Motley Fool Money: "Alphabet Soars While Meta Sinks"

Date: October 30, 2025
Host: Tyler Crowe
Guests: Matt Frankel, John Quast

Episode Overview

This episode dives deep into a frenzied week of earnings reports, focusing on the performance and outlook of three Magnificent Seven companies—Meta, Microsoft, and Alphabet—plus key restaurant stocks, Chipotle and Starbucks. The analysts dissect how Wall Street reacted to aggressive AI investment plans, shifting expectations, and management execution.

Magnificent Seven Earnings: Meta, Microsoft, Alphabet

Meta: Market Rattled by Aggressive AI Spending

Key Points:

• Meta’s stock dropped ~10% post-earnings despite "fine" headline numbers.
• The big shock was Meta’s plan to ramp up capital expenditures on AI to $70B in 2025 (up 80% from $39B in 2024) with even more to come in 2026.
• Mark Zuckerberg said, “he would rather overshoot when it comes to spending on AI than undershoot” ([01:56], John).
• The company acknowledged it lacks the computing capacity needed for its AI ambitions, risking overbuild now to seize future opportunities—or even potentially serve third-party cloud customers.
• "The fact that Meta is spending as much as it is and it's still not enough, that's surprising and that is... what the market is reacting to." ([02:53], John)

Memorable Quote:

"Mark Zuckerberg basically said that he would rather overshoot when it comes to spending on AI than undershoot."
— John Quast ([01:56])

Microsoft: Strong Fundamentals, Investor Caution Over CapEx

Key Points:

• Microsoft beat expectations across the board: revenue, profit, especially cloud segment (Azure up 40%).
• Despite this, stock ticked down 2.7%, wiping $100B in market value.
• Like Meta, AI infrastructure spending was in focus. Microsoft spent almost $35B last quarter, and guidance points to “significantly higher” CapEx in 2026.
• A temporary Azure outage during earnings release contributed to muted sentiment.
• Differences in investor trust: “Investors seem a little bit less concerned about the ROI that they're going to get from Microsoft spending.” ([05:17], Matt)
• Microsoft emphasized expected high ROI from AI investments—unusual explicitness compared to tech peers.

Memorable Quote:

“Returns on money spent seems to be a little bit more in the forefront because when Microsoft's conference call... I did remember mentions of hey we're going to have some of the best ROI, which I think might be the first time I've heard that when it comes to AI spending.”
— Tyler Crowe ([06:13])

Alphabet (Google): The Quarter Wall Street Loved

Key Points:

• Alphabet’s stock jumped 4%.
• Reported ~45% year-over-year growth for a $3T company—a “mind boggling” pace.
• All segments strong: search, YouTube, growing adoption of Gemini (AI), Waymo discussed but not yet a revenue driver.
• Alphabet’s CapEx increase, while large in raw terms ($85B to $91–93B for the year), was the most measured of the three companies, possibly signaling fiscal discipline that investors rewarded.
• Analysts pointed out the irony: Google was considered an “AI loser” months ago, yet now is feted as an “AI winner,” benefiting from low valuation multiples and outperformance relative to expectations.
• “Optionality is going to be valuable... the biggest winners from the Internet age came years after the Internet frenzy because the business models didn't materialize. I think AI will follow a similar path.” ([08:27], Tyler)

Memorable Quote:

“Outperforming expectations at 16 times earnings is much easier than 40 to 40 times earnings.”
— Tyler Crowe ([08:54])

Comparison of AI Spending & Investor Reaction

• Meta: Punished for unpredictable, aggressive increases, given history of outsized bets (e.g., metaverse).
• Microsoft: Trusted on capital allocation but not immune to investor jitters and technical hiccups.
• Alphabet: Rewarded for measured spending and beating low expectations.
• “Low expectations is one of the best things you can do.” — John Quast ([09:19])

Restaurant Earnings: Value, Margins, and Comebacks

Chipotle: Margins Fade, Value Perception Wanes

Key Points:

• Shares fell 16% post-earnings, with only 0.3% same-store sales growth.
• Biggest issue: Profit margins are down, especially restaurant-level operating margin, which dropped to 24.5% from a 29%+ peak under ex-CEO Brian Niccol (Q2 2024).
• With stagnant transactions and negative press about value, management hammered home “value” in its remarks (“mentioned 14 times in prepared comments, 25 overall” — John [11:55]).
• Chipotle now trading at its second-lowest P/E in a decade (“cheaper even than the COVID-19 pandemic stock crash” — John [13:13]).
• Opportunity ahead if they can reestablish value in consumers’ eyes and spark sales/margin recovery.

Notable Commentary:

"Chipotle is essentially a victim now of Niccol's success when he was at the company... I think they soared so much under Niccol. That was good, but they kind of hit a ceiling, and now they're coming back down."
— John Quast ([10:11])

Valuation Perspective:

“It's under 30 times earnings right now. I wouldn't necessarily call it cheap on an absolute basis... but that's for Chipotle quite cheap comparatively.”
— John Quast ([13:13])

Starbucks: The Niccol Turnaround Underway

Key Points:

• Modest same-store sales growth (1%) and 107 net store closures, but context matters: “Fine is good when the last two years have been bad.” ([14:27], Matt)
• Revenue up 5%; first positive same-store sales in seven quarters—momentum attributed to Brian Niccol’s “Back to Starbucks” plan.
• Product innovations tailored to customer trends (e.g., protein cold foam) succeeded, contrasting with past missteps (e.g., olive oil coffee line flopped).
• Store closures mainly affected low-performing and non-core formats (like drive-thru-only locations) to refocus on classic Starbucks experience.
• No annual forecast yet—investor day set for January.

Memorable Quote:

“The company's just doing a better job of introducing products that customers actually want rather than telling them what they want, which is what the former leadership was doing.”
— Matt Frankel ([15:13])

Fun Closing Section: Starbucks Orders

• Matt: Protein cold foam
• Tyler: Double espresso, black
• John: Pike’s Place, black
  • “All this olive oil and proteins. Oh man, I sound like a grumpy old man complaining about this stuff. But hey, you know what? I'm in my 40s now. I get to do that.” — Tyler ([16:36])

Reflection & Takeaways

Investment Themes

• AI is driving massive capital allocation decisions at Big Tech; investor patience is tied to trust and perceived discipline.
• Beating low expectations and prudent spending can win the day, even for industry giants.
• In restaurants, execution, and value perception are critical—legacy success is not a guarantee of future performance.
• Investor sentiment can swing rapidly, particularly when narratives and expectations diverge.

Notable Quotes Recap

• “The fact that Meta is spending as much as it is and it's still not enough, that's surprising and that is... what the market is reacting to.” — John Quast ([02:53])
• “Returns on money spent seems to be a little bit more in the forefront...” — Tyler Crowe ([06:13])
• “I think AI will follow a similar path [as the internet], and having those options to pivot the business... is going to be valuable...” — Tyler Crowe ([08:27])
• “Fine is good when the last two years have been bad.” — Matt Frankel ([14:27])

Timestamps for Major Segments

• 00:00 – Introduction, overview of earnings week
• 01:25 – Meta's AI ambitions and investor reaction
• 03:58 – Microsoft: results, CapEx, and Azure outage
• 06:13 – Alphabet's strong quarter and AI narrative
• 09:12 – Comparing valuations and beating expectations
• 10:11 – Chipotle: margins, value perception, Niccol’s legacy
• 13:10 – Chipotle valuation and outlook
• 14:10 – Starbucks: Niccol-led turnaround, sales, and store closures
• 16:24 – Team’s favorite Starbucks coffee orders

Summary by The Motley Fool Money Team
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