Merits Of Metaverse + Big Tech Wipeout — With Eric Jackson

Episode Summary

Executive Summary: The episode dissects a sharp selloff in big tech after disappointing earnings, arguing the drawdown reflects valuation reset, slowing ad/cloud growth, and a rotation away from crowded megacap names rather than a broad tech collapse. Eric Jackson is most constructive on Google, Apple, Amazon, and Twitter under Elon, and most skeptical of Meta and Snap, while seeing the unwind as setting up the next generation of tech winners.

Main Topics: Big Tech earnings wipeout and market rotation (Priority: 5/5): The conversation opens on the broad post-earnings selloff across Meta, Amazon, Microsoft, Snap, and even Apple, with Jackson framing it as an unwind of crowded positions that outperformed in 2021 and are now underperforming in 2022. Why smaller growth tech sold off first (Priority: 5/5): Jackson explains that smaller, high-growth tech stocks are inherently more volatile and were hit first, while megacaps initially looked safer before joining the downturn as valuation and growth expectations reset. Meta’s strategic dilemma: ads vs. metaverse (Priority: 5/5): Meta is analyzed as a company with huge scale and cash generation but major uncertainty around TikTok competition, Reels monetization, and the massive ongoing metaverse investment that Jackson thinks could keep the stock in a penalty box. Advertising slowdown across the internet (Priority: 4/5): Both speakers discuss a genuine slowdown in digital advertising, driven by cutbacks in discretionary ad budgets, which is weighing on Google, Meta, Snap, and smaller ad-tech names. Cloud growth deceleration at Amazon and Microsoft (Priority: 4/5): Cloud is presented as less bulletproof than before, with enterprise uncertainty and project cancellations slowing AWS and Azure growth, even though both businesses remain strategically strong. Twitter under Elon Musk (Priority: 3/5): Jackson argues Musk can improve Twitter through talent upgrades and cost cuts, and that the deal could still work well for investors despite the controversy over the price. Apple as the last man standing (Priority: 4/5): Apple is portrayed as the relative winner among megacap tech due to loyal users, pricing power, gross margin strength, and the ability to use buybacks and services growth to sustain its valuation.

Key Arguments: Megacap tech underperformed because 2021 crowding reversed in 2022, so the selloff is partly a mean reversion after a period when FANGs beat the Nasdaq. Smaller growth tech was hit first because volatility is higher and investors were concentrated in large, familiar names as a perceived safe haven. Meta has real strengths—massive user base, cash flow, and AI-driven ad infrastructure—but its core business faces structural threats from TikTok and weaker social/measurement dynamics. Reels growth exists, but Jackson is skeptical it is a true TikTok-level competitive product because the distribution model is still follow-based rather than purely algorithmic. Digital ad spending is clearly slowing; when budgets tighten, advertising is one of the first expenses to be cut. Google is favored relative to peers because search remains more resilient than social/video ad formats during downturns. Cloud growth is slowing because companies can’t confidently plan projects in an uncertain macro environment, so noncritical cloud spending gets deferred or canceled. Twitter can become more efficient under Musk through major headcount cuts and stronger engineering talent, potentially improving profitability. Apple is strongest because it combines pricing power, a loyal installed base, margin resilience, and the ability to offset hardware cycles with services and buybacks. Jackson sees the current tech reset as closer to the end of the downturn than the beginning, setting up a future rotation into beaten-down growth names.

Data Points: Nasdaq performance in 2021: +21% - Used to show the broader tech market had a strong year before the 2022 reversal. FANG stocks performance in 2021: +31% - Meta, Apple, Microsoft, Amazon, Netflix, and Google collectively outperformed the Nasdaq. Nasdaq performance in 2022: -31% - Jackson cites this as the broad market decline for tech in the current year. FANG/Microsoft performance in 2022: -41% - Shows megacap tech underperforming the broader Nasdaq in the selloff. FANG collective performance over nearly two years: -24% - Jackson says FANGs are down more than the Nasdaq over the same period. Nasdaq nearly two-year performance: -17% - Used as comparison for the longer-term relative underperformance of FANGs. Meta ad revenue in the quarter: $27B+ - Jackson cites this to show the scale of the core ads business despite market concerns. Meta Reels revenue in the quarter: ~$750M-$770M - He notes this was small versus total ad revenue but roughly doubled from the prior quarter. Meta free cash flow: from about $10B a year ago to almost nothing - Presented as a sign of pressure on the business in the latest quarter. Meta capex over two years: $69B - Cited as evidence of the scale of investment in AI and infrastructure. Meta company revenue so far this year: $84B - Used to argue Zuckerberg can afford continued metaverse spending. Meta R&D spending this year: $25B - Shown alongside revenue to emphasize the scale of investment. Meta quarterly profit: $5B last quarter - Used to counter the argument that the company is financially constrained. Snap daily active users: 363M - Jackson cites a 19% increase and notes strong user growth despite monetization issues. Snap daily active users growth: +19% - Highlights ongoing audience growth. Snap expected losses vs actual: $72M expected vs $359M loss - Shows how far Snap missed on profitability. Amazon stock reaction: -19% after hours at one point - Illustrates the severity of the market reaction to its earnings and guidance. Cloud growth slowdown: from ~50% YoY to mid-20% annualized - Jackson uses this to explain the deceleration in AWS and Azure. Apple stock move after earnings: +8% - Contrasts Apple with the broader tech selloff.

Pivotal Quotes: "price is a cure for everything" — Eric Jackson: Jackson explains that falling stock prices can eventually attract buyers and reset expectations. "they're really the last man standing here of all these big tech names" — Eric Jackson: His conclusion on Apple’s relative strength versus the rest of megacap tech. "You could say, hey, there's still a lot of upside here with Reels. That's incremental. They've got the users" — Eric Jackson: His cautious bullish case for Meta based on Reels and scale, despite skepticism.

Implications: The sector reset suggests slower ad/cloud growth, tougher monetization, and more scrutiny on capital allocation. Investors may rotate from crowded megacaps into cheaper, earlier-stage tech names while waiting for a macro turn and the next bull market in growth.