The Struggle Is Real For Alphabet… And A New Player In The Weight Loss Drug Battle 2/26/24

0:03Live from the Nasdaq market site in the heart of New York City's Times Square. This is fast multiple stocks seem to get out of its own way. Plus, opportunities abroad. Buffett's Berkshire is betting big on Japan, and the ambassador is here with us with his own picks in the region where he's got a yen for investing. Oh, my. What a new entry in the weight loss drug battle could mean for the giants in the field. Bitcoin bounces above$54 ,000 and takes the rest of the crypto space with it. And zooming in on Zoom earnings, where shares of the pandemic darling are going next. I'm Melissa Lee coming to you live from Studio B at the NASDAQ on The Destinite.

0:49Tim Seymour, Steve Brasso, Dan Nathan, and Guy Adami. We start off with yet another stumble for Google in the AI race. The company is saying today it will relaunch its Gemini AI picture generator in a few weeks. The software, which just debuted this month, was pulled on Thursday after users reported historical errors and dubious responses in its output. Shares of parent company Alphabet dropping more than 4 % today. Notables stand out today. They're now down more than 10 % off the highs of the year, and today's move puts the stock in the red for the year. Alphabet has been far underperforming its AI rivals, meta jumping 36 percent this year, while Microsoft is up 8 percent.

1:26So why does Google seem to be struggling so much in this AI space, Guy? I think it's a number of reasons. First of all, I think they have a messaging problem without question. At that emergency meeting, remember a few months ago to talk about different things? I think they're doing a really difficult, they're having a difficult job explaining how they've been in AI probably longer than any other company out there, maybe not name Microsoft or Apple. But I also think to a large extent, it has to do with all these high-flying tech names that have taken their thunder away. I mean, why being a Google that's going to move maybe a couple percent over the course of a couple weeks as opposed to an NVIDIA or a Micron or a Broadcom that trades up 2%, 3 % seemingly hour to hour on a daily basis.

2:02So I think that's part of the problem as well. Technically, it's the third problem. If we could put up a chart, I mean, the level we just traded up to were the same highs we made back in December of 2021. So now the technicians will look at this and say there's a major double top here as well. So there are a litany of things to be concerned about. Of course, valuation has always been compelling. It seems to be going down on the same things all the time. I mean, it's always a concern about where it is in the AI race that it's falling behind, that its product isn't as good as Microsoft or other competitors, that maybe there are upstarts out there that will eat its lunch anyway, but down on the same things.

2:36Yeah. So going back to the BARD launch in January of 2023, Right. This was after ChatGPT came out three and a half, I guess, and really took the whole tech community by storm. It really surprised a lot of folks here. And, you know, it's just really important to note that this stock was trading at$90 back then. OK, so it closed today at$137.50. So, you know, Tim will mention it has kept pace with a lot of the stocks once it kind of got back on its horse. I think what Guy's point is, it's just the narrative. This is a company that going back seven years said it is an AI first company. They spend a lot of money on machine learning, you know, tens of billions of dollars probably over the last decade or so.

3:13So the fact that they could actually have an upstart like OpenAI really kind of eat their lunch in a way, you know, that is now going back 14, 15 months or so. At least that's been, you know, publicized. So here you are now. And then it comes down to something that has been a really difficult topic within tech over the last six or seven years about who are programming these systems, who have access to these systems. This is the reason why this stock is down a lot today in particular. The whole tech world is in a bit of a backlash here. So I think investors are shooting first, asking questions later because they don't have a whole heck of a lot of confidence that BARD or Gemini Advance is going to be re-released as something that's going to be up to snuff with the ones that are doing well right now.

3:51But if the concern is who has control over the algorithms and what these models spit out in terms of being able to, you know, massage history or whatever you want to call it, misinformation, why aren't all the tech giants down then? Why isn't the indictment made against all of the companies that have the same problem theoretically? Because they've done enough. There's been no wow factor here. And I think about it more from playing defense. They can't play defense in an environment where we're on the cusp of people approaching search in an entirely new way. Dan brought this up. where the place is.

4:21I'm not going to necessarily be doing anything different with my phone than going to Google. But if I'm sitting at my desktop, Microsoft might have a shot where they never had a shot with Bing. So I think that's part of what's going on here. I mean, you can look at other of the mega cap names and you can look at Apple and say what's going on there. Apple's underperformed the S &P by 16 % since early December. It's down 5 % or 6 % year to date. So it's really underperforming. And we're not really attacking Apple under this construct. So I do think all of the headlines around AI are that it's a challenge to the legacy business, not playing offense like Meta and obviously like NVIDIA.

4:57But of other names that it's not really the core of what they do is to make AI chips. It's really Meta and somewhat Amazon and everybody else. They own search. So let's start off with where their strength is. Right now. They own search right now. But when you look at AI, this is their own mess up. They did this. They have an agenda. And the problem is they they did this, not the other companies where you said, how come everything is not down sort of in sympathy? This is their own mess. They have to clean it up. So can they clean it up? Will they ever be trusted to? And when you look at where A.I.

5:30came about, they were lagging. Dan touched on it. They were lagging from day one. And when you look at the chart, I knew I was guy was in my head. I was in guy's head. When you look at that chart, that double top, you know, well, suffers from that Amazon almost. So for now, Google, I sold my Google today. I don't think they're capable of fixing it on their own. And I think they're idiosyncratic with the rest of the tech space. Are we being too hard on Alphabet? I think so. Because this is not the first time we've asked what is wrong with Alphabet. I feel like I've fought their corner. You know, I am definitely.

6:05Who's some of the more famous boxing managers that you want in your corner? Corner people, actually. The fight doctor, Dr. Ferdi Pacheco. That would be your type of guy. Call me the fight, doctor. But I think this is a case where Google's performance is something that over the last year certainly has been absolutely fine. Over the last two months, it's been awful. And it's been awful relative to a couple names. But isn't it not their fault last spring when we were talking about the same thing? I don't know, because I'm not sure we really know how to value anybody's AI business. I agree with the line that Dan said, which is that they've done a terrible job communicating their strategy to markets.

6:43But I'm not sure we know what anybody's real market is, again, outside of it gets back to that question we asked that one day where we asked, is the pie any bigger than it was entirely in the world in terms of either enterprise or consumer dollars or whatever we're calling the marginal erosion? In Google's case, right now, the market is assuming that there is not just marginal, that there's very real erosion in their core search business. And I'm not sure that that is right. Look, I think there's a lot of people out there looking for opportunities to buy weakness, especially significant weakness in some of these names.

7:12Look at Meta. Suddenly, you know, everybody hated Meta at 10 times, and now they love it at 24 times. And I do think you could see something like that with Google. I agree with you that there are certain assumptions being made to the attack on its core search business. But isn't it just sort of just the fact that it is unknown, that the impact is unknown? And let's say Google is standing in place with its AI offering, and it's not that great, but that it is not enough, what they have is not enough to be a moat to defend their current search business. So they even lose a percentage of that. Sure.

7:40And every percentage is something to the stock. Cus the motto. Cus the motto. That's Tyson's. I'm sorry. That's Tyson's guy. No, you bring up a great point. And then my pushback would be that's why it's valued with a market multiple as opposed to some of the multiples a lot of these other companies. It's already in. Well, we'll see about that. But the flip side, another side of this coin, multifaceted is, if you think somehow magically this whole high valuation, high growth tech stock trade is going to not implode, but start to go the other way, you're going to find safety in names like Google 100 percent.

8:14I think the dollars will find their way there. Yeah, I'll just mention this, though. Like seven years ago, when, you know, Google Alphabet first called it, I think there was still Google back then, said they're an AI first company. They had nearly 79 percent gross margins. They're expected to have 61 percent gross margins. So if you talk about a monopoly that they have in and around search, which is one of the best. You hear tech luminaries say it all the time. It was one of the best business models ever built. And then you have that sort of monopoly and you're starting to lose it and it's becoming less profitable.

8:41And all of a sudden now there are upstarts out there. OK, like a perplexity or something like that. People are talking about companies like that the way that we're talking about Google challenging incumbents 20 years ago. OK, so think about that. And so that's how technology works. So to me, I think that it probably makes sense that you have this underperformance. I think it is a show me story. I think there will be some layoffs, some high profile stuff. I think there is pressure. I saw Deirdre Bosa this morning on Tech Check talking about the Sundar under pressure, that sort of thing. That's how you have to affect big change.

9:14That's how you have to get better marketing. They will come out with a better product and it will be retooled, that sort of thing. So you almost want this thing to get hit really hard, to trade way below a market multiple. Sounds like another guy standing in his corner. Maybe, and again, Mickey. Mickey and Rocky. Or Kevin Rooney, right? Another Tyson. Mickey, Burgess Meredith. One of his best roles, really. Mickey and Bill. No doubt about it. Well, he was also like in the back. He was riveting as a conversation. Well, but we didn't do any. Usually we start with housekeeping. Welcome back, Steve Grosso on vacation.

9:42Tim Seymour on vacation. Welcome back. Melissa Lee on vacation. Some of us just worked right through. Yesterday was Finnerman's birthday. I know. Yesterday, I'm pointing over my shoulder. Sorry. Back to you. This is, just to put one last ball on it, this is Google's problem. We're all making this way too complicated. This search issue that they had with the not factually correct is their own issue. This was totally avoidable. This is something that was their agenda. They shot it out, and they're paying. Sounds like an opportunity. For whom? Well, for Google investors right now to step in. Well, it sounds like a very fixable problem.

10:15Yeah. If they want to fix it. Why wouldn't they want to fix it? It's factually incorrect. They did it. They did it on their own. So they have an agenda. Let's let's get to our guests here. Even with Google stock taking that four point four percent hit after today's announcement, our next guest still has a one hundred seventy five dollar price target on the stock. Oppenheimer's Jason Helstein joins us now to talk about why he sees so much room to the upside. Jason, great to have you with us. Why do you think Google's been underperforming over the past couple of months? I understand you can pick any sort of different time frame, but within the past couple of months, what do you think its problems have been?

10:47What can Sundar Pichai do? Really, it's really a lack of confidence and leadership. Probably the best example would be, this is like, you know, asking somebody to get in a Waymo that will only go 20 miles an hour. No one's going to want to do that, right? So right now, the company is putting too many guardrails on their AI because they're too concerned about, you know, the criticisms. And they just have to kind of lean in and stop being so defensive. So you're saying they actually have the technology, but they're sort of throttling it to make sure that there are controls on it because they're doing that and they're still spitting out incorrect or dubious results.

11:29So what kind of guardrails are they? I mean, none of us know, you know, how well the technology really works under the hood. Right. But we do know this is a company who knows how to index the entire Internet better than anyone else. If you look at the data, you know, if you look at the usage of Google from November to January is up 3 % according to SimilarWeb. Bing is up 7%, but as a percent of users, Google is still like 98%. If you look at percent of searches, they're at 91%. And going back a year and a half, they were something at like 92%, right? So the point is that this company knows how to index and find information better than any other company in the world.

12:14And the question is, is why won't they allow that information to come through? And again, it just seems like there's just too many training wheels that have been put on on their generative AI product. And it's actually hurting the output to the point where just investors have lost confidence right now. But, Jason, it's Tim. Thanks for joining us. Is search behavior about to change, I guess, is my question to you, in a way that Google's former dominance, and you talked about those numbers every time people count them out. And I know you're going Lou Duva on him, fighting their corner as well. Footnote, Sandy Cannell.

12:52Your thoughts here? I mean, because if search is about to change as we know it, it really opens up the playing field. Again, I think what people were really excited about with ChatGPT was just how it had almost like a human-like interaction, right? And it captivated consumers. I could basically have a conversation with a computer way more efficient than Alexa or Siri, okay? But when people actually started getting into fact-checking, there were a lot of issues, right? And so what people have been using generative AI for is the automation of tasks, right? Like put something in, summarize it, right?

13:28Which again, the thought is Gemini actually does that pretty well. But the criticism is really when you're using it more like a search. You're asking it a question, right? Like who is better for the world, this person or that person, right? Or create an image of XYZ and it won't do it or the image just kind of doesn't make sense. And so, you know, ultimately, you know, Google is giving you, you know, typically we use it in business, right? Like four or five results and you use your intelligence. So this is the one I want to look at. Right. You know, do we get to the point where it just gives me one?

14:08And again, it just seems like we're still kind of very far away from that. But Google should let Gen.ai do what Gen.ai does. Right. Which is you're asking it to automate things and et cetera. So, again, like I think we all need to see kind of what this looks like without the training wheels. And that's really like a management decision and then being willing to basically accept the criticism. Right. Like it will be an imperfect product, but like let it function. Have you talked to management about letting the training wheels off or about the loss of investor confidence? No, they don't take much criticism from sell side analysts on that.

14:47I thought maybe maybe on the conference call. Jason, great to have you with us. Jason Helfstein. All right. So, I don't know. Let the training. Is it as simple as that? Let the training go. I think these guys all have it. I mean, like, listen, some things need to be tweaked. Some people need to go. They need to actually have a remessaging. They need to relaunch the product. I mean, this is a product. We did our little demo a couple weeks ago. They don't even have an app yet, right? Obviously, they own Android. And so that was like a thing that they wanted to focus on first. And that's got great market share globally and get the free product out there.

15:19But like this is not great. Right. But this is one of those things I think we'll look back and be like, it was probably just a blip. Unless, to Tim's point, does Microsoft with Bing and, you know, chat GBT4, do they start to make some inroads? Do some of these upstarts start to do that? I think it's also important to remember the last two times that this company has reported earnings and given guidance, the stock has gapped down seven and a half percent and nine and a half percent respectively from 52 week highs. So investors have been willing to take it back up after these sorts of reports. But there are some problems in their business that are not at least living up to investor expectations right now.

15:54I mean, efficiencies is one problem. If they had a year of efficiency like Meta had, I think rebranding that would be amazing for the stock. It would be a lift of some sort. This is something where I bought it thinking they were going to catch up in AI. I thought this was going to be their year for AI. When you look at an NVIDIA, there's nothing that you have to – no qualm over. You have your chip. You know what you're getting. You know that they have an 86 percent market share there. Google has an over 90 percent. We heard Jason talk about the exact number over 90 percent market share in search.

16:26It was theirs to keep in A.I. and they don't have it. It's interesting because when Ruth Porat took the helmet at Google Alphabet, whatever we're calling it, it was about to be the year of efficiency. It was going to be transparency into all the different structures. Some of that really worked out of the gates and some of that has stalled. All right. We've got a news alert here on Chevron's acquisition of Hess. Pippa Stevens got the details. Pippa. Melissa, well, Chevron's saying just now that it may not complete the acquisition of Hess within the time frame the company anticipates or even at all.

16:53And that is thanks to ExxonMobil and China National Offshore Oil Corporation saying that they have a right to a first refusal provision in that joint operating agreement for the offshore Guyana asset. That, of course, is why Exxon wanted to acquire Hess because of Hess's 30 percent stake in that Guyana offshore project. Now, Exxon said that those conversations will continue and that they owe it to their investors and partners to consider their preemption rights in place under their joint operating agreement. Now, to be clear, it is not sure at this time if Exxon will actually make a counterbid.

17:30But for right now, they are saying that they have the right to do so, with Chevron saying that it could then delay or possibly cancel their deal to buy Hess. Melissa? All right, Pippa, thanks. Pippa Stevens. That's quite a turn, Tim. It's quite a turn. It's interesting because Chevron did not rally on this deal. This is the most exciting oil exploration site in the world and a place that people are fighting all over, yet it wasn't rewarded. If you own Chevron here, I don't think the lack of this deal follow through is alarming. And in fact, their ability to pay down debt over the last four years and be able to break even on their divot around$45 oil is reason alone to buy Chevron.

18:11But I think this is a world class company. That's the takeaway. The stock sold off when they announced it, and it's selling off when it looks like it's not going to happen. So they lose both ways, which is typically what happens to me. But this is a stock, I mean, you talk about valuation 11 times next year's numbers, balance sheets such that they were able to announce a$75 billion stock buyback a couple falls ago that seemingly marked the top of the stock. So I think, again, these big cap integrated names, you're buying weakness. All right, coming up, a Berkshire backing. Warren Buffett's company upping its stake in the land of the rising sun.

18:41But where exactly should you be in the trade? Our emerging market specialist, Ambassador Tim Seaman, lays out his fix in the region next. Plus, Bitcoin's fabulous February. The crypto surging nearly 30 percent so far and on pace for its best month in over a year. The stocks and proxies benefiting from that bounce when Fast Money returns.

19:02This is Fast Money with Melissa Lee right here on CNBC.

19:14Welcome back to Fast Money. Berkshire Hathaway shares hitting a new all-time high before pulling back today. Warren Buffett's company reported record profit in cash levels over the weekend. It's also upping its bet on Japan, saying it's increased its holdings in five very large, highly diversified Japanese companies. The average stake in those names now standing at nearly 9 percent. So if Warren Buffett is all in on Japan, should you be? We asked our emerging market specialist in the House, the ambassador, Tim Seymour, for his top pick. So, Tim, what are your top picks? Yeah, I mean, look, I feel like I've been bullish on Japan for a long time.

19:48It's one of the heaviest weight in the international ETF I advise on. And it's a case where Japan, to me, it gets better and better because the macro around it is we know deflation is over. We know, if anything, the Bank of Japan is actually no longer going to be targeting the yield curve. But down to companies themselves, the payout levels are growing. There's pressure on them from the Tokyo Stock Exchange to actually increase those payout levels. So the three names that I think are the most interesting, and again, these are the three of the heavyweights in Idevo. Mitsubishi, MUFG is the ticker.

20:16It's clearly the JP Morgan of Japan. You're getting it at 0.9 times price to tangible book. The spreads on their loans, both international and domestic, seem to be growing. Certainly a lot of efficiencies in the banking sector. Sumitomo Mitsui also trades in New York Stock Exchange, trades over here in ADR form. and it's another one of the big banks in Japan that I think have become more profitable. Watch out for yen strengthening. I mean, we talk about the yen weakness. That has been fantastic for Japan. And the ultimate beneficiary of yen weakness is Toyota. So Toyota Motors would be the third name, and it's had a massive run.

20:49It's up 28 % year to date. We've had a lot of really interesting conversations on this desk about the evolution of hybrid EV and where that may be where the story is in the competitive landscape in the U.S. You're back to pre-COVID levels on SARS. Toyota as well positioned as anybody here in the U.S. and globally. That's Japan. When you look at Japan, I agree on Toyota if you want to talk granular stocks. But when you look at it, I like it going through the EWJ. But if you go back 34 years or so, that's how long it's taken to take out that top. So we don't know. Is this a double top? Could it pretend a fall from here?

21:24If you look at inflation rates, they're falling pretty precipitously. And that's been a catalyst. That's been a tailwind. So I'm not sure if they've proven themselves, but I like Toyota. Toyota, I mean, if you look, the prior all-time high, I think, was 200-ish around January of 2022. We blew through that. Maybe you get a back and fill to that level. But the EWJ, I think the all-time high was 73. We're at the near shot of that. So granularly, Toyota, absolutely. You're looking for pullbacks to buy this stock. But none of these stocks are actually in your acronym for the year. Is that correct? What is the acronym?

21:56Well, so the I in bicept is IDVO, which is the ticker of this international ETF that grows payout levels like a lot of these Japanese companies. I'll just say this. For Japan, who took four decades. We did. Look at that. Look how happy I look there. I mean, bicept. Nice job. I mean, look, at the family dinner table, people sometimes can be friendly, too. And I don't deserve the bicept. But I'll say this about Japan. And we've waited four decades for them to go to fresh all-time highs. I think the chartists would say this is the kind of a breakout that's actually interesting, and it's probably got some ways to go, in my view.