What to Expect From the Next Wave of Big Tech Earnings, and How Will the Chip Names Be Watching the Reports? 7/26/24

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. Big tech's make or break moment after a rough week for the MAG7. The next big earnings test is right around the corner. Will next week's reports confirm the cracks we started to see in the trade or will they provide the boost our group needs? And ready, set, cut. We are counting down to the Fed's next meeting. Markets broadly expect the central bank is getting ready to cut rates. What to listen for next week and how it will impact investors. Plus, regional banks rocket to levels not seen since the collapse of Silicon Valley Bank.

0:34Coinbase shares surge as Bitcoin resumes its march higher. And an FDA warning has shares of hims and hers shedding some weight. The headlines behind all those moves coming up. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Bono and Eisen, Tim Seymour, Karen Feinerman and Julie Beal. We start off with what might be the most critical week for the big tech trade this earnings season. Microsoft, Meta, Apple and Amazon headlining the calendar next week. $10 trillion worth of market cap on deck to report. The earnings come after the first two MAG7 reports of the quarter failed to impress investors.

1:07Alphabet and Tesla's numbers not only hit their stocks, but sent the entire market to their worst day in almost two years, raising the fears that the one's red-hot AI trade might be broken. So will next week's results confirm those fears, or will they give investors the green light to go all in on the trade? Bonwin, how are you feeling going next week? A little nervous as someone who is a tech investor. With that said, I really think there's a large difference between Tesla and Alphabet's earnings. Tesla essentially missed on every metric. Google essentially said, listen, we're going to continue and ramp up our CapEx spending.

1:43And if you believe the AI narrative, you are to expect there to be accelerated CapEx spending. So I don't think that necessarily detracts from the story. I do think you are seeing that rotation out of higher multiple, you know, high flyers into more under owned, more value oriented stocks. I do think, however, though, if you're going to take that step down one in quality and two in P.E. multiple, that tends to mean that you're likely bearish the market. So I just don't think that you can have that rotation and maintain a bullish posture. And that's the reason why I've been saying, listen, I think that if you believe this rotation has some legs, you likely want to own volatility here as we start to rotate into more questionable pockets of the market.

2:28I mean, that down day that we were citing, Tim, everything got sold off. And yes, the Russell 2000, for instance, one of the places that was really the beneficiary of that rotation that we have been seeing going on also sold off, although relatively speaking to the S &P 500, less so. But there was no safety anywhere in that market. So what is a narrative, do you think, that fed into that sell-off? Is it the AI trade is broken, or is it that growth is possibly in jeopardy and the AI trade is just sort of evidence of that? I think it's a question of overbuild. It's not a question of maybe the long-term impact.

3:04And if you look at Microsoft as an example, the cloud transformation in their business is extraordinary. Reading a note from, I believe it's Piper, I want to footnote them correctly, where they They talked about roughly 10 % in terms of cloud business in 2016. The expectation, especially with AI add-in, it's going to be 63 % by 2026. So the question is, I think we've been wrestling with how much CapEx, how much overbuild, how much has been priced in. And if you look at the mega cap tech stocks, remember, they started selling off and the relative underperformance or rotation started on that CPI number on Jan 10.

3:43So the dynamic July 10, excuse me. So in other words, two weeks ago, we get everything the market's looking for in terms of a Fed supportive cut environment CPI. And since that point, the mega cap techs have sold off. And I think there's a couple of different reasons for it. But most importantly, they are the drivers to the overall market. And if you look at the technicals at Microsoft and Amazon and Google, I would say they're all clinging to the 100 day here. Apple's a little better supported. So I think Microsoft's the most important name next week to kind of debate that dynamic. Have we overbuilt?

4:18Have we overpriced in versus, look, there's no question about the cloud transformation going on there and in other places. It's powerful. Steve Eisman said yesterday, hey, whatever happens in the short term, the long run is very strong here. And I agree with that. Yeah, I mean, you can agree with that, but that could mean still pain in the short term. Julie, what are you bracing for? I mean, especially as Microsoft and Amazon are just about in correction territory right now. Maybe the setup is not too bad going into their earnings reports next week. Yeah, I think what I want to hear is an understanding, a more clear understanding of how the CapEx spend that they're creating and that they're investing in is going to lead to earnings.

4:55We don't have a lot of clarity on the business models around that. We've spent something on the order of$600 billion in CapEx, and we have, I don't know,$10 billion in revenue total to show for it. And I think until that gap is clarified, it's really, really hard to get enthusiastic when the multiples are high in the short term. I think in the long term, Tim's right, the outlook should be pretty positive, but there can be bumps along the way. And as we get this rotation coming into short cap, I think that's really a function of the animal spirits of a lot of managers lagging their indexes, just like they did last year, trying to find any kind of inflection point to rotate into so that they can try to catch up.

5:34It seems almost unfair, Karen, to expect these guys to have ROI on their investments in AI so quickly. Do you think that investors were all bulled up when they announced a boost, a huge bump in CapEx spend on AI last quarter, the quarter before, and expected a clear road to a return in a quarter? I think that's fair to say. But I also think that so we're looking in, you know, the Microsoft for where is the revenue of AI. But I think there's a lot of other places to look for what is the value of AI in terms of businesses running more efficiently, not necessarily that they're charging, you know, a copilot kind of fee, which is a great kind of fee.

6:19That's great for Microsoft. So to me, the AI story is still very much intact. It's not only a revenue story. It's a cost saving story as well. And I don't think we really focus so much on that because it's really early stages for that. But I think just as NVIDIA went from 118 to 140 on basically nothing, it's not crazy that it would come back down to right around that same level, give or take. I still think we're early in AI, but I don't think the stocks will necessarily track just a smooth linear, you know, up and to the right. a long-term holder, but it's very bumpy for sure. This is one of the bigger drawdowns I've had in the last, I don't know, 10 days or so.

7:05But to me, I look at an evaluation of Alphabet, and the reaction to me seems so overdone for what is not a high multiple stock. So I'm not shaken from Alphabet here at all. Yeah, I think Karen brings up a very good point. I mean, it just seems like an overselling. This wasn't amiss here. Again, and again, if you are buying into this AI narrative, you are expecting there to be caps from, which is why we've leaned so heavily in terms of NVIDIA. And in terms of volatility, I mean, Tim mentioned it earlier, but if you juxtapose that versus a 3M, do you really want to be in names that are just performing or essentially reaching back to previous watermarks?

7:47Or are you looking to deploy capital to where we are seeing growth? And if we're calling for 10 to 11 percent EPS growth across the board for the S &P, and you're essentially looking at a name like 3M, which is saying that they're going to grow at 1 percent per annum over the next foreseeable future. I think that rotation, just like the Google move, seems to be a bit overdone. Julie makes another good point in terms of the rotation as to why. And that speaks to the sentiment around why you are seeing a rush into these names. But again, the Fed posturing and allowing for us to have maybe 50 at max 75 basis points, at least what's priced in right now this year, that doesn't really set up for you saying that this is early innings of a value creation story into old industry type of names.

8:30But the point that you made in terms of do you want to be invested in the areas that have the growth, I mean, I get that sentiment. But at the same time, the Google story is showing us that investors are questioning if that growth is there. And so the whole part, the whole problem with the market at this point, or what we've seen in the past week, is that we don't know what that next watermark is because that growth story may be in jeopardy. If you don't believe it's in jeopardy, then that's one thing. But there are plenty of people who are worried about that. Well, they're worried about it in the short term.

9:01Again, I think it's very hard. I mean, again, the only name that I can really point to with concrete numbers in terms of how they are actually monetizing AI is NVIDIA. What you have seen is them raise up to some$24,$25 billion and continue to raise those guidance. And what I'm saying is I am a believer that over the long term that tends to translate into these other names. In the short term, to say that you're expecting some immediate ROI on however many billion dollars of spin that we've had over the past two years in CapEx seems to be, you know, just a little bit myopic in view. Right. And we've seen from Google and comments from CEO, Tim, that they are going to spend.

9:41They're going to spend no matter what. The risk is underspending, not overspending at this point. So why is the picks and shovel trade, why is that coming under scrutiny as well? I just I think the difference between Google and Microsoft is people feel like Microsoft will be taking market share and Google could be losing it. And but either way, it's all your timeline for investment. There's a lot of different investors that watch this network in our show. And if you're a trader, I get it. But if you're a long term investor, this is everything you wanted. You wanted a pullback. You wanted markets to obviously see some rotation and give you an opportunity to to grab this.

10:16The fact that we saw upgrades this week of Microsoft on multiple. So, in other words, saying instead of 33, let's go 34 times again on this cloud mix. That's what I think the investor community is debating. There's no question Google has been held as the kind of the prove me story in terms of what they're going to do in terms of where they could have market share encroached upon in their core business. But and Microsoft's obviously been taking share across that and discussed the cloud. So that's the setup here. I think for broader markets, getting back to the week that was, this rotation is something that's interesting because the S &P value, the equal weighted, it's really come all the way back.

10:57But there are other parts of the economy, and we're going to talk about the consumer. We've been talking about discretionary, where I thought it was as ugly of a week as you could have expected. And I would be selling bounces we got today in your deckers and in your crocs and in some of these names, because I think what we're learning from the economy is the consumer is not in the greatest spot. So it gets you back to the mega cap tech stocks where I think people feel comfortable. Meantime, broad markets rallying to end the week with the Dow jumping more than 650 points. The S &P and Nasdaq also up more than a percent that after the Fed's preferred inflation gauge showed a deceleration in June.

11:30Yesterday, we also got stronger than expected data on GDP growth. So how does this all factor in for the Fed, which is the other big event, of course, next week? Let's bring in Bleakley Financial Group's Peter Bookfar, who is here on set. Peter, great to see you in person. Hi, Melissa. Thanks. So how does this market sell off? How does the Fed factor into the market next week, do you think? Well, I think the market is up so much already that I don't think Jay Powell is paying attention. Jay Powell is worried about, or actually not worried, focused on tampering inflation through the next couple of years.

12:00I say the next couple of years because he leaves in early 2026. He doesn't care whether the S &P 500 is at 5 ,500 or 4 ,500. He wants inflation going down to his 2 % target while keeping unemployment from not going much further higher. In terms of, though, how the economic data stack up to what we're seeing out of earnings season, you put out a note this morning saying it just doesn't, you look under the hood and you're not getting good data points from companies. So how do you parse that out? it? I really think that all this government spending is having such a dilutive impact on the economy.

12:34And it's not just directly where, OK, the government is financing the manufacturing facility that's being built in Kansas. But all the workers that are working on building it, they have money. They're going out for dinner. They're doing this. They're doing that. But if you look at what corporate America has to say, I see a one to one and a half percent economy. It's extraordinarily mixed. It's very uneven. And I don't see, I don't think the 2.8 % GDP number really is reflective of what we're seeing. I think the one and a half, maybe two best, but the economy is very uneven right now. Peter, thanks so much for being here.

13:09You mentioned like unevenness in the economy and having a hard time kind of reading through in terms of economic data. Can you speak to the juxtaposition that we've seen between Q1 economic data and Q2 data and how you might reconcile that in terms of trying to get a read-through on what the next Fed move might be? Well, I'll average both, and GDP growth was about 2%. Now, looking at the second half of the year, if the unemployment rate continues to tick higher, then that 2 % can get into the ones. And, you know, we debate recession, no recession, but a 1-ish percent economy almost feels like there's very little growth.

13:44And, again, you run through what corporate America has to say, and challenging macroeconomic environment. And if I had a dollar for every CEO that said that, not just this, the current quarter, but for the past couple of quarters. You wouldn't be able to buy much because of inflation. But I hope that aside. Tim, you have a question? Yeah, Peter, great to have you on. Sorry I'm missing you in person. Let's talk asset allocation because you're in the middle of that as well. And the fixed income markets are fascinating right now. There's some comfort in pushing out on duration. We have some sense that not only do we see the short end coming in, but possibly the long end.

14:19Talk about this. And I know how you feel about the deficit and what it means possibly for Treasury yields in medium to longer term. But are you comfortable allocating more money into fixed income at this point based upon both the credit dynamics of the economy, let's speak more broadly, and where you think interest rates at least are short to medium term? Well, on the fixed income side for the last couple of years, I've only been comfortable buying the short end. I think we can get this strange dynamic where the Fed is cutting short-term interest rates, but long-term interest rates either stay where they are or go even higher.

14:52Because if you're a holder of the 10-year and you're saying, okay, Powell's knees are getting soft. Yeah, I see the economy moderating, inflation's moderating, but I don't want my central bank to get soft. I don't think the 10-year is going to travel the trajectory that we're used to over the last couple of decades, where the short-term rates fall, long-term rates fall. I think we're going to see further steepening in this yield curve and potentially in a bear way where long-end rates actually go up as short-term rates actually fall. Julie, question? Yeah, Peter, I'm curious your thoughts. You know, GDP to the deficit right now is at a level that you would expect with 7 % unemployment, not 4 % like we're at.

15:31And the consumer has really spent down their own cushions, their savings sheet. So neither balance sheet has really got a lot of cushion for any economic weakness. If there were a shock to the economy, are you more concerned about the consumer or how the government can interact? Well, it's certainly both, because if consumers start to lose their jobs, that's less taxes that are going to the federal government. And that$2 trillion deficit becomes a$3 trillion deficit. And instead of 6 % to 7 % of GDP, it's 10 % to 12 % of GDP. Then you need to start talking about what does that mean for the U.S.

16:04dollar. Let's just say the Fed's cutting, but U.S. dollar starts to weaken. Oil goes to 100. Ten-year yield goes to 5%. These are things that we need to think about as possible scenarios where we're in a different environment than we were in the decades prior to 2022 in terms of inflation, interest rates, and how the Fed's going to respond. Peter, we've got to leave it here. Good to see you. Thank you. You too. Peter Buchfar, Bleakley. Karen, what are you thinking about the Fed? And I know on the conference call today you asked, what are the odds of a Fed cut in July next week? And the odds at that time this afternoon were 5 percent.

16:42What's what's in your mind? What was in your mind when you're asking that question? Just that. Well, the number today maybe made it a little less likely, but that maybe they maybe they go now. I do think they definitely go in September. But, you know, 50 is potentially in the cards. I don't think they'll end up doing that. But I was just wondering what sort of what is the gauge on how anxious the Fed is to do something? It doesn't matter for the election. Are they trying not to be political? I don't know. But I think I think they got everything they wanted. I think it's September is a good time for them to start cutting.

17:22Yeah. All right. Coming up a deep dive into the summer's luxury bus. LVMH CEO Bernard Arnault giving his take on the state of the high end consumer. How are traders see it playing out? Plus, we are digging in on how the options market is setting up ahead of next week's earnings, how to trade one big chip name that has been lagging behind in the AI race right after this. This is Fast Money with Melissa Lee, right here on CNBC.

17:54Welcome back to Fast Money. Stocks surging today thanks to a tame inflation print before the bell. The Dow gaining nearly 2 percent. Looking at its fourth positive week in a row, the S &P and the Nasdaq both rebounding from two-day losing streaks, though we're down for the week. And crypto bouncing back as well. Bitcoin jumping more than$3 ,000 today, declined within striking distance of$68 ,000. The rally boosting shares of Coinbase as well. Finally, shares of HIMSS and HERS dropping sharply today after the FDA warned about potential dosing errors in compounded GLP-1 drugs. Remember, this stock got a huge boost when it announced plans to sell compounded GLP ones.

18:29In terms of Bitcoin, you're in this across the board. I mean, many different coins. Bitcoin 2024 is the huge headline. Donald Trump's going to speak there. We talked about this last Friday. Was that all baked in? I'm not sure it's all baked in. And so much of the supply, so much of the supply demand dynamics as now with the halving. And then also just this is a massive momentum trade. You see days for the stock for, sorry, the coin is down four to seven percent and days for that kind of retraces. So I think you just need to ride to a minimum here. And we're all talking about this rotation out of tech, out of high flyers into value.

19:03How about rotation out of tech into altcoins? Oh, so that's a safe haven in your view. I mean, relatively safe. At least it provides some type of diversification. Yeah. Tim, Bitcoin or gold or both? I think, you know, I think, you know, well, look, Bitcoin's digital gold. I own both, but I definitely prefer gold here. I just think the things that we're talking about, Peter outlined a bunch, Peter Bookvar outlined a bunch of reasons why gold should be going higher. And it's deficit dynamics, it's weakening dollar dynamics with inflation under control. Fed taking their foot off, you know, off the gas in terms of pushing hard against inflation.

19:42I think gold is a I said this many times. It's one of the best 20 year charts you're ever going to find. Why won't it be the best 20 year chart for the next 20 years, especially with central banks diversify? You don't have to go hard into this trade now, but you should be adding gold on weakness because the dynamics for gold go higher. All right. Coming up, referring regionals, the KRE closing out a monster week of gains and erasing their losses since the Silicon Valley collapse. Just how much farther can this trade run? We'll get some answers next. But first, Chip Sox took a beating on the back of this week's earnings.

20:14But what do they want to hear from the names reporting next week? We'll talk to one top Chip analyst to get his thoughts more Fast Money in two. Missed a moment of Fast? Catch us anytime on the go. Follow the Fast Money podcast. We're back right after this.

20:40Welcome back to Fast Money. Semi-stocks seem to struggle on the heels of the first big tech earnings reports this week. The SMH ETF hitting its lowest level in more than two months yesterday. But with more mega caps set to detail their AI plans and capex spending next week, what should chip investors be watching in those reports? Let's bring in Bernstein's Stacey Rasgin. Stacey, great to see you. Good to be here. Thanks. What was it specifically, in your view, out of Alphabet's report that got NVIDIA and other chip investors nervous? Yeah, it was the CapEx. And don't get me wrong. The CapEx side was good, but they didn't raise it.

21:14The quarter actually came in, I think, a little higher than what they'd suggested. And they said it would sort of sustain at some very high levels through the year, but they didn't raise it. And so that hit some of the AI stocks. And then the broader space was getting hit. I mean, we've had some reports. Most of the reports haven't been very good. So that's kind of, you know, it has consequences. So in terms of Microsoft and Amazon next week, is it key that they actually raise CapEx at this point? Or has that sort of concern been erased with the sellout that we saw this week? I don't know. I mean, it certainly would be nice if they did.

21:47But we're still kind of early in the year. Like, they just raised really big, like, recently. So we probably got some time as we go through the year. But obviously it would be helpful. I don't know if we're going to get it yet. That's all. Stacey, thanks so much for being here. As you look forward to next week, what do you think is the larger story, more economic data overhang or tech stocks delivering on what have been high expectations? I don't know. I mean, I focus on the stocks themselves, the semiconductor stocks and the expectations. And that's clearly what I'll be looking at, like the macro data points and everything are what they are.

22:27I mean, broadly for the space, though kind of what we've been seeing in in general i mean we've had a number of the uh the analog stocks and some of the equipment stocks go this week most of the analogs you know they're exposed to industrial and auto and those people are hoping for like recovery in the back half and most of those markets still don't look super um semi-cap's been a little mixed uh we had some of the u.s guys went they actually looked okay we've got it i think lamb research goes next week um and then in my coverage clue that i've got intel and a and d those are probably like the two that people will be paying the most attention to as we go there.

22:59And they've got different things, I think, that people will be looking at for each of them. AMD, it'll be all around the AI guide. Intel's got all kinds of stuff that's going on there, PCs and servers and the little bit of AI that they have and margins and just the broader foundry strategy and the process roadmap. Intel's juggling a lot of balls right now. Tim? Stacey, it's Tim. So I'd like to maybe drill a little deeper there, though, because we really are seeing within those three names, you know, significant divergence. I get why Intel is down 40 percent this year, and I get why NVIDIA is up 140.

23:35But AMD is down 5 percent on the year. And again, from an analyst perspective, explain this to me, because they are supposed to be a clear number, too. They have lagged significantly at a time when the markets even were more, you know, ebullient, I would say, on semis. Break that down real quick. Yeah, you bet. So I think in general, all of the AI stocks recently have had a little bit of pressure just because expectations have been very high and the numbers have gotten very large and people are starting to think through what is all this money actually going to get spent on, right? And what's the return?