← CNBC's "Fast Money"
CNBC's "Fast Money"
Software Stocks Surge and a Controversial Call From a Former Trump Advisor 5/28/26
00:44:23
A post-earnings pop in Snowflake sends the software ETF to its highest level since late January, but can the rally keep its momentum? Plus Joe Lavorgna, a one-time advisor to the Trump administration is calling for 100bp of rate hikes this year. He lays out his reasoning. Fast Money Disclaimer
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Commercial Narrator
At Edward Jones, we believe rich isn't about having life all figured out. It's opening yourself to all the possibilities. That's why your dedicated financial advisor provides long term planning built around you, meeting you where you are and helping you get closer to where you want to be. So no matter where you're starting from, you can move forward with confidence. The key to being rich is knowing what counts. Let's find your rich Edward Jones member SIPC.
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Guy Adami
Before we had AT&T business Wireless coverage,
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Karen Finerman
our delivery GPS wasn't the most reliable.
- [00:36]
Guy Adami
Once our driver had to do a 14 point turn to get back on route. A 14 point turn, an influencer even livestream the whole thing. Not good for business. Now with AT&T business Wireless routes are updating on the fly and deliveries are on time.
- [00:52]
Karen Finerman
And the influencer did get us 53 new followers though.
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Steve Grasso
AT&T business Wireless connecting changes everything.
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Melissa Lee
Live from 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 software surge. The IGV hitting four month highs with Snowflake gaining more than 35% just today. What's behind the big bump in these long lagging stocks and how much more room is there left to run? And elsewhere in the tech trade, Dell soaring after a monster earnings beat. We'll talk to one top analyst about the next move for this stock. And rapidly rising car prices are sending auto loans to Disney seeing new heights. The latest eye popping numbers and the surprising makes and models seeing the greatest demand. I'm Melissa Lee, come to you live from studio be at the NASDAQ on the desk tonight, Steve Grasso. Dan Nathan died on me and Danny Moses, host of on the Tape podcast and co author of what Are We Doing Contrarians at the Gate on Substack. All three major averages closing AT records today with software named some of the biggest winners. We'll get to that in just a moment. But first, a controversial call from a former top economic adviser to President Trump. Joe Lavornia, who's now chief U.S. economist at SBC, contends the inflation numbers out today reinforce the need for the Fed to hike rates. Get this by at least 100 basis points. Of course, Trump has been calling for cuts for years. This morning's release of core pce, the Fed's preferred inflation gauge showed prices rose at an annual rate of 3.3% in April, a nearly three year high. Let's bring in Joe Lavornia. You he most recently served as Treasury Secretary Scott Bessant's economic counselor. Joe, great to have you with.
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Joe Lavornia
Great to be with you.
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Phil LeBeau
Thank you.
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Melissa Lee
Why at least 100 basis points?
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Joe Lavornia
Because if you look at core inflation from where it was before we attacked Iran, it's going to be up at least 100 basis points. So in simple basic math, your real interest rate has collapsed 100. You'd want to offset that by raising the funds rate at least by that amount. And of course, as you said at the highlight, the beginning of the show, these equity averages are at all time highs. The credit spreads are super tight. The dollar is high, but not excessively high. There's, there's no tightening of financial conditions. And the inflation numbers, the three and six month change show inflation moving up towards 4%. So what's going to force that back to 2%? It won't happen magically.
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Melissa Lee
How urgent is your call for at least 100 basis points? In other words, if the Fed stands pat, which it might very well do for the next couple of meetings, is that going to be a policy mistake? Looking in the rearview mirror, maybe it's
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Joe Lavornia
hard to say because at some point you could make the argument that Kevin Warsh is going to make, which I understand, which is going to increase the supply side of the economy, shift that aggregate supply curve down and to the right. That will increase growth and lower inflation. That's a legitimate forecast. They could wait in the short term because market based expectations, inflation expectations are contained and you haven't seen an acceleration in wage growth. But Melissa, if either of those two developments change, there's going to be tremendous pressure on the Fed to hike as soon as September. I think Kevin was a very good job and will push back against it. But if, if the economy is growing reasonably well and inflation is moving further away from target, why wouldn't you be hiking?
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Karen Finerman
What happens to the bond market, by the way? Joe, I appreciate that we've been talking about this, not 100 basis points, but the need for a hike instead of a cut. What happens to the bond market under the set of circumstances you're putting out there? I think it would be positive for the bond market.
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Joe Lavornia
Won't be positive initially, Guy. I mean we did price about a tightening and a half a few weeks ago, a week or so ago and to, you know, it's got up to around four and a quarter. I mean the curve will bear flat and so your short rates will move higher than long rates. Long rates, maybe you could push back to 475 for 80. I don't think they'll go to 5%. So the bond market will suffer. But you know, the way the Fed will do it is they'll make sure there's a consensus and it'll be well telegraphed. The bond market I think will do reasonably okay. It won't be until the market thinks the Fed's done or they actually reverse course in ease that you see a big rally in rates.
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Steve Grasso
So Joe, when you look at this, it's either inflation is either a demand pull or a cost push, right?
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Joe Lavornia
Could be both.
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Steve Grasso
So it could be both. Right, so it could be. So I sense that that's probably where you're at, that it is both actually,
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Joe Lavornia
and I shouldn't think is. And this is the problem because I was very much in the disinflationary boom camp on February 27th before the US went into Iran. This is now really, the economy is doing okay. You've got this inflation shock which is going to play out I think a lot like post Covid where you've got not just energy costs, but fertilizer, nitrogen, helium, these other products. And it's a supply chain disruption. So it's not just the demand pull, cost push which is actually happening on the data center AI buildout which is pushing energy costs higher, but rather just the supply chains, the fragility of these supply chains likely to continue to push prices higher. You see it in a variety of survey data. And that to me is what the market is missing.
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Danny Moses
Joe, what do you think would happen obviously to the lower end of the K in terms of the consumer obviously would be hit on that, I would think. Secondly, what's the impact of the stock market? And the last part of that was what is Warshire's equation with shrinking the balance sheet versus raising rates? And how do you, how do you view that?
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Joe Lavornia
You see in the consumer confidence data, there's certainly a perception that there's significant distress and the lower end household is suffering. Real wages when I was there were accelerating and it looked like we were going to Repeat a trump 1.0. At the moment it's going the other way. I'm optimistic will change at some point, but the low end is going to get squeezed. You know, on Kevin Warsh, you know, he's going to have to get a consensus of people that are going to want to like actually cut or maybe that's the thought of cutting. And they talked about trimming the balance sheet and then cutting. But the Fed's. It gets into mechanics of the balance sheet. The Fed is not going to cut the balance sheet. It's possible they could take some of the bank reserves and there's a shift into bills. So they could say, okay, we've lowered the balance sheet, but where the Fed operates monetary policy, that they is just not going to happen. And Kevin wars think will be good. And Kevin is a traditional institutionalist kind of person. He's not really a dove. And I look at when I talk to people, I think it is going to be more like a judicial nominee. We've got a long history of how he's voted, a long history of what he said. He's not going to just change to I think to appease the President. He's going to move based on the data and where he sees the economy. And by the way, now that Steve Myron's left, there's nobody there to argue for cuts, nor should they because that's not cutting. And there was a second point, but I missed a second stock market impact. Oh, the stock market. I don't right now. I mean there's such a bullion in the market that and the ICE spend. I just don't think rates are a factor. At some point it will be if the economy slows or the earnings aren't met. But to me it's just two parallel worlds. In fact, I'd argue the longer the stock market is robust through the wealth effect and companies not having pressure necessarily to cut their costs and lay workers off makes it more likely the Fed hikes, not lower. Then the question is, okay, is it at least 100, is it more? And then we could worry maybe the bond market does worse. But I don't see the market at the moment having a problem because nobody's deciding, well, I want to buy a certain basket of AI stocks versus buying the treasury at 450 is just a different universe of investors.
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Guy Adami
Joe, let's say Fed hikes and growth does slow. Okay. What sort of situation does the Fed find themselves in six months if you do have inflation sticking around despite the hikes? I mean if we have some sort of stagflationary environment and you saw Q1 GDP where it's track and that sort of thing, it's not above trend right now if you think about it. I'm just curious like how that shakes out.
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Joe Lavornia
So this is so normal. So if the economy slows, if the unemployment rate starts to go up, that'll be a sign the Fed can stop tightening. Or if it just started to go up right now, they actually might ease and I would be wrong. They might ease, but this is different because normally when you have the demand pull, cost push, inflation economy is operating above its long term capacity, inflation pressures build and then the Fed reacts and has to hike and often hike too much. This is different. Economy is doing well. We have a supply shock. So we get the inflation not with a lag, we get it right now to these supply disruptions with energy and other energy sensitive commodities. So the question is how much demand destruction is there? Given where oil is, you're not going to get much demand destruction. So you're going to get a small stagflationary environment, let's say 2% GDP and a 3.5%, 4% GDP deflator, which is not horrible. But if you're the Fed, you either change your target, you ignore and sort of talk around it, which is going to be hard because the Fed's tone has certainly shifted, or you actually try to take action to raise rates and slow things. And unfortunately, if we want to get really negative, how many times in the past has inflation fallen 1 to 2% to get to wherever the perceived target was generally doesn't happen unless there's a recession. So you got to hope this AI build actually delivers on the supply side. People think it might.
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Melissa Lee
Joe, great to speak with you. Thanks for coming by.
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Joe Lavornia
Thank you.
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Melissa Lee
Joe Lavornia. I'm going to pick it up from where Danny left. In terms of the. I think it was part two of your question or B sub sector, a Market, Part 1. What does the market do if the Fed does in fact hike?
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Karen Finerman
I think the market would be okay. Beyond it somewhat counterintuitive. The same way I think the bond market would be okay. An acknowledgement that we have an inflation problem and good for Joe for pointing it out is something the market probably needs to hear and wants to hear. I think a rate cut counterintuitively would be bad for the market. I think a rate cut would be bad for the bond market as well.
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Danny Moses
If there was a projected 100 basis point increase over the next year, the stock market would not do well, it's not. They can't would not price that in. Well, my opinion it's not ready for that. And so I think that would be a shock to the system.
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Guy Adami
Yeah, I mean we had a fed funds at 5 and a half percent. Stock market was doing just fine. You know, and when you think about this, I mean the stock market's doing just fine with crude oil at 90, 100 it was doing just fine, was 115, you know, three weeks ago. And I think a lot of what Joe's talking about like the continued demand and what the upward pressure of this infrastructure bill means. I mean it's really the growth that we're seeing from there as a component of the GDP is outstripping that of a consumer right now. So I think his point is. And we didn't even talk about it. Well, we haven't talked about it in a while actually the labor market and you know, and it seems to have stabilized. We had some weird prints in, you know, late last year into this year and maybe some of that was affected by the government shutdown and the like here. But it seems like the labor market's okay. Right. And so like at the end of the day, other than some of the crazy action we are seeing in a sector like semis up 85% in less than two months and then seeing like the names that we're seeing, you know, Snowflake up 35%, Dell is all time highs up 20%. I mean this is not really normal action. I know it's feels bullish. I know if you're long these stocks it feels great. But I can't think of anything more bearish like if we're going to look out a year or so to see this sort of price action. Because throughout all of our careers this has never ended well. And the point is, where does it turn? Nobody knows. But one thing we knew know about a lot of people who are self directed or active, we go right into final trades. No,
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Karen Finerman
I don't know.
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Steve Grasso
Self directed, self.
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Guy Adami
What I'm saying is we know that a lot of folks make really bad decisions. You know, when stocks like I think the word that Joe use was a bullion, you know, that sort of thing.
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Melissa Lee
Yeah.
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Guy Adami
And then they, and then they average down because oh hey, the infrastructure is still going like we got to keep buying this.
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Steve Grasso
So what does, what does, just to get back to the rates issue. What does raising rates by 100 basis points, does that produce more oil? Does that open up the Hormuz strait? The only thing to Danny's point is it hurts the lower portion of the K. So the people that live on credit, we us around this table, it's going to be an inconvenience.
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Danny Moses
And in order to Even think about 100 basis points, inflation would have to really be embedded in showing it. And if that were to be the case, and again I think we have another whole slew of problems that would exist as a result of that.
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Karen Finerman
You know, we had an inverted yield curve for a long time. So a hike in rates would definitely move the front end up, obviously I don't think it necessarily would do anything to the back end. And it's the back end where we need to be concerned about because that's where housing is priced and all those different things. So I know it's somewhat counterintuitive and you can't do look into the future and try to do the counterfactual thing, but I think core heads would prevail and say, you know what, actually they're on to something here. Rate hike is actually probably what we need, not a rate cut.
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Melissa Lee
All right, let's get now to the earnings alert on Dell. Those shares are surging in the after hour session. They're up 22%. The computer and server company trouncing estimates for its latest quarter, posting its fastest sales growth since returning to the market in 2018, driven by demand for AI servers. Shares already closed regular session at a record after announcing it had secured a nearly $10 billion software deal with the Pentagon last night. The broader software space also seeing some strength today. IGB ETF jumping almost 3%, marking its highest close in four months. The group now up 30% from its April low. Snowflake, one of the big movers that was up there, 36% in its best day since going public in 2020. The cloud company beating earnings expectations thanks to growing enterprise demand and an expanded partnership with us. You're just saying this is not normal and it is actually bearish.
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Guy Adami
Well, I think it is bearish. I mean like when you think about some of these moves, we talked a lot about Micron, you talked about these huge beats, these huge rates. This is what just happened with Dell. But the stocks have continued to run in a lot of the multiples. You could say we're in a bubble, multiples don't matter, you know, that sort of thing. And that is true because that's happening right before our eyes. At some point, you know, you have 85% growth, whether it was in video, whether it was in Micron, whether it was here this quarter, you know, I mean in earnings growth is truly, truly astounding. But at what point do you pull forward a lot of that? At what point? If these companies, and just look at these charts on a 12 year basis, if they did not have the visibility in the midst of hundreds of billions of dollars of AI infrastructure spend by all the hyperscalers in 23, 24 into 25, they didn't have the visibility to actually start adding capacity. And this goes for all the components and the servers and all that sort of stuff, then why would you trust them now given what we know, if it's an absolute free for all? Because there is an issue about capacity right out there. Why would you trust them? That this could continue to go this way, the notion that you could keep beating like this and raising, well, at some point it's got to stop and then it goes the opposite way. And you could say that Nvidia is different because it's not a cyclical business. They've had ups and downs product cycles in this and they've missed some and they've gotten in front of others. But it's not the same with memory and storage.
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Melissa Lee
I get that idea. I get, I get that when it comes to memory and chips, when it comes to a software name that's being rerated, you can't make that same argument, can you? It doesn't have to add capacity. Nobody saw the rise of agents, which is, you know, what is powering, for instance, Octahire in the after hours session. I mean all of this stuff sort of came from around the corner and here we are, right.
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Karen Finerman
So why should we listen? And I think Dell, first of all, if Karen were here, she's not at the women's event, which is fantastic going on now.
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Melissa Lee
Yes, number one.
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Karen Finerman
Number two, I mean she's talk, she's been Londell forever. She'd sold some calls against it which I'm sure are getting called away now. But I think her point was valuation was compelling and at $300 it was trading at 20 times it was compelling. Here at $400 it's a little bit different but that quarter is remarkable and the operating margin beat was significant. So good for Dell.
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Guy Adami
All right, I just, I'm sorry, I know you all want to talk and we're going to get final trade. Steve, you're going to have your more important.
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Joe Lavornia
You're going to have, you're going to
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Steve Grasso
have your daddy and I are enjoying.
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Guy Adami
You're going to have your 30 seconds. The final. Here's an article that just hits in the ftse. Okay, this is the last hour. Okay. This is a company that runs one of the biggest public clouds. It actually does. Amazon scraps AI leaderboard to stop workers chasing usage scores. Senior executives tell staff don't use AI just for the sake of using AI as costs rise. So these are the lot. Microsoft's doing it. These are the largest cloud providers. These companies just raised their CAPEX literally 85% on their calls that we heard back in April. And this is what they are saying.
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Melissa Lee
But Are you saying that that is true across corporate America that hear it that companies are using AI for the sake of using Uber just said the
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Guy Adami
other day their seat, their CEO said
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Steve Grasso
we get out of my car.
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Guy Adami
We burned through our entire 2026 budget for tokens in the first quarter. Step back. These are tech but if you look
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Steve Grasso
at Snowflake, if you look at that chart completely different to guys point of what Dell's chart looks like. So if you go back in November 2025 it's a 277 stock trades down to 110 by April of this year. Now it's spiking higher, only up 9% year to date. Net retention, net revenue retention rate is 126%. That means that if they don't get another, another account they're up 26% on that revenue. So the bar is pretty low as they're setting forward. I'd be a buyer there, a seller.
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Danny Moses
Dell software stocks were left for dead beginning most of the year. So this is a catch up trade to a degree. Whether people were short on covering it. Dell and these other companies, you know you can't, you can't take current earnings and project it into the future. It's a catch up trade. My problem is this. Was it that misunderwritten by the dozens of analysts that follow it? Yes, it's surprise beat and it's just a catch up trade. And I think fund managers can't afford to not be there at certain times. So you see this chase go on. I don't know how long it's going to last but I'm in the camp
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Karen Finerman
that you're probably pulling from real quick to Danny's point. I mean the average price target according to facts that for dell with the 29 analysts that cover it is $228. Look where it's trading right now. So the analyst community has been behind the eight ball that question quickly about software. You know I'm wrong all the time. One thing we've gotten right though is software and pulp and IGV chart it traded down to last March's low. Just did that a few about a month, month and a half ago we said it should hold. It has. We thought the 200 moving day average was in play. 98 and here we are. So I still think IGV has some legs to it.
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Guy Adami
Snowflake revenue is growing 30% year over year. Their earnings are growing fine off a very low base. They're growing, you know, fine, I'll give them 40% or something like that. The stock trades at 126 times this year, 92 times next. So you have a choice and you know, Steve just gave you some levels here. You know, it was on the balls of its you know what and you know, here it is, it has a big run, there's a short interest there. People are looking for broadening out of this theme. You can only buy so much micron, you know what I mean? You can only buy so much of this stuff. So again, this goes back to, to me I think this is very bearish activity. You could say, well you're fighting this and you've been fighting it for a while but have a ball here. Chase These things up 200% in three
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Melissa Lee
months we'll have much more on Dell and the move, the big move that we're seeing after hours later in this show. But let's turn now to Anthropic announcing a new round of funding which helps to it passed rival OpenAI as the most valuable AI startup. CNBC's Kate Rooney has the details there.
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Kate Rooney
Kate, they Melissa so Anthropic as you mentioned, the most valuable AI company at least in private markets. That's after announcing a $65 billion round this afternoon. Anthropic valuation now climbing to $965 billion. That is more than double, almost triple its lost valuation. And importantly, if you look at these two rival OpenAI it puts it above that company that it competes with aggressively. That had been the most valuable on paper at $850 billion roughly. Anthropic CFO Krishna routed a saying that the funding will help serve what they called historic demand that they are seeing. The main source of that demand is from cloud code, Anthropic's buzzy AI coding assistant. The company for the first time also announcing its annual revenue run rate is $47 billion. That reflects companies last month of what they say is consumption based revenue plus recurring monthly subscription revenue. Annualize that out for about a year and then the number that we heard earlier from the company earlier in the year around April was $30 billion. So that speaks to some of the growth. If you also look at total annual revenue for last year, Anthropic reported closer to $10 billion. The company has been on a deal spree as well to try to get more compute capacity to keep up with this growth. Recently partnered with Amazon, you had the Google Broadcom deal and Xi and Space X. Anthropic is one of these late stage companies on deck that we do expect to go public now nearing $1 trillion valuation. But we've also reported OpenAI could be listing sooner, closer to September. Mel, back to you.
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Melissa Lee
All right, Kate, thanks. Hey Rooney, what do you make of this chase here? I mean it's amazing that even as a private company can still fundraise. It's just part of the ipo.
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Danny Moses
It's actually part of the reason public companies are trading higher. You can't really, you can trade these if you know you can find it. I think Anthropic obviously is in a better seat right now. But to Dan's point, if you really stop to do the math at the end of the day what is the levels that you need to charge per month? No one wants to do that math whether enterprise or retail, whatever it's going to be to justify all of this. But right now it's no one's asking that question, which is fine. It's game on. And I know Anthropic technically maybe had a profitable cash flow second quarter because timing of spend of course take out stock based computer. But listen, it's Wall Street's. You're not going to hear from Wall street because you're getting massive IPO fees when these things come public.
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Steve Grasso
So yeah, I think there's going to be a massive. You have to get money from someplace, right. So you have to, there's probably going to be a hole in the mag seven stocks to make room for these three. Having said that the indices is what screws me up a little bit because there's going to be to be forced buying there which adds to those mag7 names as well. But I think I wouldn't be a buyer of Max 7 names ahead of these three IPOs.
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Melissa Lee
So they're the ATM, they're going to be the ATM.
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Steve Grasso
They have to be. They're the only ones with enough money.
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Karen Finerman
NASDAQ wins and you know the stocks at $91 or wherever close it is too cheap. I think the market's going to slowly figure that out. But you want to be one place is ndaq.
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Guy Adami
You can be cynical and say this, you know change to usage base, you know consumption is basically an effort to kind of juice revenues into these IPOs. Right. But I think you said probably the smartest thing on the desk all night today Mel is always just tonight that, that the just, just the awareness or like you know the experience that people are having with agents right now and I don't think a lot of companies are having that just yet but I think a lot of folks that are building within some companies like a lot in the in the private space, to be frank with you, that has flipped the switch, there's no doubt about that. But again, it comes back to are these agents doing the thing that you wanted to do for the cost that you expect? And are you going to have your customers or the processes internally going to justify all the effort that it's going to do it? And now it's really expensive. Like you know, a year ago, much less expensive.
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Melissa Lee
The costs will come down.
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Guy Adami
Well, because the costs are going up. Token prices have actually exploded. And that was one of the actually the bear cases about this whole space last year is that token prices were falling fairly dramatically. And then the whole idea is they fall, then you get more consumption and then, you know, you get a bigger pie, that sort of thing over time. But what did we just say? What the thing in the. See now it's not as you know, I'm just kidding.
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Joe Lavornia
But.
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Guy Adami
But what I'm saying is like what is the FT article just say? Like, you know, Amazon's telling right now it is expensive.
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Melissa Lee
There are bottlenecks all over the place. Right.
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Danny Moses
So I think I was just in my friend's office and he's now four of his employees are now using Anthropic and it's $400 per month. It was $200. It's now $400 per month. He fully expects it to go to $2,000 per month. Potentially if it integrates that much into his business and helps him, he probably will end up paying that. Obviously that's going to come at cost of employment. That's a whole nother conversation. He was an early bull in Amazon and Amazon related company. So he understands Amazon prime didn't exist when Amazon first came on the scene. So you're going to figure out a pricing mechanism. But I think the proof right now is on the bears. To say that this isn't going to work when this thing is in the first inning of applications that are out there and I'm probably the wrong guy to talk about it, but just an observation.
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Melissa Lee
Coming up, a big bet on Caesars Entertainment. Can a deal with Till and Fortitas, an entertainment group helped the company turn things around after a rough couple of years. We'll debate that. But first, Costco reported its earnings after the bell. What the numbers tell us about the next the consumer that is next. Don't go anywhere. Fast money's back into
- [24:21]
Guy Adami
this is Fast Money with Melissa Lee right here on cnbc.
- [24:29]
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Commercial Narrator
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- [25:49]
Steve Grasso
AT&T business Wireless connecting changes everything.
- [25:56]
Melissa Lee
Welcome back to Fast Money. Some big moves in the retail space catching our eyes. First, let's turn to Best Buy is up nearly 16% its best day since March 2020 20. The electronics retailer reporting better than expected results this morning and comp sales growth of 2%. Gaming, computing, mobile phones and services seeing the most strength. Dollar Tree meantime soaring more than 17% after a huge beat on earnings. The company also announcing an on demand delivery partnership with Doordash and coal surging 20% on its best comp sales performance in four years. The company reported a narrower than expected loss, reaffirmed its full year outlook. Shares are still down 25% this year. Guy, you're going to go to Dollar.
- [26:35]
Karen Finerman
Yeah, Dollar Tree was Listen, we got blind luck last night but we talked about the dollar stores. The sell off was just too much in a short period of time and they looked interesting. So last night Dollar General tree this quarter is very good. It augurs well for Dollar General on June 2nd. But you know, I think the sell off in these names has been overdone. I think that DLTR quarter suggests exactly that.
- [26:54]
Melissa Lee
It's interesting that we see such huge
- [26:56]
Danny Moses
moves like Software Consumer discretionary underweighted and so it's a catch up trade but I don't know how long that's going to last either.
- [27:03]
Steve Grasso
Yeah, and when you look at these they trade them as a group. So you're either buying dollar tree, selling dollar general. You don't buy them both at the same time. If you look at the, look at it on a chart. Obviously the dollar tree just spikes here. The performance is a little bit better. But this one has been plagued. You had that family dollar spin off or get, get rid of. They paid for family$9 billion. They sold for a billion. So for them it's just get that thing off my back and let me move forward. That's the place to be.
- [27:28]
Melissa Lee
All right. Meantime, Costco just out with its third quarter results. Shares are not moving much after the big box store beat revenue estimates and posted an almost 10% gain in same store sales from a year ago. Conference call kicked off at the top of the hour. CNBC's Brandon Gomez has results, joins us here on set. What's the latest, Brandon?
- [27:44]
Brandon Gomez
I'm Alyssa. That's right, was listening on the call. Look, investors were watching membership trends closely. A key driver for profits. Paid memberships grew just over 4% in the quarter below what some investors were hoping for with expectations for a return to mid to high single digit growth. Now CEO saying on the call just now fuel is driving membership gains with some locations requiring multiple fuel deliveries daily. At the same time, digital sales surge up nearly 21% while traffic at Costco's website and app jumped 37%. And we know from the company that online shoppers skew younger and are historically less likely to renew memberships. And so it will be important to get some color around membership retention on the call. Also tariffs important to mention with Costco saying they remain committed to returning money to members. But how much and when is going to depend on lawsuit developments and when they actually are able to process the refunds.
- [28:34]
Melissa Lee
Do you think that we'll get any color as to, you know, whether members are just ordering? I mean if they're, if they're, if their consumers who are ordering online are basically just trying to avoid that trip, avoid driving to the store.
- [28:46]
Brandon Gomez
It'll be interesting to see if there, if we can even get some third party credit card data. Right. And see if there's demographic profiles of who actually is conducting those online transactions.
- [28:54]
Melissa Lee
It has that change.
- [28:55]
Brandon Gomez
What's interesting and some of the categories that did show the greatest strength were not grocery, which was really interesting.
- [29:00]
Karen Finerman
Right.
- [29:01]
Brandon Gomez
Jewelry pharmacy as well this quarter. So it's an interesting conversation to have about what actually is driving the consumer to Costco.
- [29:10]
Melissa Lee
All right, Brandon, thank you.
- [29:11]
Karen Finerman
Brandon Gomez, Brandon's mom watches want to say Hi to her.
- [29:15]
Melissa Lee
Yes.
- [29:15]
Karen Finerman
She's a big fan of her son and a fast number one. Number two, the quarter's fine but not good enough when you're trading a 45 times next year's numbers which I think why the move is sort of mitigated here and probably will still go lower. Margins were somewhat disappointing. Listen, it's a great franchise, it's a great company, it's a big valuation. The similar thing happened to Walmart a week and a half or so ago.
- [29:36]
Melissa Lee
Go.
- [29:36]
Steve Grasso
Yeah, it does. The valuation is the key problem here. Membership renewal rates are around 90%. So when he's talking about skews, the younger kids don't kids. The younger people demographic don't renew the same rate as we do. That could be a problem going forward. Digital is where they're really making their bread and butter. I always compare these to Sam's and I know you don't get that pull out with Sam's but you have, you have Walmart. Do you know they have basically the same footprint, same amount of stores. Costco out revenue paces by 2 times 2x by the same amount of stores they earn double the revenue per store.
- [30:16]
Melissa Lee
Wow.
- [30:16]
Danny Moses
Being left out of the trade. Just take some underperforming stores and convert them into some type of data center. Stock will be up 35% after the close. Is anyone listening to that?
- [30:25]
Melissa Lee
That is genius.
- [30:26]
Danny Moses
A great idea. So obviously.
- [30:27]
Melissa Lee
Just kidding.
- [30:28]
Danny Moses
Take all the stores and convert data center.
- [30:30]
Guy Adami
Yeah.
- [30:31]
Melissa Lee
All right. There's a lot more fast money to come. Here's what's coming up next.
- [30:35]
Guy Adami
All in on Caesars Tillman Fertitta's entertainment company placing its bets on the casino name what it could mean for the gaming industry next. Plus eye popping auto loan numbers as consumers feel the squeeze from high prices on the lot. What's driving the move higher? You're watching Fast Money live from the NASDAQ market site in Times Square. We're back right after this.
- [31:06]
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Danny Moses
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Commercial Narrator
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- [32:26]
Steve Grasso
AT&T business Wireless connecting changes everything.
- [32:32]
Melissa Lee
Welcome back to FAST money. It is official for TIDA Entertainment, the hospitality group run by billionaire Tilman Fertitta, also the US Ambassador to Italy, has agreed to buy casino operator Caesars in a deal valued at $17.6 billion. The $31 a share all cash offer includes nearly $12 billion in debt. Potential deal was first reported back in February. Shares are up about 16% since. Danny, what do you make of this?
- [32:56]
Danny Moses
It's good for Las Vegas. I think to consolidate. You can go to a Rockets game now, eat at Landry's and then fly to Vegas and go to Caesars Palace. I think it's great.
- [33:05]
Melissa Lee
Package probably.
- [33:05]
Danny Moses
I think this was the only likely buyer. Something like somebody that could actually make these synergies work.
- [33:10]
Karen Finerman
Yeah, essentially. I mean he was in wind for a while, right. If you remember, did very well there. So he's the guy. And Danny's probably right. But what does it say about his confidence in not only the economy but obviously the industry? I think it speaks volumes. So I think win is still the play here despite the fact that it sold off over the last month. Month and a half.
- [33:28]
Melissa Lee
Coming up, we've got our eyes on Dell surging after hours. The company's conference call just wrapping up. We'll hear from one top analyst about what is behind this move. Welcome back to Fast Money. Stocks hitting fresh record closes today as investors cling to hopes for an Iran peace deal. The NASDAQ jumping nearly a percent as it closes in on 27,000. The S& P gaining more than half a percent. The Dow eking out a small gain. And a couple after hours earnings reports that we have tonight. Gap and American Eagle both higher after the reports. More strength in the software space with MongoDB and Asana jumping as well. Another quick check on Dell. It is now surging. Still surging, I should say more than 20% after its big earnings and revenue beats. For more, let's bring in Mehdi Hosseini, senior equity research analyst at Susquehanna. He just got off the Dell call. Mehdi, great to have you with us.
- [34:21]
Mehdi Hosseini
Thanks for, thanks for being on the program.
- [34:24]
Melissa Lee
Based on the earnings report, what should Dell be worth? Right now we're just trying to get our hand our heads around what it should be valued at given what the earnings outlook is at this point.
- [34:37]
Mehdi Hosseini
I make a long story short. If you look at their margin trend which has been in the high single digit, their free cash flow margin, I think this is a company that will be worth three times enterprise value to sell. I wouldn't be so focused on P E multiple, but it is the enterprise value, especially given the debt. And to that extent a three time enterprise value to sell will be appropriate. I think other factor is their ability to preserve their high single digit margin profile. If you look at one of the key competitors like Super Micro, in addition to all the investigation, the company cannot get the margins much above the single digit. But Dell is having a high single digit margin profile. At the same time they're also generating a lot of cash. They had a little bit over 3 billion of the free cash flow for the April quarter.
- [35:33]
Guy Adami
Just help me understand that. So on the gross margin, you know you're seeing it come down over the last few years, right? So two years ago they had like a 24% gross margin and they just printed 18. And when you see that sort of turn on margin, but you're seeing these huge gains as far as orders, I mean, isn't that something that you want to pay attention to? And you just mentioned Supermicro. I mean they have half the margin. Forget the investigation. I mean at some point, you know, if your capacity constrained supermarket is going to start competing on price. So I just wonder like at some point don't you have to anticipate a turn because if they're not getting those margins up, they're just taking I guess more share because of demand. I'm just trying to figure it out because it just seems like something, there's a big disconnect there.
- [36:14]
Mehdi Hosseini
Well, Superbagar has been trying to compete on pricing for several years. That hasn't worked. When you look at, when you look under the hood as it relates to Dell, there is a mix that is a big factor. They do have services which is actually a 40% plus gross margin. They also have other items like a storage which is also gross margin accretive. So it is the mix that has Enabled Dell to preserve margin. And on top of that as I highlighted is the free cash flow margin. I'm actually very surprised. I thought by now their margins will be under pressure and this is one of the primary reason that I have a neutral rating despite the fact that the stock has run up so much. So ability to preserve margin and print cash flow. If you look at the broader spectrum, this is another 30, 40, 50, 60 times P E multiple and to that extent it is a three time enterprise value that is very relevant. Today we discovered margin profile and free cash flow margins.
- [37:17]
Karen Finerman
All right, so what is three times enterprise value get you for the home gamers out there that probably don't have the machine in front of them? I mean the average price target we mentioned earlier in the show from analysts, the 29 to cover it is basically I'll round up $230. I think it's trading for 10 now in the aftermarket.
- [37:32]
Mehdi Hosseini
Well, I'm not going to answer that question now because all the estimates are under review. Perhaps you could have this conversation tomorrow when my note is published with updated estimate. But I think if you look at their, their fiscal year guide is going up now. What is interesting, if you look at the second half of fiscal year, the revenue guide suggests 10 to 12% decline. So does that mean some of these revenues that cannot get the component are going to be pushed up into next fiscal year or 2027 or are they going to walk away? I think the more I hear of management talking, I think some of these revenues are pushed into the next year which suggests that the revenue and the free cash flow growth are sustainable into next year.
- [38:21]
Melissa Lee
What's the read through to some of the other stocks in your coverage universe at this point?
- [38:26]
Mehdi Hosseini
Well, we go back to memory, Jeff, the CEO highlighted the shortage is more severe for Dirham and I think over the past couple of days we have talked about what you guys have been talking about Micron joining the $3 3 trillion 3 I'm sorry trillion dollar market cap. I think those market caps will go higher and Dell a conference call suggests that these shortage in memory and components are not going to go away. So definitely positive for Micron, Sanders and even hard disk drives.
- [39:00]
Melissa Lee
All right, Mehdi, thank you for joining us. Appreciate it.
- [39:03]
Mehdi Hosseini
Thank you.
- [39:03]
Melissa Lee
Eddie Hosseini on Dell. So just reinforces the area of the market that's already going bonkers.
- [39:10]
Phil LeBeau
Right?
- [39:10]
Melissa Lee
Exactly.
- [39:12]
Karen Finerman
This again this, I'll say this carefully. I mean this should have been somewhat predictable. If you remember Michael, Dell made the big investment in the Trump accounts thing and Then they recently got the 60 point billion dollar government contract from the Pentagon. So it all becomes very circular. I only mentioned in the context of what happened with intel, what's happened with mp. I mean there's a slew of. He mentioned Micron on Friday in Westchester
- [39:35]
Melissa Lee
in Rockland county, go buy Dell.
- [39:37]
Karen Finerman
He even said go buy Dell. So maybe we should start listening a little closer.
- [39:40]
Steve Grasso
So if you look at certain services, it's 20% of total revenue, but it's also a very high margin business. So they get that check in that box. If you look at data centers, that's 66% of their revenue base. But 37% comes from AI. They're in all the right spots, all the right margin. I don't want to buy it here, I don't want to chase it here, but, but it keeps defying the laws of probability.
- [40:05]
Danny Moses
I work with Matty in the past, he's a great analyst. But I'm going to bet that he doesn't downgrade the stock tomorrow, that he raises his price target. Guy, what is it?
- [40:13]
Melissa Lee
No, it's going to downgrade.
- [40:14]
Danny Moses
Yeah, I'm just, I'm just saying it out there.
- [40:16]
Guy Adami
Seriously, at some point, you know, if you're talking about memory and storage and all the components that go into servers, right, and you're talking about the demand and the lack of capacity and they have this pricing power, at some point it's going to weigh on the margins and that's what we just talked about a little bit. I mean Dell's margins have been declining from a gross margin basis. So at some point, let's say you free up more capacity, well then you've already out earned that and then it just kind of starts to turn and there's going to be less demand at some point. So to me I just think if you, you're chasing us.
- [40:46]
Melissa Lee
Coming up all Ford and GM continuing their move higher as auto loans hit eye popping numbers. But how long can a stretch consumer keep paying? The details right after this. Welcome back to Fast Money. New data out today shows the average monthly auto loan payment is at all time highs as car prices continue to climb. CNBC's Phil LeBeau has more on what people are buying. Phil,
- [41:33]
Phil LeBeau
what they're buying. And many people are paying more than $1,000 every month for their auto loan. And, and of those loans you'll be surprised to hear what those people are buying. But first let me show you what the overall numbers are in terms of record highs both in terms of amount borrowed, just under $44,000. And then your average monthly loan payment is now at an all time high of $770. According to Experian Automotive. In terms of people paying at least $1,000 or more per month. Look at how that has exploded over the last five years. The chip crisis in 21 and 22 meant you saw a big spike in transaction prices for new vehicles. That's when the surge happened. And people said, okay, I'll pay more than $1,000 a month now, almost 19% of the market. And what are they buying? Surprise. It's not necessarily luxury. In fact, luxury is just a quarter of the vehicles that are sold. Essentially everything else, pickups, midsize SUVs, full size SUVs, not from luxury names. But these are vehicles that are starting at 55, 60 or 65. And people are saying, okay, I've got to have them and I'm going to outfit them with what I want. Some of that may be small contractors or small business owners who are using it and then writing off the expense. But there are a lot of people who are, they've made the decision for their own personal use. They're going to be doing this. As you take a look at gm, Ford and Toyota, keep in mind that next week, Melissa, we get the May auto sales expected to be between 15.9 and 16.1 million for a sales pace
- [43:02]
Melissa Lee
at this, at this point. Phil, are automakers offering incentive loans at all?
- [43:08]
Phil LeBeau
They are, they are. But it's not, it's not a huge spike. It's, it's actually lower than what it traditionally is. It's gone up a little bit in the last year and a half, but it's not, it's not outrageous relative to what we have seen in the past.
- [43:23]
Melissa Lee
Wow. I mean this number is aside from maintenance, aside from gas, aside from insurance. Insurance which has gone up, right, Phil?
- [43:32]
Karen Finerman
Yeah, insurance is a ridiculous number. I mean, Phil, still here, I don't know if you want to comment or not, but auto loan delinquency rates now are at a 32 year high. You throw on credit cards 90 days plus delinquent 13%. It's the highest we've seen since 2011. So your story suggests that people doing great filled the numbers suggest otherwise.
- [43:53]
Phil LeBeau
Well, but keep in mind when you're looking at delinquencies, and that's not to say it's not important for the people or the segment of the population that are delinquent, but we talked with Experian about this. It tends to be with the subprime borrower. Those are the people who are struggling. And in the world of credit portfolios, if you're going to have a rising delinquency rate, you want it on the subprime end relative to whether you have prime or the, the super prime credit. That's where they really get worried when it's those borrowers who are really in default.
- [44:24]
Melissa Lee
Right. Phil, thank you. Fascinating story, Philippeau.
- [44:28]
Steve Grasso
And what happens if we raise rates by 100 basis points? What happens to that subprime borrower and Capital One just to bring it back to the stock market? Capital One is the largest lender of subprime loans. Ally or Ally is the largest car loan company. So take a look at those two.
- [44:46]
Danny Moses
Obviously when I hear the word subprime,
- [44:48]
Melissa Lee
I know I'm like, you got to
- [44:49]
Danny Moses
go to Danny Moses and it goes up and guys, right, I mean I think we're 5.6% overall, 90 day payments being late and that was last quarter. I think it goes higher because of oil and auto companies. Better lucky than good. In some case got smart post tariffs and started to basically reduce what they were offering getting out of some of the electric vehicles, stuff like that. So I think it's the right place, right time for the auto companies.
- [45:11]
Melissa Lee
Coming up, bitcoin bombing out the crypto space. Why this trade is sitting out the rally. Next, more fast money into. We've got a news alert on a federal probe into LinkedIn co founder Reid Hoffman. Julia Borson's got the details. Julia Ms. Now is reporting that a probe based in a federal prosecutor's office in Chicago has been described as investigating Gene Carroll, but is currently focused on Reid Hoffman and considering some possible charges of money laundering connected to his financial support towards Carol's legal fees.
- [45:46]
Commercial Narrator
This according to two people familiar with the matter.
- [45:48]
Melissa Lee
Hoffman is the co founder of LinkedIn, a top Democratic donor and fundraiser and a frequent critic of President Trump. Back over to you Julia. Thank you, Julie Boorstin. All right, let's get to Bitcoin hitting its lowest level since April 13 today. While the crypto did close off session lows, it is now down more than 5% percent over the past week. Value flag this earlier because it hasn't
- [46:09]
Karen Finerman
been trading well in the wake of the NASDAQ trading extraordinarily well. And I thought the 2 is sort of go hand in hand, but something's got to give here. Bitcoin is telling one story. The Nasdaq and semis are telling something entirely different. Something's got to give. I think it's going to be the
- [46:22]
Melissa Lee
stock Market up next, final trades. One last check on shares of Dow up by 31%, beating earnings and revenue estimates for the current quarter, also raising dramatically as full year estimates. The move, if the move holds tomorrow, be the second biggest gain since returning to market. This is on top of, of course, tripling year to date. What a move. Final trade time. Steve.
- [46:51]
Steve Grasso
I was long Boeing then. I wasn't long Boeing now. I'm long Boeing again. It took a little bit of a speed bump on the Trump XI meetings. It's back on track now.
- [47:01]
Melissa Lee
Danny Moses, Apologies to my friend Vincent.
- [47:03]
Karen Finerman
Daniel.
- [47:03]
Danny Moses
I'm a seller of jets, the airline etf. And let me just say that I think Vincent Daniels should be the next general manager of the New York Mets.
- [47:09]
Brandon Gomez
I need something.
- [47:11]
Guy Adami
I mean, Dan, go big short on that one. So this Palantir we're talking about, all the stuff that's gone crazy, this was obviously a darling. This is a company expected to have 95% earnings growth, 75% sales growth this year, 86% gross margin. They've been going higher still, down 20% of the year after a big day. I think you probably start kicking the tires on that one.
- [47:30]
Karen Finerman
I'm with. I'm with Danny. Stevie Cohen's a big fan of the show. Stevie, pay attention. Vinnie Daniels, your guy. Brilliant. See you left, Mel.
- [47:38]
Melissa Lee
All right, thanks for watching Fast Money. Mad Money with Jim Cramer starts right now.
- [47:43]
Commercial Narrator
All opinions expressed by the Fast Money participants are solely their opinions and do not reflect the opinions of CNBC or its parent company or affiliates and may have been previously disseminated by them on television, radio, Internet or another medium. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of an opinion. Such opinions are based upon information the Fast Money participants consider reliable. But neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. To view the full Fast Money disclaimer, please visit cnbc.com fastmoneydisclaimer GIGO presents a
- [48:16]
Guy Adami
30 second podcast between your podcast, today's story is shared by one of our listeners. It's called Betrayed by Bill.
- [48:24]
Steve Grasso
It was in that moment I caught
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Guy Adami
who was staring back at me in betrayal or more like what, my insurance bill. With trembling hands, I grabbed my phone and switched to Geico, saving about $900 in the process and never to be betrayed again. Now that was bloody riveting.
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Danny Moses
It feels good when the story ends with savings.
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Steve Grasso
It feels good to Geico.