TSM's "Impossible" U.S. Supply Chain Plan, ON Earnings & Levels to Watch Today [8:11]

Transcript
Let's bring in Kevin Green, a senior markets correspondent, right away to help set up the action today. All right, KG, let's talk big picture, your big picture take on where things stand in markets now.

Yeah, good morning, Diane. Look, if we're looking at the markets over the last couple of days, obviously, we have seen a nice little rally to the upside here. And I would say I'm a little cautious at these current levels when you're looking at the S&P 500 around this 69.80 level, which has been an area of resistance. And we actually did see, if you're looking at the S&P 500 on a 4-hour chart, a 90-day 4-hour chart here, you could actually still see that we did make lower highs as well as technically a lower low. So, are we actually developing more of a head and shoulders pattern, or are we going to see a breakout to the upside past that 7,000 level? I think that's going to be the key area of focus here for the remainder of this week. And we do know that we still have some seasonality factors that could still be in place, as well as some economic data this week that could actually be a little bit more bearish.

If you're looking at the CPI print that we're going to get on Friday, or even the jobs report that we're going to get on Wednesday, those two prints, especially the January data set, are very volatile. Over the last two years, we've actually seen both of those numbers come in a lot higher than the street's expectations, meaning that it comes in a little bit hotter. And then for the jobs report, we actually do see it missing expectations over the last two years, which could create a little bit more volatility. So, I would get just a little bit cautious around these current levels here. Also, if you're looking at the E-mini S&P 500, the open interest yesterday saw an advance of about 0.5% on the S&P 500 as a whole, but you saw open interest actually declining. So, what does that mean, Diane? That just means that we are seeing more of a short covering rally rather than new buyers stepping in here. So, cautiously optimistic here, but volatility is still elevated, and I still think that we may have some headwinds here over the next week to week and a half.

Okay, so potential headwinds over the next week and a half. Let's talk about the latest with Alphabet Google and this debt raise. I mean, this seems, it's not just the size but the extent of time. Take us through this and, you know, what's at stake here.

Yeah, so definitely several different tranches that are going to be issued, but they did sell around $20 billion worth of bonds. Now, these are going to be sterling denominated here, and it does sound like it was actually fairly successful, with over four times the subscriber rate. So, the demand was definitely there. Now, there is a potential that they could issue something called a century bond, which is really something that some foreign governments out in Europe actually issue here. This could be one of the first of its kind for a large company like this. But that century bond could be a 100-year offering here. I'm not sure if that's actually been finalized. I know that has been a rumor, and we'll see exactly what the demand is going to be. Obviously, there's going to be a lot more duration risk. So, the yields on those 100-year bonds are going to be a lot higher than what we are seeing for a traditional 20, 30, or even a 40-year bond for that matter. But they are obviously raising a lot of capital in order to fund their AI expenses here, and they're not relying just on free cash flow alone. So, Google Alphabet is a little bit different from what we saw for Oracle as far as the demand and the concern here. The market's really not too concerned about this debt offering. Obviously, they do have a lot of free cash flow in order to be able to cover their debts, but it is an interesting structure that we are seeing, one of the bigger offerings, especially on the international stage over the last couple of years.

Okay, let's talk about Taiwan Semi. You got shares moving higher here in the pre-market, the ADR. Take us through the trigger here.

Yeah, so Taiwan Semi did report its revenue numbers for the month of January. We did see that actually increase by 37% on a year-over-year basis. So, the demand for AI, especially if you're looking at the GPUs, continues to ramp to the upside. There's also some optimism around the 5G and just personal device demand that might actually be reacelerating here after a very long time of kind of stagnation, with a lot of these customers, as well as just consumers themselves, not really refreshing their cell phones as frequently as we are usually seeing here. And we once again get a little bit more optimism that the semiconductor trade is still intact. Now, over time, over the next couple of quarters, especially the next couple of months, the comps on a year-over-year basis might be a little bit more difficult, but this is actually a really decent report. And we did see the stock move to the upside because of that in pre-market.

Okay, and let's dive into ON Semi. It was out with its quarterly results after the bell yesterday and got dinged in. It's been under some pressure this morning. Take us through some of your takeaways here, KG.

Yes. So for ON Semi, before we go through the numbers, we have to be mindful this is more focused on some of these analog chips, as well as the EV space and automotive just in general, which is a big driver for their sales. So, their actual revenue for Q4 came in at $1.53 billion. That did miss the street's expectations. The adjusted earnings per share came in at 64 cents, which actually exceeded the street's expectations. But once again, if you're kind of looking at the segments on a year-over-year basis, you are seeing declines. The power solutions business, which is the largest unit within their portfolio here, dropped 11% on a year-over-year basis. And if you're looking at intelligence sensing, that also did drop around 17% on a year-over-year basis. The analog business also dropped 9% on a year-over-year basis. So, demand is still waning here. They are still seeing an inventory glut from their customers, with some fluctuation in competition, especially when you're looking at China, with chip makers that are kind of eating into their market share, if you will, and we are seeing the shares move to the downside. I would not utilize this as a proxy for the overall semiconductor trade. Once again, they kind of fit a specific niche that has, you know, significant glut over the last couple of years.

Okay. And then I'm seeing some analyst action around it. Anything about that stand out to you, or tell me where you want to dive deeper here.

Yeah, from an analyst standpoint, you are seeing some price target raises. So, NEM actually did raise their price target up to $72, and that's up from $68. You also have Rosenblatt raising their price target to $60 from $50. They do believe that maybe over the next couple of quarters we might see a little bit of a support area when it comes to demand, and potentially that refresh, as well as the demand for a lot of the EVs and industrial technology could actually ramp up here in the coming quarters. But once again, the numbers themselves were not that great, but this could be one of those bottoming kitchen sink type of quarters that they did report. So, an interesting setup when it comes to ON and the semiconductor trade as a whole.

Okay, KG, I know we always get your levels, but before that, I know there is something you want us to pay attention to in the VIX chart that you brought with you today. Can you take us through that?

Yeah, so if you're looking at the volatility index or the VIX, we've actually still seen the volatility index move to the upside here. So, even though we did see a crush, it's actually still on its trend line. I'm not a huge fan when it comes to technical analysis for the VIX, but there obviously are trends that are kind of standing out where we got to get to that white line. We have seen volatility rate a tad bit higher. And I think that's something to be mindful of as we kind of go through the next couple of weeks. Also, we did hit an elevated VIX over 20, but is that usually the capitulation type of move that we see for volatility? I would say that's not the case. Diane, you really want to see VIX get to around that 25 or 26 to really kind of flush out a lot of these bulls in the market, and we just haven't seen that yet. So, some economic data coming to the forefront, if it comes in line with the street's expectations, that can change the whole narrative. I will just say keep this on the radar: the CPI inflation print that we have on Friday. The Cleveland Fed actually has it well below the street's expectations. So, there's a wide divergence within estimates right now, once again kind of leading to elevated volatility going into that front.

Okay. And let's get your levels that you're looking out for today on the S&P 500.

Yeah. To the upside, 7010; to the downside, 6915. We're implying around a 1.1% move in the VIX at this point in time here, Diane. So, let's see how this all pans out here today.

Yes indeed. That's Kevin Green, our senior markets correspondent. Thank you, KG.

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