Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / Why Microsoft Is Winning the AI Race Over Meta
Transcript
- Lucas: So Microsoft is up nineteen percent this week. Meta is down almost eleven percent. Same market, same macro backdrop, completely different stories. Luna: That's a massive divergence in just five days. And the Dow and Nasdaq are basically flat on the week, so this is company-specific. Lucas: Exactly. Both companies reported earnings in the last couple of weeks, and the market is voting very differently on their AI strategies. Microsoft is being rewarded for showing real revenue from AI — Azure AI services are growing at a triple-digit percentage rate, and they're embedding Copilot across their product suite. Luna: Meanwhile Meta is spending billions on AI infrastructure and the metaverse, but the payoff isn't as visible yet. Their ad revenue is still solid, but investors want to see AI directly driving growth. Lucas: Right. And that's the crux. Microsoft has an enterprise distribution moat. They're selling AI to businesses that already use Office 365 and Azure. It's a natural upsell. Meta has to create new demand, and that's harder to forecast. Luna: So is the market overreacting to Meta? Or is this a rational repricing based on visibility of returns? Lucas: I think it's partially rational. Meta's capex guidance for this year was raised again, and they're not giving clear timelines on when AI will meaningfully boost ad pricing or user engagement. Microsoft, on the other hand, said Azure AI revenue is on track to hit an annual run rate of over fifty billion dollars by year-end. That's real money. Luna: Fifty billion is a big number. And that's just one segment. So the market is basically saying: show me the money, or I'll punish you. Lucas: Exactly. And it's not just Meta — a lot of the mega-cap tech names that have heavy AI spending but less immediate monetization are under pressure. But Microsoft stands out because they already have the customer relationships and the products. Luna: You know, it reminds me of something Warren Buffett has said about moats. Microsoft's moat is getting wider because businesses are locking into its ecosystem. Meta's moat, which is network effects, is still strong, but it's not translating into AI dollars yet. Lucas: That's a great comparison. And speaking of Berkshire, their stock is up two and a half percent this week, even as tech swings. But that's a different conversation. Let me ask you — if our money conversations have helped you think about a decision differently, we want you to know that this show exists because of listeners like you. We deliberately don't run ads. If you want to support that choice, the link is buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small gesture that keeps us independent. And we appreciate it. So back to the divergence — what about the China angle? There's news that China threatened retaliation against the U.S. humanoid robot ban, and they're dominating cheaper AI models. Lucas: That's a layer that may be hurting Meta more than Microsoft. If a lot of future AI growth comes from cost-efficient models developed in China, then Meta's massive spending on premium infrastructure looks riskier. Microsoft can still sell Azure to companies that want to deploy those Chinese models, acting as the platform layer. Luna: So Meta is more exposed to the risk that open-source or cheaper models commoditize AI, while Microsoft is neutral or even benefits. Lucas: Exactly. And we saw that in the market reaction. Microsoft's stock barely dipped on the China news, while Meta continued to slide. Luna: For a concentrated portfolio, would you hold both? Or does this divergence suggest you should pick a side? Lucas: It depends on your time horizon. If you believe AI will ultimately be monetized across consumer and enterprise, Meta at a lower valuation could be a good contrarian bet. But Microsoft offers more certainty right now. In a concentrated portfolio, you have to decide what conviction you have. Luna: And what about risk? If AI spending doesn't pay off, Microsoft still has its legacy businesses — Office, Windows, cloud. Meta is more dependent on ad revenue and the metaverse bet. Lucas: Right. So Microsoft has a safety net. Meta's downside is steeper. That's another reason the market is favoring Microsoft. Luna: So for a listener building a concentrated portfolio of five to ten stocks, how should they think about this? Lucas: I'd say if you want exposure to AI with lower risk, Microsoft is the anchor. If you want higher potential return and can tolerate volatility, Meta could be a satellite. But don't confuse price drop with value. Make sure you understand why it's falling. Luna: And Microsoft up nineteen percent in a week — is that a pullback risk? Lucas: It could be. But the earnings beat was real, and the forward guidance was strong. Sometimes a stock goes up because it deserves to. The key is to check the valuation. Microsoft trades at around thirty-five times earnings now, which is high but not crazy if growth accelerates. Luna: And Meta at twenty-two times? That's a discount. Lucas: It is, but a discount can be a value trap if the earnings decline. Meta's earnings per share actually fell year-over-year last quarter due to higher depreciation and spending. So the market is pricing in further deterioration. Luna: So it's not just sentiment. The numbers are different. Lucas: Exactly. And that's what we look for in stock picking: not just price action, but the underlying fundamentals. Microsoft is showing accelerating revenue and margins. Meta is showing decelerating revenue growth and rising costs. Luna: Final thought: does this mean we should avoid all high-spending tech stocks? Or is it company-specific? Lucas: It's company-specific. Look at Alphabet — it's up four percent this week. Their AI investments in Search and Cloud are showing results. Amazon is up almost three percent. So the market is rewarding those with tangible AI revenue. The penalty is for spending without clear returns. Luna: So the takeaway: in a concentrated portfolio, favor companies that can demonstrate AI ROI. Don't just buy the narrative. Lucas: Exactly. And keep an eye on the capex to revenue ratio. If a company's capex is growing faster than revenue for two years straight, that's a red flag. Luna: Great point. I think that's a good place to leave it. Thanks, Lucas. Lucas: Thanks, Luna. See you next time.