It's the Big Tech Earnings Game! AAPL, META, MSFT

0:04Big Tech earnings are back. You're listening to Motley Fool Money.

0:14Welcome, Fools. I'm your host, Rick Menards. And with me is Sammeet Dio. Fellow Fool, fellow analyst, thanks for being here. We're back with more earnings previews. Sammeet, how are you doing this fine Monday that I know you're in the Northeast? There was a lot of snow there. How are you shoveling your way through this? Yeah, staying warm and getting through it. But I'm excited to be here and talking about tech earnings. Yes, nothing heats up snowing, makes it melt faster than tech earnings. And that's what going to tackle today. So in a minute, we're going to go over what to expect. There's a lot of big earnings report coming out this week in the tech world.

0:44Apple, Meta, Microsoft, they all report earnings later this week. We're going to take a look at that. But first, let's start with a little bit of big macro from a tech perspective. Big tech companies like Alphabet, Amazon, Meta, Apple, and Microsoft are substantially increasing their capital expenditures in 2024 and 2025, with further growth expected in 2026, primarily driven by investments in AI infrastructure. Apple, while also increasing spending maintains a more modest hybrid cloud strategy. Here's some data basically from projections on what they spent last year in 2025 versus 2024. Alphabet, 75 % increase in AI-related spending.

1:19Amazon, 50%. Meta, 90%. Microsoft, 69%. Apple, which seems to be bringing a BB gun to an arms race, up 35%. And they're all expected to grow their spending in 2026, and understandably so. So let's talk about this, Samit. What do you think are your expectations? Are these companies going to be spending more or less, these five big hyperscalers? And you may call Apple an hyper failure if you want. I don't mind. Do you expect growth rates to continue, A, growing, and B, at the kind of speed that we're seeing it grow? Yeah. I mean, I think it's all gas, no brakes for AI spending here because Apple is trying to keep up.

1:54So they just signed with Google to use Gemini in their series. So I can't imagine that's going to be cheap. I can't imagine it's going to involve further investment in their part to ramp up their AI. And Meta just continues to astound us with the numbers they report every quarter when it comes to their CapEx spending. And Zuckerberg is not holding back. He is not afraid to spend. And so at least with those two, I think there'll be quite a bit of spending. Alphabet, they're in the lead. They'll continue to spend, I think. So I think that we're going to see accelerated spending in CapEx relate to AI as we roll out earnings here.

2:34Yeah. And I agree. I think even though we're saying, well, hey, scalability, it's finished, it should get lower. AI should get cheaper. We're not seeing that. And I think at this point where you have to keep up with the Joneses, especially if you're in the Mag 7 and you want to keep up in this race. And I think Apple will eventually do it. I think Apple right now is almost like Nintendo in the console war that they almost feel like, hey, we have a great brand. You know you're going to buy us. Our kids love it. And we have IP. We're very easy to use. They've never been about the spec wars, but I think this is probably the year, especially now with having success with the iPhone 17 off to a strong start, they're going to finally come through with what they've been promising for about two years now, and that's make it AI-centric.

3:10But Hamid, I have another question here. And then basically, we're talking about these five big tech companies are spending a lot of money on CapEx. Do you think that this will continue to be a big tech game, or is there a market for other companies to come in, at least just to spend more? As far as percentage of spending on AI, how do you think this is going to go? I mean, I think this is going to be across the board with not just big tech companies. I think we're going to see a lot of companies continue to spend more in AI. AI, you have to think of it as a backbone for your company and your technology that runs your company.

3:41If you don't spend it, utilize it, your company might fall behind in their industry and with competitors. So something like a Duolingo, I could imagine, is going to spend more money on AI. Something like a toast would probably spend more on AI. So lots of other non-big tech companies are using AI in all aspects of their business, not just their core businesses. So I definitely see this increasing across the board. Definitely. Especially the companies that are the most disrupted by AI seem to be the ones that stand the most to gain by embracing it. A lot of these smaller companies, obviously they won't be spending as much on a dollar basis as these five big tech companies, but definitely something to watch.

4:19I'm watching you, Apple. Stop putting the MIA in AI and get out there. Coming up next, earnings, earnings, earnings. The Civil War and Reconstruction was a pivotal era in American history. When a war was fought to save the Union and to free the slaves. And when the work to rebuild the nation after that war was over turned into a struggle to guarantee liberty and justice for all Americans. I'm Tracy. And I'm Rich. And we want to invite you to join us as we take an in-depth look at this pivotal era in American history. Look for the Civil War and Reconstruction wherever you find your podcasts. Wake up, it's earnings season.

5:04So earnings season picked up a couple of weeks ago, actually about a week and a half ago. And while it was just the financial companies that first reported, now we're getting to the meat of the matter. The market moving companies, some of the most valuable tech companies in the planet are reporting this week. We have Apple. We have Meta. We have Microsoft. Sammead, let's start with Apple here. They're reporting their fiscal first quarter reports. And again, the iPhone 17 came out in September, mid-September in most of the country, in the final week of September in another 22 different countries.

5:33But clearly, that fiscal fourth quarter wasn't the quarter. This is the quarter, the first full three months of Apple 17. It's supposed to be a strong quarter. What are your thoughts looking into this Apple report that we're about to get in a couple of days? Yeah, you know, people tend to forget about Apple because they're kind of behind in the AI race, but they're still a dominant tech company. A lot of analysts across the street are expecting a major super cycle, if you may, or a major upgrade cycle with the iPhone 17 coming out, fueled by pent-up demand and new AI features that are still trickling in and getting better.

6:05We could see iPhone revenue potentially exceeding$70 billion. Their services business continue to move. You have your App Store, your iCloud, your Apple TV Plus, all of those are doing great. They have such a built-in install base of users of their iPhone that these services businesses just are always added to each iPhone user's arsenal there. So we'll look to see some more AI strategy updates with Google and Gemini powering their Siri and whatnot. And with China, China remains a little bit of a battleground for Apple. While it's kind of recently claimed the top spot in the Chinese smartphone market, where we're going to want to see if revenue growth is still sustainable against a lot of domestic competitors in that market.

6:49Yeah. And you mentioned the whole upgrade cycle with the iPhones. Back to fiscal 2021, we had this cool three-year cycle where every three years you'd have double-digit growth when Apple would put out a revolutionary iPhone release. Then it'd be single-digit positive or negative growth in the next years. But then we'd be back to double-digit growth, revolutionary. It's been a little slow now. We've had four years in a row, of single-digit revenue growth. But here we are with Apple expecting 10 % to 12 % revenue growth in the fiscal first quarter that's going to report this week. Unfortunately, analysts think for the full year it'll be 9%, so it could be the fifth year.

7:21But I think this is going to be a very important report for them because if this guidance is something special, I think it could be something. Because I think right now Apple, which used to be the undisputed market cap gold medalist for years, it's now the bronze medalist. And it's pretty much a bad quarterly report away from falling off the podium entirely, with Microsoft going back and forth and getting back on the podium for a change. But yeah, the service is an incredible product for them and high margin business for them. And it's not just iCloud +, iTunes, and the App Store. When you buy a new iPhone, it's just easy to sell the dive into subscriptions for AppleCare because you want that phone to ensure to be cracked the screen.

7:54Even though the new phone, I saw him sliding it out in a new commercial across the table, I guess now three times more scratch resistant. Apple Arcade, Apple Fitness +, Apple Music, Apple News +, Apple TV+. If you put a plus on it, Apple's going to find a way to make money out of it. So yeah, I'm hoping for a good report. Let's talk Meta. Meta, the company formerly known as Facebook, has delivered double-digit revenue growth in 14 of the last 15 years. So it's clearly growing pretty well, a much stronger double-digit revenue growth streak than Apple is. What are your thoughts about Meta heading into this report?

8:23You know, Meta's underperforming the market by about 16.5 % over the last year. If Apple's bronze, then Meta might be in the fourth place, although they're spending tons and tons of money on AI. and some of the things to watch are going to be, obviously, their CapEx spend. They had guided for full year, in quarter three, they guided for full year CapEx, 2025 CapEx to be 70 to 72 billion. Investors really want to see where that lands. Also to see if there's any sort of revenue bump coming from all this spending in AI. Now, we have to parse it out because Meta has a huge ad business and that's the meat and potatoes of their business.

9:02and AI assists them with that business and enhances it. So sometimes you can't parse it out as easily with Meta. So they'll be reporting on the holiday ad spend, where there's still big spend from Chinese exporters like Timu and Sheen. Did AI improvements capture more of the holiday e-commerce budget? Obviously monetization. And then the thing that sometimes sticks out is the Reality Lab losses. It might be a$4 to$5 billion quarterly loss that we'll see in what was their metaverse division and what's going on with that. Sometimes weighs down on the stock and what people perceive of why do they spend so much money and what's going on with that.

9:41But I'm positive on meta in terms overall, long term. Yeah, and they have good momentum. The last quarter for September, they had 3.54 billion average daily active users. They call them daily active people, but come on, they're users. Come on, we can call them users. It's not a taboo word, Meta. Up 8%. So 8%, you go, okay, all right. The audience is growing. That's fine. Ad impression is up 14 % year over year, which tells me engagement is rising. And average price per ad, which is the real special sauce here, it's up 10 % per impression. So this is plus 20 % revenue growth on the ad side for a business where the audience is growing about a third of the way there.

10:17So I think that's very nice to look at. And to me, the one thing I've been curious heading into this report is that of the three companies that we're going to talk about. This is one where for the fourth quarter, which is what they're going to report on this week, in the last three months, earnings estimates have been moving higher. But for all of 2026, earnings estimates have been moving lower. So I don't know if this is just the fear that there'll be more ramp up in AI spending, which you sort of mentioned, or just other factors eating away at the margins. But again, this is a quality company and the whole metaverse thing.

10:43I think I'm not worried about the metaverse losses. I think it's not moving the needle and that's great. The Oculus may as well be branded in Oculus. It's not moving the And you'll have a first-gen Oculus that I haven't used in like two years. It's that sad. But I did pick up some Ray-Ban Meta glasses a few months ago, and they're pretty nice. These are the first-gen ones. I don't have the new ones. But it's definitely an interesting product. But I want to see what, you know, obviously Google with their AI glasses that are coming out soon. I'm curious as to how that plays out. So let's move over to Microsoft.

11:11So, Sammy, this is a company where you and I, we may not follow as closely as the other two companies, but I want to get your take on it. You have to go back to 1999 to find the last time that Microsoft posted better than 18 % revenue growth. So I guess you could say that it has a Y2K problem after all. I'm starting with that because Microsoft did post 18 % revenue growth for the fiscal first quarter of 2026 that ended in September. Can it keep improving on that and break through the 18 % top line ceiling on Wednesday with its fiscal second quarter? Sammy, what do you think? What do you see looking into Microsoft's upcoming report?

11:40Daniel, Microsoft's stock has also underreformed the market by about 8.6 % over the last year. And Microsoft strikes me as one of the more broader companies in the tech space, at least in terms of some of the ones we've been talking about. Things we'll be looking at is Azure, their cloud services businesses. In quarter one, it grew about 40%. The whisper number on Wall Street is looking for this to kind of hold steady or slightly accelerate. If we see any drop below 38 % or 39%, that could severely punish the company. Microsoft 365 Copilot, that's their big AI initiative. seeing how it's being adopted and what the adoption curve on that will be interesting to see as we kind of our enterprise is moving from pilot programs to full deployments where's the growth in commercial office 365 seats and revenue per user to gauge all this capex spend obviously they they have a big capex spend going on but also they have gaming and hardware you know they have the xbox they have the content services with the xbox so that's something that we'll be looking at to see how that kind of cushions any sort of shore falls elsewhere.

12:44When we come back, Samid and I bring it all home.

13:10February, deinen neuen Lieblingsdeal auf Spasim.de.

13:40things are just weighing in because it's going to be a very hardware driven quarter. So the margins may not be as nice as a pure services driven quarter. But yeah, I'm with you on the beat and raise. How about Meta? I think they could be a beat, but no raise. That capex spending is just going to continue to tamp down on that. I agree with you. Mostly because this is the end of their fiscal year. So I mean, I don't think they've even issued guidance for 2026. But even then, yeah, I think I'm comfortable with just saying a beat, not a raise. But ideally, hopefully, you know, guidance that's not problematic.

14:04I'm encouraged to that. Let's close with Microsoft. Miss beat or raise? I'm going to get a little spicy here. I think they're going to miss. See, I mean, I'm not trying to cheat off you. I swear, I have a miss too. I think they're going to miss. Unlike the other companies, they've been beating just by a little bit, by just a couple pennies here and there. I think if they're going to prove moral, this may be a good time for it to prove moral, especially after that strong quarter. Especially one trend that I noticed about Microsoft, and not that we follow analysts necessarily, we like to be our own thinkers, but in the past week, six analysts have lowered their price targets on Microsoft.

14:32And all those price targets are higher than where the stock is now, but it does make me wonder why they're trying to get these notes ahead of the report, unless they think something's going to happen. So yeah, I'm with you on a potential miss. So that's it. That's our look at three very big earnings reports you're going to hear about this week. For Tuesday's show, Emily Flippen will be back with more guests and more chatter as we enter the meat of earnings season. It's a big week with Tesla, SoFi Technologies and Starbucks joining the big tech names in reporting results. Don't miss it. As always, people on this program have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against.

15:04So 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 the informational purposes only. To see our full advertising disclosures, please check out our show notes. And we'll see you tomorrow on Motley Fool Money. This is Sam Ead and Rick saying, Fool on.