Magnificent Seven stocks, which led the stock market rally from the front between 2023 and 2024, have looked relatively shaky this year, and Apple (AAPL), Tesla (TSLA), Amazon (AMZN), and Meta Platforms (META) are underperforming their average S&P 500 Index ($SPX) peer, while Microsoft’s (MSFT) performance is barely in line. Even Nvidia’s (NVDA) year-to-date gains of around 36% look quite grounded, given what the stock has delivered to investors in the last two years. www.barchart.com Notably, U.S. tech ...

Core Insights - Meta is planning budget cuts of up to 30% in its Reality Labs division, which may lead to job cuts affecting employees working on Horizon Worlds [1][3] - The company has faced over $60 billion in losses in Reality Labs since 2020 and is increasing its AI spending amid a competitive landscape [4] - Meta's stock rose by 4%, adding $69 billion to its market cap, following news of the budget cuts [4] Budget Cuts and Job Uncertainty - The potential budget cuts are part of a broader strategy discussed by CEO Mark Zuckerberg with executives [2] - Employees are uncertain about whether cost reductions will lead to layoffs, with most cuts expected to come from operating expenses rather than salaries [3] Organizational Changes - Meta has previously reorganized its metaverse unit, appointing new leaders for its metaverse efforts [5] - Vishal Shah, a key figure in Meta's metaverse initiatives, is transitioning to a different division, while Apple design leader Alan Dye has been hired to lead a new creative studio [6] Previous Restructuring Efforts - In April, Meta cut an undisclosed number of Reality Labs employees as part of a restructuring, affecting its gaming division and VR fitness app team [7] - The company has emphasized the need to drive sales and engagement, particularly in mixed reality, to ensure the long-term success of its metaverse plans [8] Investor Scrutiny - The significant losses in Reality Labs have raised concerns among investors, with analysts questioning when these losses might decrease [8]

Microsoft - Microsoft stock is rated as a "Strong Buy" by 39 out of 48 analysts, with an average target price of $630.59, indicating a potential upside of 32.6% [1] - The company has strengthened its partnership with OpenAI, gaining exclusive Azure privileges and extended access to models and IP [2] - Microsoft ended the quarter with $102 billion in cash and short-term investments, and has a record backlog of $392 billion, positioning it well for growth [2] - The company invested $34.9 billion in AI and cloud expansion, with half allocated to shorter-lived chips and hardware, and the other half for long-term infrastructure [3] - In the fiscal 2026 first quarter, Microsoft reported revenue of $77.7 billion, a 17% increase year-over-year, and earnings of $4.13 per share, up 21% [4] Amazon - Amazon stock is also rated as a "Strong Buy," with 49 out of 57 analysts recommending it, and an average target price of $295.85, suggesting a potential upside of 36% [8] - Amazon Web Services (AWS) reported a 20% year-over-year revenue increase in Q3, with an annualized revenue run rate of $132 billion and a backlog of $200 billion [7] - The company is investing over $90 billion this year to prepare for an AI-driven future, while maintaining healthy profitability with EPS rising 36% to $1.95 [7] Meta Platforms - Meta Platforms stock is rated as a "Strong Buy" by 43 out of 56 analysts, with an average price target of $838.62, indicating a potential upside of 42.3% [11] - The Family of Apps segment generated $50.8 billion in revenue, a 26% increase year-over-year, driven by strong advertising demand [9] - Reality Labs revenue increased by 74% to $470 million, supported by interest in AI-enabled products [10] Alphabet - Alphabet stock is rated as a "Strong Buy" by 43 out of 55 analysts, with an average target price of $317.92, suggesting a potential upside of 6% [14] - The company reported $102.3 billion in revenue for Q3, marking its first-ever $100 billion quarter, with a 16% year-over-year growth [12] - Google Cloud revenue grew by 34% to $15.2 billion, with a backlog of $155 billion, up 82% from last year [13]

Core Insights - Meta Platforms has transitioned from a social networking site to a leader in artificial intelligence and virtual/augmented reality, with a focus on building the metaverse and enhancing user engagement through AI [3][6][9]. Business Overview - Meta operates a suite of apps including Facebook, Instagram, and WhatsApp, which are used by billions for social interaction and community building [1][6]. - The company generates most of its revenue from targeted advertising across its platforms, utilizing user data to optimize ad placements [11]. Financial Performance - In Q3 2025, Meta reported a 26% year-over-year revenue increase to $51.24 billion, driven by higher ad impressions and user engagement [13]. - Daily active users across its apps grew by 8% year-over-year to 3.54 billion, with ad impressions increasing by 14% and average ad prices rising by 10% [14]. AI and Technology Investments - Meta is heavily investing in AI, with a focus on developing advanced conversational AI and integrating AI capabilities across its platforms [9][12]. - The company anticipates significant capital expenditures for AI infrastructure, projected to exceed $100 billion in 2026 [17]. Reality Labs Division - Reality Labs, responsible for VR and AR development, has been a major financial burden, posting an operating loss of $4.4 billion in the most recent quarter [16]. - Despite the losses in Reality Labs, the core advertising business remains profitable [16]. Recent Developments - Meta has established the Meta Superintelligence Labs to consolidate its AI efforts, focusing on large foundation models and AI-powered products [18][19]. - A joint venture with Blue Owl Capital aims to develop a $27 billion AI-optimized data center campus in Louisiana, part of a broader strategy to enhance AI infrastructure [20].

Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the **AI glasses** market, particularly focusing on **Meta's** performance and its impact on the supply chain, including companies like **Goertek** and **Sunny Optical**. Core Insights and Arguments 1. **Sales Performance of Meta AI Glasses**: - The new **Ray-Ban Meta glasses** and **Oakley Meta Vanguards** are performing well, with the Ray-Ban display glasses selling out within **48 hours** [1][2] - **Reality Labs** revenue increased by **74% YoY** to **US$470 million**, driven by strong demand for AI glasses and stocking up of Quest headsets ahead of the holiday season [1][2] 2. **Future Revenue Expectations**: - Anticipated decline in **4Q25** revenue due to pull-forward stocking and a high base from the previous year, although this is partially offset by significant growth in AI glasses [1][2] 3. **AI Glasses Shipment Growth**: - **3Q25** global AI glasses shipments reached approximately **1.65 million units**, a **370% YoY** and **90% QoQ** increase, with Meta accounting for **1.12 million units** [3] - Meta's AI glasses shipments since launch in **4Q23** have approached **4 million units**, with **2.3-2.4 million units** shipped in the first nine months of **2025** [3] 4. **Production Forecast Adjustments**: - Meta has raised its production forecast for **2025/26** to **12 million/30 million+ units**, up from previous estimates of **10 million/20 million** [3] 5. **Beneficiaries of AI Glasses Market**: - **Goertek** and **Sunny Optical** are identified as key beneficiaries of the AI glasses market, with Goertek gaining market share in new AI glasses series and Sunny Optical continuing to supply camera modules [1][3] Additional Important Insights 1. **Market Dynamics**: - Other brands in the AI glasses market have also seen significant growth, with some brands experiencing a **1667% YoY** increase in shipments [3] 2. **Valuation Insights**: - Goertek's target price is set at **Rmb38**, based on a **28.2x 2026E P/E**, reflecting stabilizing AirPods shipments and AI smart glass demand [5] - Sunny Optical's target price is set at **HK$103**, based on a **23x 2026E P/E**, driven by a new camera cycle in smart vehicles and XR [7] 3. **Risks to Consider**: - Key risks for Goertek include lower-than-expected VR/AR penetration rates and increased competition leading to ASP pressures [6] - For Sunny Optical, risks include slower shipments of domestic-brand smartphones and high inventory levels impacting volume growth [8]

Core Insights - Meta's third-quarter earnings report led to a nearly 9% drop in share price despite beating revenue expectations with $51.24 billion, primarily due to a $15.9 billion tax charge and concerns over AI investments [1][2]. Group 1: Capital Expenditure and AI Investments - Meta plans to spend between $70 billion and $72 billion on infrastructure in 2023, with expectations of significantly larger expenditure growth in 2026 as AI workloads increase [3][4]. - The company is focusing on building novel capabilities and plans to invest aggressively in data centers and third-party cloud capacity, which will exert upward pressure on capital expenditures [4][5]. - Employee compensation is projected to be the second-largest contributor to expense growth in 2026, reflecting the hiring of AI specialists and new technical recruits [5][9]. Group 2: Reality Labs Performance - Meta's Reality Labs reported $470 million in revenue but incurred an operating loss of $4.43 billion, slightly improved from a $4.53 billion loss in the previous quarter [9][10]. - Revenue for Reality Labs received a temporary boost from retailers stocking Quest headsets ahead of the holiday season, but challenges remain due to the lack of new model releases [10][11]. Group 3: Tax Charge Implications - The company faced a one-time $15.9 billion tax charge due to changes in tax legislation, which allowed for a valuation allowance against federal deferred tax assets [11][12]. - Without this charge, Meta's effective tax rate would have dropped from 87% to 14%, positioning the company favorably for future cash tax payments [12][13]. Group 4: AI Impact on Engagement - AI-powered recommendation systems have increased user engagement, with time spent on Facebook rising by 5%, Threads by 10%, and video viewing on Instagram by over 30% [14][15]. - Meta's generative AI features for advertisers are expected to enhance performance and potentially offset losses from Reality Labs [15][16]. Group 5: AI Glasses Market Potential - Meta's AI-powered glasses are anticipated to become a profitable investment, with strong sales reported and collaborations with Ray-Ban and Oakley progressing well [17][18]. - The new Ray-Ban Displays sold out quickly, indicating strong consumer interest, and the AI capabilities are expected to be a primary usage driver for the glasses [18].

Core Insights - The artificial intelligence revolution has positioned Baidu and Meta Platforms as leaders in innovation and investor interest, each adopting distinct strategies for AI monetization [1][2] - Both companies are heavily investing in foundational models, cloud infrastructure, and next-generation computing, albeit in different markets and regulatory environments [1][2] Baidu's Case - Baidu is transforming into an AI-first enterprise, focusing on AI Cloud, autonomous driving, and modernizing its search platform, which reshapes its growth and financial trajectory [3] - In Q2 2025, Baidu's total revenues declined by 4% year-over-year, with Baidu Core revenues at RMB 26.3 billion ($3.66 billion) and non-online marketing revenues up by 34% due to rising demand for AI-powered solutions [4] - Operating income fell by 45% due to increased infrastructure and compute costs associated with AI deployments, with Q3 2025 revenue estimates at $4.34 billion, indicating a 9.33% year-over-year decline [5] Meta's Case - Meta Platforms is at the forefront of AI innovation, integrating AI across its products and user experiences, with Q2 2025 revenues rising by 22% year-over-year to $47.52 billion [9] - AI is central to Meta's growth strategy, with Llama models enhancing user engagement and content delivery, and over one billion users interacting with Meta AI monthly [10] - In Q2 2025, Meta's operating income reached $20.44 billion, up 38% year-over-year, with a 43% operating margin, indicating strong profitability metrics [11] Valuation and Performance Comparison - Meta Platforms commands a higher valuation with a forward P/E of 24.99x compared to Baidu's 16.48x, reflecting investor confidence in Meta's ability to monetize AI effectively [14] - Baidu's shares have increased by 57.1% year-to-date, driven by optimism around its AI transformation, while Meta's shares rose by 25.3% due to consistent earnings growth and visible AI monetization [17] - The growth trajectories of Baidu and Meta differ, with Baidu's reinvestment cycle indicating a longer path to stable profitability, while Meta's integrated AI ecosystem positions it for more immediate benefits [20]

Core Insights - Meta CEO Mark Zuckerberg envisions a "personal superintelligence" as the next major wearable technology, potentially surpassing smartphones in functionality [2] - The company aims to empower individuals through AI, contrasting with concerns that AI may replace jobs and societal roles [2] - Meta's Reality Labs continues to incur significant losses despite modest revenue growth, indicating challenges in monetizing its hardware initiatives [4] Financial Performance - Meta's Q2 revenue increased by 22% to $47.52 billion, the fastest growth since 2021, driven by a 9% rise in ad prices and an 11% increase in impressions [5] - Net income rose by 36% to $18.34 billion, improving the operating margin from 38% to 43% [5] - Reality Labs reported an operating loss of $4.53 billion, which is approximately $50 million wider than the previous year, while revenue grew by 5% to $370 million [4] AI and Product Development - AI is already enhancing Meta's products, with superintelligence expected to further accelerate progress in five key areas [3] - New recommendation models improved ad conversions by 5% on Instagram and 3% on Facebook [6] - The MetaAI assistant has surpassed 1 billion monthly users, with plans for further improvements through the next Llama model [6] Market Position and Strategy - Meta is leveraging current advertising revenue to fund future AI developments, positioning itself as a leader in personal superintelligence [7] - The company is committed to open-sourcing its AI models, although it acknowledges the practical limitations of larger systems [3] - Meta's family of apps now attracts 3.48 billion daily users, reflecting a 6% year-over-year increase [5]

Core Insights - Dan Reed, COO of Meta's Reality Labs, is stepping down after nearly 11 years, highlighting ongoing leadership changes amid internal and external pressures [1][2] - Reed described Reality Labs as a "fast-growing, multibillion-dollar consumer technology business" focused on AI wearables, augmented reality, and the metaverse [1] - Meta has restructured Reality Labs, integrating it more closely with its core business, reversing a previous standalone focus on the metaverse [3][4] Company Developments - Reed's departure follows a major restructuring of Reality Labs, with sales, marketing, and analytics teams now reporting to broader Meta leadership [3][4] - Meta COO Javier Olivan has taken over the teams previously led by Reed, aligning other Reality Labs leaders with top executives [4] - Despite a reported 40% year-over-year sales increase in 2024, Reality Labs has incurred over $60 billion in losses since 2020, indicating ongoing financial challenges [5][6] Future Outlook - Meta's chief technology officer, Andrew Bosworth, emphasized that 2025 is a critical year for Reality Labs, with the potential to validate or undermine years of investment in the metaverse [7]

Core Insights - Meta has laid off employees in its Reality Labs division, specifically affecting Oculus Studios, which develops applications and games for Meta's Quest headsets [1][2] - The layoffs are part of a restructuring aimed at improving efficiency in developing mixed reality experiences while continuing to deliver content [2] - Reality Labs has incurred significant financial losses, reporting nearly $5 billion in losses in Q4 2024 against $1 billion in sales, with ongoing annual operating losses since the rebranding from Facebook [2] Employee Impact - The number of employees affected by the layoffs has not been disclosed, but it includes those working on the VR exercise app Supernatural, which was acquired by Meta in 2023 [1][2] - Laid-off employees will have the opportunity to apply for other positions within the company [3] - The layoffs will result in fewer new workouts being produced weekly for Supernatural, although the workouts will be available at a wider variety of skill levels [3]