Consider buying Meta Platforms (META), as its exceptional organic growth and strong cash flow suggest it remains undervalued despite a recent surge. Mastercard (MA) is a high-conviction investment after its earnings validated a successful shift towards higher-growth, durable service revenues. Investors should view Tesla (TSLA) as a high-risk bet on its future in AI and robotics, not its declining car business. The recent sell-off in Microsoft (MSFT) reflects new concerns over its heavy reliance on OpenAI, shifting it to a "prove-it" stock that must now demonstrate organic growth. Be aware of broader headwinds in the software sector, which is experiencing a wider re-rating beyond just Microsoft.

Microsoft (MSFT)

• The stock experienced a significant sell-off, dropping 12% in a single day, which is highly unusual for a company of its size and stability.
• On the surface, the earnings numbers looked fantastic, with the cloud backlog (RPO) up 110% and earnings per share (EPS) jumping from $3.72 to $5.16.
• However, a deeper look reveals that this growth is heavily concentrated and somewhat artificial due to its relationship with OpenAI.
  • 45% of Microsoft's commercial cloud commitments (RPO) come from OpenAI alone. When this is removed, the organic RPO growth is only 28%, not 110%.
  • A significant portion of the EPS growth came from a $7.1 billion paper gain related to an increase in OpenAI's valuation, not from core business operations. Without this accounting impact, EPS growth was 24%, not the reported 60%.
• Key Risks Identified:
  • Customer Concentration: The market is now viewing Microsoft as a "levered bet on a single entity" (OpenAI) rather than a broadly diversified, stable company. If OpenAI is at risk (e.g., from competitors like Google), Microsoft's revenue is also at risk.
  • Circular Financing: Microsoft is the primary funder of OpenAI. This creates a situation where Microsoft gives money to OpenAI, which then uses that money to pay Microsoft for cloud services, inflating its growth numbers.
  • High Capital Expenditures (CapEx): The company's CapEx is growing three times faster than its revenue, which is a concern for future profitability.

Takeaways

• The speaker is not selling his shares and believes the core financials of the company are still fine.
• The sell-off is due to a "structural reframing" of the company's risk profile by investors. It has gone from being seen as a safe, "treasury bond"-like investment to one with a more singular, concentrated risk factor.
• Microsoft is now a "prove-it company." It needs to demonstrate that it can grow its business organically, outside of its relationship with OpenAI.
• This could be a moment of re-evaluation for investors, as the stock is now perceived as slightly more risky than it was previously.

Meta Platforms (META)

• In contrast to Microsoft, Meta's stock surged after a strong earnings report.
• The company is showing exceptional, organic growth across the board.
  • Revenue grew by 24% and the company is guiding for 30% growth next quarter.
  • Operating cash flow is "marching up quarter after quarter."
• Like Microsoft, Meta is also spending heavily on CapEx (around $70 billion on a trailing 12-month basis). However, investors are rewarding this spending because it is driving very fast organic revenue growth that is not dependent on a single outside client.
• The speaker notes that historically, Meta's stock price has almost perfectly tracked its free cash flow per share, which he sees as a key indicator of its intrinsic value.
• Strategically, Meta is investing heavily to "own its own destiny," building its own AI models and hardware to become less reliant on other companies like Apple.

Takeaways

• The speaker is extremely bullish on Meta, calling its growth "exceptional" and admitting he made a mistake by not buying the stock sooner.
• He believes the stock is still undervalued, even after its post-earnings pop. He notes that over the past year, the stock is only up 7%, suggesting it has not run up as much as other tech giants.
• The speaker is "strongly considering buying" Meta stock in the coming days, viewing it as a company with significant forward momentum and massive growth potential.

ASML Holding (ASML)

• The stock has been a huge winner, up 100% over the past six months and 25% year-to-date.
• The company, which is a critical supplier for the semiconductor industry, reported great earnings that beat on all important metrics.
• The stock initially popped 10% after the report but then settled down after conservative management comments aimed at dampening expectations, which is typical for them.
• ASML is extremely profitable and is using its cash to aggressively buy back its own shares, which helps to grow earnings per share even faster.

Takeaways

• The speaker views ASML as a "monopoly that has a lot of growth ahead of it."
• Despite the massive run-up in price, the business is performing incredibly well.
• For the speaker, this remains a "hold position" in his portfolio.

Mastercard (MA)

• This is one of the speaker's largest positions. The stock was up 3.6% after what he called a "very high-quality beat" on earnings. The stock price was mentioned as $420.
• Overall revenue grew by 18%. The most important takeaway was the source of this growth:
  • The core payment network business grew by a solid 12%.
  • The Value-Added Services business grew by an impressive 24%.
• This shows that Mastercard is successfully growing beyond just being a payment network and is becoming more of a diversified services company.

Takeaways

• The speaker is very bullish on this development. The shift towards services is "exactly what this company needs to do."
• This strategy helps insulate Mastercard from regulatory risks, such as government interference or caps on transaction fees, making its revenue more durable.
• The strong performance of the services division validates the speaker's investment thesis in the company.

Tesla (TSLA)

• The company's recent financial numbers were described as "terrible" and "disastrous."
  • Revenue is down year-over-year, with automotive revenue down 10%.
  • Vehicle deliveries are declining as the company faces intense competition, particularly in China.
  • Free cash flow is down 30%.
• Despite these terrible numbers, the stock was only down 2%. This is because Elon Musk is successfully shifting the company's narrative away from its current car business and towards a future based on AI and robotics.
• The "New" Tesla Vision:
  • Robotaxi: A major focus for the company's autonomous driving efforts.
  • Optimus: The company is scrapping production of its Model S and Model X to convert factory space to produce its humanoid robot, Optimus, with a long-term target of 1 million units per year.
  • xAI Collaboration: Tesla will now collaborate more closely with Elon Musk's other company, xAI, to manage large fleets of robo-taxis and robots.

Takeaways

• Investing in Tesla is no longer about its car manufacturing business, which is described as "dying." It is a bet on Elon Musk's future vision of autonomy and robotics.
• The speaker sees this as a high-risk, high-reward proposition. The potential prize is "theoretically enormous" if the vision is realized, but the risk of failure is also significant.
• The speaker considers himself "a bit too conservative for this" type of investment. He is waiting to see more concrete progress on these future projects before considering buying the stock.

Software Sector

• The podcast host noted that the sell-off in Microsoft was part of a broader trend affecting the entire software sector.
• Companies like Adobe (ADBE) and Salesforce (CRM) were also mentioned as "getting crushed."

Takeaways

• Investors should be aware that there may be sector-wide headwinds affecting software companies at the moment.
• The negative sentiment is not isolated to Microsoft, suggesting a potential re-rating or profit-taking across the industry.