TIP848: Meta (META): What the Market Misses? w/ Daniel Mahncke & Shawn O'Malley

SPEAKER_1 (0:00)

You're listening to TIP.

Daniel Mahncke (0:03)

Welcome back to The Investor's Podcast, episode 848 And the last stock I pitched to you, Shawn, was Copa, which is a company that we looked at last year. And today, we will have yet another company that we covered before and that deserves another look. And that company is Meta. And I can only spoil that I started building a position in it in my personal account not too long ago.

Shawn O'Malley (0:27)

It's only been nine months since we first covered Meta, but it does somehow feel like an eternity ago with all the news that's come out from the hyperscalers this year. And just a couple of months pass and you already feel like you need to discuss the opportunity again and provide an update and that's what we're doing today.

Daniel Mahncke (0:42)

I'm not sure if you remember, but last time in the episode, you said that you would like to wait for the stock to drop further and perhaps see sort of an advertising downturn before you would actually go out and buy Meta. And we didn't really see an advertising downturn, but the stock still declined about 25% from yearly highs on some other news that I'm quite sure we will get into today.

Shawn O'Malley (1:04)

Let's get into it.

SPEAKER_1 (1:08)

Since 2014, with more than 200 million downloads, we have interviewed the world's best investors, studied deeply the principles of value investing, and uncovered many compelling investment opportunities. We focus on understanding businesses and intrinsic value, investing accordingly, and sharing everything we learn with you.

This show is not investment advice. It's intended for informational and entertainment purposes only. All opinions expressed by hosts and guests are solely their own, and they may have investments in the securities discussed. Now for your hosts, Shawn O'Malley and Daniel Mahncke.

Shawn O'Malley (1:54)

There's so much going on that it's difficult to even know where to start today, Daniel. Perhaps we go with what has changed since our first episode in January on Meta. Some of the most notable things have probably been Meta announcing that it would build a cloud business more or less, and that there is, or better said, was a major lawsuit hanging over Meta's head.

Daniel Mahncke (2:17)

Yeah, I think it was safe to say there was no shortage of news, unsurprisingly, whenever it comes to Meta. Just for context, in January of this year, Mark Zuckerberg announced on Threats, which is sort of the equivalent to Twitter or Axe, that Meta wants to build out AI infrastructure at scale. And he talked about building tens of gigawatts of data center capacity this decade, which means hundreds of gigawatts or more over time. So thinking the next couple of decades. And just for context, a single gigawatt is roughly the output of a nuclear reactor. So we're talking about quite a lot of energy here. And for that project, he even brought in Dina Powell McCormick, who is a former government official. And she's sort of working as a president and vice chairman on that project. Explicitly there for just working on government partnerships and to finance the build out of these data centers.

Shawn O'Malley (3:08)

It's a fascinating hire, I think, in itself. When your cap explains are so big that you need someone who's sole job is essentially do diplomacy with the federal government, then you know you're making some serious capital allocations. And having that political support at this moment, though, is pretty important optically. Virginia is the data center capital of the country, if not the world probably. And so I have been seeing data centers popping up my entire life since I was a kid. But I don't really remember them ever being controversial until recently. And so we actually had a family member with some land that for years, they were going back and forth with the courts to try and win approval for a massive data center to be built on that property. And that deal just fell through recently. So the sentiment changes in AI are creating real obstacles for big tech companies that are manifesting as legal opposition, for example. And so I was looking at a Pew survey on this recently, and about half of all Americans say they're more nervous about AI than excited about it, while 40% say they're equally excited and concerned.

And then only 10% say they're more excited than concerned. So that is not exactly a ringing endorsement of the national popularity of AI.

Daniel Mahncke (4:23)

And all of that in a country that is usually more AI or tech first than any other country on the planet. So I think it says something about just the general thought of people on this matter. And of course, it also comes from the fact that for a long time, AI companies were basically telling you we're coming for your jobs. I think that doesn't help, especially in America. And I recently talked to a member of our Mastermind Community, and he told me some, let's say, fascinating stories. He used to work in the White House, and now he basically runs a consulting business, where among other companies, Meta would go to seek help when it needs connections to politicians for future projects, which is pretty much exactly what's happening right now. And from what I gathered, I think Meta is not very good at, let's say, understanding how Washington works. I definitely hope they will do a better job this time, because considering the CapEx announcements, it would be good if they didn't mess up this project and this new sort of regulation. I think the project that I discussed back then was about a decade ago, Meta trying to position a stable coin, which didn't work out back then, but has since become a huge thing. So if they would have just played the cards better, this could have been a huge thing for Meta very early on. And I just hope this doesn't become sort of a theme for them to mess this up, because they have these enormous capital investments right now. And obviously, that's the case for most of the hyperscalers. Right now, it's always looking like you suspect that they put even more money into these projects, and then they even come out on top of what analysts imagine. So for example, Meta's 2026 capex guidance has been raised multiple times and is now between 130 and $145 billion. There is no official guidance for 2027 yet, but analysts project that it will be close to $200 billion. An estimate that is also based on Meta's cloud plans, obviously, but there's so much more than just the cloud, that I think Zuckerberg basically sees AI and all the opportunities as his third shot basically at finally building a platform for Meta and his company.