Earnings Watch: AI Spending War & Market Analysis - October 31, 2025

Good morning, everybody. Welcome to our Happy Halloween earnings watch. Not too much scary stuff going on in this market, really quite the opposite. I think it's been a pretty stable situation given that you got some really, really Big investments and big bets that are going to be playing out here in the near future. So let's jump in here. Watch party, October 31st, 2025. It's all about the AI spend. It's everything about the AI spend. It's the AI war. And I think we're going to see some continually see in the next few quarters, like people really paying attention to that. We've seen that already play out today. First disclosures and disclaimers. We are not investment advisors. We do not intend to be. We're not tax advisors. We're not here to give you advice. We're to give you better information for making good decisions or for your— to help your clients make better decisions. So in the chat, let us know if this is the first time. We'd love to get to know people who haven't been with us before. We've got a great group here. We'd be— we'd love for you to meet them and get to know these folks better. We got a great group of folks and followers at New Constructs, and we're doing some really cool things. with data and with AI ourselves. I want to know what kind of investor you are. And also, if we got time at the end, I will take requests for stocks to go over. Some of the requests have already come in. I love it. Way to get a jump. So latest headlines, it's pretty simple. The big mega-cap hype stocks looking pretty good on AI. Earnings results looked good so far for most of them, except for one. And there's one of them that I think, even though things looked really good this quarter, I think it's going to struggle in future quarters. And we'll get into that in a second. The real question is going to be who can last. They're all spending billions, right? And like every new industry, not all the players spending billions are going to be the ones that are able to stick around and win. It typically boils down to a couple. They're not all going to be winners or they're all going to change in some pretty significant ways. We are in one of the most exciting times for the year, but I think it's especially exciting with what's going with AI because you're seeing these firms make big, big bets. Those bets don't pay off, they're going to be in trouble. I think the problem is they're going to have to continue to ante up and make big bets for long into the future to stay in the race. And those bets are going to produce increasingly smaller returns based on the number of firms that stay in. By that, I mean returns and profits are always lower when you've got lots of people competing for the business because they're all going to have to be, you know, like trying to attract competition, which means you're going to have to spend a lot of money to have a good product or you're going to have to charge less to meet the lower price of your competitors. So, either you're going to create something different that allows you to charge more or you got to charge less to meet the lower-end product. And when you got a lot of people in there, that competition, that stiff competition, That tough competition, intense competition, it just means lower prices for everybody and a longer time to earn a return. And that's going to be a problem for the businesses that don't already make a lot of money. Fortunately for you and New Constructs, we've got the data to help you understand who's making the money. So let's jump into things here. Let's talk about the stocks we've got on the list today. We got a bunch. Let's see, we got them here in order. All right, let's go with it. Let's start with Nvidia. Let's take a look at how Nvidia did with its reporting. This is one of those stocks that's truly priced for perfection, I think. Yeah, it's been— it had a good one. It had a good one. I mean, look, these guys continue to do great deals or big headline deals. The first $5 trillion company and the earnings, I think, did pretty well here 2 days ago. Officially the first trillion-dollar reporting missed. Based on the stock, they beat. Look, this is the, the, the darling of all AI stocks. That's, you know, I think that's, that's it. And as long as they continue to, to get the hype, they're going to do great and people are going to love this stock. So what do we think? Look, we weren't surprised to see a beat. And, you know, that's based on their GAAP earnings. I'm going to show you another way to look at earnings here through our AI agent in just a second. But the valuation here remains super high. This thing's priced for perfection. Look, there's just a lot of good news here. They didn't beat. You're going to see something. You're going to see it get hurt a lot. For example, Meta. What happened here? Right? They didn't quite beat. The spending is not quite hitting the return. These guys are spending the most. What happened? Stock was down, what? Yeah, 12%. Bam, right? This is the risk of being in super expensive stocks, even when they're this profitable. Now, Meta can stay in the race for a long time because they're making a ton of money. And the way we look at that, these numbers are important for sort of understanding the normal recurring profits of a business. But the real number that I look at when I look at this big spending these guys are churning out is free cash flow. You can see Meta, it's pretty good, but big negative number. That's it, man. Look, how many years of cash flow is that going to beat up— eat up? The last 3 plus, right? 2021 was a really good year. 2020, not so much. But if you look at maybe the last 3 years' average free cash flow, I mean, I think that would probably run around— $1. $10 billion a year in free cash flow and they keep spending like this, they're gonna, they're gonna run out of money here. It can't go on forever. And that's, that's, I think, a really good example. You know, on the other hand, we saw Amazon with a really strong beat. Its stock— just put a comparison here— its stock did great. But I think Amazon is also potentially one of the weakest one of the weakest firms in this race. Look, it's also good, good economics, you know, you know, among the best, but super expensive valuation. But here's the red flag, folks. Let's sort based on return on invested capital. Tesla, Broadcom, Amazon, right? Amazon. So their, their existing business, not so good. Even when you're up at 23 and 26, Meta, you know, Lilly's a little different here, but in 36, Those are good returns on capital, but Meta doesn't quite have the scale that Microsoft has. The problem with Amazon is that it's not only is it low return on capital, the free cash flow, folks, people don't realize this. Free cash flow, look at this. Negative, negative, negative. Boom, big negative, right? This was back when they're building out AWS. Look, Amazon's always been building something. Sure, they reinvent themselves, but they're in the business of reinventing themselves all the time. Right? This is why we see the shares outstanding going up. This is why we see the debt going up, because the free cash flow is negative. What does that mean? Amazon's got the shortest lifeline in this AI race. I mean, perhaps the hype, they can keep selling stock and keep raising debt, but they're going to have a hard time funding the AI race. And, and, and, you know, cloud business is a commodity. Oracle's in it too. Google's in it too. So that's, that's my— that's, that's the big concern. You know, let's look at Microsoft. Similar profile to, to Meta and even Nvidia. You know, economic earnings headed down because returns on capital are declining. Now the good thing is for Microsoft is that they're coming down from a really high level, much higher from where Amazon is. And free cash flow for Microsoft, believe, is much better. Look at this strong 31, 24, 24. I think it's acquisition here. 51, 25. Right. So that's, that's, that's still pretty good. It's a big negative year. There was an acquisition. So the business, though, in general generates a lot of free cash flow. So that's keeping free cash flow positive despite big AI spend. That's a big deal. That's a big deal. That's a really big deal. They can afford to stay in the game. Meta, looking at free cash flow, high returns on capital, still buying back shares. Again, free cash flow positive, positive, negative. So they can't, you know, they're hurting. They're having to bleed a little bit to keep up compared to Microsoft. Nvidia, really strong free cash flow as well. I mean, super strong. This is part of why, you know, that the valuation, you know, you see a good profile here. It's just getting stronger. So they're in a good situation, in a good situation. And so they can afford to invest here and there. Mostly the money's coming to them. So they're in a good spot. The question is, does the market give them too much credit for that? And how sustainable is how good the spot that they are in? Because I think that's compared to the market valuation. Maybe it's giving them a little bit too much credit. Apple, similar situation, super high return on capital. Free cash flow, very strong here as well. Super strong. And these numbers, look at this. This is the biggest ones. I mean, over $100 billion in free cash flow. Apple can afford to do a lot, including sit back and wait and buy somebody's AI. They've got a great cash-generating business and these iPhones that just continue to do well. And look, it's not like it's going to fall off a cliff either. They've got time. They've got time to innovate, to keep people excited. The whole Apple network, it's— look, this is really strong. This impressive free cash flow down some, but continuing to be just a super high number and the return on capital. is super high. So don't count Apple out when it comes to the AI wars. They're in a super strong position. Google, similar profile here. Really great high return on capital, able to keep buying back stock, returns on capital steady, free cash flow huge, huge numbers, huge numbers. Not like Apple, but they're up there. And by the way, free cash flow staying positive. In this big AI spend environment, they can afford to stay in it. Right? Meta is like pushing all the chips in the middle of the table, kind of because they have to. They don't have quite— there's a great business, very profitable, but they don't quite have the cash flow potentially to stay in it in the way that these other guys are, or to afford to wait. They've got to stay up. They've got to get to that new scale. And that's why I think you're seeing Zuckerberg make these big bets. First metaverse, now AI. He's got to do that. He knows he's got to still swing for the fences if he wants to remain part of like the Mag 7. Otherwise, he loses out. All right, let's talk about a couple more financial companies here. I'm sorry, technology companies. Palantir, you know, AI play as well. They're, they're, they're more applying AI, so they're not necessarily in the business of having to invest a ton. The business has gotten way better. It's really starting to scale again. It's super expensive though. Super expensive. Free cash flow on these guys. Yeah, never been very good, folks. I mean, look at this. Negative, negative, negative, positive, a little positive, a little more positive. So yeah, it's a scaling business. It's getting better. We're seeing returns on capital get a lot better. But so much is priced in. Look at the enterprise value too. Like, I mean, you know, $483 billion. This is, you know, from just last, you know, a year or so ago. Or I mean, this is the end of 2024, so we're coming up on 2 years ago, but still, like, it's a triple, close to a triple there. Risky, risky, risky, risky, risky, risky. All right, let's, let's get to Broadcom. This is probably one of my least favorite tech stocks because I think it's just all hype. I mean, it's super expensive, negative free cash flow, you know, that's, that's, you know, compared to these other Tech stocks we're talking about—that's an embarrassing low return on capital, right? They—they just don't have the stuff, in my opinion, to stay in the AI war. You can see they're selling stock; it's going in the wrong direction. Return on invested capital. Well, you know, the funny thing is, before I think a recent acquisition, this return on invested capital was super high. That's why you don't see anything here because it was infinite. I think it had a—a—a negative invested capital base. Well, the return on total— yeah, you take out the acquisitions, returns on invested capital are super high. That's the, that's the row tick here. Yeah, they had a negative invested capital for a bit there. So, but, you know, does it make sense to take, take in it to exclude acquisitions all the time? I don't know. I mean, company makes, makes— companies make acquisitions. Sometimes they need that to grow. I don't see Broadcom as quite having a business like Microsoft. I mean, you see free cash flow pretty good, really big and negative, back good again here. So business is pretty good. I can't say, you know, $20 billion in free cash flow, almost $21 billion in free cash flow. That's nothing to sneeze at. Nothing to sneeze at for sure. It's a big number. About as big as Microsoft's. Microsoft's got a longer track record though. Much longer track record. And, you know, return on capital for Microsoft has always been much higher, even with acquisitions. So just an overall better business. How about Tesla? Can we talk about Tesla for a minute? All right. Look, you know how I feel. Bad business, bad stock. Everything's going against these guys. You look at our thesis. Look, if you're a client, you know that our thesis on this has proven true in 2 ways. One, what's going to happen in the electric vehicle market and what's going to happen in the internal combustible engine market, right? The legacy automakers. Guess what? They're making money whether EVs are selling or not. And they're making a lot of money, which allows them to invest in EV development. But what are they doing now? They're cutting back on that EV because it was overhyped. Nobody else wants an electric vehicle. The market is effectively maxed out. And it's not going to be subsidized anymore like the way it was. Like, I mean, there's dramatic subsidy there for Tesla for a long time. You know, they needed to make a lot of money. Period. Like, they're getting enormous subsidies. And so anyway, yeah, look, the stock is incredibly overvalued, but it has been for a long time. Elon Musk has found a way to get this thing to defy reality for a long time. And who knows, maybe it goes on forever. But I see too much risk and I wouldn't, I wouldn't mess with it. Free cash flow. Look, they had some, you know, I would call these economic earnings peaks. You know, this is when They had their best margins ever and things were kind of going pretty well. They still hadn't scaled at this point, really. When they scaled and introduced the lower cost models, the market started to weaken. This is peak, like post-COVID, ESG, fossil fuels are the devil. We have to go all electric even though we can't and the grid can't support it. And we're going to need cheap energy to survive until The technology's there to really support all this electric energy. Anyway, crazy times. And it was peak, you know, and he sold into it great and did well. But we're kind of coming back to earth here, folks. Same with return on capital. And it's dropped well below the cost of capital at this point. Very high cost of capital for this business. Why? Because expectations are so high on the equity side. I mean, you know, that's what people need to get paid if they're going to put money in this. Because it's already gone up so much. And then free cash flow. Let's take a look at free cash flow. Negative, negative, negative. Never had a positive free cash flow for a full year. Why do you think we see shares going up, selling shares? And I bet if we look at the debt side of the business, debt going up, came down for a little bit. Come down here a little bit too, but in general, flat to rising debt over the last five years, and the last few years rising pretty significantly. A lot of debt, a lot of debt. Yeah, it's not a great business, not a great business. All right, let's finish up with a couple of missing any questions. I mean, let me check the chat here. No, we just got a couple of requests on. A couple stocks to go through, and I'm actually looking forward to going through one of these. I think it's a good one. It's going to be fun to talk about that for a second. And then I also want to demo the agents. Got some new capabilities. All right. So MasterCard, what happened with these guys? I've been following these guys so much. One of the greatest, like, pure, just pure play margin, just low capital businesses of all time. So strong revenue. Smashes estimates, stock goes down. Profit and revenue top estimates on spending resilience, but I think the outlook is not so great. I think they're saying the consumer is starting to look pretty weak. I know we heard a lot of that from some of the retail food companies saying, especially the lower-end individuals, lower-end, lower-age, I should say lower-end, lower-age people are not going out to eat as much. They're starting to feel the pinch, folks. I mean, look, inflation might be not growing as fast, but it grew for a long time. So it's like, It was like this inflation, and then it's now it's going like this. So, there's not any real relief there. I mean, it's relief that it's not going parabolic on us. But this is really bad. This is not good. And so, but it's super profitable business. But again, all that's priced in. All that's priced in. You can see here, great profitability, great, but really great valuation. So, if I'm a MasterCard owner, Or, or a longtime employee investor. I'm really happy. Same with Visa. Same thing. I'm guessing the chart for Visa looks pretty similar. Yeah. Both down the last 5 days. Earnings look good. Outlook, not so much. That's what it is. And that's what they're good. That's what they're a good read for. And I think that means more in some ways to the market long-term than this AI stuff. It can't mean more. All right, let's take a couple— let's take a look at a couple more here. Let's take a look at Nokia. Taking this request, and then we're going to go to the agent. Nokia. So I looked this up and I was like, oh yeah, very attractive rated stock. It was very attractive, got downgraded because the stock price went up a much, but it was a very— one of our very attractive stocks, but it was suspended. So it wasn't in our ETF. I'm sorry, it wasn't in our index. Because it's an ADR and we only get like filings once a year. So that's a bummer. That's a bummer. And anyway, yeah, so it didn't help with our— the BNCVA, which this is the index for BNCVA. You see, you know, you go over 10 years, is that 10 years? Outperforms pretty significantly. Right, wow, 5 years outperforms very rare, very well. Interesting. 10 years, not as good. Year to date, yeah, we're struggling the last few months here. The Very Attractive Stocks Index over the last year, same thing. This last couple months been bad. It's been a junk run. That typically means very attractive stocks don't do so well. Anyway, I was hoping Nokia was going to be boosting this baby up. And it didn't. The Core Earnings Leaders Index continues to perform, outperform tremendously. You can see here beating the S&P by almost 10 percentage points year to date. Over the last year, beating the S&P by 8 percentage points, close to 8 percentage points year to date. And its first year beat the S&P by 8 percentage points. So that's really good. That's really good. And there is an ETF that tracks this index. All right, one more, one more, one more. We got to get Roger Green in here too. I think he said FI. Is that— is that going to work? I don't even know if that's a ticker. Looks like it. Fiserv. Interesting. So this looks pretty good. Neutral returns on capital, not so great, but cheap stock. We should be getting a queue here pretty soon. We're suspending it, so it's probably came in last night or something. Who knows? Let's see here. How do they— how do the earnings go? Whoa, whoa, whoa. Is that right, Roger? 47% the last 5 days. Dang. Maybe that's— that's probably why it's looking attractive now. Wow. Okay. Yeah, there it is. We get that right. We didn't like get some— some error with the shares outstanding or something like that. Roger, let me know. Put it in the chat or in the Q&A or something. That's pretty interesting. Wow. Okay. Yeah, I think these numbers were much higher before. We could actually look at the rating history. Yeah. Dangerous, dangerous, dangerous, and then bam. Check the news. Hi, Chris. What's Fiserv Craters? Worst day after company slashes guidance. Flashing for your guidance. Yeah, this is what happens when you're an expensive stock. New CEO pulls guidance. Wow. $30 billion wipeout. Okay. Yeah. Well, looks cheap now, but my guess is some of this could be in trouble given the outlook for the company. So, wow. Okay. That's a good one, Roger. It's a good one. So how about this? Why don't we take out the new version? Of our agent. We got 0.05 is rolling out. And why don't we say— why don't we ask it, which stocks in my portfolio are most likely to miss earnings next quarter? Let's put in— let's put in like the Mag 7 guys here, or what we talked about today. Now, this is a new feature, and this is actually an enhanced version of the earnings distortion score. So the earnings distortion score to date is a GAAP earnings distortion score. This earnings distortion score is a Street earnings distortion score. The idea being that we're looking at what the Street estimates are and predicting how wrong they are based on historical core earnings. So here are the stocks in our portfolio that are most likely to miss earnings next quarter based on their total, the earnings distortion total. A higher, more positive earnings distortion indicates a greater likelihood of missing consensus earnings. Earnings. So Palantir. So compared to consensus, Palantir is the only one that has real earnings distortion. These guys, the negative numbers here are showing that's more likely to beat. So they're likely to beat earnings. Pretty cool analysis, right? That's really, I think, pretty impressive. So this is something they're going to be rolling out here in the 4th quarter. Hope to get this into some beta clients' hands in the next week or so. And then we're going to be adding this. We're going to— I think we're going to produce— we want to produce an enhanced Stock Tracker 50 product that will maybe have access to this. And then we're going to also enhance our professional offerings with access to this AI agent. So excited about that and also excited about the Stock Tracker 50 Plus, where we're going to give people access to similar product, no screener, but at least the stocks in your portfolio that you want to track. You'll be able to get more details on. And then the other thing I want to highlight for you is that we're going to be doing a webinar in the not too distant future, in the next couple of weeks, where we bring in an expert, an industry expert to talk about one of our top long ideas. And this top long idea happens to be an industry where there's a lot of contention about what's going to happen or what's not going to happen. And, you know, the performance of this long idea in the future is going to really depend on big macro forces. So we're going to bring in a macro expert. who can speak to some of these big macro questions that I think are really important to understanding what's going to happen in some of these big industries and some of these stocks. Thank you for a great Earnings Watch session, and we will see you again soon.