Today's number, $5,923. That's the price of the cheapest ticket to the Super Bowl this year. Ed, I don't even watch the game. I watch for the commercials. My favorite commercial, Cardi B's Wet Ass Pepsi.
What's going on, Ed?
I'm doing very well. It's still freezing cold here. It's unbelievable. Mountains of snow on the streets of New York. It's pretty insane. How are you doing?
I'm good. I'm in Jackson Hole. I spoke at one of these master of the universe conferences and decided to stay here and ski. When I say ski, I mean sit inside a beautiful room and do podcasts all day long.
Just to confirm, I know you already did one. Is it two in Jackson Hole or is it just the one and you're there for a few days?
No, it was just the one. I've done a bunch of meetings though, because one of the great things about having the footprint that I enjoy is if you post where you are, people like you haven't heard from, like, "Oh, remember me? We played basketball together in the 11th grade. You want to have coffee?" I'm like, no, but it's good to hear from you. People, it's so funny. I was out last night and a bunch of people came over and the people I was with are like, "Do people come up to you?" I'm like, "Yeah, they come up to me a lot." And they say, "Why do you think that is?" It's because everyone assumes I'm so pathetic that they're doing me a favor coming up and saying, "Hi." Everyone assumes that I'm so lonely and so desperate and depressed and have so few friends that people don't come up to me and say... I mean, they come up and they're very nice, but they're more like, "Do you want to join us? Are you okay?" So it's...
I highly, highly doubt that.
It's a different type of approach. But anyways, I'm here in Jackson Hole. It is beautiful.
No, I'm all about injury. The only time I ski now is with my boys because I'm all about injury prevention. But I'm going to go snowshoeing. I'm officially an old man. In between World War II documentaries, I'm going to go snowshoeing.
You're not skiing because you're afraid of getting injured. Really? That's a little bit of a lame excuse. I just got to be real with you.
I don't like the outdoors and I especially hate skiing.
I can't stand... The reason I ski is I want to be able to trap my boys on a mountain for four or five hours where they have to talk to me.
And so I ski. I maintain I'm also not very good at it. Are you a good skier?
I'm a decent skier. Yeah. I'm not amazing, but I'm okay.
I'm not. And their mother is such an extraordinarily beautiful skier. I remember the first time I saw her ski, I was like, "Wow, that's amazing. It is very cool." And people are good at skiing. And she grew up very kind of lower middle class, middle class in Poland. And she said her parents just always put her on skis two or three weeks a year. And I said, "We got to do that for our boys." But unfortunately, when you do that, you have to actually ski with them. So, but no, if I don't, I would much rather... I'm sitting in here. I'm going to go work out. I might, you know, do one of these weird like hot stone massage treatments with some dude with beads who's going to talk to me about my chakra. And I like that. Now I'm turning into like the white women of wine. I'm just into the spa. And I'll just hang on. We'll go for a really nice dinner. But here I am stuck in the middle with you. Anyways, are you resisting and unsubscribing, Ed?
Next month. Do you even follow anything I do? Starting on Sunday, and I know Ed's very interested, we're trying to engage in a targeted national economic strike against big tech and the companies enabling ICE and the Trump administration's policy of terror and anxiety come to you in your own town. And we're putting on a site listing all these companies that might move the S&P. Trump responds to markets, not to protests or to political pressure. He responds to markets. And we think we found a way to press on the soft tissue of the markets and that is to go after these big tech firms by just unsubscribing. We talked about this in the last one, but the site goes live on Sunday. We think we're on to something in terms of a low-tax, low-effort way to perform what is the most radical act in a capitalist society and that is not participation. But I've been spending a lot of time on it, Ed. People have called me out on my [__] and said the music needs to match the words. What are you actually doing now?
You have to do something.
I know. I hate that. I hate that. I'd rather just heckle from the cheap seats. Ed, can we just talk about...
Can I just pretend to be concerned? This is an outrage. Off to Jackson Hole.
Gosh. Most of the Magnificent 7 reported earnings last week. Overall, it was a strong quarter with Microsoft, Meta, and Apple all beating expectations on the top and bottom lines. However, the reactions from the market have been not as consistent. So, we're going to go through all of these earnings, Scott, see what you make of them. And I think that we should probably start with Meta. Fourth quarter sales rose 24% from a year earlier. Also issued stronger than expected sales guidance for the current quarter. Stock rose as much as 10%. So that has been the biggest performer. I think a few things stand out to me about the Meta earnings. I mean, one is, as we'll see, the earnings were pretty similar to what Microsoft reported, but it was a tale of two stocks here because Meta rose around 10%, Microsoft fell around 10%. Microsoft wiped out nearly half a trillion dollars in value. So I think the big question here is what was different about Meta. And I think the thing you have to sort of look at here is this unbelievable revenue growth of 24%, $60 billion in revenue over the year. So that is just a staggering increase from what we've seen before. And I think what Zuckerberg is basically proving is that AI is turbocharging the business. And now investors are realizing, okay, this guy probably knows what he's doing. We could also talk about the capex which exploded, or at least the guidance exploded, $115 to $135 billion in capex guidance for 2026, up 60% from last year. He's doubling down on AI. Last year people were scared about that. Now investors decide, actually, we trust this guy. Scott, any initial reactions to Meta and then we'll get into the other earnings as well.
Well, it appears that it's better to be in the business of leveraging AI than in the business of AI. And there's few companies that can boast that they have adopted to greater effectiveness AI than Meta right now. The users clicked on Facebook ads 3.5% more often this quarter and boosted conversions on Instagram by 1%. And the number you talked about, they increased, what was it? They increased their revenues 23%.
I mean, on that number, on that topline number, what I would have loved to have seen is I don't think they did it with many more employees. So, you know, they are kind of... I mean, quite frankly, anyone who's on Instagram or on Reels or on Threads understands the power of AI because I keep getting served with more and more relevant... I mean, almost kind of those eerie moments where I'm talking about doing a trip to, you know, DC with my kids and I start getting served ads by the park right in DC and it's like, who are they? You know, it just... it's incredible how they've been leveraging AI. Microsoft, it was that, and you said this, that the new expectation is that you beat expectations and they only met expectations. So, it wasn't... you know, they took the stock down 10%, which I'm not entirely sure I understand. Maybe it's because they just got out over their skis, but the Meta one really struck me. Any thoughts on Microsoft, Ed?
Yeah, Microsoft is pretty staggering. You know, $440 billion in market value just erased pretty much overnight after they... I mean, you say met expectations, which is more accurate. They beat by like marginally. I mean, revenue was up 17%. I think saying they met expectations is the right characterization. I think two issues for Microsoft. One is that Azure, the cloud growth, this is all that investors really care about because this is representative of how growthy is your AI business. It grew 39%. I still think that's a pretty big number. It also beat expectations, or as you say, met expectations, but it's slightly lower than the previous quarter. So I think investors are kind of upset about that. I think maybe in comparison to Meta, they see the growth of that business and they don't like that. But I think the big problem I would estimate, and we'll see over the coming weeks, is their RPO number, their remaining performance obligations, their future commercial bookings. Basically, this is how much revenue they have in the pipeline, the contracts they've secured which they're going to see in the income statement in the next few quarters. It grew dramatically to $625 billion. So that's great news. However, 45% of that backlog is attributable to OpenAI. I think investors have decided what we have been saying for a long time, which is you can't really trust this company if you're making $1.5 trillion in spending commitments all over the place and you're only generating $13 billion in revenue and you're going out there and you're kind of struggling to raise... not struggling to raise, but they're raising, they're talking about raising, you know, a hundred billion, but that doesn't cut it. There's so much money they have to spend on these contracts in the next few years and basically Microsoft is coming out there and saying, hey, we have a bunch of growth opportunity coming down the pike, but half of it is going to come from OpenAI and it appears that investors are saying, we call [__]. We don't think that that revenue is actually going to come in. I would guess that that is the main concern. I think there's the additional concern that compounds the mistrust in OpenAI, which is where is that revenue actually coming from? Well, it's not coming from their profits. This is not a profitable business. It's coming from Microsoft. Microsoft is the main investor in OpenAI. So, this is just the circular transaction happening again. Microsoft invests and then it comes back to Microsoft in the form of these remaining performance obligations, which makes it doubly concerning. So I think this is the investor response. People are coming around and saying, you know, this OpenAI thing, this has gone a little too far at this point. And so if you come out and say, yeah, we've got all this money coming in, but most of it's OpenAI, we're not going to take it all too seriously.
I see a theme emerging where it's better to draft off of the AI wars in terms of capital expenditure than to be on the front lines. And that is, it feels like people are increasingly skeptical that OpenAI is going to be able to justify an $850 billion valuation, much less the trillion or trillion-and-a-half dollar valuation that's been floated for a public offering. And that there's, you know, only about three or five percent of its users actually upgrade to a paid subscription and it looks like they're being bested by Anthropic in the enterprise market. So that's beginning to infect Microsoft, who again is looking to, similar to the way that Tesla is claiming Optimus robots are going to be the growth vehicle, being reliant or claiming that you can justify a $4 trillion valuation because of all the additional profits and revenues, to your point, you're going to get from your investment or your relationship with OpenAI that looks like there's no way it can meet its expectations is a dangerous place to be. At the same time, when you're a company like Meta or even, I would argue, a company like Waymo, where you're leveraging AI, you're drafting off of or freewheeling off of other people's cheap capital and massive investments. I mean, even Apple, I think Apple will probably be a beneficiary of AI because what they'll do is similar to avoiding the search wars, they'll stay out of it and they'll start figuring out ways to provide licensing agreements or access to the billing consumers. But it feels like the new kind of litmus test is, all right, it's great to be in AI, but your valuations have gotten out in front of your skis and you're spending so much money that the sweet spot is to leverage AI and leverage the falling price in inference and show that you know how to leverage AI. See above, you know, Meta's targeting capabilities. Can we talk about Tesla for a second, Ed?
Yeah, we should talk about Tesla. I mean, just before we move on to Tesla, I would just add one caveat, which is that Meta is spending like crazy on AI. I mean, that capex was unbelievable. But I think that to your point, what investors want to see is like, show us that you have leveraged AI, show us that there's real money coming in. Meta was able to do that, which gives them the option to go out and spend like crazy. That could reverse, you know, on a dime and we've seen this continue to happen over the past year. I think what we're increasingly seeing in the AI wars is this is a war of vibes, a narrative. This is all about like, does the market generally agree that you know what you're doing with AI and are you associating with the right people. Last year, associations with OpenAI was a vibe to the upside. Now it's reversed. It's a vibe to the downside. I think it's highly possible that that vibe could keep whipsawing back and forth, but there is no question the vibe is massively important to valuations right now. It's literally moving hundreds of billions of dollars at a time.
Well, just to use an acronym here, ROI, right? It's all about ROI to some extent. And there's a raft of new unicorns and it's an exciting part of the economy and we got to give AI, you know, its credit. It's created an ecosystem of companies that put a thick layer of innovation on top of inference and then sell into niche products and services into specific sectors and they're basically free-riding off of the massive I, right? And they get a big return because they can free-ride and have small I themselves, which makes the ROI bigger. And then there's companies that are huge on the I, but it's not entirely clear what the R is. I would put OpenAI high in that bucket. It's like, it's very hard to figure out how all of this spending and these trillion-dollar commitments, where the R is going to be big enough. But the sweet spot is companies that have huge R and huge I because they're seen as pulling away from everybody else but also are showing the massive kind of return. And right now that's Meta. Huge capex, can make that capex so they can pull ahead. Pinterest didn't lay off people because of AI efficiency. They laid off people because they can't compete with a company like Meta and in addition it's showing huge Rs. So the sweet spot that creates, you know, what might be the most valuable company in the world at some point is enormous R and enormous I, so to speak. Tesla.
Tesla. Oh my gosh, I love that he's trying to distract. Talk about weapons of mass distraction on the earnings call. I don't know if you saw this. Musk updated investors on Tesla's new mission, which is, quote, "to build a world of amazing abundance." And we're going to build a world of amazing abundance. I would translate that into an abundance of ketamine before the earnings call. He also focused on Tesla's humanoid robot product, Optimus. Sales of the robot are expected to begin in 2027. Musk mentioned Optimus 28 times on the earnings call. I'm shocked he didn't threaten to bomb Iran at this point to distract from the fact that the Cybertruck is a total [__] disaster and revenues were actually down. Automotive revenues declined 10% year-on-year and their pre-tax profit margins in 2025 were about 6%, less than half as much as Toyota's. Just to give you a sense for what is, I would say with the exception of Palantir, the most overvalued company in the world. Tesla trades now at 400 times earnings. Toyota, which in my view is the best managed automotive company in the world, trades at 10 times earnings. Your thoughts? I would love to know if there have been companies in history, and I would go with large-cap companies in history, that have traded at near 400 times earnings and yet their revenue has been in decline for not just multiple quarters but going on to multiple years now. I mean, that is just unbelievable. The fact that revenue... the stock actually jumped in after hours, then it came down. People seem to kind of, I guess, come to their senses a little bit, but revenue was down 3% year-over-year. And yet, this is the company of the future. It's a declining business.
It's a declining business, trading at 400 times earnings.
And we can just go through more of the statistics. I mean, there's no question this was a horrific year for Tesla.
Operating margins down, everything.
Yes. Free cash flow down 30% year-over-year. Net income down 61% year-over-year. Also, a lot of the reason why they're staying afloat is because of these regulatory credits where they registered half a billion dollars because of these regulatory credits. Without them, profit would have fallen another 65%. And of course, the big beautiful bill is going to get rid of those regulatory credits going forward. But the genius, and I mean you call his bluff, and so do I, and I think so do many investors, but the market seems to believe it. The genius is Elon has been able to just launder in a new future growth project every few years to keep the multiple afloat. He's not keeping this business or this valuation up through fundamentals. He's decided he doesn't even care about that. The car sales are done, whatever. But he's laundering in his next project, which is the Optimus, which as you say, he mentioned 28 times on the earnings call. He said he's going to stop producing the Model S and the Model X because he's going to increase the production capacity for these humanoid robots. So, that's one piece. And then there are these rumors out, or at least Bloomberg has been reporting this, that he's considering merging Tesla with SpaceX and also merging Tesla with xAI and also having Tesla invest $2 billion into xAI. So then the stock goes up again on that news. So this guy is just like a magician of, I guess, brand laundering would be perhaps sort of maybe multiple laundering, valuation laundering. I'm not sure exactly what it is, but it's working because somehow this business is in decline and yet the markets are saying, "Yeah, it's okay. We've got the robots coming later. We've got the AI coming later. It'll be fine."
I think he's going to attach every anchor to the ship here that is SpaceX. I think he's going to roll it all up into one kind of AI story about space, communications, connectivity, self-driving cars, robots, and talk about a world of abundance where you can get to where you need to be faster, communicate with people faster, new ideas, new communication, new means of self-expression, unlimited abundance. I think it's going to turn into this giant kind of "tomorrow belongs to me" narrative with all these granted amazing products and companies and the ones that aren't working he'll roll up into the ones that are working.
But I think this has been his plan all along. It's, you're right, it's a ton of jazz hands. It's trying to sell the narrative over the numbers and constantly get people to look away from the numbers so they're focused on the narrative. And also the narrative is very exciting: space launch capabilities, you know, huge communications platform, self-driving cars, EVs. I mean, it's like every 8-year-old boy's dream is this company. And then he never lets the company settle in enough to let analysts say, "Okay, this is what this company is, and this is the multiple it should be trading at or the range of the multiple it should be trading at." I think it's so true that there's a benefit to having analysts and commentators and investors and observers just arguing over what actually is the company.
Yeah. Just whips it around.
Yeah. And it gives it this air of like it's so mysterious. We don't even know what it is. How do you even define it? You can't even pin it down.
You just described Palantir.
Exactly. Palantir as well.
