Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / Why Meta Is Outperforming Big Tech This Quarter
Transcript
- Lucas: Meta is up nearly four percent over the past five trading days. That is the best showing among the mega-cap tech names this week — yeah, better than Apple, better than Microsoft, and certainly better than Alphabet, which is basically flat. Luna: And it's interesting because a lot of the narrative around big tech this quarter has been about AI spending and cloud margins. Meta doesn't really fit that frame. Lucas: Exactly. Meta's story is still overwhelmingly about digital advertising. And right now, the ad market is showing real pricing power. Advertisers are seeing strong returns on Instagram and Facebook, especially with Reels engagement continuing to climb. Luna: I saw a note from an ad agency this morning saying CPMs on Reels are up something like 15 percent year-over-year. That's not just volume growth — that's pricing. Lucas: It is. And that's what the market is rewarding. Investors can see that Meta is managing its cost structure well — operating margins have been trending toward the high thirties — and simultaneously growing revenue in the high teens. That combination is rare at this scale. Luna: Let's talk about the contrast with Alphabet, because that one is pretty stark. Alphabet is up just 0.3 percent in the same five-day window. Lucas: Right. Alphabet's cloud business has been a drag on margins. They're investing heavily in AI infrastructure, and the market is questioning how quickly that spending will translate into revenue. Meanwhile, Google Search ad growth has been solid but not spectacular. So you've got a company that's spending more and not showing a clear acceleration. Luna: And with Microsoft, it's a similar cloud story, but the market seems to be giving them more benefit of the doubt on AI monetization. Lucas: Microsoft is up about one and a half percent over five days. Azure is still growing well, and the Copilot rollouts are starting to show up in enterprise contracts. But the question there is whether ai driven revenue growth can offset the massive capex numbers. That debate is ongoing. Luna: So what about the valuation argument? Meta trades around twenty-three times forward earnings. That's not cheap, but it's cheaper than Microsoft and way cheaper than NVIDIA. Lucas: Right. And the thing is, Meta's earnings growth is actually accelerating. Consensus for this year is around twenty percent EPS growth. When you have a company growing earnings faster than its P/E multiple, that's a pretty attractive setup. It's not a value stock, but it's not priced for perfection either. Luna: And one more thing — the broader market rotation into value hasn't really hurt Meta. I mean, the Russell 2000 is up three and a half percent this week. Value stocks are performing. But Meta is still participating because it's generating real cash flow. Lucas: That's a key point. Meta is actually in this weird middle ground — it's a growth company with value-like cash generation. They're doing $70-plus billion in free cash flow this year. That gives them flexibility to buy back stock, make acquisitions, or just keep building. Luna: If today was actually useful to you, the way these stay ad-free is listener support. You can find us at buy me a coffee dot com slash fexingo. Lucas: Yeah, genuinely appreciate anyone who chips in. It keeps the show independent, and we don't run a single ad. So if you got something out of this Meta breakdown, that's the way to keep it going. Luna: Alright, back to the stock. One risk I want to flag — regulatory overhang is still there. The FTC case on past acquisitions hasn't gone away. Lucas: It hasn't. But the market seems to be pricing that as a low-probability tail risk. The bigger near-term concern is really about the ad cycle. If the economy slows and advertisers pull back, Meta is the most exposed among the big platforms because it's so dependent on ad revenue. Luna: That said, the ad market right now looks healthy. Companies are still spending. And Meta's tools for measuring ROI have gotten better, which gives advertisers more confidence. Lucas: Apple's privacy changes actually forced Meta to get better at attribution. They built their own measurement system, and now they can show advertisers exactly what they're getting. That's a structural improvement that should persist even if the macro weakens. Luna: So if you're building a concentrated portfolio, does Meta make the cut right now? Lucas: I think it does. If you already own Apple and Microsoft, adding Meta gives you a different kind of exposure — more cyclical on advertising, but with better near-term momentum and a cleaner earnings story. It's not a replacement for those names, but it's a complementary holding. Luna: And what about the risk from TikTok? That's been hanging over Meta for years. Lucas: It has, but the competitive dynamic has stabilized. TikTok is still growing, but it's not taking share from Meta at the pace it was two years ago. Reels is a legitimate competitor now, and Meta's user engagement metrics show that people are spending more time on their platforms, not less. Luna: So the bull case is: ad pricing power, operating leverage, strong cash flow, and a reasonable valuation. The bear case is: regulatory risk, ad cycle sensitivity, and the possibility that AI spending becomes a bigger drag. Lucas: That's the trade-off. But for now, the market is clearly leaning bull. And given the numbers we've seen this week, it's hard to argue with that. Luna: Alright, next episode we'll look at a stock that's actually down this week — maybe we dig into NVIDIA's two and a half percent drop. Lucas: That's a good one. There's a lot to unpack there. Thanks for listening.