Semis At An Inflection Point… And Navigating An ‘Expensive’ Market 9/18/26

CNBC's "Fast Money"

The episode explores a potential inflection point for semiconductor stocks as they face divergence from the software sector. Panelists discu

Key takeaways

• Semiconductor stocks like Teradyne and KLA are seeing gains despite underperforming software this quarter.
• The upcoming Trump-Xi summit is expected to focus on AI supremacy and trade issues between the U.S. and China.

Main topics

• Semiconductor market inflection points
• US-China geopolitical summit

Notable quotes

Think big to accomplish big things.

Conclusion

The episode highlights the necessity of selective, quality-driven inve

Transcript preview

Speaker 8 (0:00) What made you confident that you could do something that hadn't been done before? I have no fear of failure. Trailblazing women changing the game. One of my favorite pieces of advice, think about what your boss's boss needs. Leadership can look in many, many different forms. It really does come down to just trusting yourself. Life is short and you just gotta... Think big to accomplish big things. Julia Boorstin hosts CNBC Changemakers and Power Players. New episodes every Tuesday wherever you get your podcasts. Speaker 2 (0:31) Live from the NASDAQ market site in the heart of New York City's Times Square, this is Fast Money. Here's what's on tap tonight. Semis at a crossroads. The group trading well off record highs. But what happens next could set the tone for the trade in the markets. Which way is it going? The traders will weigh in. And healthy gains after what has been a very volatile week. Health care and biotech came out as winners. Is this a sign of a broader rotation? Are there more games to come? Plus, a look at the demand for Apple's newest non-photable phone. Tim might want to listen to that one. Nike loses another star athlete and a milestone hire at Disney while the company is bringing on a chief technology officer and how it could impact the future for the entertainment giant. I'm Melissa Lee. Come to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Courtney Garcia, Steve Grasso, and Julie Beal. And we start off with that potential inflection point for semi-stocks. The group up more than 2 % today with outsized gains in names like Teradyne, K-Di-O, KLA 10 core and monolithic power. But looking back at the quarter, these stocks are far underperforming software down double digits compared to a 15 percent gain for the IGV and Q3. And the chart master says what happens next could be key. Carter Braxton Worth out with a note this morning, noting converging trend lines in the chart. But will the stocks break to the upside or break down? From here, I love it when he sends this out. It's like a wedge. And then the arrows go up and down. And Speaker 1 (1:53) then you've got to figure it out. Tim, what's your vote? Well, I mean, Carter does a great job of breaking those things down. My sense is that semis are breaking higher. My sense is that they've endured an enormous amount of pressure. I think, you know, remember where we walked in this week? We had every AI leader out there over the weekend talking about maybe tapping the brakes a little bit. I think as we go into the Trump-Xi summit. It's really clear that the U.S. and China are going to find no... common ground on cutting back on AI. I mean, this is kind of what it's about. It's a race for supremacy. Therefore, I don't think also on the legislative front, even though it's a midterm topic, it's not really a midterm reality. This is not going to be part of the midterm vote. I understand data centers is a popular topic. It all comes back to there's no letting up on this story. And I think there's no letting up on the CapEx and the 1.3 trillion that will be raised next year for CapEx for the hyperscalers. All that means more growth. I think they've traded remarkably well, given how negative the sentiment is. And I think you're starting to see sentiment pick up in some other Momo names. The only thing I would hold out there, or I would just say this is subject to what's going on in rates markets and oil markets. And, you know, a big part of today was just what we're hearing, what's going on in the oil prices markets, North Sea premiums at record highs for refiners. I mean, this is getting worse, not better. And this is something that also is forcing all risks to come back in. At Speaker 2 (3:17) the same time, I mean, Brent coming below $100 a barrel, 10-year yield going below 5 percent or staying at 5 percent. I mean, this sort of gives permission for some of these trades to keep working. Speaker 6 (3:28) Yeah, and I think the fact that these trades have actually been holding up pretty well despite the fact that oils have been over $100 a barrel. The Fed is raising interest rates. There's a lot of reasons that markets should be selling off. And, yes, they're off their highs, but really not as much as you would think on that news. So I actually do see that as a positive sign. And I think as we get here closer to October and we're going to refocus again on earnings season now that that's coming through, I think that's going to be a positive for the markets. And I do agree with you. I think demand is not the issue with the semi-trade. Obviously, this AI doomsday scenario that everybody's talking about right now is taking over the head. But I think when you get back to fundamentals and demand and CapEx, I think that conversation restarts. And I do think that's positive for that trade. So Speaker 4 (4:04) when you look at the when you look at SMH, when you look at the stocks, you break it down. So obviously the stocks have outperformed on a year to date basis. And then you look at where are the estimates going? Is it higher for NVIDIA? Is it higher for Micron? So I look at it through those two prisms. Then when you look at the breakdown, SMH, 22 percent weight for NVIDIA, 5 percent weight for Micron. Now you do the reverse. Sox is 9 % weight for NVIDIA and around a 9 % weight for Micron. So I think I'm more in the SMH camp because if earnings, they're going to be the net recipients of those CapEx dollars of $1.3 trillion. That's moving up. They're going to be the net recipient of it. The weight is going to be on memory. So memory is going to crash. Apple and Nvidia's margins, but the still net recipient of that money is still going to be Nvidia. Nvidia carries a bigger weight, and they've definitely lagged, so I'd go with SMH for $300, Jack. Speaker 2 (5:02) Okay, so if the CapEx story remains intact, the AI story is intact, Jilly Beal, then do we not like hyperscalers anymore because they have to spend lots and lots of money still, that the pressure is not off of them? Speaker 7 (5:16) Yeah, I think that's still the very big challenge, you know, because as there's been more and more reporting on the makeup of their AI revenue, but the AI revenue growth has been certainly very impressive. But the problem is, is that you have massive, massive customer concentration with Anthropic and OpenAI. And to the extent that people are concerned about their ability to do that business profitably, it calls into question, what is the strength and how much am I willing to pay for this AI revenue with the hyperscalers? So I think it's still actually a pretty tricky proposition. because it's very opaque. But what I do think is that at least for the next quarter or two, the semiconductors are still very well positioned. Speaker 2 (5:54) Or do we hear enough from some of the hyperscalers like Amedda about monetization? And so the narrative has shifted a little bit. Speaker 6 (6:02) I mean, it has thus far. Those who can show... the monetization story, or at least the path there to it, those have been benefiting much better than those who can't. But I do think here, again, as we get into this new earnings season, that is going to be the key factor, is not only what does this last quarter look like, but that earnings, I'm sorry, the capex going forward, they keep using this phrase like, oh, it's going to go up substantially moving forward. I think seeing what that goes up to, like at some point, the markets are going to get concerned about that. Speaker 1 (6:26) Yeah, I think we're getting a little bit of information on ROI, and I think it's not awful. I don't think they're going to stop spending. I do think it changes the multiple we think about them. I do think the story for mega cap tech, which over the last couple of weeks has been well supported in a world war, maybe they'll spend a little bit less. I still think that the biggest stocks in the world. And again, that chart in the triple Q's or the Nasdaq 100 looks to me a lot like the semis chart. And I think one equals the other. And as we just, you know, Steve talked about some of the mechanics and the numbers and the weightings. But I mean, ultimately, the triple Q's go as also not only mega cap tech, but also semis go. So. I think it's a it's a case where the entire market and I said this yesterday. I mean, if we weren't in the month of September, I think it'd be really easy to say. And, you know, you shouldn't be trading on the calendar. I'm just saying there are dynamics out there with oil and and and certainly what's going on with the inflation front. And, you know, we're waiting a couple of weeks now for earnings, which typically have been that reason to give markets the next piece of information to take the bottom up trade higher from the top down. Speaker 4 (7:28) Everyone always loves the seasonality. I love the seasonality of the calendar. But the major event was the Fed. And once you get that behind you, where the markets look at it and say, OK, in the greater scheme of things, is 25 basis points a quarter point really going to let me pull or make me pull money out of the market? The answer is no. Are earnings still there? Are they still rising? And it's still in a handful of names. Right. So we still have a handful of names that are doing the heavy lifting for the indices. And as long as that still takes place, whether it's on a relative basis or not, it's still going to keep the market moving forward. I'll add one last thing. The majority is passive investing. People are putting money into this market, whether they know it or whether they don't. It's coming into this market. Speaker 2 (8:13) All right. We had a headline earlier this week and we didn't really discuss it because of the Fed. It happened the same day. But Nebius, the neocloud, raising prices by about 20 percent or so on compute. Does this how do you think, Tim, how do you think about this headline and this price increase and what it means to semis? Because it does prove that older semis still have worth for longer, which is a good thing, but maybe not necessarily a good thing. for the semiconductor manufacturers. Speaker 1 (8:41) Right. Well, old is new, et cetera. I do think it's a case that shows that there's no choice, but both there's pricing power, and I think there's no choice but to continue to play the game. I think the whole kind of stakes are getting ratcheted up for everybody, and we even talked about it as it means for Best Buy, because higher memory prices ultimately mean higher prices paid by consumers, and that's actually a good thing. So I think it's supporting everything we just said, and I think it's a valid point. I think there are a lot of stories. below the surface that have been taking place, which are showing that legacy players and those folks with pricing power are exacting that upon their customers and customers can't do anything but say, I'll take some more. Speaker 2 (9:20) Well, health care, a bright spot this week. The best performing S &P sector up almost 2 percent since Monday. Biotech and device makers were the subgroups leading the charge. Revity, Moderna, Dexcom, Thermo Fisher among the biggest percentage gainers. This is interesting because there's conventional wisdom out there. Higher rates are not good for biotechs. That obviously was not the case. Speaker 6 (9:41) Yeah, and I think this is also a case where people are starting to look outside of the AI trade. I mean, I think people are starting to look for other areas of opportunity. This year has been a really good example of that. And I think healthcare does remain a place that is good to be invested in. And you're seeing a lot of these healthcare names that are also mentioning how AI is benefiting them just in their day-to-day businesses. They're not having to spend these huge CapEx numbers, but it's making them more efficient. It's making their pipelines shorter timeframes moving forward. And I think you're going to see that story continue. So I think this is absolutely something you want to be invested in. Yeah. Speaker 2 (10:10) Julie, where do you find value in health care? Speaker 7 (10:13) Yeah, I agree. I think that there is a lot of opportunity in these biotech names. The problem is that they just really do have a lottery ticket approach to them. So you're probably better served with an ETF. And me, I really love these niche health care companies like Alameda or even a Hinge where they're really using AI to their benefit. And I think it's made them a much stronger business as a result. All