META Drops After Earnings Miss: Is the Long-Term AI Bet Still Intact?

increasingly important CapEx guidance for the year by $5 billion. It's now time for our 360 round. Our panel joining us today to take a closer look at the numbers, Ali Moghrabi, equity analyst at West End Capital Management, and Lauren Cassidy, CIO of founder ETFs. Lauren, let's start with you. And we're looking at meta down almost 9% right now. What are some of your key takeaways from the report we got yesterday? Yes, it was a disappointing quarter. You know, sales beat 1%. Earnings missed 28%. Sales did grow 28% year on year. Meta now reaches 3.6 billion people daily. But they also were a little bit light on their sales guidance for next quarter, coming in at midpoint 62.5 billion versus 63 expected. They also, as you mentioned, narrowed CapEx guidance. So it's now 130 to 145 billion. They raised that low end 5 billion. So that indicates to me they have even greater confidence in the AI investments they're making. But it's eating up all of their cash flows from operations. They had the lowest quarter they've had in a year for free cash flow generation. So all in all, a disappointment. And Ali, despite all of the headlines that we're seeing today and all the headlines around AI, you point out that their ad machine is still firing on all Cylinders. So as you look at the results and the reaction, is the core business actually stronger than the street is giving it credit for right now? The core business is, I would say, stronger based on the Q2 numbers. Yes, than the street is giving it credit for. However, the street, as you're, I guess, also mentioned, the street is also looking ahead. So when you're looking ahead, you know, the guidance that they gave for Q3, I mean, that's deceleration. And you don't want to see that with a firm that's, you know, dependent on only one revenue model, which is right now pretty much all advertising and at the same time spending so much heavily, you know, in terms of CapEx and seeing its free cash flow, dwindle. So it's, the street, what the street wants is, and I think this was very unclear on the call was how are you going to monetize all of these, this, these two huge data centers that you've begun to build and, and, you know, in terms of monetization, are you going to go to the enterprises specifically or any hyperscalers showing interest in working with you on those, in those data centers? So, you know, the, the dependence on only one type of revenue model, which is advertising, in my opinion, is shows demonstrates a huge, huge risk for this company again, especially as it continues to spend a lot on, on data centers and on its, computational capabilities on AI. And Lauren, you both mentioned capital spending, of course, a huge focus here, free cash flow, then falling to 784 million, which Ollie just hinted at there. At what point does AI investment just become too much to accept? Mark Zuckerberg made an argument on the call saying, these investments are going to create the next generation of AI products and services. Do you view investors still trusting that vision overall, or has this proof of monetization concept just taken over for meta? Yes. Mark said that this is going to be the next big thing at founder ETFs. We believe in our founders. Mark has the vision, conviction and grit. So even though we're disappointed by today's results, we do, stand by meta. And we still believe in the long term thesis. By our estimates, the compute required to switch from just a Google user over to AI is about triple. Right now we only have double to triple capacity plans. So we're very comfortable with the giant projects that have been announced. We think the, that he's making, a big bet, but we believe that it will play out over the next five years. And Ali, I want to dive into the free cash flow concerns here because you called this a low quality beat. Highlighting free cash flow is one of the reasons it was low quality. And it's concerning how concerning is the dwindling, I think was the word that you used free cash flow for a company like this that has historically generated enormous amounts of cash? Well, it's pretty concerning. And, you know, you could one can say the same thing about some of the hyperscalers, some of the other hyperscalers, such as, you know, Alphabet and Amazon. But what I would say again, the, the main difference between those two and meta is that they have a diversified business. They are generating, they're monetizing various types of assets, you know, through different types of revenue models, rather than just purely based on advertising as, as meta is. So, and at the same time, of course, they are the two largest or two of the three largest players on the cloud side of the business. So they've already begun to monetize all of these data centers and or the, you know, the, they're starting to, actually recognize, return on all of that CapEx. We can probably see that accelerate even more in Q3, Q4, I'm sorry, in Q4 and beginning of next year. But with meta, there's still that uncertainty on in terms of what is the ROI on all of this CapEx that you're spending? And on top of that, you're still not very clear in terms of the monetization. You're telling us that, for example, you know, you've got, eight gigawatts of this data center computation capability and you may be able to, you know, monetize one gigawatts of it, but who is going to be your client? Is it going to be individual enterprises or is it going to be, are you going to partner up? Or are you going to actually do business with a hyperscaler such as an alphabet, a Microsoft or an Amazon? So these uncertainties, in my opinion, are continuing to drive the stock down. And unfortunately, management has also historically talked about introducing new products, introducing new businesses, hitting, getting to getting into the B2B side of the business rather than the B2C that it's been on for a long time. And we haven't necessarily yet seen any return on those types of, promises and or investments. So, we're just waiting for more clarification. All right. A lot of questions reflected in the price action today down almost 9% for meta. Thanks to both of you for being