Unchained - Meta Fell 10%. Microsoft Didn't Blink.

Episode Date: July 31, 2026

📢 Bits + Bips has its own channel now — full episodes here: https://www.youtube.com/@Bitsandbips  Meta and Microsoft reported earnings on the same night, and investors sent their stocks in opposite directions. Chris Galipeau of the Franklin Templeton Institute walks Steven Ehrlich through why Meta got punished for raising its CapEx guidance while Microsoft's Azure growth held steady, then makes the case that the broader AI CapEx boom is still only in its second inning, not a bubble about to pop. Host: Steven Ehrlich - Host, Head of Research at Sharplink - https://x.com/Steven_Ehrlich  Guest: Chris Galipeau - Head Market Strategist at the Franklin Templeton Institute This clip is from a longer conversation on Fed policy, Iran, AI earnings, and prediction markets. Full episode here:https://youtu.be/BXWq7OPcm24  We go live every Thursday - subscribe to catch it live. Cape: Your biggest crypto vulnerability isn't your wallet, it's your phone number. Cape is America's privacy-first mobile carrier that rotates your SIM identity daily and blocks SIM swaps before they happen. Get 33% off your first six months at https://cape.co/unchained   (use code: UNCHAINED). Chapters 🎙️ 00:00 Kicking off the Meta vs Microsoft earnings comparison 📉 00:26 Why Meta landed in the 'penalty box' on CapEx guidance ☁️ 01:25 Microsoft's Azure growth number was 'super strong' 💰 02:41 The FAANG-era CapEx inversion nobody saw coming 📊 03:41 How to actually evaluate a company's balance sheet health 🔄 04:52 The circular financing risk, and Steve's 'incestuous' tech giants question ⚾ 07:24 The baseball analogy: still early innings, and why this isn't a bubble Learn more about your ad choices. Visit megaphone.fm/adchoices

You're listening to a brief segment from one of the Bits and Bips episodes this week. The full show is now only available on its own dedicated Bits and Bips channels. So be sure to go to X, YouTube, and your favorite podcast platform and search for Bits plus sign Bips, spelled BIPS, and subscribe. So let's talk a little bit more about AI. I mean, as you mentioned and anyone watching this, I'm sure is well aware, I mean, earnings have generally been very, very good. But there are concerns. And I think sort of the two sides of the coin you mentioned between Meta and Microsoft, I mean, going in opposite directions. I think that's a really good sort of microcosm of sort of the different approaches someone can read what's happening.

So maybe just expand on that a little bit, please. So I listened to both the calls last night. And what put face meta, sorry, in the penalty box was, hey, we raised our CAPEX spent. They didn't raise it by a lot. They raised the lower end by $5 billion, which seems like monopoly money to us, right? But they raised it. And they talked a lot. They gave us a lot of qualitative explanation, but they really, I didn't see any proof in terms of revenue growth or maybe no clarification on the timeliness of discernible ROI.

I didn't hear that. Now, maybe other people did. I didn't hear it. That's why the stock's down 10%. So they raised their CAPX guidance. And Q3 revenue guide was a little below the midpoint. I know these are nitpicky things, but this is what the street reacts. And from my opinion, I don't mean to interrupt you, but just given how poorly their initial LLMs were received, it seems like, from my perspective, the burden is higher for them to prove that they're able to kind of catch up and overtake, especially with some of the Chinese competitors.

Yeah. And then right after that call, I got right on Microsoft's call, right? I can, of course, see all the earnings, revenue versus consensus, margins, so on and so forth. and the number one metric we're looking for with Microsoft is Azure growth, right, cloud growth. And that number was super strong. That was the first thing. I thought, okay, that's really what we wanted to hear about.

Microsoft's management, the quantitative information that they gave us in the tone in which they delivered it was, you know, having listened to earnings calls for 35 years, you pick up on these things over time, they were confident. You could tell they maintained their CAPX guidance. So they didn't raise it. And I said that's the worry around sucking out all the free cash flow generation from these unbelievable companies here in the last six, eight months or year, where if you and I were talking two years ago and you said, hey, do you think Microsoft, Google, Amazon, and that are going to blow through all the free cash flow? My answer would be no way. They just did.

And they're in the market borrowing more. Right. So investors have called timeout on that. Time out on that. And, you know, I'll lead you to another. that we've been pounding on here for the last 18 months. But those were the differences to me anyway in the calls last night and why one stock is down and one stock is up. Yeah.

It's really interesting because when we hear about these big tech companies, I mean, going back to like the Fang and I forget some of the other acronyms that were there. I mean, they were enormously profitable, had had very, very, very low Kappex and like unlimited free cash flow. A big inversion now because of how, I mean, the revenues are great, but I mean, like Google went to public markets for the first time in decades. I mean, these companies are raising tens of billions of dollars in the debt market. I know Oracle was recently downgraded to like one one ring above junk status. And yeah, I mean, free cash flow is all of a sudden it's a big deal. Maybe for some of my viewers, some of my listeners that are just trying to get their hands,

their arms around all this. Could you maybe just talk about how from your perspective, like you think about these different buckets to sort of of ascertain the health of a company because it's hard sometimes, I think, to distinguish between Microsoft and Oracle and like it. So it take it I'll do my best in a nutshell from a high level. So it takes you need to consider a lot of different variables, right? Zuckerberg, for example, last night talked about total addressable market on and on. Okay, we get that, right? That's why the spend and then there's not nearly enough compute demand and all that.

So you factor in comments like that, you look at the company's balance sheet. What I always focused on, especially as a growth manager, owning these names and liking these names, you know, over decades, is how much confidence do I have in the run rate and revenue? Tell me about COGS. You know, I need to know where the margin numbers are likely to go. I don't really care about the tax rate because it doesn't move that much. But I'm trying to get my arms around all of the different things that will impact net income, factor in buybacks, what's the earnings power going to look like.

And so there are a lot of levers you can pull on an income statement, right? You can reduce expenses to boost margins. You can have an earnings beat because the tax rate was lower. There's all kinds of manufacturing, right? You buy outstanding shares back and the EPS number goes up. So you can engineer earnings. You cannot engineer the statement of cash flows, right? And so to me, maybe not so much as a growth investor, but certainly if you're a value investor,

you're looking at that a lot, right? But in this case, where you have the, you know, I'd argue the best run companies on the planet blowing through all of their CAPEX, lending it to each other or backing deals in a circular fashion, is a concern. I'm not saying it's not a concern. It, like, that does concern me, because if this whole notion that, you know, the models are evolving, you know, by the minute, by the hour getting stronger can update themselves and everything that we know at the moment and therefore going to demand these data centers and all this compute power, if something goes wrong there and now they're levered, right? I shouldn't talk about their, you know, interest expense ratio, so I don't know them off the top of my head. But if when you take out the cash flow to

meet obligations, that is a risk, right? So that's the bare kind of argument. I guess you could make the counter argument by saying, hey, Chris and Steve, if they're running one of these companies, they probably wouldn't be blowing through their cash flow generation and investing all this money in this unless they completely believed it. High conviction. Doesn't mean we're right. But I think that's what the management teams do believe. Yeah. Yeah, I'm glad you kind of brought up the circular nature of it. I think the pejorative connotation that I've seen thrown around is sometimes a good degree of incestuousness between all these companies.

But at the same point, like, they're complimentary and there's a certain level of scale you have to play in that arena. So, like, where else could they really, where else could they really go? But it does, like, if things, if this breaks, like, it could be calamitous, just because of how closely entwined they are to each other. Like, who ends up holding the bag if something goes wrong? And would one bring down everyone? I know that's a question. I don't know that's a question you get, but that's a question that I often get asked. Yeah.

Yeah, it's hard to say, but that's, you're talking about the domino effect. Once someone falls, it's kind of, you know, boom, boom, boom, boom, and everybody goes down. Look, anything can happen in our business. We know that any stock can go to zero. We know that. I've seen that. I've owned stocks and thankfully sold them and watched them go to zero. So that can happen.

Our take on this, honestly, our bottom-up fundamental take on the whole thing, the whole AI spend and where we are in baseball terms, we were talking before we got on there. you're a Phillies fan, I'm a Red Sox fan. So in baseball terms, we're probably in the second inning of this. And, you know, don't take my word for it. Listen, go listen to earnings calls and listen to companies all, all different cap sizes, all different industries, all different sectors. I promise you, right, to the listeners, anyone can listen to an earnings call from a public company. Go to their investor relations website, click on the webcast and listen, right? Read the transcript if you want. On every earnings call already this year, and this has been this quarter, sorry, but this has been true for probably the last 12 months, every company talks about how they're using AI in their business, whether it's to improve efficiency, productivity, ultimately profitability, to make things faster and better for their customers, to improve their service levels.

We've heard that for a year. I hear that in every single earnings call. So this is not going away. The use case is tangible. And now you've got large public companies. about, hey, we're not just thinking about this. We're using it. And oh, by the way, we can demonstrate improvements and efficacy by a whole host of measures. But what we really look for is, has that improved, you know, operating income? And so we're starting to hear that.

Now, I think Microsoft did a really good job last night, an air call meta didn't. We'll see what Amazon and Apple say tonight, right? But we're probably in the second inning of the game. the risk is there that the whole thing is a bunch of BS and it falls apart. We do not believe that. We do not believe that. We think we're in the second inning of a nine inning game. And this is real. Now, that's okay conceptually.

That might not line up to making money in the stocks, which is a completely different. Yeah. Different game. If you hold crypto on your phone, your biggest vulnerability isn't your wallet. It's your carrier. AT&T, Verizon, and T-Mobile have been breached again and again, and SIM swaps are still one of the easiest ways for attackers to drain accounts. That's where CAPE comes in, America's Privacy First Mobile Carrier.

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