Two Big Tech Moves That Caught Our Eye This Week, and Gilead Gets on the GLP-1 Train 6/14/24

0:01Live from the Nanzac Market Site in the heart of New York City's Times Square. This is Fast Money. Here's what's on tap tonight. Big tech's big week. The XLK ETF soaring to all-time highs today with a couple of notable names leading the charge. What to make of the run in these stocks and how you should trade them. And gilding the lily. Long-struggling Gilead getting a boost on some positive results. Of course, potential oral obesity drug. What we know now and what it could mean for the GLP-1 space. Plus, transports truck lower as the DJT hits its worst level since November. Boeing faces more turbulence on production delays in another congressional probe.

0:36And Target missing the mark, falling further behind its top competitor. I'm Melissa Lee. Coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Courtney Garcia, Steve Grasso, and Guy Adami. We start off with two big tech moves that caught our eye this week. Apple jumping nearly 8 % since its WWDC kickoff on Monday, hitting brand new records. And briefly reclaiming the spot as the biggest company in the world. Meantime, Netflix putting in its own winning week, closing within 5 % of its record high, hit way back in November 2021. So what do these two moves tell us about the markets we have right now?

1:10Should you be in these trades? Tim Seymour, what do you say? I think you should. And I think that the Apple trade is one that looks like a trade now. And, hey, why weren't we assuming Apple was going to break out two weeks ago? Because nothing at WWDC ultimately, and we're going to get into that. But back to the importance of Apple to the market is the fact is that the Nasdaq over the last two days has set new relative highs to the S &P, all time highs, all time relative highs. That leadership in the form of both Apple and NVIDIA, I think, is something that can continue. And I think that, you know, the Netflix dynamic here is also a case where you've got clear leaders that even through the other part of the week that is notable, it's a week where we digested a Fed that acknowledged and a labor market that's certainly coming in as we need it to, an economy that's probably not falling apart, but it's showing some signs.

1:59These are all names that are going to be defensive in that kind of an environment. And Netflix, you know, we talk at nauseam as we should how far ahead they are the rest of the competition. The names that should have responded better to what the Fed gave us the other day did not do well for the week in particular. And I thought that was sort of interesting. You want to be defensive? Sure. But how about regionals? How about homebuilders? Those didn't do particularly well. Yeah, which we've discussed. The region of the KRE, I mean, throw a chart up, is not traded particularly well today again. And that's with rates going down.

2:30And I think the market is finally, I think, starting to catch wind of some of the commercial real estate issues that are out there. And I think it's manifesting itself in the KRE. And you're right about the homebuilders as well. So two areas that theoretically should have gotten a boost with rates going down have not participated. And we'll talk about the transports, which its own animal. But those things, I think, have to give you a little bit of concern. Maybe it's too late for regionals to actually perform because you're still worried about commercial real estate. So it could be too little too late.

2:58And remember, when they cut, there's going to be a long and variable lag too. So maybe that's not going to be enough to bail out at least the regional banks. As far as Apple, I think the refresh cycle is going to be huge. I think it's going to pull in people like myself, older people that want to have AI. How old are you, Steve? 70. Okay. You don't look a day over 69. I feel like I look good for 70. It's interesting how you presented that. Yeah. So that's going to cause you to buy the 15 Pro as opposed to a 14 or a 15 regular? Yeah, I think that's going to spoil you. The curiosity about what Siri can do for you?

3:34Siri is terrible. But I think there's a host of other things with emails and things that can make your life a little bit more easy for the mundane tasks. But I wouldn't have done that if there wasn't this upgrade cycle or this refresh cycle. I would have waited for another one. People usually upgrade for a camera. Now they're upgrading for AI. And I think that, and I said this last time, I think Apple just had to do enough to not shoot themselves in the foot. And I think they did enough. It is healthy if it retraces a little bit and comes back. But when you're dealing with that next iteration of the iPhone in September, you're probably eating up some time here.

4:14So you'd have to see the overall market sell off before you get the opportunity. Yeah, and I do agree with that. I think the refresh cycle with the iPhone is clearly this is the thing they needed to kickstart that after they had sales declines five in the last six quarters. And they needed something like this. And especially when you get this kind of upgrade, that does tend to bring some more customers from a Samsung to an Apple. And I think what it's doing to the markets is pretty fascinating, where we've always been talking about the Magnificent Seven and all these companies have been doing very well.

4:38You now have three companies, whether it's Apple, NVIDIA, Microsoft, now over 20 % of the S &P 500, just showing how much this AI story is important to the investors right now. And I do think it is that much more important. It probably will continue. I think you're right. I think these are likely going to be the leaders in the short term. I think longer term, there's still plenty of opportunities you want to make sure you're invested in also. But that kind of FOMO trade, people are wanting to get in here. the more and more it's going up. But I don't think that's ending in the short term. So in every market environment, we want to be in these names.

5:07Right? I mean, that's what it seems like. No matter what the market scenario, Guy, we want to be in those names. You want to be defensive. You want to be offensive. You want to be in these names. Outside, well, I mean, I know where you're going with this. And the answer is yes, only because of the way they traded. By the way, she's trying to paint you into a corner. I'm not. Be careful, Guy. I have no brush. Will Robinson, danger. I have no brush. Yeah. You're uncomfortable. I'm very aware, which is why I'm trying to parse some words. But, no, I totally get it. Listen, outside of that three-month period where Apple was a disaster and the broader market went higher, you're right.

5:38Seemingly, in every environment, there are a handful of names that do well. Why? Because when the broader market sells off, they become defensive. They become some sort of perceived flight to quality. And when the market's doing well, they're bolstered by that. I think I saw yesterday, NVIDIA is now over 400 ETFs, of which is one of the top 15 holdings. I mean, that's a staggering thing if you think about it. So money flows suggest you are correct. However, by definition, there has to be some sort of scenario where those stocks don't. Sorry, got it. Well, the scenario might, in fact, be that that there's a more competitive landscape in AI.

6:11And, you know, Samsung is going to argue that we've been closer to to where Apple's even articulating they want to get tomorrow for a long time. I the reasons why I feel better about Apple are partly based on how much underperformance there was. I mean, Apple took two years to break to fresh new highs. Now, that means it obviously reflected fundamentals and a lagging and even a falling revenue base in iPhone innovation that was lacking. But it massively has underperformed for a long time. This move, by the way, technical. I'm not a technical geek, and they're nice guys. They're not geeks. There's a lot of people that come on the show, and they're gals, too.

6:47But this is a flagpole formation, if I ever saw one. And you have a breakout. And this is something that I actually think is very important from long term resistance at 195. So this is to me a stock that's got fresh legs. This is a stock that the valuation is the toughest part of this story. But this refresh cycle is something that, you know, I think has legs because there was a time we felt like people are just like cars. They're better made. They're driving them longer. But this gives people a reason to actually get out there and refresh the phone. And that iPhone 15 right now has reason to say, hey, we're at least in the AI game, which gets people at least on board.

7:23Why wouldn't it be safety? They have tremendous balance sheets. They're profitable companies. The Russell is not profitable. Right. So 50 percent of the Russell 2000 is not as unprofitable companies. So you need a better economy, lower rates for them to be profitable. So when you look at the overall and markets go up on average, historically, 10 percent every year since the inception of markets. And now where tech is overlaid in every 11 of the sectors that we have right now, tech will improve and those other sectors will buy the technology that these companies are offering. They'll only become more profitable and it'll make the whole market more efficient.

8:03So when you look at where you're funneling in, now I'm not saying the market cannot sell off. I think the market can sell off and will sell off as it does. But those sell offs are shorter in duration than they've ever been before. We have a market and fast forward. I guess I guess the question for me is when will we get to a period or what market scenario will it be for them to relatively underperform some of the areas in the market that haven't had as many gains? The value oriented sort of sectors like the banks, maybe. And I think at some point in time, you're going to have investors shift their focus to the fact that it needs to improve the bottom line.

8:39So I think how it improves Apple is the fact people actually have to buy the phones, right? So they are going to have additional revenue sources, whereas you have a lot of companies right now who are just investing billions of dollars into artificial intelligence with no additional or very incremental into their revenue. And at this point in time, people are willing to pay up for that. But I do think you get to a point that if you're not actually showing it in your bottom line, people are going to start to reflect that on the stock prices. So I don't know if we're there yet, but yes, I think at a certain valuation, you will get there.

9:04And I think that is a concern. I think it's interesting that the psychology behind upgrading for the individual seems to be different from the psychology for corporations. I mean, if you believe that this is going to spur some huge upgrade cycle or even small upgrade cycle for Apple, but you are skeptical that corporations will upgrade to the Microsoft laptop with the AI key, why is there that difference? I'm not a big believer in it. I think the upgrade cycle was always there. I think it was going to, you know, maybe this is on the margins. But not, you know, I don't think it's going to be that incrementally.

9:36That's just me. And look, do valuations matter? I think so. Now Apple, all it's done this week has gotten more expensive. It trades now 30 times next year. It has maybe 9 % EPS growth. I don't know, maybe 8 % revenue growth margins that have been flatlining now for the last couple of years. I mean, that's not great. Now, I understand the premium multiple might come on the fact of services, which continues to trend the right way in terms of the overall percentage of revenue. However, it's an expensive stock. I just that 75 percent gross margin on software and services is not to be overlooked. And on the base case, you're somewhere around, you know, eight, nine percent growth.

10:13But conceivably, this really is about a software dynamic. This really is about upgrade. This really is about extracting extra services out of the consumer. But the other thing that makes Apple incredibly defensive in all markets is the fact that, I mean, didn't that monstrous buyback and signal tell you that Apple is an all-weather stock? That they've also made it very clear they don't see any reason to hold a lot of cash. They're going to be 100 % cash neutral. That, to me, for a company that generates cash. Remember what we were most concerned about with Meta before they went into the year of efficiency was that, you know, if they had just said we want to be an ATM because we've got this installed base.

10:50Actually, that's Apple. Excuse me. We've got we've got the subscriber base around the world. That's four billion. We've got this percent of the world's population. All people wanted to hear is just do your core business and give money back to consumers. And Meta would have rallied well before the massive rally it's had. It took the year of efficiency to remind people that they could be efficient and give capital back. I love the fact that I know Apple is going to do the right thing from a capital markets perspective. It has for the last 10 years once they started this cash pile. All right. Well, our next guest used to be the biggest bear on the street, but this week's WWDC prompted him to upgrade the stock to a neutral.

11:24Let's bring Light Shed's Walter Pysik. He's a partner and TMT analyst at the firm. Walter, great to have you with us. You're not a huge believer, though, that there's going to be a massive upgrade cycle. So why the pivot from sell to neutral? You know, I think I'm just trying to get away or get out of the way of this massive AI train that's just waffling people all over the place. It was predictable, I think, after they reported earnings that the stock was going to run up into WWDC. I just assumed it would sell off. So when that thing moved through 200, what it was telling me is what a lot of your panelists have talked about, is this belief that, yes, the upgrade cycle is going to happen.

12:03And I don't have any data points to disprove that in the near term. We'll come back when we do get the data points, when we hear from the operators about what exactly is happening. But in the meantime, the bulls have won the day in terms of getting people hyped up that there's going to be 10 % or 15 % growth and there's going to be this massive upgrade cycle. But we've heard this before. I mean, years ago, it was the metaverse that was going to drive the super cycle. Last year, the super cycle was going to kick in for whatever the reason was, and it didn't. The upgrade rates kept going lower. Obviously, AI is new, but Samsung had a lot of AI features.

12:37Did their upgrade cycle improve last year because of AI specifically? No, it didn't. It went down with Apple and the rest of them. Apple's in a very easy point right now because people have very old phones. And there's a variety of reasons why you're going to upgrade your phone. So you should see some stabilization and inversion. But to expect operators to come in and subsidize that, probably not going to happen. And if there are some glitches in some of the early, I mean, we've had the, I've been trying this beta of the iOS 18. They still don't have the serious stuff in there. If you start getting reports that it's not delivering anything that gets you that excited to upgrade the phone, maybe you don't get a big enough upgrade cycle to deliver on these super bullish now growth estimates of 10 % and 15 % that are not reflected in consensus.

13:28Consensus didn't move after WWDC. What it moved on is really the bulls pushing this thesis that we're going to 10 % to 15 % top line growth within the next year or two. So we'll revisit it in a couple of months and see if there's any evidence that that's true. But, you know, people upgrade for different reasons. And I didn't see anything from no one came out of WWDC saying, wow, I need to get the phone for that reason. And everyone's saying it was as expected. All of these things were predicted. So what exactly has everyone so convinced that we're going to see this massive upgrade cycle and 10, 15 percent growth?

14:06Which of the services that they announced? Walter, I've been the victim of the steamroller in a bunch of different names. So let me ask you this. In terms of services revenue, Tim just mentioned the margins. If they can trend up to, let's say, 28, 29 percent, does that change the narrative a little bit in terms of the valuation at this point, which I still think is stretched? Absolutely. But again, what is the bull thesis now? It's the iPhone growth. That's equipment revenue. That's not the high service stuff. So we keep switching what the narrative is, right? A couple of years ago, it was like, oh, it's going to be a services company.

14:41So let's put a high multiple on it. And then a lot of the services companies that were out there, their valuations imploded and you were getting a higher multiple for owning an equipment company. Now we're saying the revenue is going to come from equipment, but at the same time, and we're pitching this as a service company, like that doesn't fit. Doesn't it come, Walter? I mean, I'm sorry to interrupt you, but doesn't it come? Once people have more of these AI-capable phones, I mean, it was a developers conference because there are going to be apps developed based on AI, and so there will be more services revenue, you know?

15:11I mean, doesn't it go hand in hand? I mean, one of the theories for that service revenue, which is two to three years from now, is that it's Apple themselves charging you extra for Apple services, which they don't typically do. And one of the other pitches that I've heard many times in the past couple days is, well, Apple, they can provide you 20 % of the population. But the AI only works on the most recent phones. So even if half the phones, 70 % of the phones, let's say all of the phones get upgraded to an AI-capable phone over the next year, it's still only 15 % of the base that you can actually layer these AI services on.

15:53So, if you're going to build service revenue on top of this install base, the install base of AI-capable phones is only going to be 10 % or 15 % of that billion-five iPhone base that's out there. So, it's going to take a couple of years to get the install base up to a point where you can sell services. And then the question is, where is that service revenue coming from? Is Apple charging you for, do they charge you for iMessage? Are they charging you for satellite messaging? Are they charging you or are you just hoping to get enough app downloads where ChatGPT is going to charge you 20 bucks, right?

16:28And basically, Apple's going to take their VIG, assuming that the regulators don't stop them from taking the VIG that they're getting today. Walter, good points there. Thank you. Walter Pysik of LightShed. How about that argument? Well, it's going to be a small percentage, right? 15 percent. I respect how Walter's gone from being a bear to just being neutral. And he's saying, let's wait and see. I think that's the right thing to do. I also, in reading his notes, I was, his interpretation is something, it's not how I thought about it. We just started talking about this refresh cycle. He says what this will do, it will stabilize or there'll be an inversion of the lengthening of the refresh cycle.

17:08So that's interesting because, again, much back to the car analogy, we know cars are on the road seven, eight years. And by historical standards, you need to people need to buy new cars, except for when the cars are made to run up to 150 ,000 miles now. So I think that's fascinating because I do think people are not seeing that. And I think that's an important point, that nuance that he said. I think it's actually going to shorten the cycle. And I use the analogy of the camera before where they were having a new camera every time, every time they refreshed it, that camera got better. And I think AI, we're just in its infancy in AI, and I think AI is going to get dramatically, exponentially better with every iteration in shorter spans.

17:48All right. Coming up, missing the target. The retailer already down 10 percent this month as its biggest rival continues to make big gains. Can this stock catch up with the competition? That's next. Plus, more bad news for Boeing. Senator Chuck Grassley launching a new probe into the embattled plane maker inside the company's latest headache next. This is Fast Money with Melissa Lee right here on CNBC.

18:22Welcome back to Fast Money. We've got a buzzkill on target. Shares slipping nearly 3 % today and posting their lowest close since January. Shares are down over 11 % in just the past month. Meanwhile, rival Walmart is up by almost the same amount in that time. seems like a good opportunity to play America's favorite game. Which one is that? It's not Trader or Faded. But this is America's other favorite game. Would you rather? There's so many. Would you rather? Oof. Would you rather? Courtney, would you rather Target or Walmart? I would take Walmart mainly because Target is such a high exposure to your discretionary goods.

18:56It's like over 50 % of their sales. And I do think we are in this environment right now where inflation is really hurting a lot of consumers right now. And they're continuing to have to decide where to shop. So Walmart is actually benefiting. They're having higher income consumers trade down into Walmart and actually buying more groceries there, whereas Target is actually losing customers on discretionary purposes. So I would go to Walmart for that reason. Not only would I rather, but I did. I bought more Walmart this week. And I just as much as I think Target's interesting here. And after a 30 percent underperformance year to date to Walmart.

19:27And boy, you could have a fun time trading this pair because you've had a lot of volatility between these two. But we spent time on this desk that, you know, the week before earnings, when Target pointed out that they were doing some some promotion and they were being aggressive on pricing, you said, hey, they're playing offense. This is actually really exciting. They wouldn't be doing this and they wouldn't be coming out and doing this if they had bad news to announce on earnings. And boom, there they did. I think there's something also to be said about slowly. The macro is something you need to watch more for Target than Walmart.

19:56Walmart, as we know, is attracting a higher income consumer. What we read even in the University of Michigan Consumer Competence today, which was at seven month lows, is that middle income is having some trouble. It's not a big surprise. It's unfortunate. But that's in line with the labor market. So I think you stay with Walmart. There is a negative Reuters article on Target today highlighting what they've lost in terms of market share. They've lost market share in household goods, in furnishings, in clothing, in electronics, basically every single category. The average purchase price has gone down as well.

20:28But there's valuation issues here. I mean, in terms of the choice. Valuation issues in terms of one would think Target is compelling on valuation, which I get. And that's been the argument forever. But, you know, Joker, Joker, and the Triple, remember the Joker as well? Jack, what's his name? I don't remember, actually. I'm sure somebody will get in my ear and tell me. But, no, I'm Target as well. Listen, Goldman Sachs on the 3rd of June took them off the conviction buy list. Stock was$156 that day. It's$141 today. People will talk about this on valuation. The problem is it's going to continue to be a value trap, I think, because they're in the wrong product mix.

21:02And outside of that little spike we saw when they got inventories back in control, I mean, this has just been a really tough hold. But if inflation abates and the consumer is still employed and the Fed is done raising rates and the Fed is going to cut, isn't that the time for the target customer to maybe go back, for target to maybe gain some more share? Or the other ones are going to even outperform even more because Walmart has a healthy amount of groceries, a lot more groceries. I think it's like 50 percent of their of the revenue is derived from groceries. But you said it. The only thing maybe you didn't say this part.

21:36The only thing that they actually gained share in or improved on sales was beauty. So all of the other segments were down. So Walmart, I own it. I will continue to own it. I don't want to touch targeted. Actually, on a technical level, it broke the 200 day moving average. where last month it sort of tested it and then bounced and rallied, and now it actually broke. Jack Barry was the host of Joker's Wall-Fi. Did you let it out? You said triple, triple. You're the only one. Joker and a triple. Joker, she said Target. No, she didn't. She said Walmart. I said Walmart, too. Everybody here at the CESC is Walmart.

22:11Yes, we're all Walmart. All chose Walmart, which may be the ultimate contrarian indicator. All right, there's a lot more fast money to come. Here's what's coming up next. Another Boeing bummer. The aerospace giant facing the pain of a brand new congressional probe that threatens to keep the stock grounded even longer inside the company's latest headache. Next. Plus, a new contender joins the GLP-1 Battle Royale. Gilead says their weight loss pill is the real deal. But should you believe the hype? We've got the skinny on this obesity offering. You're watching Fast Money, live from the NASDAQ market site in Times Square.

22:48We're back right after this.