Meta under pressure despite earnings beat

Key Concepts

• Earnings Reports: Financial statements released by publicly traded companies that detail their financial performance over a specific period.
• AI Infrastructure Spending: Investments made by companies in the hardware, software, and networking components necessary to develop and deploy artificial intelligence technologies.
• Metaverse: A persistent, online, 3D virtual universe that combines multiple different virtual spaces.
• AI (Artificial Intelligence): The simulation of human intelligence processes by machines, especially computer systems.
• Midstream Business: Refers to the transportation, storage, and wholesale marketing of crude oil, natural gas, and natural gas liquids.
• Utility Business: Refers to companies that provide essential services like electricity, natural gas, and water.
• Trading Range: The price range within which a security has traded for a particular period.

Earnings Season Overview and Company Performance

The current earnings season is seeing investors scrutinize a range of company results.

• Meta: Despite strong top and bottom-line beats, Meta's stock is facing pressure. The primary concern for investors is Meta's significant planned increase in AI infrastructure spending. This is reminiscent of past large, unproven bets, such as the metaverse, which did not yield expected profitability and required a pivot. Investors are uncertain about the potential returns from this enhanced AI investment.
• Microsoft: Similar to Meta, Microsoft has reported stellar results, benefiting from its partnership with OpenAI. However, Microsoft is also increasing its spending, leading to investor caution. Both Meta and Microsoft have experienced substantial stock returns over the past three years, prompting some investors to question the need for continued aggressive investment without immediate, visible monetary returns.
• Alphabet (Google): Alphabet is showing strong business momentum. Concerns about losing market share in search to new AI capabilities have been addressed by the company's successful integration of AI into its search functions. Alphabet's approach to AI investments is considered sensible, and this has been positively received by investors, leading to a jump in its stock.

Investment Perspectives on Meta and Microsoft

David Deetsz, Chief Investment Strategist at Deetsz Wealth Management Group, expresses a positive outlook on both Meta and Microsoft from a management perspective.

• Management Quality: Deetsz admires the management of both companies. He notes Mark Zuckerberg's engagement and willingness to pivot if a strategy is not working, as seen with the metaverse. Similarly, Satya Nadella at Microsoft is recognized as a proven leader.
• Cash Flows and Balance: Both companies benefit from strong cash flows. Deetsz believes that both leaders will adjust their strategies to balance AI infrastructure spending with shareholder interests.
• Valuation: Deetsz suggests that Meta is relatively cheap and would consider it a "buy." He implies a similar positive sentiment towards Microsoft, though the transcript doesn't explicitly label it a "buy."

Canadian Stock Spotlight: AltaGas

David Deetsz provides an update on the Canadian stock, AltaGas, a company involved in energy processing and transport.

• Company Profile: AltaGas operates a combined midstream and utility business, which is considered an interesting combination.
• Recent Earnings: AltaGas reported earnings that were slightly below expectations compared to the previous quarter. While the midstream segment showed solid double-digit growth, other areas of the company fell short.
• Investment Recommendation: Despite liking the company, Deetsz has a "hold" on AltaGas. He believes the stock is currently in the middle of its trading range and does not see a compelling reason to invest fresh capital at this time.

Conclusion and Key Takeaways

The current earnings season highlights a common theme of significant AI infrastructure investment by major tech companies like Meta and Microsoft. While these companies are delivering strong results, investors are exercising caution due to the uncertainty surrounding the returns on these substantial AI expenditures, drawing parallels to past unproven ventures. Alphabet, on the other hand, is being rewarded for its successful integration of AI into its core search business. For Canadian investors, AltaGas is a well-regarded company with a diversified business model, but its current stock performance and recent earnings suggest a "hold" rather than a "buy" recommendation. The overarching sentiment is that while technological innovation is key, investors are increasingly demanding tangible returns on these ambitious investments.