TechStockFundamentals

Happy belated 4th. My occasional reminder that the best gift you can give yourself and everyone around you is the awareness of index ETFs. 99% of investors cannot beat these incredible ETFs that provide exposure to the best companies in the strongest economy in the world, automatically rebalance to add winners / remove losers, can be held forever, and require you to pay little to no taxes. SPY: 13.8% compound return over 15 years. Up 11% YTD. Trades at 21x forward P/E vs 10 year mean of 20x. Average of 9% EPS growth over past 10 years. (If you want the SP500, buy VOO which has lower fees instead of SPY). QQQ (Nasdaq 100): 18.5% compound return over 15 years. Up 18% YTD. Trades at 24x forward P/E vs 10 year mean of 25x. Average of 13% EPS growth over past 10 years. SMH (Semi's): 24.8% compound return over 15 years. Up 71% YTD. Trades at 25x forward P/E vs 10 year mean of 20x. Average of 22% EPS growth over past 10 years. IGV (Software): 16.0% compound return over 15 years. Down -12% YTD. Trades at 20x forward P/E vs 10 year mean of 35x. Keep in mind this EPS also is a blend of consensus so excludes plenty of SBC depending on the company (just saying despite the SaaS-pocalypse, the group doesn't stand out as "cheap"). Average of 12% EPS growth over past 10 years. Think about that for a second. You can own QQQ which is America's best tech companies (and the world buys American tech) for 24x EPS or a 4.2% yield on NTM that goes to a 4.7% yield on Y+1 to a 5.3% yield on Y+2, ... And you regularly get to buy QQQ at 20x or a 5.0% yield that increases over time. To me, that's a shockingly good deal compared to a risk-free rate that pays you in devaluing USD and is taxed. It's kind of remarkable that vehicles that have provided better returns than 99% of the active management industry (and 100% of the industry on an after-tax basis) with pretty digestible downside volatility aren't at least 50% of everyone's portfolios. I guess there is no face to these vehicles out there promoting them non-stop and no fees to feed an eco-system of advisors / marketers / etc. Anyways, I just encourage people to actively think about VOO / QQQ. Have you outperformed it over 20 years on an after-tax basis? Have your fund managers? ...

$AMZN qtr was somewhat squishy but “fine”. Story is still getting better. AWS is accelerating and they now expect it to grow >40% in 2027 and 2028 which is pretty wild (and positive for infra trade). Margins for the entire business continue to march higher driven by mix shift towards AWS / advertising and better cost control. Now, this growth is more capital intensive and the company has flipped to -63b in FCF this year, -79b in 2027 and -60b in 2028; and they will have net debt of -147b at end of 2027. Returns thus far seem fine evidenced by 2025 capex of $1 producing 0.49 incremental AWS dollars this year which is less than the 80c-100c they used to get pre-AI, but otherwise the AWS margins are nice and healthy still. Risk / reward pretty attractive. Upside of 62% to 25x my 2028 GAAP EPS for a company growing GAAP operating profit by 35% yy (with offset being this is capital intensive growth). Downside of -7% to 20x street 2027 EPS. Obviously any stock can go down 20% no matter how cheap it is so let’s just go with that. Qtr AWS rev of 46b accelerated to 39% yy w/ 39% margin slightly down qq. Incremental margin yy was still 49% so trend is still higher even as AI is a greater part of the mix. They mentioned they are accelerating capex payback and that inference is well over half of token consumption. Their share does continue to decrease: 42.2% share among AMZN / GOOGL / MSFT down from 46.4% a year ago. Perf obligations only increased by 82b this qtr from 132b add in Q2 and 120b add in Q1. NA retail was slow bc Prime day was in the prior qtr this year. Normalized growth was >12% yy which is consistent w/ prior qtrs. Advertising within this also slowed to 12% which was a big decel relative to 22-26% in Q1-Q2. Reason being Prime day was in Q1, Q3 didn’t have NBA, and lapped some SEM improvements they made a year ago. They anticipated “Agents took the traffic / ad rev” and said that wasn’t it (whether it will be down the road is a different question). Margins of 7.7% was up from 6.9% last Q3 (but apples to oranges w/ Prime Day). Intl retail also slowed to 5% yy also partly due to Prime shift. 3.7% margin up from 2.9% last Q3 (but that included severance).

Few random points on $GOOGL: 1) Clicks grew 8% (down from 13% in Q1 / Q2 against easy comps) w/ pricing growth of 4% (consistent w/ 4-5% in Q1 / Q2 against similar comps). Bulls will say query growth overall is healthy, AI results taking share from regular, and that search will re-accelerate as they turn on ads in AI results (especially for massive discrete regions like intl.) Bears will say 1) Top of funnel search is moving to ChatGPT, AMZN AI, Muse, etc. and 2) Last click moving to agentic interactions like Muse. I'm not really smart enough to figure that out. Definitely more of my top of funnel searches are away from GOOGL, but most of my bottom funnel gets executed with GOOGL. 2) Cloud is doing great. Historically qtrly rev was ~6b ahead of adjusted backlog (total * % recognized over next 2 years / 8). Now, the big signings suggest qtrly rev will be 45b which I reach in ~3 qtrs. Backlog additions are solid (47b vs 52b in Q2 and 220b in massive Q1). 3) One big beautiful bill is very helpful for cash flow. I estimate 2026 CFO of 165b up from 125b in 2025. However, OBBB is likely ~40b of that improvement so CFO really would be flat yy. So, for some reason, CFO doesn't appear to be exploding w/ cloud growth - not really sure why. I estimate 2026 FCF of -10b which would be -50b without the tax benefit. That tax benefit has to be paid back at some point which will be a headwind to FCF growth at some point even when CAPEX starts to fall again.

Actually, clues for this question are in the S1. Top 5 customers qq growth slowed dramatically in Q3: Q1: 1.7b Q2: 3.0b (1.3b add) Q3: 3.5b (0.5b add) All other customers: Q1: 3.0b Q2: 8.5b (5.5b add) Q3: 13.2b (4.7b add, maybe 5.5b add excluding distillation hw) Caveat: I'm assuming the top 5 stayed the top 5 and accounts didn't enter / exit the cohort.

Re: ANT S1 What's the take on META / Cursor moving to in-house models given the language below? Seems either very clever phrasing (Q3 was peak but then eroded thereafter) or, more likely, the big customers are still fine. Or META isn't a top 5 customer. "At the same time, our largest customers continue to expand. For the three months ended September 30, 2026, our revenue from each of our top five customers reached a record high." The slowdown in Q3 was partly attributed to inhousing but seems like that may not have happened?

Seems like we may be good to go here: -AI functionality is genuinely mind-boggling and ROI is obviously there (not categorically of course). People who say otherwise might as well try to convince me the sky is green. I just don't see it that way based on my lived reality. -OAI growth expectations tempered from irrational. Funding will be completed soon. -ANT had a soft Q3 but should accelerate in Q4. S1 looks great - no gotchas. Positive surprises in a lot of places - particularly with improving compute margins and being solidly FCF positive. IPO will get done at reasonable price. ($DXYZ). -SPCX / META spending / capital raise plans already out there / getting completed. -Hyperscaler earnings likely all positive. -Semi supply constraints likely limit spending growth in 2027 regardless of customer balance sheets / appetite. Helps de-risk pace of investment and lower probabilities of a big digestion period in 2028. -Multiples basically at trailing lows w/ US yields stabilizing / improving. -Momentum selloff pretty fierce compared to priors w/ X filled w/ AI bears doing victory laps. So always better to be buying into negativity. Let's see.

3 random thoughts on $META 1) Re: The Cheeky Pint podcast - It's kind of crazy they admitted that their AI buildout is a huge bet that will have "very, very, very bad" financial consequences if it doesn't work out. Especially bc monetization is likely far into the future so doesn't that suggest 2027 potentially sees material EPS headwinds as the depreciation comes online? I get it. There isn't a way to be competitive in AI w/o making big infra bets and I'm sure they were excited in the moment about Muse success. But certainly pulled the curtain back a bit... 2) Muse is great. I get a monthly note on all local events in my area (sports, music, theater, restaurants, etc.). I paid two parking tickets with it. And I have it looking for a new pair of dress shoes and a PS5 Pro (we haven't found either to my liking so the search continues). But I'm not sure what else to do with it so I haven't checked the app much after that. 3) I assume the Muse data will be added to the knowledge graph. That's interesting bc now META knows far more about me and my ongoing searches. I would think that has to improve targeting / pricing on core META properties. As opposed to just showing me general products that match my interests / pixel data, they now know that I am in need of new dress shoes on an ongoing basis since the search is still outstanding - and I would think advertisers that have shoes exactly like or even adjacent to what I'm looking for would want to target me on FB / IG. Anyways, the thought is maybe monetization of Muse actually first shows up as higher monetization of core META.

Dumb question but what's the advantage of $META having spent 100b+ to develop their own model under Muse, as opposed to having kept that money and just built Muse with whatever model gets the job done?

$MS Q3 CIO survey had some interesting results. These surveys aren't super reliable - partly because big company CIOs are often very political so have to take all feedback with a grain of salt. Highlights -AI is at top of enterprise priority list. Basically every other category decreased including security. -LLM share of AI spend jumped from 11% in Q2 to 16% in Q3 – not surprisingly the biggest jump. -LLM share of AI spend over next three years jumped from 17% in Q2 to 21% in Q3 – again, the biggest jump amongst answers -Nearly all SaaS companies declined in expected incremental share of AI budgets – foots with slow progress on product / sales of AI products at SaaS companies -50% of CIOs said they were funding AI from net new dollars directed towards AI. -50% of CIOs said they are not using any open source AI models today; 4% said open-weight usage is >50%. [I’m honestly guessing most CIOs have no clue or answered for budget share and not workload share] -42% of CIOs said not sure about ROI on token spend. [Again, CIO’s are typically large company politicians so not sure what to make of this answer. Also what was the immediate ROI on giving employees PCs or cell phones?] -43% have token spend controls in place

OpenAI at 70b net never really made any sense intuitively. Still seems like net ARR added in September was 17b similar to 17b in August. 17b is still pretty ridiculous and suggests we finish the year ~200b gross across ANT / OAI.