Meta Fell 10%. Microsoft Didn't Blink.

**SPEAKER_1** (0:00)
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**Steven Ehrlich** (0:21)
So let's talk a little bit more about AI. I mean, as you mentioned, and anyone watching this, I'm sure, is well aware, I mean, earnings have generally been very, very good. But there are concerns, and I think the two sides of the coin you mentioned, between Meta and Microsoft, I mean, going in opposite directions, I think that's a really good microcosm of the different approaches someone can read what's happening. So maybe just expand on that a little bit, please.

**Chris Galipeau** (0:47)
So I listened to both the calls last night, and what put Meta in the penalty box was, hey, we raised our capex spend. They didn't raise it by a lot. They raised the lower end by 5 billion, which seems like the monopoly money to us, right?
But they raised it, and they talked a lot. They gave us a lot of qualitative explanation, but I didn't see any proof in terms of revenue growth or maybe no clarification on the timeliness of discernible ROI. I didn't hear that. Now, maybe other people did, I didn't hear it. That's why the stock's down 10 percent. So they raised their capex guidance, and Q3 revenue guide was a little below the midpoint. I know these are nitpicky things, but this is what the street reacts to.

**Steven Ehrlich** (1:31)
For my opinion, and I don't mean to interrupt you, but just given how poorly their initial LLMs were received, it seems like from my perspective, the burden is higher for them to prove that they're able to catch up and overtake especially with some of the Chinese competitors.

**Chris Galipeau** (1:46)
Then right after that call, I got right on Microsoft's call. I can, of course, see all the earnings, revenue versus consensus, margins, so on and so forth. The number one metric we're looking for with Microsoft is Azure growth, Cloud growth. That number was super strong. That was the first thing. I thought, okay, that's really what we wanted to hear about. Microsoft's management, the quantitative information that they gave us and the tone in which they delivered it, was having listened to earnings calls for 35 years, and you pick up on these things over time, they were confident, you could tell. They maintained their CAPEX guidance. They didn't raise it, and I said, that's the worry around sucking out all the free cashflow generation from these unbelievable companies here in the last six, eight months or year, where if you and I were talking two years ago, and you said, hey, do you think Microsoft, Google, Amazon, and Meta are going to blow through all the free cashflow? My answer would be no way. They just did, and they're in the market borrowing more.
Investors have called time out on that.
I'll lead you to another concept that we've been pounding on here for the last 18 months, but those were the differences to me anyway in the calls last night, and why one stock is down and one stock is up.

**Steven Ehrlich** (3:01)
Yeah. It's really interesting because when we hear about these big tech companies, going back to the Faang and I forget some of the other acronyms that were there, they were enormously profitable, had very low capex and unlimited free cash flow.
A big inversion now because of how the revenues are great, but Google went to public markets for the first time in decades. These companies are raising tens of billions of dollars in the debt market. I know Oracle was recently downgraded to one ring above junk status, and free cash flow is all of a sudden, it's a big deal. Maybe for some of my viewers, some of my listeners that are just trying to get their arms around all this, could you maybe just talk about how from your perspective, you think about these different buckets to ascertain the health of a company? Because it's hard sometimes, I think, to distinguish between Microsoft and Oracle.

**Chris Galipeau** (4:00)
And so I'll do my best in a nutshell from a high level. So it takes, you need to consider a lot of different variables, right?
Zuckerberg, for example, last night talked about total addressable market on and on. Okay, we get that, right? That's why the spend, and then there's not nearly enough compute demand and all that sort of thing. So you factor in comments like that, you look at the company's balance sheet. What I always focused on, especially as a growth manager, owning these names and liking these names, over decades, is how much confidence do I have in the run rate and revenue? Tell me about COGS. I need to know where the margin numbers are likely to go. I don't really care about the tax rate because it doesn't move that much. But I'm trying to get my arms around all of the different things that will impact net income factor and buybacks, what's the earnings power going to look like?