Trading the Stocks at All-Time Highs, and What’s in Store for the Restaurant Industry? 5/24/24

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. Riding high this week, the Dow, Nasdaq, and S &P each surged at one point or another to record levels. The new high is being driven by monster moves in retail, semis, industrials, and utilities. So can these record-breaking gains roll on? We'll break it all down. Plus, fast food fight. Burger King now set to go head-to-head with McDonald's and launch a$5 menu of its own. Will this burger battle royale spark price cuts across the restaurant space? We'll debate that. and later Dell on deck.

0:35We'll see what the options action is ahead of earnings. A buzzkill on Workday, what's behind its biggest double-digit drop, and the traders will bring us their charts of the week. I'm Melissa Lee coming to you live from Studio B at the NASDAQ on the desk tonight. Steve Grasso, Dan Nathan, Carter Worth, and Mike Coe. And we start off with a record-breaking week on Wall Street. The NASDAQ jumping more than a percent today to set an all-time high close. It is now up nearly 13 percent this year, but it's not just tech that's leading the market gains. Just take a look at some of the names hitting records today.

1:03Walmart and Costco in the consumer space, utility companies like Eaton, Constellation Energy, industrials like Helmet Aerospace, and names like Netflix, Moderna, Johnson Controls, and others are at 52-week highs. So with markets seeming to be back in rally mode and strength being seen across all sectors, what do you do with these names now? What are your thoughts on our records, Dan? Well, it's interesting. I mean, I'm looking at my screen. I see the RSP. That's the equal S &P only up 5 % in the year versus an S &P that's up 11%. So you just said it's not just tech and this and that or whatever.

1:35Well, it is a great deal, some of those big names. If you look at Google finally joined the party in the last two months, up 35%, right? It seems like some of these names, obviously, NVIDIA was kind of basing for the last couple of months, just broke out. That added a quarter, a quarter of a trillion dollars in market cap this week. So when you think about that, I look at the Russell 2000 that's basically flat on the year. It's up 2%. I see crude oil down 10 percent over the last month and a half or so. Isn't that meant to be some sort of indication of potential growth? So I put some of that stuff together and I go back to the thing that this is still a very concentrated rally.

2:09Yes, some other sectors have joined the party and it does speak to a broadening out. But, you know, if you're looking to put new money to work right now in equities, think of where we were. We're not even in halfway point of the year. So I don't know. I mean, like it seems a little bit euphoric. What do you think? Euphoric? I think there's going to be a correction. I think there is going to be a correction. I think we're going to test the – what a great day to have Carter on, because I think we're going to test the 200-day moving average. And I think that's going to coincide with buybacks leaving the market probably mid-June to late June.

2:41And then you have a host of Fed meetings. So I think that's probably the time to sell them off. But when we started the show, consumer names, utilities. I could talk to why utilities are up because the AI push and it's everything and anything is going to be needed for energy. But to Dan's point, when you look at crude oil backing off ahead of the tip off to peak summer driving season, that's probably indicative of a market that wants to go substantially lower. So I do agree that we're setting up for a correction, but I don't think it's going to be a long lived one. I think we're going to tap it and then bounce going into year end.

3:18And that'll be just enough ammo to give Powell the credibility to cut. I mean, we have seen a market of haves and have nots to your point in terms of concentration. It's not just technology where it's all the AI trade gaining. But even with the consumer names for every Walmart and Costco, there's also, you know, a Peloton, a Lululemon and a Nike, which are just dismal. Exactly. I mean, at the end of the day, every trading day has to either go in the bullish column or the bearish column. And every week has to go bullish or bearish. The S &P was unchanged, up three basis points for the week. All sectors were down.

3:48except for tech. Tech's two sectors. It's telecommunications, because it's not AT &T and Verizon anymore. It's Netflix and Google and all that stuff, and tech itself. All sectors were down. The mid-cap was down. The Dow was down. The transports were down. The utilities were down. The home builders were down. It was a very sloppy week, to Dan's point about equal weight versus actual weight. And so without the move in NVIDIA and some of the others, the actually S &P would not have been up three base points, would have been down as well. Not a good week. All right. But how about the Nasdaq? Same thing?

4:18Well, it's the same thing. It's just influenced by. And that gets to the concentration, which is nothing new. But just to put it into perspective, the top 10 stocks are 30 percent weight. For the last 50 years, they average around 20. I mean, markets are always biased towards winners, people who take share. But 30 is high. And at some point, that continues to be an issue. We have been complaining, though, Mike, about this concentration for a long time. And how can this concentration keep leading us higher? And yet here we are. And look at that move in NVIDIA. had basically added an entire Intel in a single trading day.

4:48I mean, obviously, people are investing in the S &P 500, probably through index funds. They're also investing in individual stocks. But as long as this AI trade is intact, it seems like the markets can, in fact, inch higher. Isn't that good enough? The markets or the Marquette. I mean, the Marquette is really just a handful of really big stocks. And, you know, it's interesting because I think Steve was hinting at this when he was talking about the demand that we have seen for power, of course, with these data centers. And that has fueled some huge runs in stocks that normally wouldn't see them.

5:21I mean, we saw Vistra Energy, obviously, that's one of the utilities that has had a huge run. Obviously, that one's gotten quite a lot of play. You mentioned some of the consumer names. Starbucks obviously speaks to the weakness there, but so does Target, frankly. It speaks to cost sensitivity. They wouldn't have been out earlier this week talking about cost cuts on 5 ,000 products if they didn't recognize that consumers stores are extremely cost conscious right here and now. And I think that also is consistent with what you're sort of seeing on the crude oil demand side. And one perspective just from an options trader's point of view, one of the things that people often speak to is the VIX.

5:57You say, OK, well, the VIX is very low. That speaks to complacency. That speaks to comfort. It speaks to something else, too, which is that actually it's not an everything rally. When the VIX is low, So it could be low for two reasons. One, it could be very low because stocks aren't moving very much. But we've just spoken to the fact that many stocks are actually moving quite a lot. What it actually is telling us is that stocks are moving in different directions. So you have NVIDIA going up, and then you have a whole number of stocks going down. And I think that actually kind of speaks to that dispersion that we're seeing.

6:29And think about how many names have to be lower, essentially, for the market to be a push when you get as big a gain as you did in a name like NVIDIA. Yeah, Mike, that's a great point, right? When you think about NVIDIA, and again, it's a great secular story. And I ought to be really clear on this. This is not one, like, I've gotten the technology. I understand what's going on here. I haven't gotten the price action by any means. And this is one that I just don't get. Part of the reason why is I've never seen, in my 25 years in the business, I've never seen anything like this. And then when I look at the complacency in which people are looking at this name, I was out in L.A.

7:02with a couple guys, big fans of the show, okay? This was on Wednesday. No, no, they are huge fans of the show. And literally, as the numbers are coming out, okay, they told me that they just bought more NVIDIA on the close in front of the print because they were convinced it was going to be a beaten race, which we all knew it was going to be a beaten race, right? But they're not selling that. And so when you get to that sort of level, and again, I'm not here to tell you like sell or this or whatever, but when you look at a stock like this that had a$200 billion market cap a year and a half ago or two years ago and now just gained that market cap in one day on an earnings, as we are getting close to the end of this hyper growth cycle, it's about to overtake Apple in market cap.

7:41Just think about that. Think about the obsession that we have had about Apple for 10 years. Why do you think we're getting to the end of the hyper growth cycle? I mean, they raised Q2 revenue guidance by$2 billion without a new chip. Just selling their old chip with the new chip still to come later on this year. There might be an issue as you transition, like where orders start to drop off for the old chip into the new chip. And then you might see that this secular kind of trend towards that sort of compute just slows down a bit. I mean, Mel,$2 billion. We were getting$10 billion beats, OK? So now we're getting$2 billion quarterly beats.

8:12And we're expected to have 30 % earnings growth, 30 % sales growth again. Again, I've been wrong. I'm just kind of trying to point it out here. because at some point, the stock's going to be down 40 % probably in the next year or so, and people are going to say, what the heck happened here? And the writing's been on the wall. It's had an incredible run. At some point, Dan's going to be right. Bears are going to be right. Things will slow. And to that point, though, if you look at what the technology companies now, what they're doing, first of all, it's too early in the cycle to call an end to AI.

8:41It might be earlier for NVIDIA where they could sort of share some of the gains and the others could rally and they could fall off. Having said that, when you look at the market and you say they're just about seven names or five names or whatever the number is, think about every sector. Every sector is going to benefit from AI. Every sector is going to be more efficient from AI. Every sector is going to order more AI chips going forward. So I don't look at it as being unhealthy that five to seven names can float the market. So I think they've got more left in the tank, but I think it's natural to have a correction.

9:17I mean, I think that's a good and a lot of strategies are sort of incorporating this sort of thinking that AI overall is going to lift the productivity of companies. It's going to improve margins, etc. Savita Supermanian just mentioned that during the financial advisor summit that CNBC held this week. And she was talking about that notion that AI will, in fact, you know, lift all companies in the S &P. Eventually, that will happen, Mike. I would think that I imagine you agree with that to some level. But I guess the question is, when do you start factoring that into valuations? Yeah, well, it's interesting.

9:47I mean, if you tried to extrapolate on NVIDIA's valuations, for example, so if you take a look at 2026 estimated free cash flow, that's probably 3 % versus the current value of the business and growing at 30%. So if you just take those numbers and then you just extrapolate through time, the valuation for a company like NVIDIA, as rich as it is, is not overly expensive. It actually would probably seem fairly valued. The problem that you have is how far out in time can you make those types of extrapolations? How long will it go on before we start to see other entrants into the space who are actually able to be competitive?

10:23You know what? Some of the stuff that I was reading this week, I was going back to Cisco. What were they saying about Cisco in 1999 and 2000? They were basically saying that Cisco was at the center of everything internet in much the same way that they're speaking about NVIDIA being at the center. Exactly. The backbone of the internet, NVIDIA is the backbone of AI. And the truth is that the biggest solution for high prices, high prices in NVIDIA, high prices for NVIDIA's products, those high margins are high prices. It's going to introduce at some point, some competition. I believe in the AI story, and I believe it's going to fuel productivity gains.

10:59But I don't think NVIDIA is going to be the only winner in the space. I have a feeling that, five years from now, there's going to be real competition for them. You said 40 % decline in NVIDIA eventually. I was thinking if they are a Dow candidate and they get added to the Dow, it could be like the curse of the lottery, right? I mean, look what happened to Intel. Mike talks about Cisco. Do you know what Cisco's cover of its 1999 annual report was? It was one small sentence. Capture the momentum. Blank page. Capture the momentum. 1999 Cisco. More value than any company in the world, and it's a mere trifling of what it was.

11:32Cycles are what they are. And to Dan's point, does it have to be 40 percent? When will it be? But cycles are there. IBM, the Watsons at their height, controlled computing, this is small potatoes compared to that, right? Exxon has been the most valuable company. Cisco's GE has been the most valuable company. General Motors, testifying in front of Congress in the 50s, what's good for America is what's good for General Motors. There's always someone this biggest, and at some point, you're not. Yeah, and I want to make, Steve, you make a really good point. There's so many different industries that are going to benefit from generative AI and how they integrate into their businesses, their services, and the like here.

12:02but they're not going to be buying high-end GPUs. They're going to actually be running that compute from the hyperscalers, right? So to me, that's why Google has had this run that it has. This is why Amazon is probably a dark horse trade as it relates to, you know, the generative AI thing. If notice, it's still 4 % off of its, you know, all-time highs or something like that. So it hasn't participated. Obviously, Microsoft right now, we don't really know what's going on with Copilot, but we know what's going on in their cloud business as it relates to it. So to me, those are probably the safest bets right now until we start to see some companies that come to market, maybe via IPO, that sort of thing, that are much earlier sort of stages.

12:35Because you guys, you go back, NVIDIA was a small company for years and years and years. And then they got a few things right when somebody said, hey, we can put the GPO on the CPU, put them together, and we can do a whole host of other things. So hopefully we'll get some of those in the next few years. All right. Well, Goldman Sachs and American Express both hitting records of their own recently. So let's turn to the chart master here for the technicals on the financials. Carter, what do you see in these? Well, I would say the word stretch comes to mind. but let's see if we can look at some charts and try to figure it out together.

13:03For what it's worth, on the fundamental side, both these stocks are trading right now below, or higher than the 12-month price target on the street. So the street actually thinks collectively that they're worth less in 12 months than they are now. But you see here how far Goldman is trading above its 150 moving average since the October low. And then look at the long-term chart, and this is important. Goldman is up against an important internal trend line. And it has hit its head each time when it has rallied to this level. And so my thinking is, if you're long, take some profits or sell some calls.

13:35With new money, I'd rather be short than long. And the setup for American Express is nearly identical. If you look here, too, this is a very steep, uncorrected move in American Express, far above its 150-day moving average, more than double the performance of the S &P since the October low. And it, too, on the longer-term chart, is up against its internal trend line to the penny. Both of these are full, as the expression goes. Mike, do you think that they are full as well? Well, I mean, that's, I guess, a technical question, and you already asked the right person on that one. As far as the fundamentals go, I mean, American Express is growing their bottom line better than 14 percent.

14:14So their earnings growth is double that of the S &P, and yet it trades at a discount to it. And, you know, unlike Goldman Sachs, which would probably be more of a cyclical story, you know, they're part of the oligopoly in the payment space. You know, so you're talking about MasterCard, you're talking about Visa, and to a lesser extent, you're talking about American Express. But there's only a handful of companies that really operate in the space. And of them, on a fundamental basis, American Express is arguably the cheapest one, and it is seeing reasonable growth. But I do agree that a lot of these things have had a heck of a run, and I don't know that I would chase them right here.

14:48When you look at American Express and you compare it to Visa and MasterCard, to pick up where Mike left off, American Express has outperformed Visa and MasterCard by more than five to one. So the way I look at these is through the prism. You have to have a thesis in the market. You have to understand whether you think the market's going up or going down. And that's top down approach. And if I think that the market is going to correct in a month, month and a half, then a lot of these are going to come back in. All right. Coming up. Coming up. We're going to go to break here. Work Day getting worked over ahead of the holiday weekend.

15:19Is this a warning sign for other names in the software space? That's next. Plus, a fast food fight. McDonald's and Burger King now going head-to-head with value menus. Will the$5 fight be a hit with consumers? And how will investors beat the cheap eats? We'll debate that. This is Fast Money with Melissa Lee, right here on CNBC.

15:50Welcome back to Fast Money. Shares of Workday sinking 15 % for its worst day since February 2016, this after cutting its annual subscription revenue forecast. The HR software provider says budget cuts, IT budget cuts, and layoffs in tech companies are leading to less demand for its payroll services. Next week, Salesforce reports its results. It was the Dow's biggest lagger today. His Workday's decline a prelude for some problems at other SaaS companies. Dan, what do you think? Well, we've been talking about this a little bit over the last few months or so. I mean, a lot of these names have kind of sat out this rally, you know, especially as semis have kind of led the way or so.

16:23And obviously a lot of Internet names also. But when I think about this, I think the read through that you just mentioned to Salesforce. But I look at the way this stock sold off on like it was literally the way they adjusted that bookings number on a$7.7 billion number for the fiscal year by like less than$50 million to have the stock down 15 percent. Seems kind of weird to me. It almost feels like we're going to hear something from Salesforce. We see how bad Adobe has acted over the last, you know, this whole year, by the way. It's down like 20 plus percent. So to me, I just think that it's interesting that SaaS names are sitting this whole rally out.

16:55So I think if you're a sweet spot AI and you know, we've talked about those names and everyone can rifle off those names. The ones that you think are in the really the epicenter of AI, you're going to have a large subscription base. The stock's going to go from lower left to upper right. When you look at Workday, they haven't really narrated themselves as a sweet spot. yet. So if you're a corporation, you're not going to sign on to them if you don't know what AI is going to look like with them in the next six months. So they have to prove themselves to be an integral part of AI before people start subbing out to them.

17:26Yeah. The headcount reduction, Mike, seems to be an issue here. But this really speaks to, as well, the haves and have-nots in technology and sort of the robbing Peter DePay Paul notion of, you know, a CapEx budget, an IT budget, certain amount has to go to AI at this point. And there's going to be no money for other things or less money. I think there's two things, right? The fundamentals that you were just talking about, which is the spend. And that obviously is going to be critical. And Salesforce reports their numbers as well. The other thing, when we're just taking a look at Salesforce's numbers with earnings coming up, the thing that I'm kind of concerned about here and have always been concerned about, but I feel like they've always gotten a free pass on the dilutive effects of the stock comp at Salesforce.

18:08And I feel like people are paying a little bit more attention to that. If we just take a look at what was going on in the options market today, the most active contract expiring next week were the 260 puts. It traded about double its average daily volume, and it's expecting some pretty big moves. So it seems like the bloom has been off the rose. It has been actually for a little while, probably since mid-March. I mean, as a pattern goes, it has off the elements of a bullish to bearish reversal. Oh. CRM. CRM. And what's really worse is that its relative performance to the XLK, to the tech sector, peaked in January 2019, five years ago, and it's never come up for air since.

18:44I think it's a big risk going into earnings. All right. There's a lot more Fast Money to come. Here's what's coming up next. Food fight. McDonald's and Burger King dropping dueling value menus as the battle to combat inflation rages on. But are these latest efforts enough to bring in strapped consumers? And what will it mean for margins? We'll talk to one expert who says the industry is in for hard times ahead. Plus, everything earnings. The OAOGs are here to tackle the week ahead. As major names like Dell gear up to report the action and how to play it. Next, you're watching Fast Money, live from the NASDAQ market side in Times Square.

19:24We're back right after this.

19:35Welcome back to Fast Money. The burger war is intensifying. Burger King announcing the return of its$5 Your Way meal. The timing coincides with McDonald's$5 value meal. CNBC's Kate Rogers got all the details. Hey, Kate. Hey there, Melissa. You mentioned another new value offering in town. This time it's from Burger King. The company confirming to CNBC it is going to be rolling out a value meal for$5 of its own after its franchisees agreed to this promotion back in April. The meal will be offered ahead of McDonald's$5 meal, which is coming at the end of June, according to sources, and set to last for a month.

20:08Burger King's will last a bit longer and have a choice of three sandwiches and, in addition, nuggets, fries, and a drink. McDonald's has a choice between a McChicken or a McDouble, nuggets, fries, and a drink. So similar offerings. In a memo sent to U.S. franchisees viewed by CNBC, Burger King president Tom Curtis wrote, quote, Regardless of their plans, we are moving full speed ahead with our own plans to launch our own$5 value meal before they do and run it for several months versus their reported four-week window. The McDonald's promotion will launch again, according to sources, June 25th and last for about a month.

20:41CNBC reported two weeks ago that Coca-Cola kicked in funding for marketing to make that deal more appealing to franchisees. And earlier this week, I reported that some franchisee advocates were pushing for an investment from McDonald's corporate in order to keep the value platform on the menu for a longer period of time, given the operating margins they have right now. Melissa, back over to you. Kate, I feel like not too long ago we were talking about the fast food chains in particular, quick serve at large, not going to sort of the value route, but instead rewarding people with, you know, promotions and points, etc.

21:11And it seems to me that this is sort of an admission that softness will continue for much longer than anticipated. I think you definitely heard it first as well from McDonald's, Melissa, because CEO Chris Kempchinski talked about that lower income consumer pulling back and the need for a national value platform and working on that. That's exactly what these companies are doing now. Not to say that the loyalty programs and the apps aren't important. They're really key because you can target consumers with those deals and loyalty points. But I think right now it's all about getting people back indoors and seeing which one they like better and hopefully keeping them coming back for more.