Tech investor for ~25 years. Ran large hedge fund for 10 of those. Here to help. Not investment advice. I never reach out to sell ANYTHING.
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Joined July 2018
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Happy belated 4th.
My occasional reminder that the best gift you can give yourself and everyone around you is the awareness of index ETFs.
99% of investors cannot beat these incredible ETFs that provide exposure to the best companies in the strongest economy in the world, automatically rebalance to add winners / remove losers, can be held forever, and require you to pay little to no taxes.
SPY: 13.8% compound return over 15 years. Up 11% YTD. Trades at 21x forward P/E vs 10 year mean of 20x. Average of 9% EPS growth over past 10 years. (If you want the SP500, buy VOO which has lower fees instead of SPY).
QQQ (Nasdaq 100): 18.5% compound return over 15 years. Up 18% YTD. Trades at 24x forward P/E vs 10 year mean of 25x. Average of 13% EPS growth over past 10 years.
SMH (Semi's): 24.8% compound return over 15 years. Up 71% YTD. Trades at 25x forward P/E vs 10 year mean of 20x. Average of 22% EPS growth over past 10 years.
IGV (Software): 16.0% compound return over 15 years. Down -12% YTD. Trades at 20x forward P/E vs 10 year mean of 35x. Keep in mind this EPS also is a blend of consensus so excludes plenty of SBC depending on the company (just saying despite the SaaS-pocalypse, the group doesn't stand out as "cheap"). Average of 12% EPS growth over past 10 years.
Think about that for a second. You can own QQQ which is America's best tech companies (and the world buys American tech) for 24x EPS or a 4.2% yield on NTM that goes to a 4.7% yield on Y+1 to a 5.3% yield on Y+2, ... And you regularly get to buy QQQ at 20x or a 5.0% yield that increases over time. To me, that's a shockingly good deal compared to a risk-free rate that pays you in devaluing USD and is taxed.
It's kind of remarkable that vehicles that have provided better returns than 99% of the active management industry (and 100% of the industry on an after-tax basis) with pretty digestible downside volatility aren't at least 50% of everyone's portfolios.
I guess there is no face to these vehicles out there promoting them non-stop and no fees to feed an eco-system of advisors / marketers / etc.
Anyways, I just encourage people to actively think about VOO / QQQ. Have you outperformed it over 20 years on an after-tax basis? Have your fund managers? ...
$MSFT reported an all good in the hood quarter.
Office365 accelerated to 18% yy cc driven by people adoption copilot. They now have a cross-surface solution across all the apps and say 90% of queries use the default model. So the bull case is they do to ANT / OAI what they do to all competitors. Had a buddy who worked there and said MSFT is the only company that successful comes from behind once someone else demonstrates a big market exists (see Teams vs Slack / Zoom, Azure vs AWS, etc.). Seats are growing 5% and pricing uplift is now 13% yy cc!
Azure accelerated to 48% yy cc and they guided to 49-50% yy cc. No slowdown in the hyperscaler buildout / monetization.
OAI was 10b of rev in the qtr or 11% of rev. This is direct Azure contribution but also rev-share. Compares to OA being 24b last FY or 7% of rev. MSFT owns 24% of OAI.
O365 and Azure are now 55% of the business and I don’t care about the rest unless it slides into the ocean.
OM of 49.8% was up nicely from 48.9% last Q1. They guided to margins being down slightly including all the “Pls don’t show up tomorrow” memos they sent to 60k people. Seems conservative. I’m a bit ahead on revenue so I get margins up slightly.
Business is good at $MSFT. Revenue should accelerate this year and next FY w/ margins expanding despite the mix shift to Azure. They are the most responsible of the hyperscalers and staying FCF positive for now.
Stock trades at 22x CY27 EPS and 18x CY28. 27x presents 21% upside over the next few months and 51% upside over the next year.
Maybe downside of 13% to 22x street CY27 EPS.
Notes
O365
-Now have copilot across all surfaces w/ DAU up 50% qq
-90% of queries on auto-mode
-E7 doing well which includes Agent
-Number of copilot customers consuming credits through usage grew >75% qq
GTHB
-Credit consumption has 2x since kicked off
-Advanced security rev increased 50% yy as people use it to scan code
AI
-Goal w/ models is to be 3-6 mo behind frontier w/ models at fraction of cost
-MAI-Cyber powers 40% of scans in generic code scanner at 18% lower cost / scan
-Dragon transcription is super cheap
-44k paid fabric customers up 50% yy
Capacity
-Added 24 new dc’s this qtr
Azure
-120k foundry customers up 3x yy. Foundry rev more than tripled yy driven by efficiency gains across GPU fleet
Qtr
-Margins increased a bit offset by sales mix shift to Azure
-75% of capex is servers and 25% is long-lived assets
Guide
-Includes estimate for recently announced employee voluntary exit offer.
-2026 CAPEX of ~170b due to delays
-Expect to be FCF positive in FY27 – will access additional sources of funding if attractive to do so
$GOOGL reported a mixed quarter.
Search is 39b of segment profit in the qtr out of overall profit of 41b so understandably everyone freaks out when search is squishy.
Stock trades at 18x my GAAP 2027 EPS which is a bit above street for >30% operating profit growth.
Kind of a tough one: Search - who the hell knows, Cloud - doing great, YouTube - doing fine.
Search
Rev of 63.3b slowed to 12% yy and will likely slow to 10% yy in Q4. Tough comps along w/ China advertisers slowing since the EU stopped tax-exemption for small order e-comm. It was the worst qq Q3 since the 2022 slowdown.
Query growth remains healthy and they stated AI queries are mostly additive to traditional. Testing for ads for AI has gone fine and they will turn on monetization internationally soon.
Very hard to parse – obviously bears think search is moving to ChatGPT / Muse / etc. while bulls think search pie is just growing, GOOGL users are loyal, and GOOGL will enjoy last-click attribution (last place you search before you buy) (offset by maybe Muse becomes the last place you buy bc you tell it to find you the best deal).
Obviously tons of background questions come to the foreground with a miss, but these things don’t die overnight so my bias is probably more towards the upside bc turning on AI mode monetization can move the needle.
Margins of 41% were up from 39% last Q3.
Cloud
Rev of 29.7b (excluding maybe 1b in TPU?) accelerated to 96% yy w/ 5.0b net add vs 1.5b last Q3. They have big deals ramping through this year including the 16b ANT ARR. All good in this business line as the AI buildout continues.
TPU sales also are ramping and going well. ANT disclosed their 125-150b contract but that starts in 2028.
Margins of 37.4% up from 23.7% last Q3. There will be some pressure going forward as they use expensive SPCX capacity to fill supply-constrained gaps.
CAPEX productivity seems to be holding at around $1 of capex producing 70c of incremental forward revenue. I still have that dropping to 0.5x for 2027 rev and 0.4x for 2028 rev which means my cloud estimates might have upside.
YouTube
Rev of 11.2b grew 9% yy against a tough comp also w/ weak 152m net add vs 465m last Q3. Whatever, this business doesn’t move the needle.
Notes
Search
-AI searches 5x longer than typical search and vast majority are additive; also see users accepting ads
-Scaling more ads in AI mode including international for first time
->50b visual searches / mo
-Will bring agentic functionality into search like reservations
Agentic
-Will have experiences available later this year
YT
-Living room was 1/3 of ads
-Subscription growing faster than ads
->150m paid users
AI
-Working hard to bring on more capacity
-GOOGL-owned model API tokens up 40% qq and 4x yy
-TPU sales have begun
>2,600 customers have used at least 1b tokens
-Have sold >100m seats for enterprise
-Ulta beauty made AI shopping assistant that takes conversion up 3x [though could be self-selecting further down funnel users]
-Gemini adoption also drives agentic which drives purchases of more actions and add-on storage / compute.
TPU
-Strong demand across wide range of customers (CalTech, etc.)
-AAPL doing pretraining on TPU
-Entered into partnerships to deliver TPU systems w/ other cloud providers like ORCL
-TPU system sale involves networking, software, etc.
Waymo
-15 cities
->300m miles to date
Gemini
->1b users
Qtr
-35% of CAPEX was for data centers / 65% for servers which are alive for 6 years
-Commitments (do have pricing / volume flexibility) - 924 commitments and 152b in other commit
Actually, clues for this question are in the S1.
Top 5 customers qq growth slowed dramatically in Q3:
Q1: 1.7b
Q2: 3.0b (1.3b add)
Q3: 3.5b (0.5b add)
All other customers:
Q1: 3.0b
Q2: 8.5b (5.5b add)
Q3: 13.2b (4.7b add, maybe 5.5b add excluding distillation hw)
Caveat: I'm assuming the top 5 stayed the top 5 and accounts didn't enter / exit the cohort.
Re: ANT S1
What's the take on META / Cursor moving to in-house models given the language below?
Seems either very clever phrasing (Q3 was peak but then eroded thereafter) or, more likely, the big customers are still fine. Or META isn't a top 5 customer.
"At the same time, our largest customers continue to expand. For the three months ended September 30, 2026, our revenue from each of our top five customers reached a record high."
The slowdown in Q3 was partly attributed to inhousing but seems like that may not have happened?
Re: ANT S1
What's the take on META / Cursor moving to in-house models given the language below?
Seems either very clever phrasing (Q3 was peak but then eroded thereafter) or, more likely, the big customers are still fine. Or META isn't a top 5 customer.
"At the same time, our largest customers continue to expand. For the three months ended September 30, 2026, our revenue from each of our top five customers reached a record high."
The slowdown in Q3 was partly attributed to inhousing but seems like that may not have happened?
Seems like we may be good to go here:
-AI functionality is genuinely mind-boggling and ROI is obviously there (not categorically of course). People who say otherwise might as well try to convince me the sky is green. I just don't see it that way based on my lived reality.
-OAI growth expectations tempered from irrational. Funding will be completed soon.
-ANT had a soft Q3 but should accelerate in Q4. S1 looks great - no gotchas. Positive surprises in a lot of places - particularly with improving compute margins and being solidly FCF positive. IPO will get done at reasonable price. ($DXYZ).
-SPCX / META spending / capital raise plans already out there / getting completed.
-Hyperscaler earnings likely all positive.
-Semi supply constraints likely limit spending growth in 2027 regardless of customer balance sheets / appetite. Helps de-risk pace of investment and lower probabilities of a big digestion period in 2028.
-Multiples basically at trailing lows w/ US yields stabilizing / improving.
-Momentum selloff pretty fierce compared to priors w/ X filled w/ AI bears doing victory laps. So always better to be buying into negativity.
Let's see.
3 random thoughts on $META
1) Re: The Cheeky Pint podcast - It's kind of crazy they admitted that their AI buildout is a huge bet that will have "very, very, very bad" financial consequences if it doesn't work out. Especially bc monetization is likely far into the future so doesn't that suggest 2027 potentially sees material EPS headwinds as the depreciation comes online?
I get it. There isn't a way to be competitive in AI w/o making big infra bets and I'm sure they were excited in the moment about Muse success. But certainly pulled the curtain back a bit...
2) Muse is great. I get a monthly note on all local events in my area (sports, music, theater, restaurants, etc.). I paid two parking tickets with it. And I have it looking for a new pair of dress shoes and a PS5 Pro (we haven't found either to my liking so the search continues).
But I'm not sure what else to do with it so I haven't checked the app much after that.
3) I assume the Muse data will be added to the knowledge graph. That's interesting bc now META knows far more about me and my ongoing searches. I would think that has to improve targeting / pricing on core META properties.
As opposed to just showing me general products that match my interests / pixel data, they now know that I am in need of new dress shoes on an ongoing basis since the search is still outstanding - and I would think advertisers that have shoes exactly like or even adjacent to what I'm looking for would want to target me on FB / IG.
Anyways, the thought is maybe monetization of Muse actually first shows up as higher monetization of core META.
Ok, it might be over folks.
Anthropic revenue disclosure maps to ~5.8b in September revenue or 70b ARR which means August / September only increased by 2-3b ARR in each month.
[There is no way that ARR is calculated using last day of the month as that would be more aggressive than anything I've ever seen out of companies this size (exception: Musk).]
Worst monthly numbers by far this year. (Maybe some self-infliction from cleaning up distillation?).
My rough math indicates OAI / ANT ARR monthly add softened from 16b in July to 10b in Aug to 9b in Sept. That is no bueno...
Supportive of the view that either CAPEX is getting cut or pricing is going to weaken substantially.
For what it's worth, I think Anthropic ARR and revenue are both gross per their consistent commentary that they are the principal in transactions.
So the revenue and ARR tie nicely, and mention of 85% GMs likely means the cloud partner share is categorized as S&M.
So I think this all foots.
And, fwiw, Claude says cleaning up distillation is at most 500m / mo headwind so that's not it. But apparently company is saying otherwise?
Dumb question but what's the advantage of $META having spent 100b+ to develop their own model under Muse, as opposed to having kept that money and just built Muse with whatever model gets the job done?
$MS Q3 CIO survey had some interesting results.
These surveys aren't super reliable - partly because big company CIOs are often very political so have to take all feedback with a grain of salt.
Highlights
-AI is at top of enterprise priority list. Basically every other category decreased including security.
-LLM share of AI spend jumped from 11% in Q2 to 16% in Q3 – not surprisingly the biggest jump.
-LLM share of AI spend over next three years jumped from 17% in Q2 to 21% in Q3 – again, the biggest jump amongst answers
-Nearly all SaaS companies declined in expected incremental share of AI budgets – foots with slow progress on product / sales of AI products at SaaS companies
-50% of CIOs said they were funding AI from net new dollars directed towards AI.
-50% of CIOs said they are not using any open source AI models today; 4% said open-weight usage is >50%. [I’m honestly guessing most CIOs have no clue or answered for budget share and not workload share]
-42% of CIOs said not sure about ROI on token spend. [Again, CIO’s are typically large company politicians so not sure what to make of this answer. Also what was the immediate ROI on giving employees PCs or cell phones?]
-43% have token spend controls in place
OpenAI at 70b net never really made any sense intuitively.
Still seems like net ARR added in September was 17b similar to 17b in August. 17b is still pretty ridiculous and suggests we finish the year ~200b gross across ANT / OAI.
Another day, another bit of AI functionality, and another question as far as incumbents...
So I previously tested $FDS MCP which was a huge advance for AI financial functionality, and a growth driver for $FDS subscriptions (call it 20% uplift to enable).
And then today I tested just using OAI's computer use on the regular desktop session, and it worked pretty well albeit a lot slower.
Kind of funny how quickly some of the SaaS bear points from earlier this year are materializing...
In this case, it's that usage of the SaaS app becomes more automated from outside and becomes unmonetizable...
(Separately, being bullish on $CRM Claudeforce is really puzzling to me - that felt more like a defensive point for the SaaS won't go away tomorrow than an offensive point for SaaS will participate in AI).
Should have added that OAI simply saved down that I have $FDS and will just use it when it needs to going forward....!
I'm really curious to know what percent of $GOOGL / $AMZN ad spend consists of brands buying sponsored listings for their own search terms - basically spending to defend their own screen turf from competitive ads.
See below for searches for Speedo Goggles:
GOOGL: The entire visible screen is sponsored ads which Speedo has to pay for. The next screen down has Speedo in a thin organic result followed by a Deals market ad where Speedo again has to pay for shelfspace.
Using Gemini search for "Find me speedo goggles" only showed Speedo branded goggles.
AMZN: Speedo has an organic link in the bottom left and right, and otherwise is surrounded by competitive listings. Interestingly Speedo not paying up here (maybe realized using branded term this close to checkout means consumer is buying Speedo regardless).
Using Alexa AI search for "Find me speedo goggles" only showed Speedo branded goggles.
I personally find GOOGL / AMZN search results to be over-monetized w/ ads that don't add value - and, in fact, make it more annoying for me to find what I want.
AI search for products on AMZN works really well for me fwiw so I must already be seeing far fewer ads simply by this usage shift.
I don't really know what happens to this "traffic defense" spend in an agentic world. Feels like it would be less necessary in a world where agents need to be trustworthy to win consumer preference. So hard to imagine I ask an agent for speedo goggles and it spends 80% of the answer discussing competitive brands like regular search results do today...
Maybe consumers always want choice so there is room for other brands to pay to be mentioned within the AI results - while still not being dilutive to the consumer's experience?
Or, maybe agents can find the best 2-3 products so less need for brands to advertise within search and just put those dollars towards improving product quality / Internet posts to drive agentic preference?
Random thoughts...
