Chapter 1: What recent earnings report did Tesla release?
Tesla makes an awfully daring move. This is Motley Fool Money. Welcome to Motley Fool Money. I'm Tyler Groh, and today I'm joined by longtime Fool contributors Matt Frankel and John Quast. Guys, the earnings firehose has been set to full blast this week because we have seen a slew of earnings reports across just about every industry. We can't hit everything in this one show alone.
We're going to focus on the big companies and the bold moves today. We'll look at Meta and Microsoft moving big time in the market, but we're going to start with what's mentioned in the headline here with Tesla. The company reported earnings per share of $0.50 for the quarter.
It beat estimates, but it was down 63% from this time last year, and it was the lowest fourth quarter earnings results since 2020.
Chapter 2: What bold moves did Tesla announce regarding its vehicle production?
Now, what likely surprised anyone more than anything else in the numbers was Tesla's very ambitious capital spending plan and the things they were talking about on the conference call. Tesla announced it will more than double its annual capital spending to $20 billion for 2026. Elon Musk floated the idea of building his own semiconductor fab. factories.
Tesla expects to invest $2 billion in Elon Musk's private XAI, their AI startup. And it announced it would discontinue production of its S and X models so it can repurpose its Fremont plant for building Optimus robots. Guys, I feel like I read a 10-K just listening to the transcript and trying to get through all of this. It's been huge moves and a lot of announcements from Tesla.
I see it as two ways of looking at it. Either one, Tesla is pushing all of its chips into the autonomy, robot, and AI table.
Chapter 3: How is Tesla's capital spending plan evolving?
damn the torpedoes, we're going this way. Or two, these ambitious announcements might be papering over the fact that its auto business is a little bit in decline and its financials are not what they were. Now, of those two camps, which one are you in? Or is maybe there's some secret third camp that I'm missing here?
I think it's a little bit of both, Tyler. Love them or hate them, I think we can all agree that nobody tells a better story than Elon Musk. To be sure, there's an element of storytelling in here somewhere. There's a desire to create a narrative. I think that part of the narrative creation has to do with its recent change of the Tesla mission statement. This is a big thing.
The mission statement was to accelerate the world's transition to sustainable energy. Now the mission statement is to build a world of amazing abundance. As Musk tells this story, Optimus robot program, autonomy, this is all part of creating abundance.
Considering that that is now the mission statement of Tesla, it makes perfect sense to go all-in on production of Optimus and these other autonomy efforts. Discontinuing the lines of S and X models to repurpose them for robot production is what's going on. This fits that narrative. But here's the thing. Matt pointed this out before the show.
X and S models, they account for less than 5% of Tesla's overall vehicle sales. The truth is, these models aren't really selling anyway.
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Chapter 4: What implications does Tesla's mission statement change have on its strategy?
It made sense to get rid of them, whether or not autonomy was the big picture plan here. It's a little bit of both, in my opinion. X and S aren't selling. It makes sense to get rid of them. But the push is towards autonomy. It is towards abundance. It makes sense to go all in here.
I'm on the fence between the two sides that Tyler mentioned. On one hand, Tesla's auto segment revenue declined 11% in the fourth quarter. I don't really think it's a surprise to anyone. There's just a lot more competition for EVs than there were just a couple of years ago. It's only going to intensify. GM is making a big push into EVs, and others are following suit.
I'm not sure if Tesla is necessarily papering over its declining auto business. or that its leaders suddenly have a renewed sense of urgency to adapt to it before things get worse. I'm also not surprised to see the Model S and X discontinued. As John mentioned, it's roughly 5% of sales, and that includes the Cybertruck in that 5%. These were aging vehicles.
They hadn't received a substantial refresh since their introduction other than the powertrain itself. The Model S in particular has been in production since 2013, essentially looks exactly the same today.
Chapter 5: How are Meta and Microsoft performing in their latest earnings reports?
Another issue is that I'm not sure how close Tesla is to actually producing a mass-produced autonomous humanoid robot like they say they're going to. Elon Musk has said it's going to be available by the end of 2026, this year. They don't have the best track record here. The new Tesla Roadster was unveiled in 2017 as a concept. It was supposed to be in production by 2020.
Now, the reveal date is set for April 1st of this year. That timeline, I'm a bit skeptical.
Yeah. If you want to add to it, too, there was the Tesla Semi that was supposed to be unveiled somewhat a long time. There's been a lot of missed deadlines here. Here's my thought, and I'd like to get your take. I'm probably, of the three of us, the most skeptical of the group on Tesla's ability to pull this off. But it has about $44 billion in cash on the books, and its free cash flow is
It's there, but it's kind of dwindling. So that kind of pegs it with $20 billion in capital expenditures. That's like two years of investing, give or take, before these robo-taxi and robot bets really need to start paying off in a big way, in a cash flow sort of sense, unless we have to go to the market and add something to it.
Do you believe that we will see a fully realized version of either, whether it be taxis or humanoid robots, in that two-year window?
I think they're closer on the taxis product than the robot product. Within two years, maybe we'll see some robo-taxis. I think they're testing in Austin, I think is where they're testing robo-taxis.
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Chapter 6: What are the contrasting market reactions to Meta's and Microsoft's capital expenditures?
I push back that you're the most skeptical of the three on pulling off the robot thing. But yeah, you're right, they have limited Capital, they do have a good ability to raise more, if I'm being fair. Tesla has sold shares to raise capital in the past. With a $1.3 trillion valuation, they wouldn't need to dilute shareholders very much to get another $20 billion, $40 billion if they needed to.
I don't think we're going to see mass production of robots or robo-taxis in two years, but I'm not sure that we need to.
Yeah, I would push the timeline a little bit beyond two years, for sure, for partly the reason that Matt just mentioned. But on top of that, yes, looking at $20 billion in capital expenditures here in 2026, that's about double its previous all-time high. It doesn't necessarily need to spend that much for the next several years.
Not to mention, it'll be interesting to see if some of these things start ramping up. they will contribute to the cash flow in theory. Now, I'm with Matt. I don't think that we see fully realized versions of either of these things in the next two years. That would be my take. I would push it for maybe Optimus. I think I'd push that personally closer to five.
But it does need it to pay off, though, for sure, because it is investing a lot of resources.
Whatever side of it you put it on, either before two years or after two years, I think today's announcements really start to set the clock on expectations for Robotaxis and humanoid robots in a way that we haven't seen before in Tesla's earnings. After the break, we're going to talk about the dichotomy of Meta and Microsoft's earnings happening today in the market.
In other magnificent seven earnings this week, we had the tale of two reports coming out today.
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Chapter 7: What should investors consider regarding AI investments in Microsoft and Oracle?
Shares of Meta are up about 9% as we record the show. It beat revenue and expectations. But what blew me away was the capex guidance. We were just talking about $20 billion at Tesla. But Meta plans to spend close to double its 2025 capex, and that's between $115 billion and $135 billion in 2026.
On the other side of the coin, we have shares of Microsoft, which are down 12% as we're recording, after the company reported that its Azure cloud computing unit growth slowed a bit. It, too, is ramping up capital spending. And it also said its future sales backlog nearly doubled, with a significant increase coming from its investment in OpenAI.
Guys, it feels like we're having a freaky Friday moment, because we did this last quarter, more or less, and it felt like we had the exact opposite reaction here, where everyone looked at Meta's ambitious spending and went, whoa, whoa, whoa, and while Microsoft was wholly solid and people were like, yeah, there's a business behind this to really drive this forward, and now we're getting the exact opposite reaction three months later.
I'm curious if both of you saw this as well, but I really want to start to wonder is... are we betting on AI or open AI specifically with a lot of these AI investments? With Microsoft this quarter, that backlog number we saw, it was very much an open AI story, and a lot of it going to them.
We saw this kind of reaction last quarter after Oracle announced its massive backlog was basically a bet on open AI as well. Should investors in companies with large exposure to open AI, like Microsoft or Oracle, be a little more nervous than perhaps some of these other AI bets we've been talking about.
Tyler, I noticed that trend, too. In the third quarter, there was a clear theme of Meta and a few others being punished for increasing their CapEx outlooks. But now it seems the market's buying into it, or at least just assuming that CapEx is going to be more than initially expected, no matter what. In Meta's case, as you mentioned, it's a very big increase, roughly double 2025's level.
What makes it even stranger that the market's fine with it,
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Chapter 8: What stocks are on the radar after the earnings review?
is that Meta is spending all of this money to largely provide infrastructure for the least profitable parts of its company. They gave fantastic first quarter guidance. I have to think that's the main reason we're seeing the stock rally higher. On Microsoft, you really hit the nail on the head with the open AI concern. Look how much Oracle is off of its highs recently.
OpenAI is substantially all of their backlog. But with Microsoft, it makes up 45% of the company's remaining performance obligation, or RPO, which we call the backlog. CapEx turned out to be higher than expected in the fourth quarter. I think that made the slowdown in cloud revenue, which wasn't a big slowdown. It was 39% this quarter vs. 40% a year ago.
It made it a little bit worse in the minds of investors. The stock has been largely priced for perfection recently, though. Even after falling 25% from its 52-week high, yes, Microsoft is officially in a bear market. Microsoft trades for 30X earnings now. That's after a 25% decline.
I don't think that we should necessarily look at how the stocks are performing this week or today and make broad statements about how investors feel. Maybe the reaction was different last quarter than this quarter, but I think that what's going on in a more general sense is, investors are saying, hey, we're seeing all these capital expenditures. Can we just pause a moment and just
Appreciate the fact that we're using numbers over $100 billion here annually. That's insane that that's even coming out of my mouth. But investors are looking at the capital expenditures and saying, what is the return on investment? And it's really hard to quantify.
And I think that for sure with Microsoft, they were looking at, yeah, the growth of the cloud unit and looking at the capital expenditures and saying, am I getting a return here based on what it's paying out? And management pointing out, listen, we're not just investing. in capital expenditures for our cloud unit for the AI models.
There's plenty that we're investing in for ourselves, not just our customers. Look at it holistically. Meta, a little bit more straightforward, I think. They saw the big increases in ad revenue production for the company. Some of that is attributable to AI and how its models are improving.
I think that in one hand, investors are like, okay, we see the return a little bit more today with Meta, but it's really hard to quantify. But really looking at what Meta is building here, it is interesting, Matt, as you point out, that it's spending in the least profitable parts of its business.
This feels like a coiled spring, just spending and building aggressively behind the scenes, and then we're expecting it to suddenly launch something impressive. That's what Zuckerberg is talking about. It's talking about wanting to build and control its own technology so it's not beholden to any of the other players in the industry.
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