META & MSFT Lag in Mag 7: Angelo Zino Offers Bullish Rebound Case

Añadido: 2026-05-30

[00:00:00]Join us now is Angelo Zino, equity analyst and senior vice president, CFRA.

[00:00:05]Angelo, it's good to see you. I haven't talked to you in a while. I catch you sometimes on other segments with my colleagues on over on Bloomberg. You make your rounds.

[00:00:14]Let's start out with Microsoft.

[00:00:17]Microsoft gaining good ground today, especially when you think about how we're seeing some fading as we get towards the latter part of today's session, up more than 3 and 1/2% today. Do you think we're watching a turnaround story here?

[00:00:31]Cuz it's not just today's move to keep in mind.

[00:00:35]>> Yeah, Diana, and thanks for having me.

[00:00:37]And it always good to see you, but when you kind of look at the move here and it's really been two strong days here off of yesterday's move. And you know, part of it is some news specific items that we've seen this week. I mean, there was rumors yesterday or there's the belief going into the Microsoft Build Conference next week that they're going to roll out some AI oriented models. And you know, again, that that's going to drive some excitement in the shares. But it may may maybe to your point, we've seen kind of this recovery or at least stabilization within the broader software space here over the last couple of weeks. And it seems like at least over the last couple of days, we've now seen, some follow-through and a nice pick-up here on the software side. I'd say rightfully so. I mean, we've seen some really good earnings here on the off-peak side of things. So, you look at a um a company like a Datadog last week or even look at um you know, some others this week. And even even with you know, Salesforce reporting better than expected results this week. I think overall, the sentiment has has definitely improved.

[00:01:38]And I think there are you know, opportunities here for you to pick up some maybe beaten-down unloved software names. And I'd actually say Microsoft, you know, being you know, who they are has been very unloved here over the last couple of quarters. So, we think it's an opportunity.

[00:01:54]>> Okay, you think it's an opportunity.

[00:01:56]And you've got a buy rating and you've got a $480 price target, I believe.

[00:02:00]Correct me if I'm wrong there. What gets it there?

[00:02:04]>> Yeah, I mean, I think one is the improved sentiment. I think valuation, you look at um, Microsoft's valuation trading at about a 30% discount to Amazon's um, on a 2027 basis. We think that's just too much. Um, you actually look at how Microsoft reported their March quarter results and I actually think it was just, you know, it didn't get any um, praise whatsoever and we actually thought the results were really good. Copilot delivered. You're looking at now 20 million users clearly coming off a low base, but seeing very good momentum. Azure is doing well. We actually think Azure is going to accelerate in the second half of this year. That should also improve sentiment. So, um, and then I think again, you're going to see the Build conference next week. Let's see what Satya has to say at his keynote next week, but I think there's the potential for some good news to come out of that event as well.

[00:02:53]>> Yeah, this one has been a head scratcher for me because as you mentioned, Azure growth has been strong. It's uh, more than 35%.

[00:03:01]Um, Copilot adoption, we know is uh, it looks pretty sturdy and of course AI revenue has been growing.

[00:03:09]Is it just about how it's been this software fears kind of plaguing Microsoft and do you think like next week is the catalyst to really get it out of the woodshed?

[00:03:18]>> Yeah, I mean, I definitely think they it's kind of been thrown under that, you know, enterprise software um, you know, hated basket and um, you know, I think you're now at a point at the very least where when you kind of look within broader tech, that kind of um, deviation at least in the valuation side of things between um, software and semis and hardware has gotten to the point where at the very least I think investors have stopped selling software and I think you've now gotten to a valuation where there are investors now starting to kind of cherry pick and get interested in the software side of things. So, I think yeah, I mean Microsoft has kind of been unjustly penalized I think with a lot of the other stuff going across enterprise software, but the story remains intact.

[00:04:00]Nothing has really changed in our view outside of the fact that hey, listen, they are essentially kind of using all of that excess free cash flow towards the CapEx spend and clearly that's kind of brought in the multiples a little bit across all of big tech, but nonetheless I mean this one a little bit more so than others.

[00:04:19]>> Okay. We got to of course hit Meta. That one's been the laggard, right?

[00:04:24]Underperformer year to date on a year-over-year basis. Meta can't seem to get out of the mud. Does it need another year of efficiency?

[00:04:34]>> I mean you know, they're working on efficiencies as we speak, right? I mean they they are cutting costs here and there to help offset the increase in the CapEx spend kind of the same it's just like the other big tech companies are doing and maybe they're actually a little bit more so than some others and and the big reason for that is the capital intensity levels are significantly greater than others because they are a little bit smaller in nature from a revenue perspective. But that being said, I mean I really like what's going on here with Meta. One from a valuation perspective you're only paying 16 17 times next year's earnings. Not to mention the digital ad environment is isn't going anywhere. It continues to be very strong in nature. I'd also say when you kind of think about you know, what they just announced here in terms of subscriptions, they're finding new ways to monetize AI outside of the core advertising business and I think that's what investors want to see. They announced the new Spark last month. We actually did upgrade the shares from a buy to a strong buy on those news on that news because we do think they're going to find ways to to monetize new Spark here over the next couple of quarters. And then we'll see what they do in terms of their compute initiative.

[00:05:43]There there is a possibility that they kind of you know, maybe tilt a little bit more towards um, you know, offering cloud services you know, from a sovereign AI perspective among other areas, but that that you know, there's an opportunity there for them to grow as well. So, we like the story here, especially given the valuation.

[00:06:00]>> I hear what you're saying about finding new opportunities. I I from the investor lens, from the user lens, you got to keep think about that as well. I saw you know, they sent out an email, oh, we're launching these new subscriptions. Those like another thing you have to pay for.

[00:06:14]You know, is there risk factor that you think about that they turn off some users with that?

[00:06:20]>> You know, I I don't think so. I mean, it's it's interesting because you you look at the subscription side. I mean, if you look at there's one if there's one company that really has found success across the advertising landscape, it has been Snap. It's actually been the the one thing that they've done right in terms of offering a subscription package.

[00:06:39]Now, about 10% of the revenue, but there is an ecosystem out there user base that is willing to pay up for new capabilities. And again, well, it's a little bit different on how Meta's packaging this, but nonetheless, we do think there's a especially on the Gen Z side of things, there's going to be a population that is going to be willing to pay more on Meta's ecosystem. So, you know, I I think you know, potentially diversifying that base as well away from advertising, I think could be good for the shares.

[00:07:08]>> All right, thank you, Angelo. That is Angelo Zino, equity analyst and senior vice president over at CFRA.