Meta's AI reset drives stock higher following earnings

Unprecedented Spending Surge for AI Initiatives [00:00]

• Meta's spending plans have significantly surpassed expectations, with projections of over $100 billion in fiscal 2026.
• This represents a near doubling of the $72 billion spent in the previous year, a move that has been met with a positive stock market reaction.
• The company has openly communicated an "AI reset" underway, involving substantial investments in AI infrastructure and talent.

"Yeah, I mean spending is through the roof. It's it's bonkers how much this company is going to spend uh you know 100 billion plus in 2026 fiscal 2026."

Q4 Earnings and Forward Guidance [01:47]

• Meta reported Q4 EPS of $8.88 and Q4 topline revenue of $59.89 billion, exceeding consensus estimates of $58.42 billion.
• Q4 ad revenue also surpassed expectations, reaching $58.14 billion against a street estimate of $56.6 billion.
• For Q1 2026, Meta provided a revenue guidance range of $53.5 billion to $56.5 billion, higher than the street's $51.27 billion.

Aggressive 2026 Capital Expenditure Projections [02:34]

• Meta's 2026 capital expenditure forecast is between $115 billion to $135 billion, significantly higher than the street's estimate of $110.6 billion.
• This substantial outlay is primarily for AI data centers and the hiring of expensive AI talent.
• The market's initial reaction was a slight dip, reflecting investor concerns about the return on such massive capital expenditures.

"The street was closer to 110.6 billion. Just looking at the immediate reaction here, we're down nearly 3%."

Meta as a Core "Best in Breed" Investment [03:39]

• Meta is considered a fundamental holding within a portfolio of "core ingenuity" companies, alongside others like Amazon and Google.
• The company's reach is unparalleled, connecting with 2.2 billion people daily, making it a dominant force in social media.
• Meta is praised for its ability to monetize every facet of its business, including WhatsApp for B2C communication and ads on Reels.

"Do you know another social media company that has the reach of Meta? Nobody else reaches 2.2 billion people every day except arguably Google, but that's different. That's search."

Justifying High Spending with Strong Growth and Monetization [05:31]

• Meta's ability to sustain 20-30% annual growth at scale, similar to Google and Amazon, justifies its significant investments and premium valuation.
• The company's forward earnings multiple of 18 times on a GAAP basis is considered cheap given its growth trajectory.
• Investors are encouraged to focus on long-term growth rather than short-term quarterly results, a strategy that Meta itself appears to be adopting.

"So I am I'm very comfortable paying 25 to 35 times earnings for a company that's growing 35 to 40% per year."

ROI and Long-Term Vision for AI Investments [06:46]

• The return on investment from Meta's spending is already manifesting in revenue growth, with AI monetization showing up in real-time results.
• The company is building for the next 10-15 years, with long-dated spending on AI initiatives expected to yield leverage in its business model by 2027-2028.
• Despite potential risks of spending in areas that don't stimulate growth, Meta's current trajectory shows accelerating revenue growth, validating its strategy.

"The ROI is is initially showing up in the revenue growth um you know when you look at operating profit dollar growth."

Narrative Shift and Valuation Compared to Alphabet [09:30]

• Meta's narrative is undergoing a positive shift, with management expected to provide more clarity on its business and growth prospects.
• The company now trades at a six-turn discount on a multiple basis to Alphabet, despite growing significantly faster.
• While Alphabet faces valuation challenges, its underlying business is performing well, and Meta's performance further validates the strength of the advertising sector.

"And Meta trades you know this is not a knock on Alphabet but it now trades at a six turn discount on a multiple basis to Alphabet despite the fact that it's growing almost 800 basis points faster."