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Melissa Lee

live in the NASDAQ marketsite in the heart of New York City's Times Square. This is fast money. Here's what's on tap tonight. A rollercoaster day for the memory trade. From big losses at the start of the day to solid gains to finish near the break even line. What the intraday swings some of the most this week's most volatile names mean for the tech space and time to sell Tesla. That's the chartmaster's call ahead of earnings next week. What he is seeing in the technicals and how option traders are positioning for the report. Plus a stream gaming glitch for Netflix, SpaceX's trillion dollar drop and the Nikkei enters a correction. What to make of the pullback in Japanese stocks and how to trade the international names right now. I'm Melissa Lee, come to you live from studio Be at the nasdaq. On the desk tonight, Karen Feiderman, Steve Grasso, Tim Seymour will join us shortly and Julie Beal. And we start off with what might have been peak bearishness for the trade. The Philadelphia Semiconductor index dropping as much as 6% in early trade after a Chinese startup unveiled an AI model that it says rivals offerings from open air and anthropic moonshot AI claiming its Kimi K3 outperforms the latest clot and GPT on metrics like coding and general agents. And while those reports initially sent us stocks tumbling, tech stocks specifically, many names staged solid reversals. Memory maker swinging 15 percentage points from low to high. Seagate, Western Digital, SK Hynix, all ending the day in the green. The DRAM ETF was up nearly a percent, but major markets were down for the week Still. So what do the swings we saw in some of these key names today say about the next step for the markets? What did you make of the swing, Steve?

Steve Grasso

Yeah, so if you think about it, I'm trying to compare this to deep sea and make this sort of a Deep Sea 2.0 like everybody else is. Deep sea took a lot out of the markets. This one didn't take a lot of the markets. And then look at where we came into these markets originally. It was weak for AI already was weak for the hyperscalers. So I think they couldn't have taken a lot more out of it the way Deepseek was. I think it's not limited downside, but there's a host of reasons to be a seller of these names already. I don't know if this is the main reason to be a seller of it, but it does put in question the huge capex that they're doing. Are they throwing good money after bad?

Melissa Lee

Does it make you question the capex levels of the hyperscalers?

Julie Beal

Yes. I mean that's been the question for a long time. But I think there's a few different things going on. There's the underlying AI story and it's, it's evolution. However that may be where the spend is worth it. I don't know. I saw something today. $5.7 trillion of US hyperscaler spend through 2030. That's an extraordinary amount of money. We don't know if it's worth it or not. Then there's what's happening with the stocks which is in some ways not related. You know, to me, that thing we talked about yesterday with, you know, in Korea, them saying we're not going to allow a levered ETFs anymore, which I think is a very significant event. And the volatility, like, you know, Dell is my biggest position. Dell traded, it moved 10% today.

Melissa Lee

Wow.

Julie Beal

On only this news. And we're not even certain how much. That's absurd. So there's something else really going on with fund flows into the space that I don't think is connected to the story because we don't know exactly how the story is going to play out. But the amount of, you know, the gigantic market cap moves can't be. We can't be getting it. Right, Right, right, right. This reaction can't be exactly the right reaction to what this news was.

Melissa Lee

Yeah. And to be clear, we do, we don't know a lot of details, but what we do know right now is China seems to be competitive on the low cost models and now also on the high cost models.

Karen Feiderman

Julie I think it's something that people have had in the back of their mind is I am going to know when it's time to get out. There's this recognition that once the music stops playing, I'm going to find my seat and it's no problem. I think the volatility of these movements is an indication that people are really twitchy to get a chair before the music stops. The real struggle that we have is we don't understand the relationship between the level of model intensity and the capex and how that's going to drive any kind of return. And I think that's what people are really nervous about is when are we going to see numbers that give us confidence that this is a business model we can build around.

Melissa Lee

Tim as your view of the hyperscaler trade or any of the trades changed since the release of Kimi K3, I

Tim Seymour

think K3 underscores a moment we've had many times in the last year. I also don't think we should confuse the move in memory names with the move in hyperscalers. Or at least there's, there's a couple of different things going on here. And talking about Korea and technical dynamics, access to their market regulators, leverage liquidity dynamics and also just overblown memory trades are one thing. And then getting into hyperscaler capex, we've been wrestling with hyperscaler capex for a year and a half and I think ultimately we get back to a point where, you know, really we just don't know what the ROI is. And Metta is a perfect example of that. Microsoft is, is the, maybe the greatest example of that. And I think, much like we're slowly seeing with Apple, that Microsoft is very well positioned, especially in enterprise. And at some point, you know, leaving aside what they're spending, they are well placed across enterprise and even, you know, across, call it retail. So I don't know that we're in a very different place today than we were before Kimmy showed up looking so attractive. But I do think it's a case where we have been wrestling with ROI and we've got cross currents of many trades in the tech sector.

Melissa Lee

That's true. I mean, I think that's a good point to sort of separate out what's going on with memory and sort of the technical aspect of that trade that we're seeing play out. After South Korea halted the issuance of single stock leverage ETFs versus what's going on overall in terms of questioning Capex as we go into the week where Alphabet will report earnings. Is that a question that, what would you ask on the conference call at this point? There's a lot of stuff. What's like top on your mind?

Julie Beal

Well, I'd love to direct a direct answer to what do you think your return of capital is going to be? We haven't heard that. You know, I go back to the letter that Andrew Jassy wrote about this opportunity that he saw for us. He's never seen anything like it. He's been a great steward of capital in the past. And so we're kind of thinking, all right, well, he would know, but he hasn't told us exactly what he thinks. What he thinks that ROI is that I would love to know. I also though, I want to know how, I want to know how Google Cloud is doing. I want to know. We want to hear about Gemini with what's happened the other day, but we also want to hear about search and as it speaks to how the economy is doing. Right. I think. And we'll hear it from Meta. I think that speaks to how the economy is doing. And then YouTube on the heels of Netflix and then also Waymo, there's a lot of, to me, that is the most interesting one.

Steve Grasso

And they also have a moat behind them with search. But when you look at the other ones, when you think about, I think free cash flow, as I've said, is the holy grail. Anyone who's growing free cash flow is going to be rewarded with it or not knocking it down. All of these companies went from extremely high growth, fortress, balance sheet, ton of cash free cash flow. And it's the reverse of that. Now they're issuing debt and the market is probably rewarding Apple, of course, for the reasons of the aforementioned reasons. And you have to decipher which companies are going to be able to turn that switch and turn off the spigot and create the free cash flow yet again. Because the market, I think has lost its tolerance for company spending. It used to be an arms race. Now it's who has the most free cash flow.

Melissa Lee

You mentioned the word moat, which I think is an important one in this, in this context because I don't know, Tim, how do you think about these Chinese models? Are these Chinese models competitive with US Frontier models? Are there, you know, or in that moat, when it comes to, you know, US based AI, is there a moat there or no? The moat I would, I would say would be possibly national security concerns or maybe corporate reluctance to adopt a foreign model. But the market interprets the rise of these Chinese models, whether it be a cheaper one or a more expensive competitive one, as true competitors to what's going on here.

Tim Seymour

But I think the, the you just hit on the moats really are regulatory environment who you feel comfortable working with. Are we really going to adopt Chinese models if we are sitting in Europe? Even though right now would be kind of nice to have alternatives to us, given some of the rosiness of those relationships have changed. So I think the, the open source but also with proprietary. I mean that's what we heard about Alibaba and you know what's going on on that relationship with Apple is one of seven that Apple's been approved to work with domestically. But that, that's the story of China. China right now is proven not only low cost, but very much open source with the ability to, to also adopt proprietary. And that's. I think that, that, that very clearly is a challenge to what's going on in the United States. So the moats for the anthropics and the x ayes, etc. Are that these are still considered to be the pristine tech kind of, you know, places to cooperate on the enterprise side. I still think that we just don't know. And Deep Seek has been a moment that's been going on since China 2025. Today's another day.

Melissa Lee

Yeah. Julie.

Julie Beal

Yeah.

Karen Feiderman

How big a moat can you have if you're one of several in a dropdown menu? That's the real struggle that I see and I think for companies that are trying to build workflows around these models, the idea that this administration can knock out one of the models like they did with Fable, that's a concern, right? That should be a concern for everyone. And I think it makes it hard to feel confident I'm going to build business processes around these, these models that I have a lot of regulatory uncertainty. It almost favors the Chinese models in that way. But I think a lot of businesses just feel really uneasy latching themselves onto one because they don't know what's really going to be around the corner for them.

Melissa Lee

I would think that it would, it would make the Chinese models more precarious, Julie, in terms of where they stand because the national security concern can come to the fore and they say, you know what? No Chinese models here.

Karen Feiderman

But I think it's both, right? I think both can be true where you have anthropic knocked out really easily, the stroke of a pen and suddenly no one can use that model. I've heard from Some businesses that they were like when that happened, it actually made us wonder if the Chinese models wouldn't be better advantaged in that time period because they don't have the same kind of regulatory scrutiny. And I'm sort of like, well, both have a lot of regulatory scrutiny. The real underlying thing is that it just adds to the uncertainty everywhere.

Melissa Lee

Our next guest believes demand for AI remains intact despite the recent tech pullback. Patrick Moorhead joins us now. He's the CEO of More Insights and Strategy. Patrick, great to have you with us. How do you take this Kimmy news? How do you sort of apply that to the AI space?

Patrick Moorhead

Yes, I think it's a minor speed bump and I think your previous guests nailed it when they talked about it being a deep seat moment. And if you remember, you know, the rumor there was that they had created a frontier level model model with a few thousand GPUs and what ended up, it ended up being a very, very distilled model. I think it's good to have these conversations. I think the markets are overreacting because they haven't fully pieced through what happens if Kimmy is is and previous models are everything that they're going to be. But I think at the very end of trading, if you look at where we ended up, I think people had done their research, their blood pressure had come down and we saw some sanity come back into the markets.

Julie Beal

Patrick, it's Karen. Thanks for being on. So return on invested capital. That's sort of the, you know, $7 trillion question. When do you think we will really start to get some clarity from hyperscalers and whoever else about what they expect it to be?

Patrick Moorhead

Yeah. So I think it's going to be relatable to investors that look at the AI cup half full, where they see the promise of it. I don't think we are going to see the big numbers that some people might want to see for 18 months or longer from now.

Steve Grasso

Right.

Patrick Moorhead

We went from the hyperscalers going positive cash flow to pretty much a negative cash flow and a lot of debt or instruments to, to buy more capex. I look at OpenAI margins that are quite significant. In fact, their margins are higher than the hyperscalers. There's a lot of money in there. We haven't even scratched the surface of what people are going to be willing to pay. If you look at, you know, let's say a bank that might have 50,000 applications and maybe they have four or five applications or workflows that can take advantage of, of we're not comprehending that. We're also not comprehending when all of this capability go to the edge in smartphones, in tablets, in PCs and even in the industrial edge like robotics. But I think it just comes down to conviction of what you believe that AI will pay off and it does take. I don't think you're going to see it early in the spreadsheets or the models.

Steve Grasso

Patrick, this is a commoditized business. It will eventually return that way. So that makes all the capex that is spent probably overpaid. So what do you think about my free cash flow as the barometer to success? We've seen the marketplace already reward those growing it or not hurting it as much. I think you have a different stance on that.

Patrick Moorhead

Yeah, I do. I mean FCF is, is certainly the ultimate way to look at that. It's the way we measured a lot of the hyperscalers before and I think that that will pay off, albeit a few years down the road. I don't think we're going to see immediate positive fcf.

Melissa Lee

Patrick, great to speak with you. Thank you.

Patrick Moorhead

Thanks for having me on.

Melissa Lee

Patrick Moorhead. So Julie Beal, what are you looking for out of earnings?

Karen Feiderman

I think more clarity on exactly how the revenue is going through the P and L and what they can directly attribute to that business. I think that's the place where people feel the most struggle is that it's still pretty squishy and I think understanding too where are the efficiencies that we're getting on these models? Because to me, what I think I really struggle with is that it really feels like the frontier models are delivering a lot of whiz bang technology. That feels really dramatic, but it doesn't feel like that's necessarily the best technology for, for automating simple business processes which it feels like the smaller models would be better suited to do that. And so I think that's what it's important to kind of understand is do we really need all this compute when there's a lot of low hanging fruit for simple business processes that could use smaller models?

Melissa Lee

Tim, according to what Patrick said, it sounds like investors will have to wait a long time before they get any sort of indication on the return on invest investment for AI. Are you willing to wait?

Tim Seymour

I haven't dumped a ton of investment money into a view that an arms race is, is something I have to subscribe to. If anything, you know, it's been just where in the last couple of months do I want to start nibbling on Microsoft? I'm comfortable owning in video because on some level I still feel that they are the marginal supplier and the leading edge of the technology chain for where all this compute is being built. But I would agree, I think there's still a lot of uncertainty and I'm not sure that investors aren't going to continue to want me. Google's core business and what we've seen from Gemini is that they're spending money but at least they remain on the leading edge of their business. And that's actually been good news. Apple is a platform, Apple is, is a conduit, is a vessel for serving up. I think that's going to be great for Apple and I think that's even though they haven't spent the capex to necessarily differentiate series, not a good product. But it's, it's not really important right now. And so I think what we're wrestling with, we know there's demand picks and shovels have proven to be a way to play it. Although again I would go back to memory and just say I think there's cyclicality. I think longer term contracts that's great, we have more visibility, less cyclicality. It's still a very cyclical market and I would not be chasing those. Those numbers here I think are, you know, those margins are as good as they get.

Melissa Lee

Meantime, let's get to Netflix shares sinking over 7% today, closing at their lowest level since October 2024. The company last night warning revenue and profit gains will slow in the current quarter. Also saying it will issue fewer engagement updates going forward. Netflix stock has been cut nearly in half since hitting a record just over a year ago. What's your take on the reaction during the day?

Julie Beal

Well, better than where it could have been.

Jerry (Pet)

Right.

Julie Beal

It was looking particularly ugly. I think this is I think slightly better than where it went out last night. I think that there's still a lot of support from analysts but I think Netflix needs to put up a couple of good quarters to start to turn this around. You know, I think it used to be we could maybe look through weaker guidance but now they need to deliver on that. The engagement thing doesn't sit well. But I went back talked about this last night. The subscriber thing also didn't sit well and ended up being fine. So this may be that as well. So I'm long I didn't buy any today. Kind of a three day rule sort of thing but I mean I find it compelling. But I've thought that for a long time been wrong.

Steve Grasso

I think I'll go with the three day rule. I'll probably wait till next week. But I think these levels as I've mentioned, go back to 2024. These are pretty attractive levels to buy Netflix. And when you really sift through the numbers, that ad tier makes sense, right? It's a low number, it's a big number for any other smaller company. It's a low number for them. They could grow it and they could lever that. I think that their investment is probably going to be less so if that has peaked and the ad tier rises. And I think that they're still growing at this point. So it might not be what the market wants. And they've had a terrible year, let's face it, they've had a terrible year. But I think this is a great spot.

Melissa Lee

Yeah, Julie, I mean it does seem like the fewer updates given to investors indicates that it doesn't want to be viewed or maybe it should not be viewed as a growth company anymore because that's not what you're measuring the company by.

Karen Feiderman

Yeah, I think they're, they're experiencing a real rotation in their investment base away from the go go growth investors to more the kind of garb or quality investors. I agree. I think right now they're in that really tricky chasm where they're still spending like a growth company but they're not necessarily getting that return and engagement that they really need. I agree that the ad tier is a real opportunity for them. It really feels intuitively that they should be able to monetize that really well. And you know, I think the real struggle that they have though is being able to land the plane in terms of being able to drive the margin profitability that they need to while still experiencing some of the growth. I think a good share buyback would help. And I think part of what they have to really recognize is what is the growth opportunity for their ad spend internationally. Because I think sizing that a little bit more directly would be really helpful for investors.

Melissa Lee

Coming up, Space X comes back down to earth. The stock now down in each of the last six sessions by the hotly anticipated IPO can't seem to get out of its own way. And what it needs to achieve liftoff. Plus a Nikkei nosedive. Japan's benchmark index slides into correction territory. What is driving steep declines in the overseas market and whether this pullback is a buying opportunity. Don't go anywhere fast. When he's back into.

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Melissa Lee

Welcome back to Fast Money. SpaceX shares down for a six straight day, now trading 45% off the record high hit in the days after its ipo. The stock got a bit of a pop midday after the Wall Street Journal reported in its on its talks to provide computing power to the Pentagon, but close the day near its highs. The company, which allotted 30% of its shares in its debut to retail traders, has now wiped out about $1 trillion in market cap from the peak. Steve?

Steve Grasso

Yeah, I mean this is, this is not a meta. I mean meta had a host of

Julie Beal

meta ipo, meta Facebook.

Steve Grasso

Sorry. Yeah, so it was a host of reasons that that IPO went bad. But you remember they struggled for about a year for that stock price to really get back above the IPO price. This is when we look at $124, it was $135 IPO. Forget about the 150 print. Forget about everything else. You got the allocation. That was a $135 IPO. So it's 10% basically off that IPO. I'm still long. I got a very, a very small allocation like the rest of the people got very small allocations. I've added to it. I'm still long it, I think with cursor. And when you have Starlink and who knows how many other companies he buys and how many how many site they put in for a million. A million Permits for satellites on scale, they're going to be the biggest in this space. I'm still on it.

Melissa Lee

Tim, what's your take on is it a bargain? I mean like if you can get it at 135 or whatever. I mean it's bargain now, right?

Tim Seymour

I'm not sure this is on the shelves at Dollar Tree. I think this is a case where it's, it's, it'. Actually you can make an argument it's still expensive, especially when you consider where the valuation of this company was back in February when they completed the acquisition of X. That looked genius and was genius, but. But actually then suddenly the combined entity put X AI to 50 billion and space X, you know, over a trillion. By the time we came at 11 3/4 trillion, the sum of the parts were somewhere around 900 billion or less. So I'm just not sure there's value here. And at a time when XI was really the driver for the valuation dynamic, especially at a time when we are hearing about anthropic and chat GPT valuations, I wonder and I think it's. This could have been part of our conversation in the A block. So I'm not sure that it ever made sense and therefore I still believe in the technology and I think, I think Starship is, is a value unlock. I think there's a lot of pieces on the space side. Investors really haven't even had a chance to value. I think you could own it here. I think there are people that are picking at it here. That doesn't bother me but I'm not going to call it cheap.

Julie Beal

I agree with what Tim said about I think XI was in the presentation. That was the bulk of the value. The two other business were interesting but that was not where the value was. And so if you look at what's happened to the rest of the stories, they still seem a lot cheaper to me than Space X. So. And that's our position and price targets.

Steve Grasso

Price targets. Raymond James has an $800 price target on a five of the seven price targets are above the current price of it now. So people do believe in growth and sometimes when you're looking at growth, it's not going to look like a value stock.

Melissa Lee

There's a lot more fast money to come. Here's what's coming up next.

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Japan in a rough patch. The Nikkei tumbling into correction territory. Why investors are hitting the sell button and what comes next for investments overseas. Plus a red light for Tesla. The Chartmaster says to sell the stock ahead of earnings. The reasoning and the big bets options traders are placing into the print. You're watching Fast MONEY live from the NASDAQ market site in Times Square. We're back right after this.

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Melissa Lee

Welcome back to Fast Money. Japan's benchmark Nikkei sliding 4% overnight, sending the index into correction territory now almost 12% from its June 22 record high. Japan's broader topics inde also taking a hit down almost 3%. Way down by the memory and semi sell off. Before we go to the ambassador, I will go to you, Karen, because you flagged this.

Tim Seymour

Yeah.

Julie Beal

I mean this is not great price action for sure. For this isn't. This isn't Korea. This is a much broader big.

Mike Coh

Right.

Julie Beal

So this is a really significant move. I don't know, you know, when you had comments from not the trade, the finance minister saying, you know, we're prepared to take decisive action. The last time I saw some really big decisive action, it was not a good thing.

Fast Money Disclaimer Narrator

Right.

Julie Beal

And if you go all the way back to, you know, the British pound that did not work out well, ultimately, you know, things turn around. But to me that that's sort of scary. Now I'm long, I'm long without the yen. You know, hedge through the yen with the. But I sort of think there's bargains there. But this kind of rhetoric is somewhat concerning.

Melissa Lee

Yeah. Tim, what was your take on the pullback?

Tim Seymour

Well, first of all, the difference between the Nikkei and the topics is important. I mean it's kind of like Dow Jones and S and P. Nikkei is price weighted topics is market cap weight and I think the topics is a lot is a lot more relevant and important. And the pullback of the highs for the topics is probably 5 and a half which is totally in line for MSCI all world ex us. In other words, off the top international markets have not had a great run here and you know you can argue especially with more war and some of the pullback in technology. Even though part of the international story has been rotation into international tech, Kyoksia in Japan is certainly one of the larger memory names in the world. It's been under a lot of pressure with everything else. I am concerned about Yen and JGB dynamics. I think we all should be. But the rest of the Japanese equity market is very strong and I'm long Mitsubishi and Sumitomo in Idevo and I actually love Japanese banks here. So I think there are reasons to be concerned about an aggressive appreciation of the yen. That's a risk moment for all equity markets and I think it's why we talk about it.

Melissa Lee

Coming up, a fork in the road for Tesla with earnings just around the corner, what should you expect from Elon Musk's other company and the troubling technical trend the Chartmaster just can't ignore? Fast Money is back right after this.

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Melissa Lee

Welcome back to Fast Money. Stocks firmly lower to end the week, The Dow shedding 400 points, the S&P down a percent and its worst day in almost a month and the NASDAQ fell nearly a percent and a half. Oracle shares up by almost 2% even after hitting 52 week lows during the session. Still, the stock is in the midst of its sharpest drawdown since 2002, down over 60% from its September record. Travelers jumping 9% to lead the S and P on better than expected results in this morning thanks to lower catastrophe losses and stronger investment income management, reaffirming outlook and expressing confidence in its investments and intuitive surgical sinking 14% for its worst day in four years. This despite a strong second quarter report. The make of robotic surgery equipment sees slower growth in procedure volumes for the full year. We sort of heard about that from some health insurers managed plans before see but you flagged this One.

Steve Grasso

Yeah, so. So I just think people are doing less surgeries, walking into hospitals less, you have less covered people. These are the type of stocks that will definitely get hurt off of it. But when you think about the technology with these names it's hard to really throw this one out and not give it. You always want to pull back on a chart and we are running into some support, It's a little bit of soft support and we're going back again back to 2024. So if you want to take a dabble three day rule, maybe you take an entry point, a flyer out on it next week.

Melissa Lee

Meantime, Tesla set to report earnings next Wednesday and the chartmaster says it is a good time to sell. Carter Worth put out a note this morning putting a $330 price target on the EV maker that is about 13% below today's close. He points to these converging trend lines as well as a double top formation that has him saying we are sellers here. See that arrow pointing down? Tim, what do you, what do you think of Tesla here?

Tim Seymour

Well I think it's caught in some of the same just say baskets and index dynamics that are cost are hitting some of the other names out there. We, we had deliveries recently, they came in better than expected. I'm not really sure what the numbers are that we're watching here. Once again it gets back to self driving, it gets back to robots, it gets back to numbers that I think are out there that aren't going to be entirely clear. I think this remains a place where the dedicated hold on and the fundamental marginal catalyst is still very unknown. So I'm not doing much here. I think the technicals are frankly the more interesting way to look at the stock right here.

Julie Beal

So when I think about Tesla story, I think part of it is this. The call is right, right. Is basics going to buy them and are they going to do it? They're going to do it for stock, they're not going to do it for cash. And so there has to be some of this move here, the SpaceX downdraft, right directly into test.

Steve Grasso

I agree with that. I think that people thought Tesla was a cheaper way to buy Space X and now with Space X collapsing in stock price people are thinking maybe I just buy Space X if I want to buy it. So they're not buying Tesla anymore, they're just buying the, they're not buying a proxy, they're buying the one that they wanted to buy or get shares of it. A cheaper way to go through through

Melissa Lee

Tesla or they're not buying either or

Steve Grasso

they could not be buying either and that it's just a risk off period, which would not be. Would be totally justified in the market that we've seen.

Melissa Lee

I feel like Julie Beal is in the. Not by either camp.

Karen Feiderman

I don't know why you say that I'm such an Elon, Stan. I don't. I'm well known, honestly. But yeah, no, look, I agree. I think that there's a lot of noise and you know, I was thinking a lot about how it was just a year ago, two years ago, we would talk about this AI pixie dust that really just seemed to drive so much stock movement. And I think it's almost changed in a strange way and we're moving away from that. And I think that some of the magic of Elon too is starting to dissipate because I think people are really starting to recognize that we don't have the robo taxis. We were dependent on robo taxis and robots and we're still not really seeing it come to fruition. And I don't want that to take away from any of the achievements at Space X. It's an incredible company, what they've been able to achieve. But I do think that there is a rubber meeting the road that has to happen for these valuations to be supported, because right now it's not the numbers.

Melissa Lee

Let's bring in Mike Coh now to get the options action on Tesla. So Mike, what are you seeing?

Mike Coh

Yeah, so it was the second busiest by contract volume after Nvidia, trading about 2.6 million shares. And the options market right now is implying a move of about 7% higher or lower by the end of next week after they report earnings. Calls and puts were about 5050. So that's slightly more bearish than usual. And that continues the shift in sentiment, which I think Carter was talking to in the technicals that we've been seeing over the past month. Overall, options volumes, big as they are, have been trending lower and sentiment has been getting less sanguine. So in fact, on balance, options traders actually got net shorter by the equivalent of about $550 million worth of stock today. And one of the trades that we saw trading most actively was the September 400300 put spread. That one's now in the money that traded probably about 6,000 times around $35 per spread. And I also think that on a fundamental basis, you know, most of their sales just on the car side came from three S and Y's and they didn't have any real competition from that in that segment. And now the Rivian R2 is coming online and that could be a potential competitor.

Melissa Lee

Right. Are you seeing increasingly bearish options activity also in SpaceX?

Mike Coh

SpaceX, I mean SpaceX sentiment certainly has also shifted a little bit more negative. You know, naturally this is true across tech. I think it would be fair to say that as I'm looking at the market overall, if you're looking at technology sort of higher multiple, high beta and long duration equity, the shift has been lower volumes and increasingly bearish.

Melissa Lee

All right, Mike, thanks. Have a great weekend. Mike, copy. Coming up, the market's next big test how a top portfolio strategist is navigating the key earnings week ahead and the biggest opportunities he's finding amid the volatility. More fast Money right after this. Welcome back to Fast Money. Earnings season kicks into high gear next week with several big tech names set to report. For more on what the results could mean for the market and all the recent volatility, we are joined by JP Coviello, head of portfolio strategy at Citi Wealth. JP great to have you with us.

JP Coviello

Thanks for having me. Great to be here.

Melissa Lee

It seems like there is a lot on the line in terms of proving out the AI Capex spend theory. Are you concerned at all about the narrative?

JP Coviello

I would say there's been a ton of hand wringing about this narrative for really the past nine months. Honestly, every single quarter we get the same hand wringing. Is Capex going to be revised?

Steve Grasso

Higher?

JP Coviello

Is the rate of change going to, you know, tip over for us? We're, we're, we're recalling Q1 earnings for starters, right? 27% earnings growth, the highest in two decades outside of a post recession recovery. And now looking at this earnings season, we have 23% expected earnings growth for us. We're very optimistic here. You know, we're informing clients, bring your cash off the sidelines into this pullback because the underlying underlying fundamentals remain quite robust.

Melissa Lee

Is there a lot of cash? I mean we hear this all the time, cash on the sidelines. Is there cash on the sidelines? That's like literally in cash that can

JP Coviello

be deployed literally in treasury bills. Yes. I mean when we look across client bases, we do see a lot of cash on the sidelines. As you know, we deal with high net worth individuals, they tend to carry a lot of cash. So for us it's reminding them we are in a high inflation environment that does erode your real return. Let's think about putting some money to work as we come off the highs here and we see some volatility. Let's take that, let's take advantage of that. Right.

Julie Beal

So let me just ask you again about the earnings a little different way, do you think? So the EPS might be up 23, 25% which would be great, but how much focus do you think will be on the free cash flow?

JP Coviello

Absolutely. We'll be focused there too. Right. As one of your prior guests mentioned, that's going to be a core focus for us. For us, the hyperscalers have room here. Right. They have room to put money to work still. Right. Their leverage ratios are not anywhere near where they could be from a negative perspective. So we see them as having ample room actually to keep putting money to work. They may even tap the debt markets in the future. Right? That's a possibility. They have room to do that. We view this as opportunistic for them, so we're super focused on it. But we see them as integrate position still.

Steve Grasso

Jp, talk to me about themes. So you've located cybersecurity, which forever seemed like it should have been the thing that runs the first and it took so long to get its sea legs. What do you think about it now and do you see this being a longer in the tooth trade?

JP Coviello

Great question. We started looking at it a couple of months ago. Obviously the software valuation compression to start the year as I really came into the forest was an issue for the software as a whole. When we started digging into the agentic AI capabilities, we realized you need much greater observability. Right. When you have agents working alongside humans, you need password authentication, you need broader authentication, you need border control of what agents are able to access with respect to IP within a company. So for us, we see it as the most durable area of enterprise spend that's likely to continue for the next five to 10 years. It's already doubled over the past 15 as a percentage of enterprise spend. For us, we're very optimistic here for the bigger platforms. For us, that seems to be the area of focus.

Melissa Lee

What is the primary inflation hedge in your portfolio for us?

JP Coviello

Great question. Especially in a high inflation environment. As I mentioned, for us it's global upstream natural resources. For us, it's the regime we're in. We start with where are we? We right as macro investors and fundamental investors. Where are we? We're in an overheating regime. High growth, High inflation. Right. Chairman Warsh spoke about the inflation problem a couple of weeks back. And for us, what has worked historically extremely well in a high growth, high Inflation environment, that's the upstream natural resources portion. Now you get exposure to the CapEx supply chain, you have some exposure to copper, you have some exposure to energy, you also have some exposure to agriculture. So for us it's a real broad commodity piece within a bigger portfolio that can help diversify you and help in that higher inflation environment.

Melissa Lee

Jp, good to see you. Thanks for coming by.

JP Coviello

Thanks so much for having me.

Melissa Lee

J.P. covella of Citi. Tim, I bet you like the commodity portion of the portfolio.

Tim Seymour

I do like what JP's out there pitching. I think in a world where we have a more hawkish Fed, be careful because I think you're going to get a stronger dollar. Copper, you're going to have commodities have some, some, some pressure. But I, I love copper here and I also think there's a dynamic with, where there's a build out across power grids, there's a dynamic that's really bottom up fundamental. And I think, you know, I think there's a place to own commodities. One I would say is the problem with commodities. I'm not sure you want to have a 20% position in materials and commodities. So materials at least as a sector and energy, this is where you have to be careful. I think it makes a ton of sense. It's more adding emphasis around the edges, but I'm not sure how overweight you can be.

Melissa Lee

Julie?

Karen Feiderman

Yeah, I agree. I think commodities make a lot of sense from a diversification standpoint. And I think the biggest struggle we all have as investors is recognizing how interdependent and how tied to the AI narrative we all are. So any places where you can get a little bit of breathing room away from it, particularly in an inflationary environment, makes sense to me. You know, I think it's really important to recognize when we're talking about the 28% growth that we had in the first quarter that something like 12% of it was Alphabet, Amazon and Nvidia marking up their portfolios for, you know, their equity stakes in anthropic and open air. So yes, it was good growth, but it wasn't exceptional.

Melissa Lee

Coming up, could we be in for an end to earnings season as we know it? The SS SEC moving ahead with a controversial plan to ditch quarterly reporting requirements. The fierce scrutiny facing the move and what it could mean for investors next. Welcome back to Fast Money. The SEC facing intense pushback over a plan to scrap mandatory quarterly earnings reports in favor of twice yearly disclosures. According to the Wall Street Journal, the agency received over 200,000 public comments on the measure. With many warning the change would leave investors with less information. The proposal still expected to advance with proponents arguing it would ease a regulatory burden on public companies. Among the comments sent in, one from Wall Street Bets, of course, the forum for individual investors saying that, you know, professional investors have so much information. They have channel checks, they have their expert networks, they pay for research, they have satellite imagery, all these different things that give them a picture of how a company is doing. And all we have, they say are quarterly reports.

Julie Beal

So I think they should absolutely stick to quarterly reports for many reasons. I think that I can't imagine that JP Morgan is run where we don't know where we are in the quarter. Like if we just, you know, if it were for every six months that they just wouldn't do it. I think that, that I think most significantly large businesses are already very much position to do that. I think that investors need to see it. I think accountability is good. I would be maybe open to the idea of all right, maybe you can do something a little more skeletal than the whole big quarterly, you know, call and all of that. Just have an income statement, a balance sheet and cash flow. And I think that would sort of suffice. I did see one also considering every four months, but I think every six is just way too long. And I think it would hurt companies more than help them because especially for

Steve Grasso

smaller companies, especially smaller companies, it's going

Julie Beal

to be more helpful for disagree.

Steve Grasso

I think if the expenses I'm just talking about just the sheer expense of putting up the quarterly reports I think is, is, is the difference between being

Melissa Lee

in the red or being penalized by investors.

Julie Beal

We don't know what.

Steve Grasso

You can still file an AK going to pay.

Julie Beal

We're not.

Steve Grasso

You can still file an AK if you have, if you have anything that really is market moving, you file an 8k, have a couple of days to file an 8k. Just the 10k that you're not filing.

Julie Beal

Well, the 10k you have to file every year. The 10k is only a yearly filing. The Q is the quarterly filing. But that's a.

Steve Grasso

But the, but the expense. I think JP Morgan's can afford it. The mega cap stocks can afford it. I think it's the ones that are the smaller cap names that you really have to check with. Those are the ones that have the.

Melissa Lee

Think investors will rise in terms of valuation on the companies that do not report quarterly.

Steve Grasso

I think people put it, whatever information they have, they're going to figure it out whether they have it once a year, twice a year, four times a year. They'll figure it out.

Melissa Lee

Up next Final Trades Fun story for Friday. Sotheby is just announcing results of its auction of Jensen Huang's leather jacket. Expected to sell for 40 to $60,000, it ended up fetching $960,000. That's about 4,800 shares of Nvidia. Time for the final trade. Let's go around the horn.

Karen Feiderman

Julie Beal I like Donaldson for some diversification.

Tim Seymour

DCI Timbo they are not selling that leather at Wal Mart, but you should buy Wal Mart. This is a pullback and I think it's to be bought.

Julie Beal

Karen yes, bought back those JP Morgan calls. I was short at literally just about exactly the same price was big enough.

Steve Grasso

Steve Karen, enjoy that jacket. I hope you wear it well.

Melissa Lee

Palo Alto thanks for watching. Fast Mad Money starts right now.

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