Motley Fool Money - Earnings Season Is in Full Swing, and Figma's IPO Is Right Around the Corner

Episode Date: July 24, 2025

Matt Frankel, Tom Gardner, Jon Quast, and Jonathan Wilder discuss: - Earnings disappointments from Tesla and Chipotle - AI-powered growth from Alphabet and ServiceNow - IBM's surprisingly strong AI business - Figma's upcoming IPO Companies discussed: TSLA, CMG, GOOGL/GOOG, IBM, NOW Host: Matt Frankel Guests: Tom Gardner, Jon Quast, Jonathan Wilder Producer: Anand Chokkavelu Engineer: Dan Boyd Disclosure: Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, “TMF”) do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. Learn more about your ad choices. Visit ⁠megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Google is spending even more than expected on its AI infrastructure, and Chipotle had a so-so second quarter. Motley Fool money starts now. I'm Matt Franklin. I'm joined by my fellow longtime analyst, John Kwasht, as well as the Motley Fool's co-founder and CEO Tom Gardner. Later in the show, we're going to be joined by Fool.com analyst Jonathan Wilder. Today, we're going to look at some recent earnings from Tesla, Chipotle, Alphabet, Service now in IBM. And a little bit later, we are going to look at the Figma IPO that is coming up real soon. First, we're going to put Tesla's results under the microscope. So it wasn't a big surprise, but Tesla reported a really weak second quarter. Automotive revenue was down 16% year every year. The company has been

losing EV market share to traditional automakers like GM. Some will say that Tesla's long-term thesis is about a whole lot more than vehicle sales. John, what are your thoughts on this? Look, Matt, I think if you're buying Tesla stock today, you're not buying for the next year. You are looking for the next decade. And so, look, the report, it's shocking to see its primary revenue generator. Cars have a 16% drop. For any other company, this would be all-out panic. But, you know, a lot of people say this isn't just vehicle sales for Tesla.

And first and foremost of those would be CEO Elon Musk. He says on the earning call, you know, everything with this business comes down to one word, and that's autonomy. So the idea is this company will make far more money in the future with its self-driving software, with its robot taxis, with its optimist robot, all that is autonomy, and that's really the thesis that Tesla Bulls and the CEO Elon Musk have for the company. Direct question here. Do you think Tesla is a buy right now? Yeah, and so as you're looking at it, right, if you're thinking through this grid of autonomy, if you're thinking through the grid of cars, then there's trouble right now. If you're thinking

through the grid of autonomy, you really just have to extend that viewpoint way out because this isn't going to happen right away. Must said that he's eyeing Robotaxis for half the U.S. population by the end of this year. But key words there include probably and pending approval. Spoiler alert, I'm almost positive there won't be that much regulatory approval by the end of the year. When it comes to Optimus Robot, look, they're trying to scale that up, but they're still working on the prototype number three this year and hoping to get that done before the end of the year. I think that you're looking not at 2025 when it comes to Tesla. You need to be thinking 2035 if you're buying into this concept of autonomy today.

So, Tom, I'd like to get your opinion on this. One of the key quotes that stood out to me from the earnings release was from Elon Musk. He said, we could probably have a few rough quarters specifically referencing tariffs and the EB tax credits expiring. So there's a lot at play here. How do you see the next year or so playing out for Tesla? Well, I think it's going to be a bad year. by any normal standard for a great growth company. This is not going to be a good year, but Elon Musk and Tesla, and Tesla's a lot more than Elon Musk.

I'm not meaning to diminish the huge impact he has on the business, but this is a massive company now. And we have to understand that the really great companies aren't thinking about the next year. Jeff Bezos talked about this all the time at Amazon. Sometimes as analysts, we get really focused on. What does this quarter look like? What's happening with the next 12 months for this business? But great business leaders are really looking forward much farther than that.

We have to remember that in the backdrop for Tesla, they have $30 billion in cash and net cash on their balance sheet. So they have so much more capital, such a stronger balance sheet than anyone in automobiles. And Musk's bet here, Tesla's bed, is that we are moving to autonomy. It might take longer. There might be some issues in regulatory process on autonomous driving, but robo taxis are live in Austin. We see it with Waymo. We see a lot of high customer satisfaction, willingness to pay more. Obviously, there's not tipping going on, so you can pay a little extra, but it's going to be a premium feature.

The last thing I'll say in my belief that Tesla will beat the market over the next five years, and I do actually agree and have for a long time with what Musk said on the earnings call, which is that he thinks Tesla will be the largest company in the world if autonomy plays out, and I don't think that there's much question as whether it's going to play out. We'll see whether he's right about what will happen with Tesla. But remember in the backdrop, the idea is to have a million optimist robots in less than five years. And there is, as John says, a lot that you're holding on to in belief. Like, let's see if this really plays out.

And I will say in Hidden Gems, you know, we've been an island because we're the only thing in the Molly Fool recommending the stock since 2012 with over 60 recommendations. The first one at about $2 a share. So it's played out very well for us, but you cannot own this stock if a 30 to 50% decline in the price of the shares is going to knock you out. Because there's just no way you're going to avoid that. This stock will be down 40 to 60 percent multiple times. Every two or three years, you should expect a 30 to 40 percent decline in the stock, in my opinion. And those have been, and I believe will continue to be great opportunities to add. So let's pivot to Chipotle's earnings real quick.

So unlike Tesla, investors are not that excited about what happened. They gave investors a not-so-pleasant surprise. They lowered their same-store sales guidance for the year, same-store traffic, declined by 5% year-over-year. So, Tom, I know you follow Chipotle pretty closely as well. Is the week's second quarter something investors should really be worried about? You know, not the quarter in itself, Matt, as we discussed, you know, with long-term thinking for a business like Tesla. However, I'm on the record, and my conviction is that, for example, Starbucks will be a better stock over the next five years than Chipotle. Part of that is just straight up Brian Nicol, the CEO who left Chipotle and is now at Starbucks.

is Brian Nickel closer to Michael Jordan? Hoops fans know that Chicago Bulls won six NBA championships in eight years. And then when Jordan left in 1998, they have never been back into the championship series again. So sometimes you have an extraordinary leader. And I think that is the case with Brian Nicol. And my fear for Chipotle is that they're going to lose premium positioning now. We see flattening out same store sales growth, restaurant margins in decline. And obviously in this economic environment, which I think will persist because of a lot of the

changes in the technology landscape and what will happen with employment, consumers are looking for discounts and getting lower priced protein in the form of chicken. So Chipotle has a billion and a half in cash flow. This is not a company in trouble at all. My fear is that it will become more of an operating company now rather than a vision-driven business. And that makes me think that this will be at best a market performer here of the next five. years. And as I said, I think Starbucks will outperform Chipotle with Brian Nicol as Starbucks as CEO.

It's really important to put the quarter into context. So, John, just to kind of name a few things, we got the initial tariff announcements at the start of the second quarter. Stocks briefly plunged into a bear market. Consumers started becoming really cautious about discretionary spending, especially when that was going on. So what are your thoughts on Chipotle as we head into the second half of the year? Look, Matt, this is anecdotal, but I don't know personally, a single person who saw a tariff announcement on the news and said, honey, maybe we should skip our Chipotle order this week. I would say that Chipotle is getting more pushback from other things. As Tom mentioned a minute ago, perhaps there's even a perception on value and portion sizes.

This did actually come up last year with the company, and they had to address it head-on. And it takes time to change a consumer perception of the business, whether it's real or it's just perceived, it takes time. I think we're still seeing that play out that with the traffic being down, they didn't take any pricing. They've been taking pricing in recent years and kind of getting to this point where I think consumers are reaching their limit. So that is playing against them right now. I think that is what's happening rather than tariffs being something that are influencing consumers. Look, I think that long term, I also agree with Tom, that I think this is a company that is still fantastic operationally. I mean, even with a rough quarter, you're looking at 18% operating profit margins.

I know restaurants that would be happy with half of that. So, long term, I think this still accompanies with a lot of promise is going to add many new restaurants in coming years. It's going to generate a lot of cash flow. I would agree, though, is this going to become more of an operating thing? And I'm not really sure that the unit economics are going to recover fully this year. And so it's going to take time to win back some consumers that have been lost. Next up, we're going to take a look at Alphabet's Quarter, and it was a strong one. You're listening to Motley Full Money.

In a world full of noise, long-term thinking stands out. On the Capital Ideas podcast, Capital Group leaders explore the decisions that matter most in investing, leadership, and life. It's a rare look inside a firm that's been helping people pursue their financial goals for more than 90 years. Listen to the Capital Ideas podcast from Capital Group, published by Capital Client Group, Inc. So another one that just reported, Alphabet just reported really impressive results throughout its business. This is the Google Parent Company. Of course, Google Cloud revenue was an extremely strong point with 32% revenue growth.

That was an acceleration in the second quarter. And really, one of the biggest takeaways that I got from the report is that the AI investments they're making seem to be working, and management now expects to spend $85 billion in CAPEX this year, primarily on building data centers and AI infrastructure, up from the previous estimate of $75 billion. So I'd love to get the thoughts from both of you, but John, we'll start with you. What are your thoughts on the quarter in this aggressive AI investment strategy? Yeah, you know, we human beings are so bad when it comes to big numbers like this. You said it just so casually and so many people are.

But let's stop for a second. They raise their capital expenditure guidance by $10 billion. With this kind of money, you could buy Campbell Soup Company, a 150-year-old business with products in every store across the United States. They could buy Huntington Ingalls. This is one of the only companies capable of building a nuclear-powered aircraft carrier. And that's just the amount that they raised the guidance by $10 billion. If we're talking $85 billion now, that's bigger than the GDP of Croatia, Sri Lanka, Panama.

That is what they're spending this year on capital expenditures. And that's just one company in one year. This AI trend is unbelievable. And when you look at the spending, ratcheting up like that, I get really excited thinking about who is on the receiving end of the, those dollars, you know? And so there's going to be spending on the GPUs. There's going to be spending on data centers. Power needs are going to be going up. There are so many ways that this can trickle throughout the economy that gets me really excited. So, Tom, all this AI spending could

be worth it if they're getting a return. And it looks like so far they are. What are your thoughts on just this general trend toward billions and billions of dollars being pumped into the AI infrastructure right now? Yeah, well, the first thing is that the reports of Google's demise have been greatly exaggerated. They've been making transitions in their search with Gemini. I'll talk about that in a second. But the business is fundamentally very, very, on very solid footing. And now they are succeeding and utilizing that AI in profitable ways and breakthrough ways in their overall ecosystem. So Google is a cloud and AI story. And companies that aren't in the cloud today and aren't accelerating in AI every single day are going to be in deep, deep trouble. And it's going to come

a lot faster than people think. On the cloud front, Google Cloud is taking market share. now from AWS. Their revenue run rate for Google Cloud is $50 billion. Their operating margins raced up to 20% this quarter. So Google Cloud is vibrant and a force for the company. On the AI front, Google's scaling Gemini across all those search. Search is essentially becoming a private label brand for Google now, like Kirkland at Costco or 365 at Whole Foods. The private label brand search, 60% of all searches, are being resolved without any user click. Think about that.

The Gemini feature, where you're getting that AI expression when you search something on a mobile screen, takes up 75% of screen space. So Google is all in on cloud and AI, and one of the ironies I see with that $85 billion cap-X, and one of the things I see about that $85 billion, that increase of $10 billion, as John said, up to $85 billion in CAP-X,

is also a company that will be working people out of jobs at Google. and what that is telling us is that this automation is real. It is significant. People who are investing in AI companies, but not using AI in their everyday life and at their companies are going to fall so far behind so quickly now. And Google is just one of the many companies, one of the many large technology companies that are demonstrating. This is real. This is enormous. We're betting our entire company to make sure that we're in the leadership position in our category. And for Google shareholders, thank heavens for that. Because if Google had fallen behind, further, it would be harder and harder for them to catch up, both on the cloud front and in terms

of AI applications. The one caution I have for Google shareholders is just anti-competitive practices and whether regulators are going to get involved with that Gemini search now. Because Gemini search is saving them. They may be getting, they may be a decline in search coming to the Google platform because you can get so much right off chat GPT or Claude, GROC, et cetera, perplexity. But that Gemini application is bringing. more and more revenue into search for Google. So they're actually on solid footing with their search, and if this is on solid footing, and if they don't run into regulators, I think you've got a double-digit market

outperformer in Google from here. So, Tom, speaking of AI Investment, Service Now, I know that's a company you follow. They just posted a really strong second quarter. That was, in my opinion, the strongest earnings report, as far as the surprise of all the ones we're talking about. And I believe their CEO would agree with you. Bill McDermott said in the earnings release, quote, every business process in every industry is being refactored for agentic AI.

So even after today's upward move, the stock's still down in 2025. For one, I'm pretty sure you agree with their CEO. But two, what do you make of their future growth prospects now? Well, I think the growth prospects are bright for service now. They have excellent underlying financials. You know, you see 30% operating margins just about, just short of that, 98% renewal rates among their customers. So this is a fantastic business being.

run quite successfully. And I do agree, as you mentioned and mentioned from Bill McDermott, that AI is the new UI, that all future product development is coming through AI. Fundamentally, all B2C experiences, all consumer experiences in digital will be on AI applications. The one question I have as a service now shareholder ourselves at the Mali Fool is the company has a $200 billion market cap. I think it can outperform the market, but we see those great earnings leading to, you know, a marginal increase in the stock today, and that's partially just because it's such a richly valued company. A lot of element areas of the market are richly priced right now. So I'd just be patient every time you get a chance to buy a service now when it's down 10 or

15 percent. I take advantage to that. And I think you'll be rewarded with profitable investments. Next up, we're going to take a look at IBM's earnings real quick. And Figma's upcoming IPO, I'm excited to talk about that. The old adage goes, it isn't what you say. It's how you say it, because to truly make an impact, you need to set an example and take the lead.

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despite beating estimates on both the top and bottom lines, and the key reason seems to be that the management team is really cautious right now. their CEO said some clients are being cautious due to trade tensions. U.S. federal spending is down, and there are a few other reasons. So what are your thoughts on IBM's quarter, and is the stock a buy right now? Yeah, I was surprised that the stock was down after looking over the numbers. Most of the metrics were up and above expectations.

Of course, we should keep in mind that with the drop, it's still outperforming the S&P 500 over the last year and year-to-date, so context matters, I think. But look, when it comes to IBM, I think it's really easy to dismiss it from the artificial intelligence conversation because it's such an old business. It doesn't scream AI to me. But, you know, all these businesses out there right now are trying to figure out how do we use AI in our company, and many of them don't know how to do that. So that means that they need consulting. And it turns out that IBM is pretty good at this. And CEO, Arvin Krishna, said its book of business for generative AI is now at $7.5 billion in accelerating. So essentially, companies are coming to IBM and looking to how do we integrate AI into what we're doing.

And so that means that they're really actually pretty well positioned and probably better position than a lot of investors give them credit for. Now, granted, IBM only expects about 5% revenue growth this year. So usually when I'm looking at a tech stock to buy, I want to see a little bit better growth in this. That said, over the last couple of years, I've just had this growing conviction that IBM is better position than people give them credit for. And so for me, it is a stock to watch. Well, maybe Warren Buffett shouldn't have sold it when he did. So, now let's get to the story that I've been really looking forward to.

So we're going to talk about Figma's IPO. And Jonathan, I want to bring you in on this. We're starting to see a resurgence in IPO activity. And one big, highly anticipated IPO that's about to go public is Figma. So before we dive in, can you just give us kind of a 30-second description of what Figma does? Figma is essentially a Google Docs, essentially for UIUX. It allows collaboration between multiple designers. to create rapid prototypes, which can then be put into the prototype, present, feedback, and iterate

loop, which most corporations use to develop new products. So that's essentially what they do. So talking to you before the show, I think it would be fair to say, maybe this is an understatement, that you're not entirely bullish on the growth story here. Can you kind of tell us why you're approaching Figma with so much caution? First came out in 2012. They are very much, in my view, to attach to an older way of developing products, which again, going back to that is very much the prototype present feedback and iterate. That process can take days, weeks, or even months, and a typical corporation. With generative AI, that can go down to literally 30 minutes. So instead of getting one prototype back from a design team, you're getting five to 10 prototypes back in less than a day.

So that alone is a huge disruption for Figma. It's a huge disruption for Adobe and any companies in this space. That's my major. Actually, one example is Galileo is a generative AI competitor to Figma. They were just purchased by Google about a month and a half ago, renamed Stitch, and made available completely for free. So if you're taking a look at a $75 seat license for Figma, you now have an option for just to use Google Stitch for free. I come from a startup background, and if I have raised $5 million at a $20 million valuation, I have the option, should I hire a Figma expert for $140, $150,000 a year, or should I just

hire AI bots in the form of Stitch, Galileo, and so other versions of AI versions of a Figma? save myself a huge amount of money. I think currently large corporations are the ones that are stuck on Figma. A good example is the Parsons School of Design in New York City are actively now beginning to teach generative AI design. So the new designers that are coming out, the younger designers that are entering the workforce, the first tools that they're going towards are generative AI tools. They do not go to Figma. They do not go to Photoshop even at this point. That's my main thesis where I'm not too bullish on it. So, Jonathan, I think a lot of investors would be reading over the S-1 when it comes to Figma and looking at that 46% year-over-year revenue growth. And I think there's

a sense that the generative AI trend is already mature. So how do we take what you've just shared about the business and maybe some of the risks, but then also, how do we counterbalance that with the 46% revenue growth that we see? Jenderbea really started in 2018, 2019 with the Transformer architecture. That was first released for the public with Chad GPT in late 2022. However, the generative AI scope of what it's covering has, it first started to attack coding. The models are continuously being evolved. then started doing things with the chat chvety of image generation, runway with video generation.

And this area of rapid prototyping is something that is not necessarily a focus of generative AI because if you use something like a cursor or a windsurf, you can actually bypass Figma completely. Because as you're building a design using one of those tools or a bolt is in another example, you can ask it with very specific prompts to build the design. It will also build the code in the background and will also deploy the code and the design live to a hosting environment. So if you're looking, you're talking about Google earlier, Google is doing a very good job of integrating all of these types of tools. And that's why they purchase Stitch, where once you create a design on Stitch, which you would have done previously in Figma, now it's already creating the code with one click click, it's in Google CoLab, which is their development environment.

And another click, it's then in Google Cloud. So Figma does not have any of that type of functionality built in. It is going to rapidly, the pace of how that's going to evolve is, I would say, exponential over the next year. Most of what Figma has put on in terms of generative AI, I see mostly as Band-Aids. Marketing hype. It's unclear what they'll do over the next year. They can turn it around and put really useful generative AI tools within their interface, which hasn't changed a huge amount really in the past decade.

So those are my major concerns. Thanks, Jonathan, for that clarity on Figma. It will be really interesting to watch once that one goes public next week. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks. based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisers are sponsored content and provided for informational purposes only to see our full advertising disclosure. Please check out our show notes.

For John Koss, Jonathan Wilder, and Tom Gardner, and the entire Motley Fool money team, I'm Matt Frankel. We'll see you tomorrow.