at it in phases and in sequence of where we thought the market was going to go in the face of very difficult macro. And whether it's recession, whether it's at least the Fed's 500 basis points, maybe another 25.

12:56The market's pricing at higher rates. None of this is good for equities. I think I just, you know, I'm looking at the market that I'm being given here and it's telling me triple Q's are going higher. And if Q's are going higher, S &P is going to hit 4350. And it's not because I think that the world's become a safe place. I think there's a lot of risks out there that are underappreciated. But I also think that you look at how short professional community is on S &Ps. You have record shorts on an S &P E-minis. You have some concern on sentiment. You certainly have people that are more in cash, I think, in the professional community than the retail community.

13:27That, to me, is the kind of stuff that when people are expecting this headwind, takes the markets higher. It's not going higher forever. I'm just saying I see the market that's in front of me, and I see the Qs and semis are outperforming. And until they stop, the entire market gets taken higher. That S &P short number is a fugazi. Okay, what did we hear? We heard Tepper. We heard Druckenmiller. We heard Steve Cohen all the last two weeks talk about they're all in on this AI trade, and they're probably short up the wazoo S &P futures. It could be a lot of things. Yes, of course you're hedging yourself.

13:58And we're seeing YOLO calls. I'm talking about CTAs who are directional, and they are as underinvested in S &P. But it's momentum. So they're long all this crap, and they're short S &P. And the momentum is to the upside when they have to buy back. The momentum of the S &P has not been to the upside. It's been trading in a range for seven weeks, in this really tight range with a really low bid. I'm not telling you the S &P. Listen to me. I'm telling you that the market will go higher if semis and Qs go higher. I would like to ask Karen a question. And the technicals are telling me that they're going higher.

14:22Karen, I want to ask you a question. You're bullish in media. You're bullish this spend cycle. And so this is making you bullish the S &P. Yes. It does. Well, I mean, just mathematically, it kind of has to, right? If the whole tech sector trades up, then that pulls the S &P. But I do think it's at the expense of a lot of other industries. And so does that, I don't know how to answer that then. Mathematically, yes. But are there other things, probably things that I own that are not going to be particularly well received? Yes. Yes. So, you know, a name like United Rental, which I own, which I think is cheap.

14:58I like the story. I love the team, all that. It's I could see that not really trading particularly well. So I'm going to. So that's not a great black or white answer to your question. But I think there's sort of a gray. Technically, I accept gray. But it's not a monolith. Right. Guy, for the next six months, Would you rather be on the momentum of the A.I. trade or search for value in the in the sectors that are suffering now because of the latter, I think? So I would I would say the latter. And listen, Tim's been spot on with this, so I'm not going to argue with him. But, you know, I got to believe we're getting a little long in the tooth here.

15:38So I would search. Listen, the things that have failed in the wake of this health care has been under pressure, obviously, energy retailers. I mean, Target, I think, traded down to a six or seven month low. Walmart hasn't traded particularly well. So I think those stocks are sort of being thrown out and everybody's flocking into these names, which, again, I understand the reasons why. If there's opportunity, money will find opportunity. My concern is there's a euphoria going around. It's unsustainable. And the stocks that are being sold are ones you actually want to try to get back into. I don't think the energy trade is over.

16:10I think popular belief sort of belies that. If you look what's going on in the underlying commodity. But I'll say this. There is an OPEC meeting coming up, and I think they're going to turn the screws in a major way. So we'll see what happens on the back of that. Yeah, and I just want to make one last point. All those names, all those situations we talked about, just as they overshot to the upside, they have the tendency, they all overshot to the downside. That is the risk, is that you're buying up here and you make a really catastrophic mistake. Well, the market's next big hurdle may be the May jobs report due out on Friday.

16:41Let's bring in CNBC contributor Peter Bookvar, chief investment officer at Legally Financial Group. Before we get to that, Peter, I want to bring you into this conversation that we're having, a very heated one on the desk. When you take a look at this market, is this trying to tell you something, this huge boom in AI at the expense of industrial, staples, materials, et cetera? Well, two things. If you look at, okay, let's isolate the eight companies from the 492 and then throw in the 2000 and the small cap Russell. Well, those 2 ,500-ish companies are customers of those eight. So you can't have the eight going up like this while their customer base are experiencing their own weakness.

17:23And with respect to extrapolating the AI craze and to think that this is going to be great for the broader economy immediately, and this is the beginning of a takeoff in the stock market, well, the Apple iPhone was initiated in 2007. That wasn't the best buy signal for the broader market, and it certainly was no tell on the broader economy. Okay. Let's talk about the jobs report now. What are you expecting, and is this going to give the Fed any reason to pause here? So the estimates right now are under 200 ,000, and if the case, it would be the second month in a row below 200 ,000. The last time we saw that pre-COVID was 2019.

18:05I thought noteworthy was in today's consumer confidence number where we saw weakness in the employment figures. In fact, those expecting more jobs over the coming six months fell to the lowest level in seven years. So I do think that there's risk to the downside. But again, the Fed wants to see a weaker labor market. I think the Fed is pausing regardless of what Friday's number is. And Friday's number is backward looking anyway. So any central banker that's going to base their decision on Friday's number is really bad rearview mirror type analysis. Peter, Tim, so speaking of rearview, I mean, let's look back at the banking crisis.

18:46I was looking at your notes. I agree with you. And, you know, that we're probably the impact of SVB and the retail bank, excuse me, the regional bank run is 100 basis points. Where do you think the Fed is in terms of their ability to really forecast this? And I think I know the answer because there are many different forces that I do think are negative for the economy. I think ultimately are negative for stocks. But but right now, the Fed, if anything, has been talking rates higher. They've been talking up Fed fund futures. They've been there's no sense. You know, we had 120 basis points of cuts before the year end.

19:21If you asked us three months ago, now you're down about 15 basis points. So where do you think we are in the Fed's thinking? I think humility is very important here. Since SVB collapsed, since we've had 50 basis points of rate hikes, and based on some estimates, the credit crunch and slash contraction is the equivalent of an additional 50. So you've had essentially 100 basis points of rate hikes since SVB collapsed. Just humility should tell you that the Fed should take a pause. And I'm not saying that they stop raising interest rates. I'm not saying they need to back off from this inflation fight, but wouldn't it be prudent from a risk management standpoint to take a step back?

20:03Because to your point, Tim, we don't really know how this is going to play out over the next three to six months. And if you don't really know, why would you then go raise interest rates? Shouldn't you raise or make a policy decision like that based on more confidence than looking at, OK, what's happened in the data today, which is reflecting what's already happened in the economy? Peter, always great to get your thoughts. Thank you. Thanks, Melissa. Peter Bookvar, Bleakley. You know, Peter had a really interesting note out this morning about the other sort of side effects of this debt deal, liquidity coming out of the system, which could mean tighter conditions.

20:40Also, people who have student debt, which seems like almost everybody out there, will start having to pay that debt a month sooner. And J.P. Morgan's economist came out saying that that is going to reduce consumer spending because the average monthly bill is somewhere along the lines of$393 a month. I mean, that's sort of meaningful, Karen. I'm just wondering how you sort of put this all together here for the economy. Yeah, I think, I mean, we've already seen pressure on sort of the lower-end discretionary dollars. And so you've got to think the overlap between lower-end discretionary and student debt is pretty high.

21:16So I think it will probably be, how can it not be exacerbated, which I think is your point. Yeah, I mean, Guy, maybe that goes to your, what did you call Target? He needs an ugly, what? I was going to ask Guy if he needed a tissue, possibly. I thought I. I know, Guy's playing good today. I actually have a tissue right here. A single tissue. Let's hope there's a box there, too. Now, well, somewhere. But maybe that goes to your Target chart, Guy. Yeah, and the retailers, exactly. Target is six, seven months low. I think the consumer, again, will spend money until the market gives them a reason not to.

21:56But, you know, these things are happening very fast. And I think we're blinded by the euphoria around a very specific area. It's obviously driving the broader market up. But below the surface are things to be concerned about. And, oh, by the way, you know, 2's, 10's, that yield spread that went down to below 50 basis points, is back up to close to 80 basis points. And, again, people say it's not a big deal. It's a big deal. So the warning signs are there. Again, the market flow of funds is choosing not to acknowledge it. Coming up, streaming surge. Netflix hitting a 52-week high as investors keep binging.

22:31Is this name the crown for your portfolio? Could stranger things happen? And Carvana shares driving higher after a rough year. But is there enough gas in the tank to keep going? We'll debate that when Fast Money returns.

22:53Welcome back to Fast Money Investors. Binging on shares of Netflix today, the stock hitting its highest level since February 2022 after analysts at Bernstein touted the advantages of paid sharing. The streaming giant is now up 33 percent this year. So this gets to, I guess, you know, paying instead of giving out that password for free in your household, Tim. The call by the street, and I think it's the right one, is that the percentage of the people that were sharing or borrowing or stealing or whatever you want to attach to this are going to pay for some plan. And what that means for Netflix, this is all coming at a time when their competition isn't even going through anything like this.