Time to 'Crunch the Numbers'. Meta, Microsoft & Mr. Market. ARD #130

Today’s theme: “Time to crunch the numbers”.

It’s earnings season in earnest, and lots going on as usual.

Meta and Microsoft reported yesterday. Amazon and Apple report after the close today, so you’ll probably see them by the time you watch this. Then SpaceX on August 4, and Nvidia, the best of the rest, on August 26.

A lot of implications. A lot of market volatility, both here and abroad. This is the AI Tech Wave at the point where the market stops asking what a company is building and starts asking who it answers to for the bill. Three events, with my Take on each, then my Overall Take.

(1) Meta Disappoints

MP TAKE: The stock is down anywhere from nine, ten percent or more. So we’re talking big numbers, lots of billions.

Meta’s results on the fundamentals were fine. It’s just how they’re spending money into the AI Tech Wave. That’s the issue, especially with founder CEO Mark Zuckerberg in his pedal to the metal stance on AI investments.

It’s driven by a determined young founder in full control of his company. Investors can jeer or cheer from the rafters, but he controls the company. Supervoting stock, and he controls the board. What he says literally goes.

And Zuck is focused on AI. We’ve known that for a long time, going back to his AI talent wave raids last year, when AI researchers started being paid celebrity sports salaries. Now Meta is building huge data centers in ‘tent cities’, going mano a mano with Elon Musk, doing the same thing in locations across the middle of this country. Memphis for Elon, Louisiana for Meta. Thirty, forty, fifty billion dollars and more per Gigawatt of power, with all the community management and regulatory pushback that entails.

He’s also offering the notion that, just like Elon at SpaceXAI, he could rent AI compute capacity temporarily. Elon signed multi-month contracts worth roughly $70 billion by renting capacity short term, about $40 billion with Anthropic and $30 billion with Google, cancelable at short notice by either side. Not booked revenue, contract value. Zuck could potentially get another $10+ billion for his from Anthropic at least per reports.

So both are hinting at what Amazon has with AWS. For Zuck it’s ZWS, Zuck Web Services, my term for it tongue in cheek. For Elon it’s EWS. I named both of those here a while ago.

But recognize that those cloud businesses are opportunistic businesses. They’re not what Microsoft and Google have, which are some of the largest cloud businesses globally. Numbers two and three after Amazon AWS, the global cloud leader.

They can hint at an AWS-like strategy, but they’re a long way from actually building those businesses. Those take years, decades, and lots of investment in people and resources.

The fundamental numbers were fine. Revenues up, ad revenues great. It’s the free cash flow. It dipped to about $784 million. Million, with an M. And their capex spending is thirty billion. They raised their commitments for spending this year to $130 to $145 billion, essentially raising the floor. That’s why the stock is nervous, and the only way investors can give you feedback is by selling.

Meta also lost another almost five billion on Reality Labs. This is the unit that gave Meta its new name from Facebook, with the sci-fi inspired ‘Metaverse’. That has been an ongoing charge down, probably north of $50 billion over the last few years. And now they’re spending a similar tens of billions on AI smart glasses. Another five to ten year++ bet.

On the good news side, they have a great business, one of the global best. ‘Internet Treasure’ best.

They’re surpassing Google in ad revenues of late. But there are a lot of unmeasurable unknowns on what Meta does on the AI side, whether it’s permanently renting excess capacity AWS style or creating entirely new businesses. Right now Zuck is not sure. If you listened to the call last night, he literally said they’re evaluating both.

And the market doesn’t like that uncertainty at a time when it’s nervous about all of this. There are times when they love founder mode. That’s in a bull market, when the skies are blue. But when there’s a little cloud in the sky, you get this volatility.

(2) Microsoft Delights

MP TAKE: They showed results that beat expectations, especially on Azure Cloud. The business was pretty much hitting on all cylinders. Revenues up, net income up, Azure with great growth metrics.

They also mentioned their commercial backlog is now up to almost $700 billion. About $678 billion. This is signed business not yet delivered. And they have the capacity to execute on it. Why? Because they have the number two cloud business on the planet.

That’s where the market is taking solace, on a company now north of $3.3 trillion in market cap. No stock advice, and it’ll go up and down.

Their AI products on the business side are working too, especially 365 Copilot. Through Microsoft’s extraordinary ability to bundle into Windows and 365, they took paid seats from 20 million last reported to 30 million in the quarter. That was a number to cheer.

They also recommitted to their AI spend, a hundred plus billion dollars, but they did not exceed investor expectations. And they have the means to pay for it, not just on free cash flow but through their core commercial cloud business, which Meta does not have. By the way, Amazon has the same picture, coming later today.

So for now, Microsoft’s AI strategy gets a thumbs up and Meta gets a thumbs down from Mr. Market. For now.

And remember, Microsoft also has access to the IP of OpenAI, their core partner that is now doing its own thing, for the next five years. Meanwhile they’ve diversified onto their own models, and onto open source models, building lots of options for business customers on Azure. They’re picking a side on the open source side. That is what the market is leaning into, when there’s so much relative uncertainty for AI at these numbers.

Remember, Goldman Sachs, my alma mater, just had a report out. Over five trillion dollars of spend on AI infrastructure by the end of the decade. And that is probably a conservative number. Because to do any of these cool things with AI, on the business side or the consumer side, we need compute. And that is what is lacking.

It’s like the early days of electricity when the light bulb was invented. We needed half a century and more of building electricity infrastructure and wiring. We’re in the earliest of days here. Year four of ChatGPT.

(3) The Rest Coming, While Global Markets Roil

MP TAKE: Amazon should be an echo of more Microsoft, less Google. Why do I say that? Google reported last week, and their free cash flow was in negative territory and they had to raise equity. We’ll know soon enough on Amazon’s picture, and I’ll talk about it tomorrow. That one can go either way, but I’m thinking more Microsoft direction than Google direction.

Apple doesn’t have the AI spend issue that everyone else on that list does. They’ve gotten some wind at their back through Siri AI getting lots of positive reviews. That’ll be out in the fall. There’s a new CEO taking over in John Ternus, and new hardware chief Johny Srouji on the silicon side. And a bunch of new products that are AI generated. I continue to think Apple remains one of my two favorite consumer AI companies over the next two or three years, especially in this era of RAMageddon.

SpaceX reports on August 4. The big thing there is that it’s their first quarter after the big IPO. But remember, two days after there’s a big lockup coming. Over 900 million shares. A lot of you know that, and the market knows that, which is one of the reasons the volatility is where it is. The stock broke its IPO price of $135. And Nvidia, as I mentioned, on the 26th.

The other thing going on is the volatility in the semiconductor stocks. That has continued, especially in Korea, with the nine, ten percent retracement in SK hynix. Now Samsung has reported as well. Good numbers. But again the market took it as an excuse to sell on the news, and Samsung was down 7 percent.

There’s a lot of leveraged speculation going on in Korea. Over half the KOSPI index is Samsung and SK hynix. And about 14 million of the 50 plus million population of South Korea, mostly young people, have been speculating with leveraged ETFs, which the government only authorized earlier this year. So you have over a million people who’ve had margin calls. That’s not a nice thing. And that’s why the volatility is more exaggerated there.

For all of these reasons you’ve got this tenor of uncertainty in other markets, Korea especially, some in Japan and other places.

China meanwhile is a little bit in a boom phase, because their companies have been going public and getting good public reception. CXMT, which will be the number four memory company on the planet and is state owned, was up almost 500 percent after their IPO a few days ago. Apple is trying to get the US government’s permission to use DRAM and other memory chips from CXMT, at least for iPhones in China, and hopefully additional relief on more RAM for iPhones around the world. We’ll see if the US government allows that, especially given the second big meeting coming up between the two presidents on September 24 at the White House.

A lot of moving parts. A lot of chess pieces on the board. And that’s why the market volatility around these earnings is something to discuss. Yesterday, today, and probably tomorrow.

MP OVERALL TAKE

Especially between Microsoft and Meta, Mr. Market is differentiating between the relative amounts of investor governance and control.

At Meta, as I’ve highlighted, it’s a young founder in founder mode who controls the company and does what he wants for the long term. He can do that.

At Microsoft it’s a professionally managed company in terms of non-founder. Bill Gates has been out a long time, and Ballmer as well. Now it’s Satya. And Satya has done things really well generally.

Markets view them as adult pragmatism in terms of how they’re managed. They’re within the bounds of what the markets want on spending, on business metrics, and the rest.

That is the distinction we are seeing here.

When we look at Meta and Elon, especially with SpaceXAI and Tesla, those are founder driven companies with extraordinary ambitions. Young people who really think they can make a big difference in certain directions, certain bets, over five to ten years. We always talk about long term investing, but it’s very, very bumpy stuff in the short term, especially for public companies with quarters to crunch.

That’s where we’ll see this volatility and this bumpiness. We have to take the down volatility with the up volatility, the swing extremes of the pendulums.

So investors are crunching their numbers accordingly, on the risk reward ratios. And that’s what we’re seeing come out.

(Not Stock Advice)

Gadget AI. Car Type Leasing Comes to Gadgets

MP TAKE: Car type leasing is coming to gadgets, especially in this era of RAMageddon when gadget prices are soaring because of memory shortages and memory price increases. So let’s crunch the numbers there.

The news is that Apple announced an upgrade program, detailed with a lot of numbers in The Verge, which I’d ask you to look at if you’re interested. Bottom line, they’ve partnered with Klarna.

Klarna is a financing company that will let anyone get iPhones, iPads, Macs and Apple Watches of all shapes and sizes at affordable monthly prices, just like a car lease. These things are 10, 12, 15, 20, 30 bucks a month over 24 or 36 months. And when it’s done you can give the phone back, upgrade to a different lease, get a new phone, and keep on going.

But you never own your phone. Klarna owns your phone. You’re leasing it from them. And unlike a car, you don’t need to keep it within a certain number of miles. So that’s a good thing. But it is a thing that they control.

There was a little bit of a kerfuffle. There was speculation that Apple may actually have code in their software that if you were two or three months behind on payments, they would turn your phone into a brick. That thankfully turned out not to be the case. It’s just that Klarna will go after you if you don’t pay your bill, just like anything else, and send credit collection after you if they want their phone back.

The thing about these numbers is that this also competes with the phone companies offering their similar versions of these programs, essentially paying by the month rather than full price. And in America, most phones are financed. This lease element is different, and that is the thing I wanted to highlight.

It’s an interesting wrinkle now that Apple is doing it. You’re likely going to see other gadget vendors do this with companies like Klarna and their peers. So this is something in the gadget space that is going to be a new reality in this age of RAMageddon, which I’ve said will be with us for the next few years.

Q1. What’s Michael’s take on leasing versus buying gadgets?

Answer: On the positive side, I’ve always favored leasing in cars. Especially if you own your own business, car leases on the business side offer a lot of tax advantages, particularly vehicles over 6,000 pounds. You can look that one up in terms of weight.

But phones and gadgets are not cars. This is strictly renting a device, and that is fine. In general, just like a car, if you plan on holding on to the phone or computer for a few years, then you’re better off buying the thing outright or on a financing plan, as opposed to a lease. But if you’re generally of the mode that you want to upgrade your phone or computer every year, then the leases are not a bad idea.

There are technical and financial differences. So one should just do the homework and crunch the numbers, as it were, as per our theme. I do like the leases, but with pragmatic attention to said leases.

Q2. What’s my biggest concern on leasing the phones?

Answer: Again, most people tend to hold on to their devices for a few years. And if you’re in that boat, you’re generally better off buying it or financing it as opposed to leasing it. Unless you’re in the upgrade cycle, like early tech adopters and geeks like yours truly.

So that is the core thing to keep in mind on this buy versus lease.

WRAP

Today’s AI-RTZ #1163, on the AI Talent War’s second front. Not just AI researchers now, but trade folks. Electricians, carpenters, plumbers. The big tech companies are financing huge several-month programs to train these people in force. Why? Because they have trillions of dollars of data centers to build, and there’s a shortage, and there are immigration restrictions and all sorts of things. So of course prices for this stuff go up. And electricians and carpenters are making more money short term in this country than they probably have in decades, since we built the skyscrapers like the Empire State Building.

AI Ramblings Daily on AI-RTZ is here to think through AI and reset. Together.

Tomorrow, ARD 131 and AI-RTZ #1164.

Thanks for joining us today, AI Curious Folk. Stay tuned.

— MP

✂️

Full Source Reading

For the broader context, see the canonical sources for ARD 130, in today’s narrative order:

Event 1. Meta Disappoints

• Meta, Meta Reports Second Quarter 2026 Results

• WSJ, Meta stock drops on steeper AI costs, missed forecasts

• WSJ, Meta’s case for its AI spending keeps getting weaker

• Reuters, Meta cash flow craters as Zuckerberg’s AI spending spree accelerates

• CNBC, Meta Reality Labs lost over $4.6 billion in Q2

• Semianalysis, Meta’s Infrastructure Team needs a Culture Reset

• AI-RTZ #1135, Meta and ‘Zuck’ aiming for the AI Clouds, where ZWS was named

• AI-RTZ #1137, Elon and Zuck Cloud ‘Plan Bs’, ZWS and EWS together

• AI-RTZ #1107, Meta tries mixed AI Agents for consumers and businesses

• RTZ #891, Meta’s mega-AI financing deals show roadmap for peers

Event 2. Microsoft Delights

• Microsoft, Earnings Release FY26 Q4

• CNBC, Microsoft jumps as it boosts capital spending plans, citing demand

• WSJ, Microsoft profit jumps 31% as Azure cloud sales surpass $100 billion

• The Information, Meta could learn cost control from Microsoft

• AI-RTZ #1139, Microsoft ‘Sum of the Parts’ (SOTP) Spin-Off case

• Microsoft × OpenAI Deal Re-Cut, Elon’s Pre-IPO Trial, Mag 7 Q1

Event 3. The Rest Coming, While Global Markets Roil

• WSJ, Tech earnings, Fed meeting: what to watch the rest of the week

• The Economist, South Korea’s stock-market boom is collapsing spectacularly

• WSJ, Even $64 billion in quarterly profit is a disappointment for chip investors

• ARD #129, SK hynix results and the volatility in Korea

• AI-RTZ #1124, ‘Crazy Rich Asian AI Markets’, the leveraged retail dynamic

• AI-RTZ #1134, Latest report on an AI Bust and the Global Economy

• AI-RTZ #1113, Apple Intelligence and Siri AI hum with ‘Google and Nvidia’ inside

• RTZ #925, Amazon AWS poised to offer AI Enterprise Services at Scale

• ARD #123, ‘Setting the Stage’ Again, the US-China AI theater ahead of the 2nd Xi/Trump meeting

Gadget AI. Car Type Leasing Comes to Gadgets

• The Verge, What’s the catch with the Apple Upgrade program?

• Apple, Apple Upgrade launches in the United States

• TechCrunch, Apple launches ‘Upgrade’ device leasing program in partnership with Klarna

• The Information, Demand heats up for ‘spend now, lease later’ AI financing

• AI-RTZ #1145, ‘RAMageddon’ really here to stay

Standing reference. The AI Tech Wave and the AI Tech Stack.

• AI: Building Value over Time

Clips from today

Clip 1. Lease or Buy Your Next Phone? Crunch the Numbers

Phones and gadgets are not cars. This is strictly renting a device, and that is fine.

MP Take: If you plan on holding on to the phone or computer for a few years, you’re better off buying it outright or on a financing plan. But if you want to upgrade every year, the leases are not a bad idea. Do the homework and crunch the numbers, as per our theme.

Clip 2. Apple & Klarna Will Lease You an iPhone

Apple announced an upgrade program and partnered with Klarna. iPhones, iPads, Macs and Apple Watches at affordable monthly prices, just like a car lease.

MP Take: But you never own your phone. Klarna owns your phone. And unlike a car, you don’t need to keep it within a certain number of miles. There was a kerfuffle about speculation that Apple had code to brick your phone over missed payments. That thankfully turned out not to be the case.

Clip 3. Founder Mode vs Adult Pragmatism. Meta vs Microsoft

Mr. Market is differentiating between the relative amounts of investor governance and control at Microsoft versus Meta.

MP Take: At Meta it’s a young founder in founder mode who controls the company and does what he wants for the long term. At Microsoft it’s professionally managed. Gates has been out a long time, Ballmer as well. Now it’s Satya. Markets view them as adult pragmatism.

Clip 4. Meta’s $784M Free Cash Flow Problem

The fundamental numbers at Meta were fine. It’s just the free cash flow. It dipped to about $784 million. Million, with an M.

MP Take: And their capex spending is thirty billion. They raised their commitments for spending this year to $130 to $145 billion, essentially raising the floor. That’s why the stock is nervous, and the only way investors can give you feedback is by selling.

About AI Ramblings Daily (ARD), and AI-RTZ

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(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here.)