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Melissa Lee

Live in the NASDAQ markets in the heart of New York City's Times Square. This is fast money. Here's what's on tap tonight. Giving up gains, stocks steadily falling during the session. The major indices all closing in the red as investors start to digest the impact of rising tensions in the Middle East. We've got the very latest developments and how they'll likely play out in the markets and the race for air supremacy. How the latest offerings from Alibaba and Moonshot stack up against homegrown models and how it will impact the US Hyperscalers. Plus, bitcoin gets a bounce. Oracle closes at a more than two year low. And the latest stocks taking a hit from the Cyclops, psoriasis, cyclo or ISIS outbreak. You know, that parasitic outbreak. How long could the impact last? I'm Melissa Lee, come to you live from CDO B at the nasdaq. On the desk tonight, Steve Grasso, Karen Feiderman, Dan Nathan and Guy Adami. We'll get to the latest out of Iran in just a moment, but we want to start with other breaking news out of Washington. The White House just announcing new tariffs on Canada. Let's get to Eamon Javors for those details. Eamon.

Eamon Javers

Melissa, that's right. President Trump is using an unusual tariff authority to impose significant new duties on Canadian imports, senior administration officials said in a conference call this hour. The President has signed three proclamations pursuant to section 338 of the Tariff act of 1930 to impose additional 50% tariffs on certain goods coming from Canada, they said, ranging from wine to hockey sticks to cement. Now, these new tariffs will take effect 30 days after the signing. Section 338 has been on the books for years, but it hasn't been used to enact tariffs before. So we can expect that this will be challenged in court as a part of this ongoing debate about the scope of the President's tariff authority. Now, according to senior administration officials, the new Canadian tariffs apply to all designated goods, whether or not those goods are compliant with the existing trade framework known as usmca. That's a signal that the administration is willing to further undermine the USMCA agreement with Canada. But at the same time, Jamison Greer is heading to Mexico this week to negotiate terms for that country's agreement under usmca. So that suggests that Washington is far more eager for a trade deal with Mexico than with Canada, upending the previous trilateral approach. And we'll wait for the reaction from the Canadian side once this news is public.

Melissa Lee

Guys, is there a reason for these additional tariffs? Ayman because the President had alluded to levying tariffs because of the wildfires and the cost of the United States.

Kate Rooney

Yeah.

Eamon Javers

Officials on this conference call were asked that question and they said these are not wildfire tariffs. They said these are the result of an ongoing process that's been going on for months and just happens to coincide with the President's remark last week about imposing tariffs in response to the wildfires.

Melissa Lee

All right, Eamon, thanks. We'll see you in just a minute. Eamon Javers in Washington. So our neighbor to the north no longer, I guess so we're going to look at more terrorists potentially.

Steve Grasso

You know, when you're a pro is when you're able to say Canadian wine and hockey sticks without laughing. I mean.

Eamon Javers

Yeah, without laughing.

Melissa Lee

Let's note, you did laugh, of course.

Steve Grasso

But anyway, I don't know if you can trade it. But what I'll say on the margins, it's one more reason, in my opinion, to be bearish of the bond market. I mean, these things continue to sort of line up and it continued to my, in my opinion, put pressure on things in terms of the inflation problem. So I think if anything, it's bond negative.

Melissa Lee

Just when we thought tariff, the impact on tariffs was waning.

Dan Nathan

But it's not just that. I mean, we are. Our largest importer is oil from Canada. Right. If you think about lumber, you think about auto parts. I mean, who eats this? Right. I think we're at a point where, given the inflationary situation we are right now, the dislocations that we have in supply chains because of this war, I mean, it kind of just speaks to the fact that inflation is likely to be sticky right here. And I think the guy's point that keeps, you know, yields where they are, it's kind of bad.

Karen Feiderman

So it's kind of surprising. I wasn't expecting any hockey stick news or anything like that today, but here we are. I don't know. I kind of, I feel like it's a little bit of theater, which Trump loves to do, and that this may not really happen at all.

Guy Adami

And he was also in the private box with Prime Minister Carney and the president of Mexico yesterday at the FIFA finals. So I got to figure something came up on this. I think the market's going to look directly through this. He's lost in the Supreme Court on a lot of these. I don't think the market's going to pay attention to this.

Melissa Lee

All right. Let's turn now to Iran and the very latest developments there in the Middle East. CENTCOM announcing a new round of strikes in just the last hour. Let's get back to Amen for the details. Amen.

Eamon Javers

Yeah, Melissa, that's right. Centcom said U.S. forces began that new round of strikes this afternoon against Iran beginning at 4pm Eastern Time. Now that comes after the White House said President Trump will attend the dignified transfer of the remains of the American soldiers who were killed in Iranian airstrikes over the weekend. That transfer will be at Dover Air Force Base tomorrow. The Pentagon identified two of the American soldiers who were killed in Iranian strikes over the weekend. First Lieutenant Tyler James Feehan, 25, of Ewa Beach, Hawaii, and Private Isabella Gonzalez, 19, of Carrollton, Texas, were killed in strikes on U.S. forces stationed in Jordan. According to new data from the Pentagon, as of today, a total of four hundred and twenty seven Americans have been wounded so far in Operation Epic Fury. And on social media today, President Trump wrote, every time Iran kills an American soldier, they will pay for that killing many times over. Meanwhile, Houthi leaders in Yemen this morning declared a maritime embargo against Saudi Arabia, which they said will be effective immediately. That threatens one of the alternate routes for oil out of the Middle East. The Houthis, who are closely linked with Iran, have threatened to close the important Bab Al Mandeb Strait, which is a route that the Saudis have used to divert millions of barrels of oil each day through a pipeline to the Red Sea. You can see it there. And the British military also today said a second ship was attacked in the Strait of Hormuz today, this one off the coast of the United Arab Emirates. So the conflict is continuing. Melissa, back over to you.

Melissa Lee

Is there, are there any responses or Comments from other countries in the Middle east that are viewed as our allies there because they seem to be getting hit in a more fierce way than in the past. Kuwait last week suffered a lot of hits to their infrastructure. And then you have this potential blockage which would impact Saudi.

Eamon Javers

There are reports of several diplomatic initiatives. The idea being countries in the region want to de escalate tensions as quickly as they can and not let this outbreak of renewed warfare expand into, you know, further into the region. It's just not clear how successful that diplomacy will be. It seems like both sides are really spoiling for a fight here. And the reaction in the US Side to these American casualties now that additional American soldiers are dying in this battle. You see Pete Hegseth, for example, Secretary of Defense, Defense at the Pentagon saying this only renews our commitment to this effort. So I think there's a sort of a doubling down effect that happens when you see American casualties like this.

Melissa Lee

Yep. Eamon, thank you. Amen. Jabbers in Washington for us. You heard Amy's report and you said guess how the markets did today. I don't know if you'd say flat. Yeah, it seems like things are worse here.

Steve Grasso

No doubt. I think things are worse and I don't think things are going to get anywhere I think markedly better anytime soon. And the things we've been talking about continue to work and refiners PSX all time high. Marathon Petroleum, Valero all time highs. Oh, getting off the mat, although closed lower today. And even the big cap integrated names are starting to bounce. So regardless of what you think about the price of crude oil, which by the way, I think will go higher, I think you got to stay low on these energy stocks.

Guy Adami

Yeah. And when oil goes up, that's a sticky price. So the refiners spread the crack, spread what they actually refine, what they sell it for. Those prices stay static a lot longer than that. Input price can fluctuate dramatically giving them a better margin on it. So if you're going to be in that space, sounds like there's going to be an underlying bid in the energy space. I would just continue to stay with the refiners.

Karen Feiderman

So I was surprised. I mean coming in last night, coming into today was really not looking so good. I was surprised happily to see the sort of tensions cooling a little bit in the morning. But I was surprised as the day went on that oil wasn't higher. Yeah, I would have thought that it would go higher. So you know, I'm long energy and every time energy comes in off of Some good news I look to add but I think the market is just sort of waiting. Trade has been everything and all right, we've got to see what are they actually going to earn, what are they going to tell us?

Melissa Lee

Yeah, semis and software were okay today. I mean they were weak towards the end but they were okay. Relative to the broader horrible price action though.

Dan Nathan

I mean when you think about it, we've seen this, you know, this back and forth with semi. I mean Friday was a very bad day and if you look at today, so it was a nice little bounce. I think Sammy's memory, they were definitely oversold on a near term basis. But the fact that they open up and close that the way they do. I mean the SMH almost closed down on the day. Right. And you saw some huge reversals from stocks that were up 5, 6, 7%. So you know, this is one where I think you're going to continue to sell rallies in this space. And you know, just use intel as an example. I mean here's a stock that was an absolute darling. It was you know, late to the party for a whole host of reasons. And then you know, the thing's down 30% right now. There is a gap below here going back to their last quarterly report that it really feels like it has the potential to go and fill. That would be cutting the stock in half from those recent all time highs. And when you get to some of these reports over the next couple of weeks, I'm just hard pressed to think that the guidance that these companies are going to be able to give will not be discounted. Now it depends how oversold that they are. The further oversold they get, the higher the potential they have to top. But I'm just not sure they're sustainable at this stage of the game.

Melissa Lee

Or they can give good reports and they can have good guidance and they can still have the reaction that's hostile. Basically down which you see in the last couple.

Steve Grasso

Yeah, with the memory stocks. I mean if go back two quarters ago, it happened in Micron, it happened again. I mean Micron made an all time high at 1200 and change. Traded down to the prior all time high in May of 805 which we flagged should have been support and it was. But it's like the bounce has been that resounding. So to your point you could still have great quarters and bad price action.

Melissa Lee

Should we rethink this trade at this point? I mean given with moonshots Kimmy K3 and Alibaba Quinn. I mean and just the whole narrative in prior to those releases of are we overspending is are we going to get the money back from our spend?

Karen Feiderman

I don't know is the short answer. But I do really want to hear from. I mean that's why it's going to be so interesting. I do think that the demand side of the equation is so enormous and doesn't get as much focus as the supply side and the competition. And so I'm still at the moment going into earnings staying long.

Guy Adami

It's about free cash flow. I've been saying this for four weeks now. If you look at it, there's a correlation between the two stock price. Once they're eliminating that free cash flow, look at whether Oracle where they went cash flow negative. Look at where, where any of these companies that used to just be stockpiling money, free cash flow margins through the roof. Once those start to disintegrate, investors lose patience with that story. And I think that's the near term and to the entire story.

Melissa Lee

All right, another big catalyst for markets, of course we've been talking about it earnings. For more on how that could impact stocks, let's bring in Chris Harvey, head of equity and portfolio strategy at CIBC Capital Markets. Chris, great to see you.

Chris Harvey

Great to see you.

Melissa Lee

Are there risks to the upside or to the downside out of earnings season right here with the markets at these levels.

Chris Harvey

Okay, trick question.

Melissa Lee

Because it is a question. But you know,

Chris Harvey

on the fundamental. Fundamentals are good to great. But the issue that's overhanging the market right now is rates and what was on before. Oil keeps creeping up, rates keep creeping up and there's concern and we still have to hear from large cap tech such as Google on Wednesday. I think fundamentals will eventually power us forward. But rates are hard to keep down at this point in time and that's causing equities to look quote, unquote tired, if you will.

Steve Grasso

Yeah, that's the story. Rates for 60 today, ish. A little below 460. But when does the market really start to matter in a, in a meaningful way?

Chris Harvey

I think what you need to have, you need to have Kevin Warren come out and say we're not raising rates. Rates until you have that. The hawkishness is there. The concern is that they could raise rates. Oil going higher pushes it pushes it up as well. And so we need to have the Fed come out and say we're good here.

Karen Feiderman

So Kevin Warsh, I don't think will come out and say we will not raise rates. Even if he wanted to Say we will not raise rates because that is. It seems the new Kevin was way to not tip their hand at all. Why should they?

Chris Harvey

He'll say we have a task force for that and he'll defer to him. Now what he will say is we'll probably get another. Hopefully we'll get nothing done and for the summertime we'll be okay. But I agree with you. He won't go out and give you forward guidance. He said he's not going to give you forward guidance. So you can't expect much. But once we get through that you don't raise rates, then I think we can feel a little bit more comfortable because one of the things he did say is we're going to have a good family fight about raising rates. And if they come out and they say we're good here, I think the market can go higher.

Dan Nathan

Because you spend a lot of time talking to institutional investors, right? And I think it is probably as tricky for them as it is for many of us right here. Well, how do you think positioning is right now? Because you know, despite the weakness that we're seeing in a lot of like large cap tech stocks of late, you know, the S and P really hangs in there. You know, it's on a relative basis, much better. The s and P500. I'm just, you know, curious how you think funds are positioned right now.

Chris Harvey

So if you look at hedge funds, hedge funds position a little bit different than long only's. Let's start with this. If you were related to gold, if you're a gold player, if you're a memory player, if you're a moat player, the conversation we're having is, Chris, when is it over? Make it stop. I'm in a lot of pain. If I'm talking to more diversified funds, they're saying, this is fine, this is good. We can, we can do. We're having very good stock picking across the board. And they're saying, yeah, we're concerned about the macro, but our stock selection is doing fantastic, whether it's in industrials, technology, utilities or elsewhere. So it's a little bit different depending on who you're talking to.

Guy Adami

So Chris, when you look at small caps, the outperformance is. We've been waiting for this forever to have some ongoing longevity to an outperformance of the small caps. When you see that, when you see people wanting to rotate at a large cap, where do you see them putting money?

Chris Harvey

It's not. So we talk about small caps, but allocators are not Putting money into small caps. What they're doing is they're looking for more diverse funds. They're, they're looking over in Europe, they're looking for value value funds. The hedge, as you know, is energy. So energy funds, they waxed and waned, but that at the margin is the place where people are putting money. Again, people talk about small caps, but I'm just not seeing that allocation.

Melissa Lee

And lastly, what is quality mo

Podcast Host

good

Chris Harvey

balance sheets with things that are working.

Melissa Lee

And that's what you like?

Chris Harvey

That's what we like.

Melissa Lee

Can you give us just an example, just so we have an idea of hyperscalers, should that there's some hyperscale.

Chris Harvey

It's really across the board. So in utilities, it's some of your genco integrated. In industrials, it's some of your AI beneficiaries, it's your cats of the world. In tech it's a smattering. You have it in hardware and a couple software, but more so in hardware.

Melissa Lee

Okay, Chris, thanks. Good to see you. Cibc.

Steve Grasso

Why am I smiling?

Melissa Lee

Yeah, why are you? I don't. We're talking about very serious things here.

Steve Grasso

We are extraordinarily. But Chris Broca, Jenko and of course, you know, the first thing I thought of Mel, because we talked about is olive oil, as Steve just said.

Melissa Lee

Oh, right.

Karen Feiderman

Popeye's girlfriend you're talking about.

Dan Nathan

No, no, no, no.

Steve Grasso

You know this.

Karen Feiderman

Of course.

Steve Grasso

Now I don't know about the mo thing you talked about, but I will tell you that the market's going to start to care about rates. And again, you know, the bond market can't get out of its own rate. We're saying about Kevin Wash, I'm with Karen. He's not going to backtrack on this. I don't even know if it matters, quite frankly. I think the market's doing it for him.

Melissa Lee

A lot of people that will say it's the trajectory of the rate increase. And right now it's been kind of slow and steady. Not steady, but slow.

Dan Nathan

It's stuck though. I mean like you might say that it's got an upward bias here. We were higher, you know, within the last year and so we're stuck here around 455 or something like that. You know, going to the quality mode though, you know, Google is going to be really interesting a week, week and a half before the rest of its competitors. And you know, if you go back to Q1, GCP was the fastest growing cloud business, right? It was like 60%. You saw the headline today about A new chip that's going to be embedded with this model, you know, architecture, that sort of thing. But then you got to go back to last week when the latest Gemini model is being pushed out. I still think Google's probably the best position to get, you know, some investor backing here and you know, CapEx is the thing. Right. And I have no idea if any of these companies cut Capex because for whatever reason they've achieved certain goals about where they want to be or, you know, I mean, they continue to raise and I just can't imagine that that's going to be beneficial or they can

Melissa Lee

at least indicate maybe that they won't be raising any more capital or issuing any more debt perhaps to fund Capex.

Karen Feiderman

So look at where Google was before the last quarter announcement, which was huge, right? With that I think it was 68% for Google Cloud. We are within 1% of where that is. A lot's happened since then and yet that. So it was up huge on that. And then we had some of the stories you're talking about and you know, people cutting back on token spend and all of that. And I think the story is just going to kind of continue. They are in the position to be able to spend the money. What I want to hear though, we talk about it all the time. Return on invested capital. I don't know if they'll tell us but they should.

Guy Adami

I think it's going to be not a backseat conversation during this earnings run about Capex, but I think you have to eventually start trimming those projections because it was okay when you were spending your own money. It's, it's not okay when you're borrowing and raising debt to fund that capex story. Google is a different story. Dan talked about their chip. Their chip is pulling away from video. Amazon's making their own chips. Google's making their own chips. So a lot of this stuff is coming out of the pocketbook of an in video. So what's good for the hyperscalers could be a negative for Nvidia. Nvidia has been the poster child for this whole air story.

Melissa Lee

Coming up, cracks and Oracle's crystal ball. The company's AI build out reportedly facing major cost surprises. More on the true cost of scaling up next. Plus a food safety overhang for restaurant stocks. How similar outbreaks have taken a bite out of this trade in the past and what it says about how long the current weakness could last. Don't go anywhere. Fast money's back in two.

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Melissa Lee

Oh no.

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Melissa Lee

Welcome back to Fast money. Oracle down 4% today and reports a company's data center buildout is costing billions of dollars more than anticipated. The information reporting that multiple projects are seeing additional charges as the company is forced to change its original power sourcing plans. The overruns come at a rough time for the tech giant Oracles now more than 64% off its September 10th all time high. It closed today at more than two year lows. Dan

Dan Nathan

man, I mean this is a company that, you know, did not have a whole heck of a lot of experience doing this, right? And if you think about AWS and GCP and Azure, I mean these are companies that were building these clouds out for years and they were well positioned, right? To put models on them to do heavy duty training, right? To have access to chips from a company like in video and actually have the trust of the clients, right? And so Oracle, you know, I understand why they wanted to enter this business but like it seems like there's couldn't have been a worse company to actually take this on at least given their execution and the continued confidence that they have fulfilling some of these obligations specifically to open AI. I think the market is calling BS on it and that's pretty clear right now. And to Steve's point before, I mean, negative cash flow for this company, they continue to have to raise debt. They said they weren't going to do any more than that 25 billion this year. I suspect they're going to have to for this very point because they're having cost overruns and they didn't foresee some of these problems.

Karen Feiderman

Well, you know, we talked about the cds, the credit default spot spreads, which are an indicator of how, how levered, I guess, really, and how can. How much concern there is about the leverage. So it's big here and higher than where it's been, I think. You know, at some point they probably can't issue more debt. They would. Could issue more equity always. Right.

Kelly Ortberg

That.

Karen Feiderman

Not, not that they would want to, but that is a possibility. So that would weigh on the stock as well. But of all of the ones, this is the one that's least interesting to me.

Steve Grasso

By a lot, it all hinges on open air and their ability to sort of fulfill that. I mean, some of the revenue forecasts for open air, staggering. And if they don't get there, they'll lose, obviously, but Oracle loses in a major way because Larry Ellison basically pushed all the chips in the middle of the table and right now it's not working out. And the credit default swaps Dan and Karen just talked about, it's problematic. I mean, they're trading as if something's more wrong than even the stock price at this level suggests.

Guy Adami

You know, it's really interesting is negative, as we all are on Oracle, when I look at it on a technical basis, I go back a couple of years and this is where the stock has bottomed out for the last maybe two or three years. This has been some support. Now, fundamentals and technicals always tell two different stories. And Carter will tell you that technicals tell everything that the fundamentals tell. I'm not saying go in there and buy it. I'm just saying this is a place where it's had support in the last few years.

Karen Feiderman

Just one more thing. They don't report, I think until September. And so they did have one. I forget which it was S and P or Moody's or Fitch downgraded them if another one does to. To one over junk. Right. If they get downgraded to junk, that makes the whole thing a lot more expensive and difficult to do.

Melissa Lee

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

Podcast Host

Fast food fallout, Restaurant stocks under pressure as the Cyclospora outbreak spreads how long the weakness could last and which names are getting hit the hardest. Plus a new front in the air arms race. What Alibaba's new model says about China's AI push and the challenge it could pose to tech powerhouses in the US 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

Try Angel Stuff for your touchy. It's made by Angels Soft and strong. Budget friendly. The choice is simple. Pick up a pack today. Angel Soft Soft and strong Simple. Welcome back to Fast Money. Fast food stocks under renewed pressure after the FDA walked back its earlier assessment of the cyclospora outbreak's origins. Kava, Sweetgreen and Chipotle among the names under the most pressure. Here with a look at what past outbreaks could signal about the road ahead, Brandon Gomez Brandon that's right.

Brandon Gomez

You got to put it in context as to how this has played out at other fast food companies. But history suggests investors don't wait for the FDA to finish an investigation. They sell first and ask questions later. The clearest example is Chipotle. In 2015, with the E. Coli outbreak, stock fell about 5% when announced as an investigation was had expanded and sales deteriorated. Shares lost more than 30% over the following two months. Then comp sales plunged and it took years for the company to rebuild confidence with consumers. A more recent example though? McDonald's E. Coli outbreak in 2024. Now shares dropped 7% in a few days after the investigation launched. Shares eventually recovered once officials narrowed the source to onions at select restaurants. Now this outbreak seems to fall somewhere in between for the time being. The FDA says a positive sample from Taylor Farms was a false positive, but investigators still believe traceback evidence points to Lettuce from the supplier to Taco Bell. And consumers don't wait. Foot traffic across quick service with high lettuce exposure falling double digits in some cases. Here you see Sweetgreen Kava as well as Chipotle and the others down. In terms of foot traffic.

Melissa Lee

Are there any analysts coming out sort of estimating what the impact could be or what they've seen in terms of foot traffic?

Brandon Gomez

Yeah, the foot traffic again falling and that's expected to be sustained as long as this continues to be a big question question mark. And so the number one question the analysts are asking is when can we identify a clear and identifiable source? Because you're even seeing this impact. Some of the grocers, Wal Mart today pulling some products as well and you may hear from others too.

Julia Boorstin

God.

Melissa Lee

You have questions about this?

Steve Grasso

Well, I do. I mean first of all, the term high lettuce exposure, I mean that's the first time Brandon, that's ever been used on this show, like to coin a phrase, lettuce exposure. And you're right, I mean you got an earnings release coming up from McDonald's specifically on August 4th. It's amazing and I don't want Gerald Pine on the stock. But sell first, ask questions later from an all time high to a multi year low since February is pretty astonishing. So to your point, this doesn't help that either.

Brandon Gomez

No. And if you look at the stock too dating back to that McDonald's specifically that E. Coli outbreak back then, the stock is still down from then. Obviously there's fundamentals underneath that continue to, to impact the investors case when it comes to these stocks. But again this is not the ideal scenario when you already are trying to pull a company back from the, from the grave.

Melissa Lee

Yeah. Brandon, thank you. Brandon Gomez. I mean it does seem most similar if you were to going to try and figure out an outbreak that's like this to the McDonald's and that that E. Coli was pinpointed to onions which were from a supplier. So this is the same sort of situation, potentially a supplier origin. But there are all sorts of other pressures on this group already. So if consumers were already strapped, they're certainly not going to go looking for cyclospora potential exposure.

Karen Feiderman

I had to go after what, you know, try to buy one of them low. It would probably be yummy. It's not the biggest part of their business.

Melissa Lee

Right.

Karen Feiderman

So KFC is bigger. I think it's second which is low lettuce exposure low so LLC as opposed to high level exposure. Even though it's the heart of the exposure seems to be.

Melissa Lee

Exactly.

Karen Feiderman

And the stock's gotten crushed.

Guy Adami

Yeah. I mean, Darden's. Darden is up 6%. If you just scroll through them, they seem to be the leader or one of the leaders in the group. If you're just buying it on this, you're supposed to kind of shoot through the food poisoning issue. But we've all learned from Chipotle that it does get a little long in the tooth. If you want a diversified play, stick with McDonald's. If you want the better chart and the better performer. Darden.

Karen Feiderman

No.

Steve Grasso

What I learned earlier today, what Joe Kernan, who does the 6am to 9am showing the squawk box right. Big Taco Bell fan. Did you know? Huge.

Melissa Lee

When they were, when they were renovating the nasdaq, the studios, I told him that they were going to install a Taco Bell stand in the lobby. He got very excited. I'm saying this, I mean, Joe is a good sport about things. He believe me and I know he's not watching.

Steve Grasso

He will hear about it.

Melissa Lee

Zero percent. Yes. All right. Coming up, Baba getting a boost. The China tech giant rolling out a powerful new AI model. Can the move get the stock back on track? And what impact will it have on AI competitors? That is next. Fast Money's back right after this.

Chris Harvey

Missed a moment of fast.

Podcast Host

Catch us anytime on the go. Follow the Fast Money podcast. We're back right after this.

Melissa Lee

Welcome back to FAST money. Stocks slightly lower to notch a third straight day in the red. The Dow losing 300 points while the S and P and NASDAQ closed just below the flat line. Urban outfitters gaining 2 1/2% after Goldman Sachs upgraded the stock to a buy from a neutral $93 price target. Their analysts saying weakness in the Anthropology brand has been priced in in while recovery in its flagship brand and emerging label growth are likely to drive upside. And another look here at Space x down over 3%, closing below $120 for the first time. The company's one and a half trillion dollar market cap now smaller than metals and just bigger than Tesla and bitcoin. Catching a bit of a bit today. The cryptocurrency crossing the 65,000, 65,500 mark its highest level in more than a month. Are you confident in this? Which one?

Brandon Gomez

Bitcoin.

Melissa Lee

Bitcoin, Yep.

Guy Adami

I think it's a balance. It's not a bottom. I'm not, I'm not. I feel like I've been hit a couple of times with these where you expect it to rally both Etherium and Bitcoin and the Etheria. I think stablecoins are coming on pretty strong and they're all built on the Etherium platform, but it doesn't necessarily mean that Etherium should rally with that. But at least it has a use case to it. When you look at that Bitcoin, I think we're washing out a lot of the negativity, but I'm not going to believe it's a bottom until we could trade substantively higher from here and I would probably say 85,000.

Dan Nathan

Is that is that well last week final trade I talked about I bet ETF the tracks it was on August puts I closed those. It really does near term look like it's stabilizing for a little bit of a balance. It just didn't feel good having short exposure.

Melissa Lee

Meantime, the battle for dominance is raging on Alibaba shares jumping almost 5% after unveiling its newest model. Quinn 3.8 this after China's moonshot I unveiled its Kimmy K3 last week. CNBC's Kate Rooney is more on the battle for supremacy in the space.

Kate Rooney

Kate hey Melissa. So the challengers are really coming out of China lately. So we mentioned. Alibaba shook things up this weekend with a preview of its model that it now claims is a runner up to rival Anthropic and its best version available out there. These are internal benchmarks that we'll see where they actually stack up in the coming weeks, but it is set to open up what are known as the weights in the next couple of weeks. That means developers can essentially download and then tweak the technology. There's a debate out there about cost too. It does tend to be a bit cheaper. It comes after another model out of China, Moonshot and Kimmy's latest model that was unveiled last week. It ended up being a shock to many in tech, not necessarily on cost like we saw with deep seeking, but more on capability and what it was able to do out of China. According to independent benchmarks, Kimi is almost on par with the best labs in the US Anthropic and OpenAI out there. It is the world's largest open weight model as well. It's also seen a lot of demand. The company over the weekend saying that they are pausing subscriptions due to compute constraints. All of this China disruption guys is really starting to show up in the data as well. Open router shows that Chinese models recently overtook US versions at least increased when you measure that by token usage. It's also spilling over into Geopolitics report from Axios earlier this morning says the US is considering banning some of these cutting edge AI models.

Melissa Lee

Now what's amazing about Quinn and Kimmy Kate is that this was all built not using the latest greatest AI chips with the which the US works so hard to curb access, you know, for China. So is there any rethink at this point amongst the people you talk about in terms of what this means for the infrastructure build here, seeing that these very capable models can be built not on the most expensive, latest greatest chips?

Kate Rooney

Well, one of the debates it brings up now, you know, we talk about export controls and how that's played into this. They've been able to get around that and clearly build extremely capable models as a result of that. But one question is how much did distillation actually play into this? And that is essentially copying US models. Anthropic has accused Alibaba of distilling their models and essentially taking the technology, using that for free. And that's something that's really difficult for people that I talk to, to guard against. There's no sort of regulation that folks are thinking about that could, that could sort of defend against that. So that's another risk that the labs are talking about and that investors talk about is the risk of distillation. How much of this was actually sort of ripped off in a way from the US labs? That is very much a topic of conversation as we see the rise of these Chinese competitors. And it's something that Anthropic and OpenAI in particular are now grappling with. We'll see what it looks like when they end up going public and they've filed confidentially. But it's a huge risk to their margins, especially if there's no way to prevent against that in the future.

Melissa Lee

Now would there be any guardrails possible, Kate, to prevent distillation, prevent enough access to these models in order for them to not be distilled?

Kate Rooney

It's, it's striking this debate too. And one of the things that we're hearing, I talked to somebody the other day that said part of this is hacking. There's rings of hackers that are using US accounts to actually do this distillation. It is really playing whack a mole. And Anthropics complain about it publicly, but there is this ongoing debate of how can they actually band together to prevent this. It's so hard to do. I have not heard any real solution to it other than Anthropic for example, you know, calling out Alibaba publicly and Saying hey, we need to find a way around this. But it's not necessarily that they can just ban the models. It's also with that if they said hey, these are now export risks or there were some sort of, they've been accused of regulatory capture. Basically if they accuse of distillation, there's a way to shut down the models. They are now being accused of saying hey, they're just a duopoly and they're trying to shut down a competitor. So they're sort of in this situation where they really can't win on regulation at least when you talk about global competition.

Melissa Lee

Right. Kate, thanks. Kate Rooney, thanks Bill. Dan, what do you make?

Dan Nathan

She really surrounded that trade. There's an argument against all of that and Ben Thompson of Stra Tech 3 wrote about it today and there's like let's just start here. So distillation, you know, all these models have distilled all the information on the web and that's how they basically train their models. Right. So you could make that argument. You could also talk about these open source models from China and you could say, well actually they take a lot more power. They actually all those token uses because they need more tokens because they're built on infrastructure or chips that aren't as good as ours. And then from a reasoning standpoint they take more steps which means more tokens to arrive at the same piece of information that we're getting from these models. So I'm not telling you, I'm not smart enough to tell you that I know one way or the other but there is a pretty strong counter argument to that right now.

Melissa Lee

Yeah. Karen, are you concerned? I mean Alibaba, that's great for Alibaba,

Karen Feiderman

which you own has been great for Alibaba. Yeah, it's been a nice bounce from sub 100 not that long ago I think. You know, if we look at the hyperscalers when Steve's talking about the ones that are had great cash flow now don't they still do. Although their capex has gone up a lot. You know a few years ago it was less than 5 billion. It's now getting closer to 20. But still they have an enormous amount of cash still on the balance sheet. Even net of debt. Enormous amount of cash and not trading that crazy expensive. So I like it. Stay long.

Melissa Lee

Coming up, an epic opening weekend for the Odyssey. The numbers behind the film's blockbuster debut and the impact the of it is having on media stocks. That's next for Fast Money right after this. Welcome back to Fast MONEY A big weekend at the box office Movie theater stocks like AMC Cinemark Rising after Christopher Nolan's the Odyssey set a record for this year's opening weekend hauls. Julia Borson's got more on this.

Julia Boorstin

JULIA hey Melissa well, Christopher Nolan's record opening for the Odyssey, the highest opening of the year for a live action, live action film, overcame the fact that the film has an R rating and a nearly three hour runtime. Its success driving shares of theater companies imax, AMC and Cinemark all higher today. And this is a welcome boost to the box office after last weekend Disney's Moana disappointed expectations. The Odyssey's performance is a testament to the draw of Christopher Nolan's name to audiences of all ages and to Universal's ability ability to foster relationships with filmmakers, especially the top tier, who want a big screen debut. It also speaks to the fear sparked by Netflix's earnings last week. Shares are down about 11% since its late Thursday earnings release in which it announced decreased transparency about viewing and also an increased focus on live sports as well as podcasts. That did spark some concerns about its lack of unique premium content to drive subscriber growth in the future. Now, the weekend's performance indicates the value of NBC Universal's assets in its spin off plan, spin off from Comcast and also sparks a little bit of speculation among my sources about whether Netflix could want to acquire studio assets from NBC Universal if it could pick off just parts of the spun company.

Melissa Lee

MELISSA when you say studio assets, you mean specifically the library or do you, do you mean the actual filmmaking part of it?

Julia Boorstin

So the speculation here is whether Netflix needs to buy something, right? MELISSA and so Netflix might want to buy Universal the way it did want to buy Warner Brothers. That deal of course, didn't go through. The issue here is that Netflix probably does not want to buy all of NBC Universal because NBC, the TV network, all the regional networks and all of that may not make sense for Netflix. But if you think about Brian Roberts perspective, it's perhaps in his best interest to keep all those assets together. So it may not be an option right now for Netflix to swoop and say hey, we just want to buy the studio piece of this, but that Universal itself has an incredible library. Also these great relationships with filmmakers, very strong performance, the box office.

Melissa Lee

Yep. Julia thanks. Julia Boorstin, no bounce for Netflix here.

Steve Grasso

No bounce for Netflix. AMC was a decent quarter. You know, Steve talks about free cash flow. That free cash flow number for AMC was actually very good. And if you look at a chart of the last Five years. It's flatlined, clearly. But no, no major debt maturities before 2029. You could actually make a decent case that this stock is worth the.

Guy Adami

Look on the upside, AMC is up 58% this year. Cinemark's up 37% this year. Do you know that movie attendance is back to pre Covid levels? I wouldn't have thought that.

Melissa Lee

Wow.

Guy Adami

Nobody, no, nobody's going back to movies. But if you look at imax, it's underperforming. So there's only a certain amount of movies that lend itself like the Odyssey to that big screen format. But I think the movie going business is back in motion. I'd rather buy them than the other ones.

Karen Feiderman

Yeah, I don't know. I find this one hard to sort of take seriously. Although you're right, the balance sheet is looking better and better. Slowly, however, you know, traded 185 million shares today, which, you know, that's a game. That's not for me.

Melissa Lee

Coming up, a delayed takeoff for Boeing's new jet. What the CEO had to say about hitting pause on the launch and whether the planemaker's turnaround is still on track. More fast money.

Kelly Ortberg

We think about three things that have to happen. First of all, we have to be ready. And part of that is getting our

Guy Adami

financial house in order to.

Kelly Ortberg

And we're working on that. It's going to take a couple more years to get where we want to be. The second is the technology's got to be ready to introduce a new airplane. And then the third component is the market's got to be ready. Right now the customers are telling me, focus on your existing product line. We really want to see better maturity of the existing product line before we move to a new airplane. So it's a, it's a ways off.

Melissa Lee

That was Boeing CEO Kelly Ortberg talking to our Philippeau about a timeline for a potential new commercial jet at the Farnborough Air show in the United Kingdom. Shares of Boeing down about 2% today. Basically flat for the year. I believe it is the B and B. Dang. It is indeed Karen's acronym.

Guy Adami

What else would it be?

Karen Feiderman

Exactly. Thank you. Could have been Baba last year. Was Baba, was B. Yeah. So good for him for saying that. If it's not, I mean, last thing they should do is rush a plane.

Renewal by Andersen Spokesperson

Right?

Karen Feiderman

Just. But the one thing that has sort of worried me since it became the Bee is this idea of, I know it's not the biggest part of the business, but defense and that I think that the defense business is probably Less valuable now than I did then. I think the art of warfare is changing. I don't know how that will affect them. I know they still have some cost overruns on issues and on things that they're currently working on. So that part is cooled for me a little bit. But the cash flow story getting back in gear is out.

Guy Adami

Yeah, they got it to free cash flow positive by the end of the year. That is happening. They are catching Airbus on deliveries. They're behind Airbus on backlog, and neither one of them is rushing a plane. Airbus is on the same schedule, so there's no reason to rush a plane. We just don't need another hiccup with the max to Karen's point. So I do believe that Boeing still a buy on the free cash flow story back half of this year.

Steve Grasso

Yeah, I'd be disappointed. The price action over the last couple of years, up to 245 a couple times, if not three times, failed each time when they report on the 28th, I guess so, yeah. I think you got to wait and see here. The price action is disappointing. In a word.

Dan Nathan

Talk about rushing planes.

Karen Feiderman

I mean, he was not talking about rushing.

Dan Nathan

Well, let's rush this Air Force one. This was 2018, that they were meant to build two planes and deliver them to the president and he has to use this like this piece of crap from Qatar right now. And I can't believe it. So, you know, like, like get your act together. Boeing.

Melissa Lee

Rush some planes here or rush the Air Force One.

Dan Nathan

Yeah, those, those two.

Melissa Lee

Yeah, yeah. The orders are keeping up because airlines have been doing great. The demand on both sides, both consumers. Well, as business has been so strong.

Karen Feiderman

Right. That is a positive. And for the cash flow story. Right. I mean, we've seen it. We've seen the start. They went from very cash flow negative and then they started. They were able to produce more planes. They got some of those restrictions lifted. That's, that's the part of the story that works.

Guy Adami

And you're saying this all in front of oil. Right. So that's, that's another thing that's an anomaly within the market.

Melissa Lee

But we saw a drop. And so the question is at this point, with oil going up again, if that, I mean, they've, they have been successful passing it on or absorbing the cost.

Guy Adami

Yeah, I think as long as we avoid a recession, the airlines are going to be fine.

Melissa Lee

Up next, final trades. Time for the final trade. Stephen Alibaba.

Guy Adami

It's up about 25% in the last month, but I think it can go higher chairwoman.

Karen Feiderman

Well, I hope he's right on his final trade, Alibaba, because I'm there, too.

Melissa Lee

Yes.

Karen Feiderman

So Citibank traded down on pessimism over the guidance that Jane Fraser gave. I still like the story.

Dan Nathan

Bank Dan yeah, McDonald's doesn't report for

Guy Adami

a couple of weeks.

Dan Nathan

I think it's getting a bit oversold. Once you have some sort of clarity around this lettuce issue, probably rally the nerve.

Karen Feiderman

What's so funny, guy?

Steve Grasso

Clarity around the lettuce issue. Hi to Joe Kernan, who's watching right now.

Podcast Host

Hello.

Steve Grasso

Joe Newmont, Mining reports. I believe in a few days.

Melissa Lee

Nem Mel, thank you for watching Fast Money. See you back here tomorrow at 5. Mad Money with Jim Cramer starts right now.

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