Meta stock gains on massive AI spending hike

Key Concepts

• Mag Seven: Refers to the seven largest US technology companies (Apple, Microsoft, Meta, Alphabet/Google, Amazon, Nvidia, and Tesla).
• Azure: Microsoft’s cloud computing service.
• Capex/Opex: Capital Expenditure (investments in fixed assets) and Operating Expenditure (day-to-day running costs).
• LLMs: Large Language Models – AI models designed to understand and generate human language.
• AWS: Amazon Web Services – Amazon’s cloud computing platform.
• Gemini 3: Google’s latest AI model.
• Free Cash Flow: Cash flow available to the company after covering capital expenditures.
• AI Monetization: The process of generating revenue from Artificial Intelligence technologies.

Apple’s Performance and Outlook

Apple reported a strong quarter, with iPhone sales growing 23% year-over-year – the best growth since the iPhone 12 cycle (linked to the 5G rollout and price increases of around $100). Despite this success and positive guidance regarding margins and revenue, the stock price declined. This is primarily attributed to concerns about potential pressures on memory pricing, which Apple anticipates will impact results after the March quarter. Apple is currently managing component constraints due to high iPhone demand, even self-limiting supply of other components. Angelo Zeno maintains a ‘buy’ rating for Apple, citing the potential benefits of its AI partnership with Google and improved free cash flow due to pent-up iPhone demand. A capital allocation program update is expected in late April/early May. Future growth drivers include AI integration (further clarified at the developers conference in June) and potential foldable device launches in the fall. Apple has the flexibility to adjust pricing (potentially by $50) if memory prices increase significantly. The analyst noted a “squeeze out a win” with the stock being up a dollar on the day of the discussion.

Microsoft’s Report and OpenAI Exposure

Microsoft’s report showed solid growth, with Azure growing in the high 30s percentage-wise, which is still considered a “fantastic” growth rate. However, the stock initially declined due to concerns surrounding the increasing contribution of OpenAI to Microsoft’s bookings – 45% of bookings now come from OpenAI. Despite this, 55% (over $300 billion) of bookings are not OpenAI-related and are growing at 28% year-over-year. Zeno recommends investors “buy on the dip,” given the over 10% decline in the stock price.

Meta’s Monetization of AI and Capex

Meta is successfully monetizing AI through curated ads, achieving approximately 30% year-over-year growth in guidance for the March quarter. This is considered superior to other companies, with the analyst anticipating a comparison to Alphabet’s results next week. Meta significantly increased its capital expenditure (capex) and operating expenditure (opex) for the year, with the wide range of spending providing a buffer against needing to request additional funds. Future success depends on delivering results from last year’s hiring spree, launching new Large Language Models (LLMs), and achieving success with developers.

Google’s Gemini 3 and Cloud Momentum

Google is gaining momentum with Gemini 3, and the analyst expects strong results next week, particularly regarding user numbers and monetization. Cloud growth is projected to be in the mid-30s, exceeding expectations. Strong performance is also anticipated in YouTube and Search.

Amazon and AWS Performance

Amazon’s performance will largely depend on the AWS (Amazon Web Services) business. While Microsoft experienced a slight miss in its cloud results, the analyst expects AWS to show acceleration. Demonstrating this acceleration will be crucial for a positive market reaction to Amazon’s earnings, contrasting with the reaction to Microsoft’s report. Amazon faces a “slightly easier bar” compared to Microsoft.

Logical Connections

The discussion follows a logical progression, analyzing the earnings reports of major tech companies (Apple, Microsoft, Meta, Google, and Amazon) in sequence. Each segment builds upon the previous one, highlighting common themes like AI investment and cloud performance. The analyst consistently connects current performance to future expectations, outlining potential catalysts and risks for each company. The comparison between Microsoft and Amazon’s cloud performance demonstrates this interconnectedness.

Notable Quotes

• “AI is going to be a big story this year.” – Angelo Zeno, regarding the importance of AI for Apple and the broader tech landscape.
• “They are clearly monetizing AI at this point in time, better than anyone else.” – Angelo Zeno, on Meta’s success with AI-driven advertising.
• “We would actually tell investors to be buying on this dip given that the, you know, the north of 10% decline that we've seen here over the last two days.” – Angelo Zeno, advising investors on Microsoft’s stock.

Synthesis/Conclusion

The earnings reports from the “Mag Seven” companies reveal a mixed picture. While most companies demonstrated strong underlying growth, particularly in areas like AI and cloud computing, investor reactions were often tempered by concerns about future headwinds, such as memory pricing pressures (Apple) and reliance on a single partner (Microsoft/OpenAI). Meta stands out as a clear winner in AI monetization, while Google is gaining momentum with Gemini 3. Amazon’s success hinges on AWS acceleration. Overall, the tech sector remains dynamic and competitive, with AI emerging as a key driver of future growth and investor sentiment. The analyst’s perspective emphasizes a long-term view, identifying opportunities for investment despite short-term market fluctuations.