I’m Betting Big On This Company Going Into Earnings

Key Concepts

• Earnings Season: A period when publicly traded companies release their financial results.
• Key Performance Indicators (KPIs): Measurable values that demonstrate how effectively a company is achieving key business objectives.
• Forward Price-to-Earnings (P/E) Ratio: A valuation metric that compares a company's current share price to its projected earnings per share.
• Free Cash Flow Yield: A measure of how much free cash flow a company generates relative to its market capitalization.
• Stock-Based Compensation: Compensation provided to employees in the form of stock or stock options.
• Share Buybacks: A company repurchasing its own shares from the open market, reducing the number of outstanding shares.
• Gross Margins: The percentage of revenue that remains after accounting for the cost of goods sold.
• Remaining Performance Obligations (RPO) / Cloud Backlog: The value of contracted revenue that has not yet been recognized as revenue.
• Capital Expenditures (CapEx): Funds used by a company to acquire, upgrade, and maintain physical assets.
• Anchoring Bias: A cognitive bias where an individual relies too heavily on an initial piece of information offered (the "anchor") when making decisions.
• Secular Trend: A long-term trend in a market or economy.
• Duopoly: A market structure in which two companies dominate the market.
• First-Mover Advantage: The advantage a company gains by being the first to enter a market.
• Ecosystem: A network of interconnected products and services offered by a company.
• Moat: A company's sustainable competitive advantage.

This Week's Earnings: A Deep Dive into Tech Giants

This week marks the peak of earnings season, featuring reports from major technology companies including Google, Meta, Microsoft, Apple, and Amazon. The speaker, Joseph Carlson, will break down what to watch for in each, focusing on key performance indicators (KPIs) and his personal investment strategies.

Monday's Outlook

Monday's earnings calendar is relatively light, with notable but not market-moving companies like Cadence and Waste Management reporting.

Tuesday's Key Reports

Tuesday sees a significant ramp-up in activity.

• SoFi: A company in the financial technology sector.
• Visa: A major credit card company. Carlson plans to analyze Visa alongside Mastercard, which reports later in the week.
• Booking Holdings: A travel technology company and a personal favorite investment of Carlson's.

Booking Holdings Analysis

• Valuation: Trades at a 21x forward P/E ratio with a free cash flow yield of over 5% (or 4.4% adjusted for cash held in bookings).
• Financials: No stock-based compensation.
• Growth Metrics: Revenue growth exceeding 10% in recent quarters. Improvement in the merchant-to-agency mix. Consistent growth in room nights sold, with expectations for another record quarter.
• Capital Allocation: Generated $9.2 billion in free cash flow last quarter and returned nearly $8 billion to shareholders through buybacks. Share count has decreased by nearly 5% year-over-year.
• Investment Thesis: Carlson holds a $72,000 position in Booking Holdings, with $21,000 in gains. He is bullish due to its solid valuation, secular trend of prioritizing experiences, and efficient capital conversion.

Wednesday: The Big Three

Wednesday is highlighted as the most significant day, with Microsoft, Google, and Meta all reporting after market close. Carlson holds substantial positions in both Microsoft and Google, totaling over $150,000.

Microsoft: The Poster Child for Perfect Fundamentals

• Investment Thesis: Carlson has been a long-term bull on Microsoft, citing its subscription model, software dominance, and strong competitive moats. He describes it as the "poster child for perfect fundamentals" due to consistently upward-trending financial charts.
• Financials: Maintains 70% gross margins consistently.
• Portfolio Holdings: Carlson holds Microsoft in both his passive income portfolio ($86,000 position, over 100% gainer) and his Story Fund ($27,000 position, over 100% gainer). Every purchase of Microsoft has historically outperformed the S&P 500.
• Valuation Concerns:
  • Trailing P/E: Currently around 39-40, which is at the higher end of its historical range, suggesting caution for new buyers.
  • Free Cash Flow Yield: Has decreased significantly from 5-6% to a current 1.8%. Carlson believes a normalized fair value range is 3-4%. The low yield is partly due to high CapEx for cloud development.
• Counterpoint: Unprecedented Position: Despite valuation concerns, Microsoft is in its strongest position ever, with a diversified and powerful business, particularly its cloud segment.
• Key KPI: Azure Growth: Microsoft Azure's Remaining Performance Obligations (RPO), or cloud backlog, grew 34% last quarter, exceeding AWS in total dollar growth.
• Growth Drivers:
  • OpenAI Integration: A significant contributor to Azure's growth, though Carlson notes potential customer concentration.
  • Ecosystem Leverage: Microsoft leverages its existing software ecosystem (Office, Dynamics, Teams) to drive Azure adoption.
• Future Outlook: Carlson views Azure's growth as predictable and inevitable, positioning Microsoft as a provider of AI infrastructure ("wrenches and screwdrivers"). He considers it a "firm hold" despite high valuation and expectations.

Google: The Favorite Investment

• Enthusiasm: Carlson expresses extreme excitement for Google, calling it his "favorite company right now" and his largest holding.
• Performance: The stock is up 40.4% year-to-date and is at an all-time high. Carlson's personal investment in Google is $160,000, with $62,000 in gains, representing a 12% portfolio position.
• Addressing Anchoring Bias: Carlson urges investors to detach from past price points and evaluate the company holistically.
• Bullish Catalysts:
  • Search: Remains dominant and is evolving with AI summaries, AI mode, and customized landing pages. It continues to grow in double digits and is monetized effectively.
  • Chrome: Remains the globally dominant browser, with Google actively revamping it with AI capabilities. Competitors like Atlas are seen as ineffective.
  • Google Cloud: Growing rapidly at 32% year-over-year, reaching $13 billion per quarter. Operating margins are increasing, and cloud backlog grew 37% last quarter. This growth is organic and driven by millions of customers. Google leverages its existing infrastructure and its own AI models (Gemini, DeepMind).
  • YouTube: Consistently winning market share in streaming watch time, outperforming competitors like Netflix and Amazon Prime. YouTube Shorts is a significant success, monetizing well and complementing long-form content.
  • Waymo: The autonomous vehicle division is executing its vision, with weekly robo-taxi rides growing significantly (from 50,000 to 250,000+ reported in Q1 2025). California data shows substantial monthly growth (e.g., 550,000 rides in January 2025 to 876,000 in May 2025). Waymo is expanding internationally and is significantly safer than human drivers.
• Valuation: Trades at a 25.9x forward P/E ratio with a 2% free cash flow yield (1.5% factoring in stock-based compensation), which is suppressed by high CapEx.
• Future Outlook: Carlson expects Google to "knock it out of the park" in earnings, with continued growth in search, cloud, and subscriptions (YouTube Premium, Gemini AI Pro, Google 1). He anticipates the stock reaching over $300 per share within the next year and significant long-term growth.

Meta: AI Ambitions and Core Assets

• AI Focus: Meta has shifted its focus to AI, with significant planned CapEx of $66-$72 billion for 2025 and beyond, specifically for AI infrastructure (e.g., compute clusters like Prometheus and Hyperon).
• AI Talent Acquisition: Mark Zuckerberg has actively recruited top AI talent, aiming to develop next-generation models like Llama 4 and 4.2.
• Investor Sentiment: Currently, investors do not widely perceive Meta as a leader in AI, with companies like OpenAI, Gemini, and Anthropic being more prominent.
• Carlson's Perspective: He believes Meta's AI investments might be a "red herring" and that the primary driver for stock growth will be its core assets: Instagram and Facebook.
• Advertising Strength: Meta's advertising platform, powered by AI, is expected to drive ad revenue growth through increased efficiency and engagement. Daily active users are also projected to grow.

Thursday: Tech Titans and Financial Data

Thursday features another packed schedule, with S&P Global, Apple, and Amazon reporting.

S&P Global: A Disappointing Year for a Strong Company

• Portfolio Holdings: Carlson holds S&P Global in both his passive income portfolio ($110,000 position, $27,000-$28,000 in gains) and his Story Fund ($21,500 position, $5,200 in gains).
• Stock Performance: The stock has been flat year-to-date (0.1% gain), underperforming the broader market and AI-focused companies.
• Fundamental Strength: Despite the flat stock price, the company is growing:
  • Revenue growth: 10-11%
  • EBITDA growth: 19%
  • Net income growth: 20.7%
  • Free cash flow growth: 15% (17% per share)
  • EPS growth: 23%
• Management Performance: Management has consistently beaten guidance and raised expectations.
• Market Sentiment: Carlson attributes the stock's underperformance to a lack of investor interest in financial data companies, with a preference for tech and AI. He notes that Moody's, Equifax, FICO, and even Visa/Mastercard face similar sentiment.
• Outlook: Carlson does not expect a significant post-earnings rally and views S&P Global as a long-term hold rather than a quick trade.

Amazon: AWS Concerns and Robotics Potential

• Current Valuation: Trading around $227, slightly off its all-time highs.
• AWS Weakness Concerns:
  • Major Outage: A 12+ hour outage earlier this year impacted numerous Fortune 500 services, highlighting reliability concerns and potentially driving customers to diversify their cloud providers.
  • Slowing Growth: AWS growth has decelerated from 19% to an expected 18%.
  • AI Lag: Reports suggest AWS is not experiencing the same AI-driven acceleration as other cloud providers.
  • Internal Issues: A Bloomberg report citing current and former employees points to internal bureaucracy, a slow start to AI efforts, and a less attractive environment for startups.
• Carlson's Counterpoint on Employee Reports: Carlson cautions against over-reliance on employee feedback, noting that employees often have a negative bias and may not fully grasp the company's strategic positioning.
• Robotics Thesis: Carlson believes Amazon is the "best robotics play in the market." He highlights reports suggesting Amazon plans to replace 75% of its operations with robots. This robotics narrative is seen as having more long-term upside potential than AWS.
• Outlook: Carlson expects AWS to meet expectations at 18% growth. He believes the robotics thesis will become increasingly important for Amazon's future. Amazon remains a strong risk-adjusted bet alongside Google.

Apple: Defying Expectations and AI Integration

• Market Cap: Approaching $4 trillion.
• Carlson's History: He was a strong bull on Apple from 2019-2020, recognizing its shift from hardware to services. He previously held a significant position but has since trimmed it to a "watcher" position.
• Reasons for Selling: High valuation, flat revenue growth, concerns about China, competition from Huawei, a perceived lack of an AI strategy, and the underperformance of the Apple Vision Pro.
• Resilience: Despite these concerns, Apple's stock has continued to rise, which Carlson views as a positive sign of his stock-picking ability, indicating that even sold companies can perform well.
• Key Focus for Earnings:
  • AI Momentum: Investors are watching Apple's AI integration, particularly the rollout and user adoption of "Apple Intelligence" features and personalized AI-driven Siri improvements expected next year.
  • Services Revenue: Continued growth and sustainability of services revenue are expected.
  • Install Base Expansion: Apple continues to grow its massive user base and device count.
  • CapEx Investment: Investments in AI are noted, with the expectation that they will be worthwhile despite potentially impacting free cash flow in the short term.

Conclusion

The week is packed with crucial earnings reports from major tech companies. Carlson's analysis highlights the strengths and potential risks of each, with a particular focus on his favored investments: Google and Microsoft. He emphasizes the importance of fundamental analysis, long-term trends, and avoiding cognitive biases like anchoring when making investment decisions. The earnings reports will provide further insights into the ongoing AI race and the future trajectory of these tech giants.