Alphabet’s first double miss in four years, and Microsoft went the other way | Sozzi Unleashed

Down. Ah. This is just going to be one of those shows. We got corporate earnings. It's been a wild 24 hours. We had a Fed meeting. I got Wingstop right on my desk. I don't want to tell you why just yet. That's what we call a deep tease. I want to bring over here uh right to my interactive wall here of absolute fun. Shout out to the Kobayasi letter. I love this guy. I love these guys work. I love following them on X. You can see all the stocks right here trading down pretty significantly relative to their 52- week highs. Apploving, Slaughtered, Coreweave, Slaughtered, Western Digital, Oracle, ARM, Circle, really all these names. Also got to shout out Meta 2 as well. Well off its highs. I encourage you go to go to Yahoo Finance, go to Yahoo Finance Alphaspace, pull up a chart on Meta and you can see the horrible run that stock has been on after they reported earnings in part because free cash flow went negative. Nobody likes free cash flow right now, especially when it comes to big tech. We're going to keep it on moving here. Now, the past 48 hours in the investing world has been absolutely wild. Like, it's just wild. Like, I'm giving the Ric Flair woo, which is like our version of it. Uh, here's where I am. on four topics that have probably caught your attention because it has been hot and heavy. First, I love this line on Fed Sher Kevin Walsh from the team over Bank of America. Quote, "We think he risks losing relevance unless he's willing to either guide or surprise markets. I think the BFA team is right on the mark. The lack of guidance from Worsh has basically led the S&P 500 to trade flat since early August. That's better than Meta, but still it's flat. Second, Oracle Management went a long way in addressing some of the factors pressuring its stock at its annual gathering late Wednesday. It was good to hear more measured tones on capex spending. In a more upbeat view on sales, now Oracle has to deliver on this very bullish mix every single quarter for the next 5 years or it will be right back to where it was before the event. Third, Marll reportedly eyeing a big deal for Lumenum that could create a new tech powerhouse that you will have to follow. But not to poo poo this one, friends, closing the deal could take some time as it would require US and Chinese regulatory approvals. Good luck with that one. Good luck. Good luck getting that through. And four, investors hate big tech serving up negative free cash flow. Meta stock is having an abysmal post earnings run because it surprised everyone with negative free cash flow in the third quarter. This just happened about a week and a half ago. You were there. I was there. We both read that earnings report. We were both on the earnings call. Alphabet delivered negative free cash flow in its third quarter. And investors are putting the stock in the penalty box too. And that is where I am starting out here right now. Because the market hates this quarter from Google. They hate this quarter from Google. They do not like it at all. Now, here are a couple reasons why. outside of what we heard from free cash flow uh being negative. You can see Google free cash flow negative right here two quarters in a row. This is been a cash beast pretty much ever since Google was created. Look at these quarters post pandemic. Free cash flow, free cash flow, free cash flow. That's been Google. Well, not anymore. It went negative and the street doesn't like to see it. But a couple of the reasons why the stock is getting slammed. You can head to Yahoo Finance right now. You can check it out. We're pumping out stories. That's what this newsroom is doing. First up, search business year-over-year sales didn't impress everybody. Didn't blow everybody away. In fact, they were below expectations. And yeah, I get, you know, Alpha wants to go on this earnings call and they want to tout a billion Gemini users. That's cool. But it is a search business. It's a search business and it fell short of expectations. No good. Like I mentioned, negative free cash flow. Pretty significantly worse performance on free cash flow relative to street expectations. Street is not liking this right now. If you're a big tech company, you post negative free cash flow, it's going to fall absolutely like like a bomb in water. It's just not going to be good. Not going to be good. Next one. Uh a rare double miss. And I can't I was trying to think back the last time I I talked about a double miss. That is a miss on sales and a miss on earnings for really any company. And I I can't remember. I've been doing this for a while. I have not seen a double miss from a company in some time. And then last but not least, the search revenue decelerated quarter over quarter. Capex is is rising because the company's investing aggressively in selling its own chips. So there's a lot to unpack still in Alphabet, but the street is ask is just selling the stock first and asking questions later. They didn't like anything that this company did despite uh the company out there on that earnings call doing what they would typically do. Talk about all the positive amazing things. And I'd even put on this list list too, YouTube didn't blow everybody away. And I've been talking about how Netflix is losing share to YouTube. I still came away with that sense. But YouTube also didn't live up to expectations in the most recent quarter. Now, the other side of this trade is Microsoft. And Microsoft's getting some love, guys. It is getting some love. And here's one of the reasons why. This beautiful chart I shared with the team, they put up on here this morning, and it's right on. God, I love Alphasace. I just love what we're doing with Alphas, guys. But anyway, this chart, this is Azure sales growth. Now, Microsoft, in my view, historically trades off these Azure numbers, but especially now as you could see that acceleration in Azure sales. This has really been very very uh a good story here for all things uh Microsoft. Azure accelerating the street love to see that. They love to see that. They love to see an earnings beat. We're not talking about a double miss for Microsoft like I just talked about for Alphabet. They liked that they saw that. the the guidance for Azure growth 49% to 50% also really good. Uh so they're signaling another acceleration Microsoft off of this number. There's the big beautiful Alphaspace. I love Alpha Space. I use this all the time. It's so good. Uh and then the capex, you know, you just heard me talk about Alphabet uh going negative free cash flow uh with its results because it's investing so aggressively in all things AI. The thing is Microsoft's capex came in about $5 billion below estimates. So that's why the market is embracing this Microsoft quarter compared to Alphabet. Now look, I will leave it with this. I'm not going to say Alphabet had a an abysmal quarter. I mean, a billion Gemini users is really strong. However, it's all about optics when it comes to investing. It's all about forward growth rates. And you came off of both of these quarters thinking Microsoft is the one that is going to see accelerating growth rates over the next, let's say, 12 months. And perhaps Alphabet is the one that is going to sell show decelerating growth rates over the next 12 months in search perhaps in YouTube. So that's why you're seeing really stark differences between how both of these big cap tech names are trading. And then there's that. And then there's my old fave that I love talking about and it's been a busy morning as you can see and that's Chipotle. And I can't say that I was blown away by this Chipotle earnings call. wasn't blown away by the quarter. Low single-digit sales growth for Chipotle. Not exactly great. I mean, this is wasn't a old school Chipotle quarter driving double digit same store sales growth in the US and talking about how traffic is absolutely ripping uh in so far quarter to date. That wasn't the story. The thing is this uh Chipotle managed to deliver a little upside in store sales considering the stock has really done nothing but gone down this year. The market liked to hear that. They liked they're coming out with brisket uh in the most recent in the most recent quarter. They think uh the street thinks that's going to be a big sales driver. And I put there brisket or bust. That is the that's the bottom line. Low-income diners also coming back to the chain when they're not offering promotions. I think because of those new snack bowls. I'm one of those folks eating those snack bowls at Chipotle. They are an affordable price point. And the next new approach to menu pricing and inflation concerns. I'd watch this. I think Chipotle is going to raise prices a good bit next year to offset the inflation. Historically, Chipotle has not done that. They have eaten those price increases, but still I think Chipotle is going to hike prices next year and maybe earn some fatter margins. Outside of that, there's a lot of innovation going on uh in fast food. And I I want to bring up something I picked up from Wim Wingstop and its CEO uh Michael Skipworth. I've talked to him uh through the years. He just dropped a pretty uh big new item. Take a listen to what he said about it >> just this weekend. Um, and this week you have an opportunity to to try a really unique flavor that may sound a little odd at face value, Sour Patch Kids, uh, wing flavor, but it's actually incredibly delicious. And so, I would encourage you all to go out and try it. But it's a way for us to innovate with flavor, create some new news for our guests. And this is by public service for all of you. Uh, I am training for my next high rocks race in Nashville. I shouldn't be eating any of this, but the team wanted me to try the Sour Patch uh wings. They know I'm a Sour Patch guy. Our whole studio now smells like Wings Stop. Historically, I like Wings Stop. I eat it once a year for the Super Bowl. Uh wow, guys. You guys got me the bonus. You got me the boneless wings. You guys are good. You guys know me really well. Can you see this? The I got to hold it up higher, guys. Like, I'm just This is real time stuff, guys. This is not This is not planned. Uh it's glazy. Oh, man. My like I'm not going to get this off my hands for the next five years. So, you can see like little pieces of Sour Patch Kids. Shout out Max Graater uh for going out and getting these things bright and early. They're hot. They smell really really spicy. And I can't believe I'm going to eat it, but I'm going to eat it anyway. There's something there's something bizarrely good about these. It's kind of like It tastes like a sour patch cube, but like a mango sweet sauce. And I can't believe I'm eating this at like 9:45. I have my next guest, Dan Sharon, over at Brooks watching me off camera. I'm like, look, total dope. Um, this is really good. The food is good, but this is type of innovation that sticks out. Fast food has lost, I think, its innovative edge. They're afraid to take risks because they're battling inflation. They're closing restaurants. It's this nice, it's this type of stuff from the folks over at Wingstop that I think cuts through the clutter. It's not gimmicky. It tastes good. Almost tastes like a boneless Chinese spare rib. I'll leave it at that. I got to wipe my hands. I want to talk some running shoes. That's really good, guys. This is really good. Thank you, Max, for going out and getting that. This is not coming off anytime soon, but it is what it is. I want to talk some running shoes because we are New York City Marathon's coming up and I'm excited to watch it. I'm not competing in it. I have to do my training and push sleds. I want to bring in Dan Sheridan Brooks running CEO. He's been watching me eat these saucy wings off camera. Dan, I'm sorry, man. I'm not going to shake your hand. I'll give you a left hand fist bump. Uh, good to see you. >> Nice to see you, Brian. Thanks for having me. Yeah, you know, it's uh talk about a segue going from fast food to the New York City Marathon. Um yeah, talk to me about those shoes, though. >> Yeah, I mean, so uh we're out here for the New York City Marathon, obviously, and uh we're going to see Epic Athletic Achievement on the course, and they're going to be wearing Brook shoes. So, we brought some of our uh speed line. That's the Hyperion Elite 6. >> I have these and they they're very good. >> Oh, I love hearing that. It's great. Um so, 6.8 ounces. All of our athletes will be running in this this weekend with a lot of other people also running in it. >> What is that? Because I have not seen that on the Brooks website. Are you like hiding sneakers from me? >> So, I had to bring this because I know you're a big fan of the sport and uh this year Josh Kerr broke the 27-year record in the mile uh at the London Diamond League July 18th. And um this was a bespoke product that we uh designed developed out of our lab in Seattle. Uh, it was made specifically for Josh and specifically for the world record. Uh, it's got the world's best uh, midsole compound, a a fiber plate, >> titanium bottom, what >> it's a it's a uh, a carbon fiber plate that um, we designed to Josh's biomechanics. And this is the innovation that's driving our business right now. We are um using data and computational design to specifically design product for the outcomes that athletes want. >> How what is this and how is this so light? And what is this? What's >> 4.5 ounces, right? >> I mean I can't I I wish I was a way for me to convey how light this was, but I mean it almost feels like I was holding nothing in my hands. >> Yeah. I mean this is this is what we do every day. We design, we develop, we innovate for the runner. um at epic athletic achievement all the way to the five six-hour marathon on course this weekend and it's driving our business. This is our 13th consecutive quarter of growth. We're growing 12% year-to date. Broad growth across the world. Uh running's hot and and Brooks is winning right now. >> What I think I've asked you this before, but it's I'll ask it again. What What is it about what you're selling that you're able to out compete rivals that are bigger than you? I I see an Under Armour. I see a Nike. These companies are really struggling and you're up here. 12% revenue growth for the first three quarters this year. Growth all around the world. 24% in Europe. Uh up strong overseas, 9% each in the Americas and Asia Pacific. Like nobody else is putting up results like this. >> 25 years focused on this category. Brian, sharp focus creates mass appeal. We've had a sharp focus. We're an innovation company and we innovate for the sport. And so what happens over time is if you're consistent, you focus on quality, performance, injury prevention, runners find you and they won't leave because it's important to their daily journey and their health journey. You know this. >> Yeah. What what is the big innovation that you are focused on for next year? You're like, will that be a mass market shoe? You think? >> Yeah. So the technology that we've developed in this spike, which is 4.5 ounces, will trickle down into our line for sure. That's the fun part about innovation is you get to the pinnacle peak of the sport and all of that innovation comes into your line and it benefits everybody that chooses to to move. Um so so we're focused on innovation. It's really interesting right now in innovation. You know, we've been focusing on kinesiology and physiology. The next frontier for us is neuroscience and what the brain is unlocking to keep people in their flow state. We found that with with Josh's uh world record project 222. And so we're starting to develop research around neuroscience and how that impacts performance. >> Can you make me run as fast as him? >> Uh we could try. We could try. Yeah, we could try. I'll tell you the the first step you got to do is is get a great piece of apparel or footwear. >> True. How do I how do I get into that flow state if I'm if I'm looking to run? Like what what what does your science showed? >> Yeah. So the science shows that if we can increase serotonin and endorphins, the mind is in a better place to perform at epic uh levels. And so um we're starting just early tests on this and research with it. I think it's the the next frontier. If you go back through mental fitness and what uh athletes have done for years, they've talked about their mental practice, right? And it's all about getting their brain in the right spot so they can achieve the goals they have. And we're seeing that now. >> Why why not get into wearables? Like where's the technology? Do you see yourself putting technology in there? You know what I mean? Like some form of trackers or something and like owning the whole running experience. Like look, I have a whoop strap, but I wouldn't mind trying some from Brooks. >> Yeah. You know, the truth is we've been collecting watch data for years now, and it's starting to become something where we can predict injury, fatigue, and the like. And so, we've been doing uh deep studies on watch data through partners to collect all this data and ultimately predict the optimal uh run for you, also biomechanics, when your biomechanics break down on your run just through the watch data. So, you don't have to put it in the shoe. It's on your wrist and and on your finger and and we can start collecting that data. >> You really got to have me out to your labs because I I but I'm You did I'm in constant pain. Not because of the sneakers that I'm wearing. >> We can fix that. >> I Good. >> We can fix that. >> What What about the cost to make these shoes? Uh it seems like every time I talk to you, the costs go up. >> Uh and it's not just a Brooks thing. I mean, it's an interesting thing. >> Yeah. I mean, we've got an interesting dynamic right now. We've got trade policies that are increasing. uh duty rates into the US. Persian Gulf disruptions um raising both the make of our product and the move. So there's pressure on on the the FOB and the cost of goods right now. Got our arms around it because the category is so healthy that price is is you know it's always a consideration for the consumer but we've been able to stay in the zone of what consumers will pay for performance. What we're seeing right now, the average price of a running shoe in the US has gone up almost 30% since 2021. Some of that is driven by the the the participation rates and all the people coming in. >> Look, also like I can care less. I if that is going to make me faster like I have I will pay for the performance. >> Is that what I mean? You're just in a good niche. >> You know, I I say this all the time to our team. We you get two choices as a business when you start. The category you compete in and the consumer you target. We picked an unbelievable category and a very very healthy consumer. And over time we've seen this category grow. Call it two to three% a year. Right now it's growing at almost 10 11% a year. So we are in this incredible category driven by participation around the world. You mentioned our Europe numbers. Europe's in a running boom. The US is in a running boom. Asia Pacific's in a running boom. We've got a great category and a great con. you know, we've seen your competitor jack up the price on their, you know, really fast shoe. I mean, it's pretty expensive, almost I think like 400 bucks. Like, can you push your shoes that high? Yeah. I think we're always we're trying to balance what innovation brings for performance and injury prevention. And we're paying attention to the competition always. You know, we want to be a a brand that is pinnacle in performance and priced appropriately to what we deliver from a product perspective. and and we have, you know, $275 performance shoes that actually deliver what we say they're going to deliver. They improve the performance of runners. You're going to see it this weekend in New York. Um, but we see it in every major marathon around the world. >> Yeah, you've you and I have talked a lot in the past on Brooks is is owned by Bergkshire Hathway, legendary company, Warren Buffett, uh, now Greg Abel at top. Since we last spoke, Warren Buffett is now officially retired, chair ameritus. Have you talked to Howard Buffett? like have you what do you know about him that the average person may not know? >> Yeah, I don't know if I know much more than the average person to be honest with you. What I do know is how fortunate we are to be owned by Berkshire Hathaway. I I often talk about it with partners and our employees that it's a competitive advantage for us. I think on different time horizons than many of our competitors. I think in five 10 year time horizons we're investing for the long term and the reason we can do that is because of Bergkshire. Uh, and Warren is obviously the the the author of all of that. Now with Greg and and I report into Adam Johnson at NetJets, we've got just consistent leadership and it's a competitive advantage for us in every market we go into. >> You reporting to the NetJets guy, I How is that? >> It's great. It's great. I I tell everyone it's consistent. The leadership at Bergkshire is consistent and I've been fortunate enough to to be under that for many years. >> What? I can't help myself. What does he ask you? You're the You're the Brooks sneaker guy crushing it. He's the NetJets guy crushing like what are those conversations like? >> Adam's incredible. He's he's a product person and a service person and what we do every single day is we deliver the greatest products for runners to improve their lives. We service our retailers and our partners and our runners. So Adam gets our business and and so he's a guide for us on problems that he's seeing across the portfolio and it's been it's been fantastic. >> So lastly, this shoe perhaps was thought up 10 years ago. Now, if you're thinking 10 years out, what would something even from Brooks look like if it doesn't look like this? >> You know, I I think that's the the the art and science of our our product teams. I think we have the best product teams in the world. And the truth is, you're always trying to iterate uh test and learn. And our innovation labs throughout the world are doing that. And so, you know, what's next? I I still think we're going to be balancing the the weight of product. Um weight is always the thing that runners want. lighter weight but better performance. So, you're going to see us innovate there. You're going to see material innovation um at a at a molecular level to to get rebounding and cushioning, which we already have in these, but that will improve. I think we think of the shoe as a system. So, not just the midsole and the outsole, but the upper and how they all work together to to improve the performance of athletes. All of that is in our innovation labs and we're delivering it consistently. Every time I talk to you, it just reinforces how you're able to put up results like this. Good to see you. I still won't shake your hand. Not that I want to, but I just You saw what I just did. I've got like wings all over your D. Enjoy the race. Appreciate it. >> All right. Seemingly everyone I know in the business community is digging into Anthropic's IPO perspectus this week and the assessments on anthropic preo are varying widely. I can tell you that much. Here's what Robin Hood CFO Shiv Verma told me about what caught his eye from the S1. >> Their growth rates are pretty incredible. And so up 1300% year-over-year. Uh I can't recall seeing another company doing that. Well, um the other thing I thought was interesting is they were showing what percentage of their customers are in different buckets. And so if you spend more than 10 million a year, your top 250 customer, uh I thought that was a pretty interesting stat as I thought it'd be a little bit larger, but it just goes to show you how big their future TAM is. >> Verma has no choice but to read every single page of the S1 for at least two reasons. For one, Verma runs Point on Robin Hood Ventures. It's a concentrated investment portfolio heavily anchored in premier AI and data infrastructure plays including open AI. You've heard of that company, data bricks, you've heard of them. The AI hiring platform MKER and the coding assistant cognition, which has been out there rumored to raise a large slunk of money soon. So, how anthropic is received by investors could greatly impact the valuations of the companies in the portfolio and by extension the overall value of Robin Hood. Secondly, there will likely be a lot of interest from Robin Hood's retail investor base enthralled with all things AI and trading anthropic shares and also to use the hotly anticipated debut to scale in and out of other AI names. I really have never seen this type of interest in S1 before, at least during my career. The excitement was there when Facebook went public, but not to this level. And I think that reflects how important Anthropic is viewed by corporate America. After all, this company did warn about the risk to humanity at the hands of its own technology that it's putting out there. Lots to unpack there. Now, we are about two weeks out from our big annual invest event here at Yahoo Finance on November 12th. This will be our biggest lineup ever of news makers, all coinciding with the aftermath of the midterm elections and possibly right in line with the anthropic IPO. You can check out our uh guest list at finance.yahoo.com/invest2026. yahoo.com/invest20206. Now, naturally, I just don't show up to invest each year unprepared. I would characterize my twoe leadup as controlled insanity. This is where I'm at right now, entering the eye of the storm with my prep. There is a force field around me while I'm sitting at my desk at Yahoo Finance HQ. Yeah, there there actually is. At least I think in the prep calls I am having two themes have emerged. I want you to think on the first is a universal view that tech valuations are frothy and that this will end badly for investors and two the fundamental risk to businesses from ever more powerful AI. I would be using this moment to restudy the valuations on the companies that you own. I would also dig into filings to see how companies are investing to mitigate AI business risk. A lot of this could come to a head and you don't want to be caught off guard. Stay unleashed. What? Heat. Hey, Heat. Heat. Heat. Heat. Heat. Down down down. Down. Down. Ah.