3 Stocks to Buy After Earnings — Before Wall Street Catches On

Hey everyone and welcome back to the channel. I'm Rachel and today I'm joined by Jose again. We are in the thick of another corporate earnings season. >> Now before we continue with today's episode, if you want market beating stock picks from our analyst, make sure to check out the pin comment and the description. Using that link gets you a promotional offer as our thanks for being a viewer. Thank you and let's get back to today's episode. pick is a tech giant that Wall Street has been punishing a bit recently because their infrastructure spending is getting expensive. Walk us through why you think the panic around meta platforms is completely wrong. Welcome back to another episode and like Rachel mentioned, we're going to look at stocks. The first one I have is Meta Platforms and the market seems to hate capital expenditure right now. That seems to be an issue this quarter, last quarter. And unfortunately, I don't know when this turnaround story is going to happen. But I am extremely bullish in the results that we're getting from Meta. I mean, if you look at just their latest earnings report, the headline numbers were amazing. Revenue jumped 28% year-over-year to over $60 billion. But Wall Street still decided to, you know, drag the stock price down mainly because this company increased their fullear capital expenditure guidance between 130 and $145 billion this year. And I think for Meta, unfortunately, the biggest issue is unlike other cloud players, you really can't see that revenue number come in. Meta can't go and say we grew cloud 45 or whatever percentage because of this AI demand. And the market wants to see a true revenue number. But they actually do give us their core business is all driven by AI. Based on recent earnings, we saw an increasement in engagement. So this advertisement platform is deciding or or this AI in infrastructure is deciding and it's reading it's learning what you watch and say the next thing I want to show you is this video because I know you're going to stay in this platform a lot longer and if you stay in this platform a lot longer guess what I'm going to be able to give you this ad that I know you're going to be able to click and my advertisement revenue my advertisement efficiencies increase all thanks to AI. So, Meta's core business is completely completely beneficial of this AI market and this AI investment. Yet, the market is punishing it because unfortunately, Meta does not have that clue, that true AI revenue number. And I also wonder if that's what some investors were expecting because there had been some rumors in the past that Meta was planning on renting out its compute and kind of start that new compute cloud business. During this most recent earnings, Mark Zuckerberg pretty much mentioned said that yes, that's an opportunity for them, but their long-term goal is to actually sell AI intelligence. And what does Meta mean by AI intelligence? The main thing is when you have AI infrastructure, there's three ways to make money with AI infrastructure. The first way is the simple rent out that AI infrastructure itself. And you get some margins based on a company paying you to be able to serve their AI model. The second is being an AI model and renting out AI compute and selling that token, selling that intelligence. Like anthropic, Anthropic doesn't own a lot of data centers. What they do is they go to Google or somebody else, they rent the infrastructure, they have some margin on that AI intelligence and they sell that. Well, Mark said those are great businesses, but the best business out there is having the AI infrastructure and having an AI model and selling the final token because now you no longer have to pay that middleman margin. And that's what we're actually seeing some improvements in. Meta is actually doing extremely strong with releasing new AI models. So I think while there's not a guaranteed, there's a road of success of Meta eventually being able to use a lot of that AI compute, sell its AI models with it, and be able to make a high margins. So before I I pass it to you Rachel very top level I believe the market is not grabbing that this AI investment is crucial for its core business and it's also not grabbing the opportunity that it can do once these AI models become more frontier and Metat is going to be able to sell both compute and intelligence to its customer. >> Yeah. I mean I think that Zuckerberg's long-term vision as it pertains to AI models is clear. I I think one of the things that we're seeing from some of the bears and and I even feel this way to a certain extent is just the execution risk when a company is deployment heavy on this scale. I mean we we go back to several years ago Meta Platforms of course changed its name from Facebook went all in on the metaverse invested heavily in a space uh that turned out not to be a money maker for the business nor broadly for a wide range of other tech companies. Obviously, I think you what we are seeing in terms of the AI buildout is a very very different type of growth story that Meta can capitalize on. But you go back to 2022 when the stock hit I think $90 a share. Now the stock's pushing $600 a share. I mean the core ad engine is healthy obviously huge user network but they are looking at capex almost out of $150 billion and I think if you look at that as a as a guaranteed land grab it's a pretty steep assumption now Meta has over 3.2 two billion people using their apps every single day. So that does give them a huge data loop for training these llama models. But unlike their legacy advertising business, which by the way, where Meta is benefiting the most from AI right now is optimizing its own advertising business, right? That that's where they're seeing the growth. Looking ahead, they're wanting to, you know, uh monetize these AI models. But AI infrastructure utilization, it comes with persistent power and depreciation costs that hit the income statement immediately. they compress margins, impacts cash flows. So, I think that's something for investors to watch. You know, if enterprise monetization or or some of the small business ad automation tools don't scale fast enough to offset some of that depreciation or you see a slowdown in ad budgets, you know, those margins might not be as heavily protect as the bulls think. I think, you know, if you're an investor, buying the momentum, it's important to understand that any delay in AI monetization could bring high volatility back to Meta's valuation very quickly. Doesn't mean it's not a solid business, but I do think these are some points to consider as well. >> So, Rachel, now outside of Meta, right? I mean, Mac 7s get bored. We have to look at some companies outside of Mac 7s, and I think your second pick is one that I actually own. I do enjoy, but it's been a real slacker in my portfolio. I'm not going to lie. What's the second stock pick? >> Yeah. Well, I I wanted to talk about Uber. You know, they reported their earnings the the stock suffered a bit of a a pullback and this was what I would have considered to be close to a home run of a quarter. I mean, they saw their gross bookings jump 22%. Year-over-year adjusted Ibata grew 33%. I think the thing that I found to be the most fascinating is hearing more from the CEO and management about the vision for Uber to be a key winner in autonomy. Right? I mean, we've seen some analysts worried uh that Tesla's uh your robo taxis or or Whimo's expansion of its uh autonomous vehicles might render some of the networks that Uber is known for obsolete in the coming years. You know, Uber is very much forging its own path within this space. So the CEO noted that autonomous driving will fragment in his view much like tech operating systems did and that means that fleet operators are going to need a commercialization layer on top of that to find the passengers to keep the asset utilization high. So Uber announced a multi-year plan. They're going to invest about $10 billion into the uh autonomous vehicle ecosystem. They're, you know, taking equity stakes and software partners. They're building out ground infrastructure and they've launched their brand new AEV Labs division. So AV Labs is actively sending out sensor equipped cars to collect hyperspecific ride share focused data to improve path planning. They're targeting a launch in 15 cities by the end of this year. And this is through partnerships uh with a wide r of operators including Wave Zuks. For anyone that's not familiar, Zuks is owned by Amazon. You know, obviously there are I think a lot of potential headwinds to this continued roll out. You know, we've seen that they're winding down some of their existing partnerships with the likes of Whimo, but when you see that their current automated fleet is already hitting a utilization rate of the mid20s to low30s in trips per vehicle per day, I think that shows that the hardware makers need Uber's marketplace far more than Uber needs to build its own cars, right? And so I I think some of the things that Wall Street maybe sees as a threat to Uber, I actually think it these are long-term tailwinds for the business. I think investors might have a buying opportunity here. >> Yeah, I I mean I love this pick, Rachel, because I mean Uber has transformed from unprofitable quotes into a dominant cash generator. And I I agree. Wall Street is kind of like thinking robo taxis is an uber killer when in reality this is an additive to the business. Right now, right, if we think about their business model, their biggest expense is the drivers. So in autonomous vehicle if they decide to scale up you kind of reduce that expense and in theory you should have a margin expansion year for this player. Now, one thing that I also like, Rachel, is many people see kind of the Whimo partnership. We've seen some fading where they're no longer working in certain cities together. But as a consumer myself, I I I went to Austin about a year ago, I think, and at the moment, I could either have the Uber app and I had the Whimo app to try the Whimo car. I didn't want to download another app. I was like, "This is it. I rather just take Uber now. I don't care if I can't get the autonomous vehicle just because I didn't want the shift of creating a new act, creating a new account, adding another payment there. And I believe as we continue to go to this autonomous world, that mentality is going to be shared with various consumers. I don't think consumers are going to want to have five different apps for five different car makers to be able to see which one has the best pricing. I think we're going to have one marketplace and that's where Uber is going to dominate and continue to win. >> And as autonomous vehicle fleets scale up, and this is going to be long term, right? We're not just talking the next couple years. We're talking the next 10 years, maybe 15 years, you know, Uber uh doesn't need to take on the the capex of of course buying uh these vehicles. they can continue that asset light approach where they act as the software marketplace layer that routes those autonomous fleets to passengers just like they have connected rides to passengers for years now. I think it's a very very natural next step for a platform like Uber. I completely agree, Rachel. And now I'm looking at stock number three and I'm looking at our notes. It's lunchtime while we're reporting. I'm actually getting hungry. I wonder if after this I'm just going to go out and pick up a bowl. But uh what's stock number three here, Rachel? >> Well, you gave a a good hint. I'm going to talk about Cava Group. You they just reported earnings uh a few days ago at the time that we're recording this video. This is an interesting one. I mean, I when we talk a lot about tech stocks, Autonomy Stocks. I wanted to bring something from the consumer space. You know, Kava just reported their Q2 results. They saw revenue grow 31% year-over-year. same restaurant sales climbed 9%. They had a more than five uptick in guest traffic. That basically means that they are pulling in more customers through the door at a time when a lot of the traditional fast casual peers are actually seeing negative traffic trends. Now, at the same time, we've seen, you know, some volatility of course with the stock over the last year. I think there's been a lot of concern and sort of apathy from investors towards a lot of the consumer stocks, a lot of the fast casual stocks because obviously in a time of, you know, macro difficulty, consumers are scaling back on, uh, you know, discretionary expenditures, maybe going and picking up that bowl at at Cava or, uh, you know, Chipotle or these other spots would seem to be something that's not as high in the priority list. But Coma is doing actually a really really good job of not just retaining but increasing their customer traffic. I think when you're a long-term investor, you really want to look at the unit economics of a business like this. You know, investing in the restaurant space, investing in, you know, food stocks is not for everyone, but they closed this quarter with a restaurant level profit margin, just under 26%. Another great quarter of positive cash flow. They're carrying zero long-term debt against about $435 million in cash and investments. Now, this is a really small operator compared to the likes of Chipotle, which I feel like is often the the comparison that we make when we talk about these kind of stocks. They have about 476 restaurant locations nationwide. You know, Chipotle has close to 4,000. So, they're really in the early innings of what could be a decadesl long expansion of their footprint. They're already seeing their systemwide average unit volumes, you know, per location have hit uh $3 million. Importantly, Cava is a business that has been really, really hesitant and careful in terms of raising prices. That is something that we have seen a lot of the other fast casual restaurants struggle with. Cabba has been really really hesitant to pass any of those cost increases on to consumers and it seems to be working and it's showing up in the financials. So interesting little business. If you have any desire to put some cash to work in the food stock space, maybe take a look at Cava. >> Yeah, definitely a cool pick. If you have some appetite, haha there. Um, yeah, but I can mention Rachel there. One of the things or fears that I would have expected in this kind of market is we're hearing prices of food and everything going up, right? And my opinion, I'm slightly I wonder how this company is going to fare with tightening consumer wallet. But unfortunate for investors, it seems like it's still holding strong. When you look at their average unit volume hitting $3.1 million, it tells you that there's a huge demand for their Mediterranean health focus menu. Uh they have high loyal consumer following. Wall Street's like you mentioned and analysts are complaining about the unchanged fullear guidance. Uh but they're missing the true picture here. The CEO told investors that they are building Cabo for the next quarter. Not for the next quarter but for many years ahead. And what are they trying to do? They want to build that loyalty base. Maybe they don't need to increase that pricing. What they really rather do is increase the loyalty, the members, the consumers that taste their food so then they can be those avid buyers not next quarter but many years out. So, I think that's a great great kind of tell of what management is thinking about this story. They don't want that quick buck. They want that long-term opportunity. So, while the stock is up after earnings, I believe I still I I agree with you that this is definitely one of those stocks that investors should keep on after earnings because earnings doesn't just need to give you opportunities when stocks decline. It also gives you opportunities when the stock gives you a reason to pay that premium or that price that is sitting at right now. Yeah, absolutely. Well, we we covered a a wide range of of stocks today, right? Across quite the universe. We've got Meta Platforms, we've got Uber, got Cava. So, three stocks for you guys to consider. We want to hear from you. Are you are you buying any of these stocks right now? Are you putting them on your watch list? Let us know in the comments section below. We'll see you here next time, everyone. Take care.