I Can't Stop Buying this Stock - Why The Market's Getting it Wrong

In today's video, we are going to be discussing Meta's large settlement that it just had, what it means for the business and the share price and also why the stock hasn't responded as well as many people thought it would, including myself. It's kind of interesting. Then we are going to quickly discuss what seems to be the SAS apocalypse ending and why so many software stocks have been rallying so hard with Viva Systems up over 20% over the past couple of days along with Salesforce. So, I'm going to share my opinion as a software investor who has officially survived the SAS apocalypse and also some interesting data there. So, with that being said, let's just hop right into the video and let's get started with Meta's large settlement that it just had. So, just like last time, I created a quick presentation on everything that you need to know. And what I did is I read the Meta announcement. I went through it and then I created this presentation to give you all of the highlights. So, first off, let's discuss the changes that Meta needs to make to its platforms. And all of these changes are specifically for minors, which are people under the age of 18 in the United States. The first one is a default 2-hour daily limit across its apps that teens can only disable with parent permission. A night mode from midnight to 6:00 a.m., which blocks feed, stories, reels, and the explore feature. a school mode, which mutes notifications from 8:00 a.m. to 3 p.m., continuous use prompts that warn the user every 15 minutes. Teens will also have a non-algorithmic feed as the default. Teens will be able to turn off autoplay. Teens will also have likes hidden by default. There will be stronger age assurance and detection technology. And then lastly, there will be an annual independent auditor review to make sure that Meta is playing by these rules and that they are all actually being enforced. And I'll save my opinions for the end of this quick Daniel Prong slideshow. So, let's move on to the next slide now where we talk about the actual financial damage to Meta's business. Meta settled for 12.7 billion which goes directly to their participating states over the next decade. Then there is an additional $5.3 billion that is being withheld and will only be released if YouTube and Tik Tok each implement 1-hour daily limits, night mode, age assurances, and agree to pay 30% of this total fee. If Tik Tok and YouTube both agree to these terms, then the total will be $18 billion paid over a decade, which equals $1.8 billion per year, with 12.7 billion of that being actually confirmed. Meta also announced that it will post a $10 billion legal charge against its earnings in the third quarter, but guidance remains largely unchanged. This next slide talks about the legal overhang that's actually being removed from this settlement. It does resolve a lot of the issues, but not all of them though. But the ones that it does solve are the entire state coalition is now comprised of 52 state attorney generals across all of the United States territories and Washington DC. The states have waved the appeal and are all settling. This specifically removes that large $1.4 trillion scary headline risk and that has now been reduced to $18 billion in settlement fees over the next decade which is obviously a massive win for Meta. The remedies are also all for miners which are not Meta's core business or revenue generator. So this is very bullish for Meta and does remove a large amount of the legal overhang. However, there are still legal overhangs that exist. The first one is that individual personal injuries are still on the table. This is the over 2400 consolidated federal suits from families and teens. This settlement doesn't touch this. For example, the $6 million KGM settlement came from this pool. If the KGM verdict is repeated across all 2400 of these remaining cases, then Meta's total fine could be $14.4 billion. So Meta could still have tens of billions of dollars of legal risk that it needs to deal with. Then there are still the school districts and local governments that are still suing Meta and that is not dealt with either. But again, that large $1.4 trillion legal risk has officially been closed. So now let's talk about my verdict on all of this. So starting from the top, $18 billion over a decade is nonmaterial to Meta's business and thesis. Meta's business has done $130 billion in trailing 12 months operating cash flow. So, it can more than handle these payments. For example, this is only 1.4% of Meta's total annual operating cash flow at this time right now. And over the next 10 years, Meta's operating cash flows should continue to grow significantly. So, this $ 1.8 billion annual settlement fee is going to become less and less relevant over time. I also don't believe that the changes for teens are going to impact the long-term adult usage, and I believe that eventually they're going to become adults and continue using Meta's platform. The scary 1.4 trillion headline risk is also gone, and the settlement is only a fraction of that, and you can really see how the headlines were just trying to scare people. However, there are still more legal risks that remain, but none of them are going to be material to Meta's business over the long term. In my opinion, I'm pretty surprised that the stock isn't up more after this news as it's removed an overhanging potentially large risk from the business. So, what did I do? Well, I have bought more shares and I have continued to increase my Meta position quite significantly while all of this drama has been happening and the stock was under $600. In fact, it still is under $600 and Meta has become one of the larger positions in my portfolio during all of this drama. So, now let's move on to some new bullish news that has been coming out for Meta. The first one is that Meta Muse Spark, which is its large language model, has been moving up the frontier rankings while keeping its cost to operate extremely low. For example, in this chart right here, we can see that Meta Muse Spark 1.2 is now behind ChatGpt 5.6 while also being less than 110th of the cost to operate. I believe that it's very bullish for Meta to have one of its own frontier models that is also significantly cheaper to operate. I think that this is going to unlock a lot of efficiencies for the business and allow it to continue accelerating its advertising business as well. This next screenshot came out recently and it shows that in certain benchmarks, Meta Muse Spark is actually better than Chat GPT and is right behind Clawude Opus 5. Meta is also shipping new updates and models faster than OpenAI and Anthropic recently and is about to announce its new watermelon models. These watermelon models are being teased to be on par with Anthropics, Fable, and Mythos models, which would put Meta's models right at the front of the frontier as well. I believe that this is continuing to show that Meta's capex and investments in AI are starting to really pay off and I believe that these models are going to start producing more revenue for the business over time as well. Moving on, I want to talk about another potential revenue generator for Meta over the longer term. And this one is Meta creating its own AI cloud and selling its excess compute. This chart on your screen right now shows that by 2030 is estimated that Meta could have 5 GW of excess compute capacity to sell. And with the world being so compute constrained right now, this is like Meta sitting on a ton of future gold and revenue potential. For example, currently Cororeweave, NBIS, and Iron get about $9.5 million in annual revenue per megawatt of compute capacity. So if Meta has 5 G of excess compute by 2030, then the revenue potential for the business is $50 billion per year. This would be a brand new revenue stream that's equal to about 25% of Meta's current business. It would also be a cloud business that was as large as Google's in 2025. So, this is a brand new huge revenue optionality that Meta could really stand up at any time if it is not actually going to be using that additional 5 GW that it is building. Now, obviously, this isn't a guaranteed brand new revenue stream for the business, but Mark Zuckerberg has made it clear that it is an option for them if they want to monetize this compute capacity or if they are not using it internally. It's kind of like the backup plan for the business. And having a $50 billion per year revenue potential backup plan, I think is a pretty good, you know, bad option or bad outcome here. All right. Now, the last thing that I want to talk about quickly is Meta's other revenue because this is something that I didn't discuss in my Meta's earnings video, but I think that it is pretty important because Meta's other revenue is starting to grow very quickly and it is scaling to be quite large. For example, in the most recent quarter, Meta did over $1 billion in other revenue and it grew by 73% year-over-year. Now, this revenue is almost entirely made up of WhatsApp revenue, which comes from the WhatsApp business platform. This is the platform that businesses use and pay Metaphor on a per conversation basis. And in Q4 of 2025, it was announced that this business was doing $2 billion in annualized revenue. and it is now doing about $1 billion per quarter. So, it seems like this business is accelerating and on an annualized basis actually has more than doubled over the past couple of quarters. So, WhatsApp seems to be scaling and growing extremely well and it seems like it's also just getting started and could be a large revenue generator for the business over the longer term. Now, why I want to point this all out is because Meta's forward price to earnings ratio is still sitting around 18.6. So, this business is still trading for under a 20 forward price to earnings ratio despite it being one of the highest quality businesses in the world in my opinion, still growing well over 20% and has a ton of future optionality to continue growing the business and diversifying the business over the longer term. In other words, I think that at an under 20 forward price to earnings ratio, I am getting a discount on Meta's existing business and I am not paying for a significant amount of future growth and future revenue and cash flow optionality that I believe is also being created right in front of us. So to me, I continue to believe that Meta is one of the best buys in the market today. And I have been consistently and aggressively been building out my position again under $600 per share. and Meta has become one of the largest positions in my portfolio in this price range. I simply believe that a large amount of the legal overhang has completely disappeared. The business is continuing to grow. Its AI investments are continuing to pay off. Its models are getting to the frontier and I'm not even paying for all of that optionality today. So, I believe that the stock is still very undervalued and should produce some great returns going forward from here. With that being said, let's now move on to the second part of this video where we discussed the SAS apocalypse being over and software stocks rallying. What really seems to be the catalyst this time is Viva Systems reported what seemed like pretty decent earnings and the stock rallied by over 20% the following day. The exact same thing happened to Salesforce because Salesforce reported on the same day and Salesforce stock has now rallied by over 25% I believe just going off of my memory here. But the stock also responded very very well to its earnings report. So it seems like Viva Systems and Salesforce earnings results have kind of dissipated the fears in the software industry and now all software has been being bit up quite significantly with even Service Now and even Adobe stock seeing quite a bit of momentum. So, what I want to do is quickly show you some of the highlights from Viva and Salesforce earnings reports and share my opinions on them and what I think is very interesting about this SAS rally that we're seeing. So, let's start off by going through Viva Systems earnings very quickly. So, this first screenshot right here shows us Viva's total annual revenue and its guidance for its fiscal year 2027 that the company is actually currently in. And we can see here that in fiscal year 2025, their subscription revenue grew by 20%, in fiscal year 2026, it grew by 17%. And then in its fiscal year 2027, the company is guiding for its subscription revenue to grow by roughly 15%. In its fiscal year 2026, its total revenue grew by 16% and it's expecting about 15% total revenue growth for 2027. Now, why this is interesting to me is because Viva is still expecting its revenue growth rates to decelerate this year and it's not really expecting any further acceleration. So, right off the bat, I am pretty shocked that the stock responded so well to its earnings report because the business doesn't really seem like anything has changed. It's still expecting revenue growth to decelerate. This next screenshot shows us Viva's total revenue on a quarterly basis and their guidance for their next quarter. And they are expecting total revenue growth to decelerate from 18% this quarter to about 15% next quarter. So they are also expecting their next quarter's revenue to be a further deceleration and actually the lowest amount of growth that the business has seen over the past 18 months. So again the business is still expecting further deceleration but now the stock is responding extremely well. Moving on to the next screenshot. This one is the normalized billings and we can see that for the full year they are expecting normalized billings growth of 14% which is a deceleration from fiscal year 2026 15%. So again even on this basis the business is expecting a deceleration. This next screenshot shows us their operating cash flow annually and their guidance for this year and really what you need to know is that their operating cash flow margin is expected to be in line with 2026 at roughly 43%. And by the way, I think that this is actually bullish for the company because it seems like its fundamentals are still growing. It's still very profitable. Its margins are still very high. But what I'm trying to show you is that these results aren't seemingly anything special. The business is expecting its revenue to decelerate. It's expecting that to continue happening. It's actually expecting the largest deceleration on a quarterly basis over the past 18 months. And its margins are remaining in line. That's not necessarily the most bullish report that I have ever seen. Still a good report, but nothing really gamechanging or thesis changing here, at least in my opinion. So, let's head over to Stock Unlock really quickly and take a look at some more of Viva's metrics here. And here we can see that its revenue is clearly at an all-time high in the trailing 12 months of 3.5 billion. And again, don't get me wrong, this is still very strong growth. I am bullish on this business and I think that this was a good earnings report. And if we turn on the percent change to revenue growth here, we can see that Viva Systems has seen a very large deceleration to its top line and it's about 16.5% trailing 12 months revenue growth rates are in line with what the business has been seeing over the past about 3 years now. So again, what I'm trying to show you is this really isn't a thesis changer here. This is just business as usual for Viva Systems. So then the question is why is the stock responding so well and why was it up 20% after this earnings report? And in my opinion, it's simply because the stock got way too cheap. I actually covered Viva Systems during the SAS apocalypse here on my channel. I did a quick segment on it. And at the bottom here in June, Viva was trading for only 10.7 times enterprise value to free cash flow. This is at the same time as the business is still projecting to grow its revenue and cash flows by about 16% per year. So this was a 10 basically an 11 price to free cash flow on a very high margin software business that is continuing to grow by double-digit growth rates. To put it simply, I think the SAS apocalypse got way too far and I think that those fears were way overblown. And what is happening now is the multiples across SAS are continuing to expand and correct themselves with Viva now trading for an enterprise value to free cash flow of about 24. So the vast majority of the share price growth that we have seen across software is actually simply due to these businesses multiples getting back in line with their historical averages. And I believe that this is happening because as time continues to pass it is very clear that these businesses are not being disrupted by artificial intelligence. So them selling at steep discounts, which was basically pricing in that software was going to be disrupted and the fundamentals were going to decline. Well, now that it's becoming more and more clear that software as a whole, well, there's some software companies are probably in trouble. But in the vast majority of cases, it looks like software is not being disrupted and these businesses are continuing to grow. And in fact, some businesses are actually accelerating. So it seems like the market is now waking up and saying, "Oh, well, maybe software isn't dead. Maybe these businesses are fine." And then if that's the case, then they looked ridiculously cheap during the SAS apocalypse. Again, for example, Viva Systems was trading for about 11 times enterprise value to free cash flow at the bottom there, which is a steep discount to this business's fundamentals and intrinsic value in my opinion. So, now let's do the same thing with Salesforce and take a quick look at its results as well. And here we can see that its revenue came in at 11% year-over-year growth. Its remaining performance obligations also grew by 11%. Its total subscription and support revenue grew by 11% on a constant currency basis and its agent force apps grew by 8% year-over-year. This is not a blowout report in my opinion. Salesforce is still growing. That's very good, but its growth rates are not really accelerating that much and it's still growing by only 11% per year. However, the stock responded by being up well over 20% on the day. If we take a look at their guidance, they did up their guidance for revenue to grow by an extra $200 million this year, but it's still only projecting growth of about 11.5% to revenue this year. It's also expecting its free cash flow to only grow by about 4.5% on a year-over-year basis, which is nothing stellar. This is not a stellar report from Salesforce. And if we go take a quick look at Salesforce revenue and turn on its percent growth rates, we can see that its revenue has accelerated from about 8% in the first quarter of 2025 to about 11.2% now. But you can see that this is not really a large acceleration from last quarter. It is a very very slight acceleration. And when I'm just taking a look at this chart, it's not suggesting to me that the thesis has changed or anything really with the business is fundamentally different than it was 3 months ago. All that is changing is the investor perception and bullishness towards software. It is becoming more and more clear every single quarter that passes that these businesses are not being disrupted. And what is happening is the multiples are simply reexpanding and getting back in line with historical averages. So my overall thoughts towards the software sector rallying now is that fundamentally it doesn't really look like anything has actually changed. What is going on here is you are seeing in real time how emotional and narrative driven the market is now. I have said this previously on my channel but the market seems to be so focused on what the headlines are saying and it doesn't seem to be focused on fundamentals anymore at all. Basically, what drives the share price movements of stocks in the short term now is whatever the headlines and narratives can spin and convince investors of. And I think that the software industry has just provided you with a very real example of this. Not even a year ago, it was the common consensus that software was screwed. All software stocks sold off because AI was going to disrupt the entire sector and every single company was going to be dead in the water in a few years. that has been proven to be false. Now, these businesses are continuing to benefit from AI, which is something that I said was going to happen on Twitter. I put out posts over the past couple of months saying, "Let me share a crazy idea with you. What if software actually benefits from AI?" That was like a radical idea just a few months ago. But now these companies are coming out and saying hey software is actually one of the industries that's that where AI benefits us very tangibly and our businesses are seeing slight momentum and slight acceleration and now everyone is buying backup software companies but nothing fundamentally has changed that much in this industry. So again what I'm trying to say is you are seeing in real time how emotional and narrative driven the market is. Now, as a fundamental investor, I actually love this because volatility is what creates opportunities to buy highquality businesses like Viva Systems at very, very cheap prices. If you are someone who can cut through the noise, focus on the fundamentals, and be able to think for yourself at the end of the day, then you will be able to find opportunities by simply focusing on the facts. And the facts in software are that the vast majority of software companies are not going to be disrupted by AI. they're going to use AI and AI is going to be a tailwind for their companies. So while that was the fact and these prices got down to 10 times cash flows that provided a great opportunity for people who were focused on the fundamentals and the facts to buy at very very cheap prices. So what I'm trying to say is I believe that investors should be somewhat thanking this market because this type of narrative emotional driven market is actually what creates better opportunities for long-term investors to get better entries. I know that it can be scary in the short term. I know that the market is more volatile than it's ever been. But this is actually the type of market where you can make the most money as a long-term investor if you remain focused on the facts and the fundamentals. And that is what I try to do here on my channel. But with that being said, that is going to wrap up today's video. So if you enjoyed, then please remember to leave a like on it. And if you want to stick around and see more content like this, then please consider subscribing to my channel as well. And as always, thank you so much for tuning in. I truly do appreciate it. And I hope to see you again in my next