Microsoft Soars, Meta Sinks: Has The AI Narrative Flipped?

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market vitals. The major indices fell sharply as President Trump vowed to resume strikes on Iran. He told Fox News, quote, "We're going to beat the f*** out of them." Brent Crude rose back above $90 per barrel, meanwhile the Federal Reserve held interest rate

steady, sending stocks even lower, more on that later, and finally Treasury yields surged.

Okay, what else is happening? Two of the largest companies in tech reported earnings yesterday, but investors only rewarded one of them. Meta grew revenue 28% slightly beating expectations, but it's profits fell 13% because costs jumped 55%. It's operating margin dropped from 43 to 31%. Company sales forecast came in under analyst expectations. The stock fell as much as 11% in after hours trading. Microsoft, on the other hand, had great news. Revenue was up 18%

year of the year profits grew 32% Azure. It's cloud business accelerates to 43% growth, which was faster than last quarter, and faster than analysts expected. The stock popped as much as 10% after the bell. What the two have in common is spending. Both are building AI infrastructure at record scale, and neither show any signs of slowing down. But investors seem to be more frightened than excited. Microsoft stock is down nearly 20% this year. Meta's is down 10% this

“raises an important question. How much longer will investors fund this build up? Here at Albasansa,”

was speaking with Gil Luria head of technology research at DA Davidson. Gil, good to see you, we'll start with Meta and then we'll get to Microsoft. Investors are not happy with these meta results. At least in after hours, we'll see how it moves throughout the day. What did you make of that earnings report? It was barely possible, so they beat by just a little bit, and they guided below expectations for next quarter. As you point it out, they're going expenses

faster than revenue. They're going topics faster than revenue. They increase their topics, guidance, by just a little bit, which was a little relief. But overall, it's not an impressive result. And more importantly, Mr. Zuckerberg had a whole hour to explain what he's how he's going to monetize the massive AI investments, and he didn't really give us a firm answer.

He basically said, "We'll figure it out as we go." And that's just not good enough right now,

not with how nervous investors are about this investment, and he just left investors wanting

“more. That's why you're seeing this disappointment. That was going to be my main question,”

is has he laid out a plan for how he will actually generate a return on these incredible AI infrastructure investments, which continue to rise? As you say, he raised the Catholics by a little bit, but he still raised the Catholics. Is there anything? I mean, do we have any understanding? There was the room for example that Metro would start a cloud business. That was the reporting we heard. Do we not know at all? We know what the pieces are, and he confirmed that that is one of the

pieces they have on the board. So one is, hey, we sell a lot more ads for a lot more money. They've always

They just grew 28%. That's almost twice as fast as Google. There's massive shareholders

“than the advertising market. That's the part investors would love to own. It's all the other”

stuff that they're less comfortable with. But what he said is, okay, we do that. Then we do have this opportunity to sell compute to others. We have opportunity to sell enterprise products now, but really what we want to do is be selling compute to consumers. We think we have the biggest opportunity in selling personal assistant to consumers. We think we're going to be better than anybody. How those pieces rank? There were a lot of questions on the call, and he wasn't

clear about priorities or tying on any of that. But those are the pieces, and they intend to monetize any of those pieces while continuing to invest. He was asked the questions directly. Why are you still investing while you turn around and sell capacity? And he said, well, we're selling it for more than we bought it at. So we're going to keep doing that, and it's going to help us fund the build out, which is somewhat satisfactory at best. Help me understand what's going through his mind and his

team's mind, because this is the multi-trillion dollar question. He knew this was coming. This is the only question Sheldon's have. This is the question everyone has. He comes out and seems to fill a buster. I mean, I can only glean from that. Maybe he actually doesn't know what they're doing with that data-centered capacity. What do you think is actually going through his head?

“Well, we have to remember that Mr. Zuckerberg has controlling interest in meta. He's the owner of”

owner founder, and he treats meta as such. And when you're invested in meta, you're along for the ride. This is like much like Elon Musk companies, especially SpaceX, right? You know, no longer controls Tesla, he's still controls SpaceX. You're on for the ride. And if Mark Zuckerberg wants to invest, because he wants to win the AI race and compete with anthropic and open AI, he gets to decide to do that. He doesn't have the type of governance that many of the other

companies that we talk about, we'll talk about in good one Microsoft soon. And so he can just decide to do that. This has been much to the frustration of investors over these. This is why meta trades at such a low multiple of earnings. Because it's Mr. Zuckerberg's show and he gets to decide how to run it. Let's pivot to Microsoft a very different story. And that's just very excited. What did you make of Microsoft settings? This is a narrative, breaking result. So Microsoft for most of

this year has been cast aside as losing an AI because AI is so good that it's going to ruin the software business. And then AI is so bad that they're wasting money investing in data centers. And they got the rind of both of those narratives. And when they just reported, we'll break both of those narratives. Their software business is doing very well. On the office side, on the commercial side, on the infrastructure software side, Azure Accelerator for growing four quarters at around 39

percent and accelerating to 43 and you just guide into 45 next quarter. This is a business that's more

than a hundred billion dollars that's growing that fast. And so the both the software sides doing

well, the infrastructure sides doing well. So they're accelerating growth at the same margins, which is to say a lot of incremental profit that should be paying for those investments. But

“then the most important thing she just did on the earnings call is let us know that Apple”

expenditures are going to be up year over year from this year. So I want to emphasize why that wording is so important. If she said down year over year, all hell would break loose in the market, right as a reaction, right? All semi stocks would get cut in half. If she said when the CFO of Google said last week, the companies is going to grow significantly and what lustered behind that significantly, then Microsoft would be in a lot of trouble just like Google was. But she went right

down the fairway and said capital expenditures are going to be up. That's very good news because if they can grow Azure at 45%, and go capital expenditures are lower rate, that means cash flow is bottom and is increasing from here. And by the way, Google's cash flow negative met a basically

break even, Microsoft on $20 billion of positive free cash flow in the quarter, and they just

guidance that they will also have positive free cash flow next year. So they delivered a great result that really changed the narrative on Microsoft going forward. Now that you bring up Google's

it seems like everyone is worried about childish like spending when it comes to AI, irresponsible

spending. It seems like Microsoft has demonstrated with this report that they are something of an adult in the room. It's hard to make the case for Google at this point. I was quite struck by that negative free cash flow that they reported. How did you feel about it? Absolutely. It was shocking. This is one of the best businesses ever created, and they went to cash flow negative and showed intent to stay there. It wasn't jarring. It wasn't jarring. The market

“reacted appropriately to that news and really took a step back. That's why I was looking forward”

to this Microsoft result because you said exactly right. They're the adult in the room. In the past, they've shown that and they continue to show that. If the returns are there, they'll invest, but they're not doing it in a big game theory, game of chicken competition, with the other companies. They're doing it because it's good business. Not because they feel

in need to beat somebody at something or get to the artificial general intelligence first or anything

like that. That's why I expect there to be a big sigh of release across the AI trade. If Microsoft is setting the tone as opposed to less responsible actors like Dr. Mr. Zuckerberg or to some extent Google, then maybe we're in better hands than we thought we are. Just looking at the stocks of some of these names, I mean, we'll see, after I was trading, my change things. But as of close, year to date, Microsoft is down 18 per cent. Meta is down 10 per cent. Google's up 9 per cent.

Just what is your view of the valuations at this point? You mentioned how low Meta's

“multiple is. Where do you stand on the prices at this point? I think the important pair here”

is Microsoft and Google. A year ago, when everybody thought Google was done, Microsoft was trading at 30 times at Google was 18 times. As of a week ago, it had completely flipped. Google was the big winner. Microsoft was the big loser. Google was trading at 30 times. Microsoft was trading at 18 times. We were expecting a version to the mean and between the Google result and this Microsoft was all we're going to get it. Why should these revert to the mean? Because they're

very similar companies with very similar positioning in AI. They both have very good assets to bear in the growth of AI. They're growing revenue and earnings in a similar rate. They're very comparable as they shouldn't trade in a similar multiple. That pendulum swan way too far a year ago, it's one in Google's favor this year. We expect there to be a reversion to the mean. Final question before we let you go, it seems like the AI trade has had something of a shaky

few weeks. The chip stocks have been getting crushed. The credit default swaps and a lot of these names like Nvidia, those have been rising. There is increased fear that a lot of these companies, these big tech companies, which are now issuing billions of dollars of debt, might default that they might not actually make those payments, combined with this news or this reporting

that we saw from Nikkei, basically telling us that there is almost two trillion dollars worth of

debt that is off-balance sheet for a lot of these tech companies that is being issued in these SPVs that are largely funded by private credit firms. In some, a lot of weirdness and concern,

“you cover this sector. What do you make of those concerns? Do you think that they are warranted?”

Yes, and we should be concerned and we have to be balance. You're going to hear me say that I believe that we are then the investment in AI infrastructure is a wise one, that we're going to get good returns already starting to do that, but I don't like circular financing. I don't like that we're building on leverage. We have enough cash flow. We have enough cash on our balance sheets to do this build out. I don't like the special purpose vehicles. You know where that term came from.

I don't want to go back to Enron. So we have to be balanced here. We do need to be worried about excessive behavior while at the same time. We can believe that AI tools and the technology are going to pay off both for consumers as well as businesses and be worth the investment. We need to do both and we need to encourage these companies to invest wisely because the good ones will and they'll emerge as winners. The bad ones will put the whole system at risk, but specifically

on CDS is on Nvidia and the other mega-caps. The credit rating and credit worthiness of Nvidia Microsoft Amazon and Google is better than any country but the United States of America.

their winner take all markets that they're literally charging a global tax on technology. That means they can pay down their obligation. So I wouldn't go as far as worrying about the credit worthiness of these big tokens. All right, Gil area ahead of technology research at DA Davidson.

Gil always appreciate it. Thank you so much. Thank you.

Off to the break, the Fed holds rates again. And if you're enjoying the show so far, tuning on Sunday for our founder series we will be speaking with Brian Schimp, the CEO and co-founder of Andrew. Running a business shouldn't feel like surviving a software group project. One app for accounting another for inventory another for sales and somehow none of them talk to each other. That's where

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three officials dissenting in favor of a quarter point hike. The Fed's policy statement

hardly changed from June with officials pledging to quote "deliver price stability" but the Fed

offered little insight into what comes next, leaving investors to weigh the possibility of a rate hike at the September meeting. Heels on longer term U.S. government bonds surged after the decision the 30 year treasury yield jumped to 5.21%. The highest level since mid-2007 and the Dow dropped 1,100 points. It's worth states since April 2025. Joining us to discuss this federal interest rate decision, we are joined by Mike Gapen, Mattet and director and chief U.S. economists

at Morgan Stanley. Mike, thank you for joining us. I have heard this interest rate decision described

“as a hawkish hold. Do you agree with that characterization? What do you make of the decision?”

Not necessarily. I do think Markets went into the meeting, thinking the risk here is that we would get a Fed share who wanted to demonstrate inflation-fighting bona fides and would raise rates, despite what was generally favorable in coming data over the intermediate period. In your right, it was 9 to 3 and there were three descents in favor of a hike. What you didn't hear was, say, a Fed share that said, "Oh, the decision was close. We debated it. Some wanted

to hike. Here was the rationale behind that. He didn't really offer much of an explanation of why the Fed decided to stay on hold or why the three descenters in favor of a hike felt that way. So, yes, on the vote alone, it felt like maybe there was debate for a hike. But I'm not convinced it was a hawkish hold in the sense that he didn't say necessarily express a willingness to

“tighten policy in the near term. I think Markets came away from this a little confused. I think”

it's fair to say the Fed share that wants to hike just for credibility reasons. That path has diminished in terms of its probability. It's unclear what came behind it. If the market reaction is as any vote, it was a little more of a double hold because what the markets did was take down the probability of rate hikes later this year and it raised what we would call breakeven rates of inflation. So, there's a gap between nominal treasury securities and yields

on real treasury securities and that gap includes the market's view of inflation expectations. So, what we call breakeven rates of inflation. So, those went up today. So, I think the market's a little confused and it wonders if maybe the bar for rate hikes is higher than they thought. And

“what that would mean is is potentially inflation that runs hotter. So, I think it was a bit of a confusing”

message for markets. Yeah, I've been trying to gauge what the markets are actually saying because I mean the bottom market did not seem happy if we look at the 30 year yield hitting 5.2

were down and I can't quite tell if this is to do with the fed decision or if it's to do with

maybe Iran or maybe tech earnings. I mean, if you had to sort of characterize what the market seems to care about right now and the extent to which it relates to the interest rate decision. And also at the same time like if my assumption is that the investors are not looking for a rate hike right now. Or at least equity investors. And so, if the takeaway is maybe it's more dovish than than expected. But I guess to your point, that doesn't seem to be consensus on that.

Then you think that maybe investors would be happy about that. I'd waffling a little bit because

“it's clear that we don't really understand. So, what do you think the markets are actually telling us?”

Let me answer this or start an answer anyway. Yeah, by taking a step back and seeing what markets

did going into the meeting. Right. So, Wash did, you know, he was nominated. He came in. He gave press conference in June. We had some initial remarks from him that the markets interpreted as fairly hawkish, a fed share who might be committed to achieving 2% inflation outcomes, right? Chastising the fed for not having delivered on that for for five years. And around, so then we got some positive inflation data in the market thought, well, that must matter. And it reduced its

likely hood for rate hikes. But then we got more conflict in the Middle East and oil prices went up.

Somewhere in there before the oil conflict came around and oil prices went up,

“share Wash had said that the ECB's meeting in central, unfortunately, said, well,”

inflation risks have come down. Right. So, we got favorable inflation. Oil prices came down. He said things were moving in the right direction. Then, all of a sudden, oil went the other direction. And what did markets do? Market responded to that by increasing the probability of hikes in the short term. And it raised 10 year yields almost out of one to one basis with movements and oil. And in moving 10 year yields higher, real rates rose, but market expectations of

inflation states stable. My interpretation of that is they viewed Chairman Wash as bringing a hawkish reaction function. And if oil prices mattered on the way down, they must matter on the way up. Therefore, the fed's going to respond to this by raising rates. So, it went into the meeting with the yield curve flattening, right, moving higher, but flattening because they priced in hikes in the front end and moved to 10 year yield higher. And real rates went, went higher, and the dollar

repreciated. What happened after today's meeting? All of that reversed. But front end yields came way down. Nominal 10 year yields actually went up. As you noted, the 30 year rate went up a lot and the dollar depreciated. So, the market took down probability of cuts and priced in inflation running higher than it had expected. Now, one would interpret that as saying good. The fed has a a more dovish reaction function than we thought. I think as you're saying, and I would agree,

not sure that's the right takeaway. What we know is that maybe at that inflation fighting fed didn't appear today. Will it appear tomorrow? Maybe maybe not, but the market came out of today thinking there's a higher bar to raise rates. And of so, the market is probably testing the fed now. It's saying, oh, you want to restore price stability, but you're not really saying that tighter monetary policy or higher short-term interest rates are part of that solution.

That's about the best I can do given development. That helps on the inflation front itself, we had the personal consumption expenditures for May, which hit 4.1%. That is the fed's preferred

“measure. So, you'd think maybe that's what they're going off of, but also we had the CPI, which came”

in a little bit lower and June 3.5. Directually speaking, though, still not great. The target is to the Iran conflict. There's a new update every day. We had another one today that the Iran's going to take a beating. That was per the president. I mean, if you had to put your money on this thing resolving itself soon, I think you'd have to bet no. And then the outcome of that would probably be a higher price is, but who knows? Where do you stand from your seat on the inflation

inflation will come down into year end. So, that that 4% figure you mentioned, we think is probably the peak and inflation will be coming down. I think the question is openly in our minds, how far does it come down? So, and I think this is an argument that the rest of the committee was probably debating today. So, Chairman Worsh has a view. You can call it unconventional, that's fine. The rest of the committee I would say has a very conventional view. And I think what

they're debating is, feels like inflation will be coming down. The question is how much and how long do we let this play out? And so, you may still get rate hikes later this year. If you talk to

“the rest of the committee and that's what I think the dissents were today. Are views that inflation”

comes down to around 3.3 or so by the end of the year and could diminish further in 2027? And if that's right, then we think the Fed can stay on hold for the rest of the year. If not, and that's too optimistic, you're right. Maybe oil prices have

greater second round effects on other transportation costs. So, it's not just a gasoline

story. It's things like air fairs and food prices. So, maybe conflicts in the Middle East can keep oil prices and other cornflation prices elevated. The Fed has no choice but to respond to that. Or cooler heads prevail over time. And exit ramps are taken and pay back from tariff inflation and shelter prices and so forth pull inflation down. We'll see that still highly uncertain.

“Our view is that inflation will moderate enough to keep the Fed where it is.”

But obviously the risk is that doesn't happen later this year. The Fed still has to come back and in race rates. That is encouraging to hear just before we wrap here just confirmation on your interest rate expectations. Sounds like you think that we'll stay where we are into the end of the year. That's our expectation is that we feel like disinflation is coming. We feel like we've gotten the strong enough signal for that.

If so, we think the Fed will roll into each meeting and just decide to stay where they are. Obviously, the risk to our view is that that's not true inflation stays firm and we get rate heights later this year. All right. Mike Gapen, Managing Director and Chief U.S.

“Economist at Morgan Stanley. Mike, always appreciate your time. Thank you.”

FIFA Football's 122-year-old non-profit organization has just made a controversial decision. It will be selling its profits. The FIFA Forward Enterprise is FIFA's new investment vehicle, which plans to sell a 20% stake in the entity at a valuation of roughly $20 billion. What actually is the FIFA Forward Enterprise? It's essentially the new legal home of all of FIFA's media and commercial rights, basically all the ways that FIFA makes money.

Now, why is this so controversial? Well, because FIFA isn't always has been a non-profit.

The mission of FIFA is to, quote, promote and improve the game of football. It is expressly not to generate financial returns and that is literally written into its charter. According to FIFA's financial statute, the association is, quote, a non-profit organization and is obliged to spend its funds for this purpose. The statute goes on to clarify that as an association, quote, "no dividends are paid." In the event of the dissolution of FIFA, its funds shall not be distributed

but transferred to the Supreme Court of the country in which the headquarters are situated. In other words, FIFA is legally bound to not profit from its operations. And by the way, that was by design because the founders clearly knew that by selling access to football to the beautiful game, well, the beautiful game would cease to be beautiful. So how is it even legal for Gianni Infantino, FIFA's president, to be selling a stake in FIFA? Well, here is the catch. He's not selling

a stake in FIFA. He's selling a stake in the FIFA forward enterprise, the for profit entity that he made up specifically in order to circumvent the laws that were put in place by this non-profit organization all of those years ago. This is financial hijacking of the highest order.

Infantino, who presented Trump with the very first FIFA Peace Prize, has now taken a page

out of Trump's financial playbook. He is now using financial engineering to steal value from

backers and ultimately to himself. If that sounds almost exactly the same as what Trump has done

“with the White House, it is. And it's not a coincidence that the two of them had become very good friends.”

This is the beginning of the end of football as we know it. And I say that as a lifelong football fan, but don't take it from me, take it from UEFA, the European Football Association,

“which recently said that this quote crosses a line that football's governing associations”

should never cross. The soul and governance of football are not assets to trade, especially

with zero transparency as to who gains financially. That was UEFA's statement, which I endorse,

“however, I would add one small edit and that is that we do know who gains financially. It's JP Morgan,”

the bank that'll advise and execute this deal. It's Josh Kushner, the open AI investor and the

brother of Jared Kushner, who is expected to lead the deal. It is basically anyone involved in this

transaction. We are reaching historic lows as a society. And if ever you thought the beautiful game was exempt from this corruption or from greed or fraud or any form of scamory, well, think again, this is just beginning. Okay, that's it for today. This episode was produced by Claire Miller and Allison Weiss and engineered by Benjamin Spencer. Our video editor is Brad Williams, our research team is Dan Chalon, Cristina Donahue and Mia Savario, and our social producer is

Jake McPherson. Thank you for listening to Prof G. Markets from Prof G. Media. If you like what you heard, give us a follow. I'm Ed Ellson Tune in tomorrow for a conversation with legendary short-seller Jim Chainos.