🦉 The Night Owl Newsletter for July 30th

Unsubscribe The Night Owl, From Early Bird Publshing. Eye-opening video on new space economy (From Monument Traders Alliance)tc pixel Microsoft Just Flipped the AI Spending Narrative Overnight Written by Chris Markoch Microsoft logo displayed on a wall-mounted plaque in a modern office lobby with glass partitions. Microsoft Corporation (NASDAQ: MSFT) reported its fourth-quarter earnings for its 2026 fiscal year (FY2026). Investors liked what they heard, pushing MSFT up over 16% in midday trading after the report. For once, good news is good news. The two biggest takeaways from the report were the strong growth in the company’s Azure business (i.e., cloud computing) and its capital expenditures (CapEx), which struck a balance of commitment, restraint, and a return on that investment. The response after the report must be a relief to buy-and-hold shareholders who have suffered through a steep drop in MSFT since October 2025. Early signals from analysts suggest that this may be the start of a broader rally. However, it’s important to look at the bigger story behind the rally. This wasn’t just about a beat-and-raise quarter. MSFT had been punished by a bearish narrative focused on artificial intelligence spending without payoff. This report changed that. Azure Growth Tops Expectations and Raises the Bar Again It’s important not to gloss over the sequential growth in Microsoft’s cloud business. The 43% growth beat analyst estimates of around 41%. That 41% was already a high bar, given the 40% sequential growth the company delivered in the prior quarter. More impressively, Microsoft is guiding for 45% growth in Azure in Q1 of FY2027. The significance of that number becomes evident in the company’s CapEx guidance. Commercial bookings and backlogs tell the same story from a different angle. Remaining performance obligation (RPO) hit $678 billion, up 84% year over year. Even stripping out OpenAI commitments, RPO still grew 25%. That shows that Microsoft is converting demand into contracted, multi-year revenue. Copilot adoption crossed 30 million paid seats in Microsoft 365, a scale milestone bulls have been waiting on. It's the clearest evidence yet that AI monetization is moving from pilot programs to paycheck-line-item status for enterprise customers. Microsoft's CapEx Spending Finally Looks Sustainable If Microsoft is growing its cloud business at approximately 40%, it had to post a CapEx number showing that all the growth wasn’t being consumed by its infrastructure spend. In the quarter, Microsoft spent $41 billion on CapEx. That was in line with its prior guidance. It also projected CapEx spending for FY2027 at around $175 billion. That coincides with the $190 billion it forecasts to spend in calendar year 2026. It wasn’t exactly like threading a needle; a better analogy might be that Microsoft is forecasting a Goldilocks level of spending (not too hot, not too cold), backed by AI-related revenue. This is the psychological pivot point for the stock. Investors spent nine months punishing Microsoft for accelerating CapEx spending without evidence of return. But the skepticism is fading away as analysts see revenue growth outrunning the spending growth Strong Cash Flow Supports Microsoft's AI Investment Strategy Investors were also closely focused on the company’s free cash flow (FCF). In Q3 FY2027, Microsoft reported negative FCF, largely due to CapEx. This quarter’s $19.6 billion was 23% lower year over year. However, it was still positive. Furthermore, the company says it will be FCF positive for all of FY2027. Operating cash flow rose 30% to $55.4 billion, the figure that matters most for a company still self-funding a historic infrastructure buildout. Microsoft also returned $10.2 billion to shareholders through dividends and buybacks, a signal it isn't sacrificing capital returns for AI spending. Microsoft Stock Breaks Above Key Technical Levels The chart backs up the fundamental story. MSFT gapped up from the open in a 16% single-day move. That represented a decisive break above both the 50-day SMA ($398.52) and the 200-day SMA ($433.85). Reclaiming the 200-day moving average after a seven-month downtrend is a meaningful technical signal on its own. It suggests the long-term trend may be turning back up, not just bouncing on one good print. A move this sharp will likely leave short-term momentum indicators like RSI in overbought territory. Traders should expect some consolidation or pullback risk in the near term, even if the longer-term trend has shifted bullish. MSFT chart showing a gap up above its 50-day and 200-day SMA. Analysts See More Upside for Microsoft Stock The Microsoft analyst forecasts on MarketBeat show several analysts raised their price targets on MSFT following the report. The first several price targets came in below the consensus price target of $557.98. But even at the consensus, the stock would be trading at a new all-time high. That gap between individual targets and the consensus is itself a tell. Analysts are still catching up to a stock that just erased months of skepticism in a single session. Expect more upward revisions in the days ahead as models get updated for the beat. Microsoft had a strong quarter that is finally being recognized as such. In this hypersensitive market, the company will have to keep showing the return on its AI investment for the rally to continue through the rest of the year. But for now, the narrative around MSFT has changed, and that’s welcome news for shareholders. READ THIS STORY ONLINE Not oil. Not solar. Bigger. (Ad) tc pixel Not oil. Not solar. Bigger. The International Energy Agency measured it at 140 times global electricity demand. It runs 24 hours a day, produces zero carbon, and needs no fuel, no batteries, or sunlight. A crew near the Grand Canyon drilled three miles underground in just 16 days. Google signed a 15-year contract, Bill Gates invested $100 million, and the Pentagon called it priority one. On August 18th, Washington grants this energy source a competitive advantage through 2033. SEE THE ONE COMPANY CONTROLLING THE TECHNOLOGY WITH NO COMPETITION IN SIGHT Qualcomm’s Turnaround Is Working, So Why Is Wall Street Selling? Written by Sam Quirke Qualcomm logo on a computer chip atop a circuit board, with server racks, a car dashboard, and an AI chip in the background. Qualcomm Inc (NASDAQ: QCOM) has spent much of the past few months trying to convince the market that it’s more than just a smartphone chipmaker. Its earnings report, delivered July 29, will have disappointed investors looking for a clear update on whether that transformation is taking hold, as the takeaways were decidedly mixed. The headline numbers told two stories at once. Revenue for the quarter comfortably beat expectations, driven by the diversification the company has been promising. Yet, earnings came in short, and the guidance for the quarter ahead landed below what Wall Street wanted to see. That was enough to send the stock down about 4% in Wednesday's after-hours session. For anyone following the Qualcomm story, this was always going to be a quarter that mattered more than most. The question now is whether the progress beneath the headlines is sufficient to make this an entry opportunity or whether the near-term headwinds are too strong to overcome. The Diversification Story Is Finally Showing Up The single most encouraging takeaway was the performance of the businesses Qualcomm is betting its future on—its Automotive segment. This was the standout from the report, with revenue surging more than 60% year-over-year, prompting management to raise its outlook for the segment yet again. Qualcomm’s Internet of Things (IoT) business grew at a healthy clip, too, helping comfort investors spooked by Qualcomm’s Handset revenue dropping 20%. This matters in the context of everything the company has been telling Wall Street. As we saw following its Investor Day last month, Qualcomm has staked its future on reducing its dependence on smartphones, and these results are the clearest evidence yet that those plans are working out. The Data Center Push Comes With a Bigger Bill Qualcomm’s data center ambitions are another part of the business that bulls have been excited about, and the earnings report showed solid progress. Management confirmed that its first custom silicon shipments for data centers are expected in the current quarter, turning what had been a roadmap promise into a concrete timeline. Unsurprisingly, none of this came for free, and Qualcomm's capital expenditure (CapEx) has been climbing sharply at the same time. For now, that spending remains modest relative to overall sales, so this is nothing like the eye-watering CapEx numbers being seen elsewhere in the chip world. But it is a trend worth watching, particularly if the data center revenue takes longer to arrive than management hopes. The Apple Problem Just Got Worse If there was one clear negative in the report, it was the update on Apple Inc. (NASDAQ: AAPL). Qualcomm has long known that Apple is working to replace Qualcomm's modems with its own in-house design. Still, management revealed that this transition is now happening faster than previously expected. The company's share of the upcoming iPhone launch is expected to be materially lower than the roughly 20% it had been modeling, a meaningful downgrade from the assumptions it held just a quarter ago. That accelerated loss, combined with what management described as unprecedented memory costs, is the main reason guidance for the quarter ahead disappointed. It’s a stark reminder that even as Qualcomm’s new growth engines fire up, its legacy business still carries real risks. Where to From Here? That sense of the company being mid-transition probably goes a long way to explaining how volatile Qualcomm stock has been in recent weeks. Pre-earnings, its shares were already down around 40% from May's high, and the lackluster reaction to these results suggests investors aren't ready to call the bottom just yet. The tension is easy to see. Qualcomm's beefy Handset revenue keeps falling, while its promising, yet still small, Automotive revenue is still rising. At some point those two lines will intersect, and when they do, the company will finally be free of the big question mark that's hung over it for much of the past year. For now, though, it feels like we're not quite there. A strong earnings beat would have settled the matter. Without it, the market did what markets tend to do when a story gets more complicated rather than clearer: sell first and ask questions later. The stock fell not because the diversification plan is failing, but because the path to pulling it off just got bumpier. That, ultimately, is the answer to why a company making real long-term progress still saw its shares slide. The strategy is working, and the destination looks more attractive than it did a year ago. It's just that, for now, the market has decided there’s still too much risk in the near term. READ THIS STORY ONLINE Eye-opening video on new space economy (Ad) tc pixel Eye-opening video on new space economy Goldman Sachs is calling it the Second Space Age, with projections of up to 10 trillion dollars flowing into the sector over the next decade. A veteran trader believes he has identified the top stock to watch as this new space economy unfolds. WATCH THE 20 MINUTE VIDEO BREAKING DOWN THIS TRADER'S TOP SPACE STOCK PICK Meta’s Earnings Show Why Wall Street Is Losing Patience With AI Spending Written by Leo Miller Illustration of the Meta infinity logo glowing in blue and purple inside a futuristic building with city skyline views. A week after Alphabet (NASDAQ: GOOG) reported earnings, it was Meta Platforms' (NASDAQ: META) turn to provide the latest financial litmus test among AI hyperscalers. Unfortunately for Meta, the stock suffered a similar post-earnings fate as Alphabet. Shares dropped approximately 6% in after-hours trading, not far off from the roughly 7% decline Alphabet saw. Meta disappointed on multiple fronts, some quantitative and others qualitative. However, some of these factors are not as negative as they may initially seem. Investors are still waiting for Meta to translate its massive AI spending into the massive non-advertising opportunities the company sees. Patience remains a key factor in realizing significant potential gains in Meta stock going forward. Legal Charges Drive the Earnings Miss Meta’s revenue came in at $60.80 billion in Q2, an increase of 28% year-over-year (YOY). This was solidly above estimates of $60.22 billion. Ad impressions delivered rose 14% YOY, a notable deceleration versus 19% in Q1, while price paid per ad growth remained strong at 12%. However, the first real area where Meta ran into trouble was on earnings per share (EPS). EPS was $6.18, dropping about 13% YOY. This compares to analyst estimates of $7.13, which implied growth of near 0%. Still, the miss is not as drastic as it appears when adjusting for certain expenses. Meta noted that it faced $2.40 billion in legal charges, as well as $1.18 billion in severance expense charges. This was a result of youth-related legal issues and the company’s recent layoffs, which affected around 8,000 employees. Looking beyond these expenses, Meta’s operating income would have been $22.35 billion, a roughly 9% increase rather than the 8% decline it reported. Holding its interest expenses, tax rate and share count constant would result in EPS of around $7.30, solidly exceeding estimates. Because the company’s headcount reduction should result in lower expenses over time, it is fair not to hold the $1.18 billion against it. However, as a social media business with a massive reach, large occasional legal expenses are a real risk. Overall, it is positive that Meta exceeded EPS expectations from a purely operational standpoint. However, investors should not forget the fact that legal issues can significantly hurt Meta’s reported profitability. As Meta notes, “we continue to see scrutiny on youth-related issues in several markets and have a number of youth-related trials scheduled for this year in the U.S., which may ultimately result in a material loss." Meta Misses on Q3 Guidance, Provides Little Detail on Non-Ad Opportunities Another disappointing aspect of Meta’s report was its Q3 revenue guidance. The company expects sales of $61 billion to $64 billion, or $62.5 billion at the midpoint. This midpoint was moderately below the $63.2 billion that analysts expected. However, it is worth noting that the company’s guidance range still extends beyond $63.2 billion at the upper end. Meta also raised its capital expenditure guidance (CapEx), although the increase was small. The company expects to spend between $130 billion and $145 billion on CapEx in 2026, or $137.5 billion at the midpoint. That is up from its prior range of $125 billion to $145 billion, with a midpoint of $135 billion, implying a roughly 1.9% increase. However, when combined with a reported EPS miss and Q3 revenue guidance miss, even a slight CapEx increase is not what markets want to see. Meta also didn’t share many specifics regarding its more forward-looking opportunities, such as cloud or Muse Spark 1.1 adoption. On cloud, the company said that it sees a “large enterprise opportunity” in “potentially selling compute directly," framing it as a possibility rather than a decided move. Meta added, “We're getting a lot of offers for compute at a significant premium over what we paid for it." Cloud was one of several large enterprise opportunities that Meta outlined. Others included its Application Programming Interface (API), which is how it plans to monetize its models, like Muse Spark 1.1. Notably, the company said the number of people interacting with the Meta AI assistant each day has risen 60% since it rebuilt Meta AI and integrated Muse Spark. This indicates that the model is making Meta AI significantly more useful. The other enterprise opportunity is business agents. Meta also said it was “developing new personal agents that will be the foundation for our next wave of products and revenue lines in the months and years ahead.” However, regarding future products and revenue streams, CEO Mark Zuckerberg’s line “we'll have more to share on all of this soon” sums up the call. As Investors Wait, Meta’s Free Cash Flow Falls Below $1 Billion Meta is growing at a strong pace, but the company’s non-advertising AI revenue generation continues to be a wait-and-see game. The Muse Spark 1.1 API, Cloud, and the various agents Meta is developing are the main non-advertising opportunities to watch going forward. In the meantime, Meta’s free cash flow dropped to just $784 million as it continues to spend billions on AI infrastructure to realize these opportunities. Meta isn’t alone in sending its free cash flow to historically low levels; Alphabet’s free cash flow came in at -$5.9 billion in Q2. These are reminders that hyperscalers will continue to spend big on AI, even if the market may not be rewarding them at this point. READ THIS STORY ONLINE BNZI Is Building an AI Growth Engine (Ad) tc pixel BNZI Is Building an AI Growth Engine Banzai International (NASDAQ: BNZI) just earned a Zacks Rank 2 (Buy) upgrade, reflecting rising confidence in its earnings outlook. The company has held gross margins above 80 percent, reduced debt, and grown its user base past 150,000. A new strategic alliance with Ingram Micro opens enterprise distribution channels, while the proposed ConnectAndSell acquisition could expand both revenue and platform reach. A $5.5 million annualized cost reduction plan adds further operational discipline. See why BNZI is drawing fresh investor interest and add it to your watchlist today. PUT BNZI ON YOUR WATCHLIST AND EXPLORE ITS GROWTH CATALYSTS NOW More Stories Tesla: After a Rough Quarter, 2 Very Different Futures Come Into Focus Corning Stock Crashes on Earnings, But the Sell-Off Looks Overdone ALERT: Drop these 5 stocks before the market opens tomorrow! (Ad)tc pixel UnitedHealth Just Gave Wall Street a Clearer Turnaround Signal Mining For Megawatts: AMD's Billion-Dollar Grid Grab Circle’s IBM Patent Deal Could Redraw the Stablecoin Infrastructure Race DoorDash's Drone Certification Could Reshape Its Delivery Margins The Night Owl is a financial newsletter that provides in-depth market analysis on stocks of interest to individual investors. Published by MarketBeat and Early Bird Publishing, The Night Owl is delivered around 9:00 PM Eastern Sunday through Thursday. If you give a hoot about the market, The Night Owl is the newsletter for you. The Night Owl Newsletter. View as a Web Page If you need help with your subscription, don't hesitate to contact MarketBeat's U.S. based support team at contact@marketbeat.com. Unsubscribe Copyright 2006-2026 MarketBeat Media, LLC. All rights reserved. 345 N Reid Pl., Sixth Floor, Sioux Falls, South Dakota 57103. USA.. Daily Bonus Content: Not oil. Not solar. Bigger. (From Behind the Markets)