# Tesla AI Pivot and Mag 7 CapEx Divergence

**Podcast:** Motley Fool Money
**Published:** 2026-01-29

## Transcript

Tesla makes an awfully daring move.
This is Motley Fool Money.
Welcome to Motley Fool Money.
I'm Tyler Grow, and today I'm joined by longtime Fool Contributors, Matt Frankel and John Quast.
Guys, the earnings fire hose has been set to full blast this week because we have seen a slew of earnings reports across just about every industry.
We can't hit everything in this one show alone.
So we're going to kind of focus on the big companies and the bold moves today.
We'll look at Meta and Microsoft moving big time in the market, but we're going to start with what it's mentioned in the headline here with Tesla.
The company reported earnings per share of 50 cents for the quarter.
It beat estimates, but it was down 63% from this time last year, and it was the lowest fourth quarter earnings result since 2020.
Now, what likely surprised anyone more than anything else in the numbers was Tesla's very ambitious capital spending plan and the things they were talking about on the conference call.
Tesla announced it will more than double its annual capital spending to 20 billion dollars for 2026.
Elon Musk floated the idea of building his own semiconductor fab uh factories.
Tesla expects to invest $2 billion in Elon Musk's private XAI, or their AI startup.
And it announced it would discontinue production of its S and X models so it can repurpose its Fremont plant for building Optimus robots.
Guys, I feel like I read a 10K just listening to the transcript and trying to get through all of this.
It's been huge moves and a lot of announcements in Tesla.
And I see it as two ways of looking at it.
Either one, Tesla is pushing all of its chips into the autonomy, robot, and AI table.
You know, damn the torpedoes, we're going this way.
Or, you know, kind of two, these ambitious announcements might be papering over the fact that it's auto business a little bit in decline and its financials are not what they were.
Now, of those two camps, which one are you in, or is maybe there's some secret third camp that I'm missing here?
I think it's a little bit of both, Tyler.
Love them or hate them.
I think we can all agree that nobody tells a better story than Elon Musk.
And to be sure, there's an element of storytelling in here somewhere.
So there's a desire to create a narrative.
I think that part of the narrative creation has to do with its recent change of the Tesla mission statement.
And this is kind of a big thing.
The mission statement was to accelerate the world's transition to sustainable energy.
Now the mission statement is to build a world of amazing abundance.
As Musk tells this story, Optimus robot program, autonomy, this is all part of creating abundance.
And so considering that that is now the mission statement of Tesla, it makes perfect sense to go all in on production of Optimus and these other autonomy efforts.
Discontinuing the lines of S and X models to repurpose them for robot production is what's going on.
This fits that narrative.
But here's the thing: Matt pointed this out before the show.
X and S models, they account for less than 5% of Tesla's overall vehicle sales.
So the truth is these models aren't really selling anyway.
It made sense to get rid of them, whether or not autonomy was the big picture plan here.
But so it's a little bit of both, in my opinion.
X and S aren't selling.
Makes sense to get rid of them, but the push is towards autonomy.
It is towards abundance, so it makes sense to go all in here.
I'm on the fence between the two sides that Tyler mentioned.
On one hand, Tesla's auto segment revenue declined 11% in the fourth quarter.
And I don't really think it's a surprise to anyone.
There's just a lot more competition for EVs than there were just a couple of years ago.
And it's only going to intensify.
Like GMs making a big push into EVs and others are following suit.
So I'm not sure if Tesla is necessarily papering over its declining autobus, or that its leaders suddenly have a renewed sense of urgency to adapt to it before you know things get worse.
I'm I'm also not surprised to see the Model S and X discontinued.
As John mentioned, it's roughly 5% of sales, and that includes the Cybertruck in that 5%.
So these were aging vehicles.
They hadn't received a substantial refresh since their introduction, other than the Powertrain itself.
The Model S in particular has been in production since 2013, essentially looks exactly the same today.
So another issue is that I'm not sure how close Tesla is to actually producing a mass-produced autonomous humanoid robot like they say they're going to.
Elon Musk has said it's going to be available by the end of 2026, this year, but they don't have the best track record here, right?
I mean, the new Tesla Roadster was unveiled in 2027 as a concept or 2017 as a concept.
It was supposed to be in production by 2020.
And now the reveal date is set for April 1st of this year.
So with that timeline, I'm a bit skeptical.
Yeah, and if you want to add to it too, I mean, there was the Tesla semi that was supposed to be unveiled somewhat along the time.
There's been a lot of missed deadlines here.
And here's my thought, and I'd like to get you take.
I'm probably of the three of us the most skeptical of the group on Tesla's ability to pull this off.
But it has about 44 billion dollars in cash on the books, and it's free cash flow, is it's there, but it's kind of dwindling.
So I, you know, that kind of pegs it with 20 billion dollars in in capital expenditures.
That's like two years of investing, give or take, before these RoboTaxi and robot bets really need to start paying off in a big way, in a in a cash flow sort of sense, unless we have to go to the market and you know add something to it.
Do you believe that we will see a fully realized version of either, whether it be taxis or human eye robots in that two-year window?
I think they're closer on the taxis uh product than the robot product.
Within two years, maybe we'll see some robotaxis.
I think they're testing in in Austin, I think is where they're testing robotaxis.
And I I push back that you're the most uh skeptical on there on of the three on the on pulling off the robot thing.
Um, but yeah, you're right.
They they're they have limited capital.
They do have a good ability to raise more, if I'm being being fair.
They could, you know, Tesla has sold shares to raise capital in the past, and with a $1.3 trillion valuation, they wouldn't need to dilute shareholders very much to get like another 20, 40 billion dollars if they needed to.
So I I don't think we're gonna, you know, see mass production of robots or robotaxis in two years, but I'm not sure that we need to.
Yeah, I would push the timeline a little bit beyond two years for sure, for partly the reason that Matt just mentioned.
But on top of that, yes, looking at 20 billion in capital expenditures here in 2026, that's about double its previous all-time high.
It doesn't necessarily need to spend that much in for the next several years.
Not to mention, uh, it'll be interesting to see if some of these things start ramping up.
They will contribute to the cash flow in theory.
Now, I'm with Matt.
I don't think that we see fully realized versions of either of these things in the next two years.
That would be my take.
I would push it for maybe Optimus.
I think I'd push that personally closer to five.
But it it does need it to pay off, though, for sure, because it is investing a lot of resources.
Whatever side of it you put it on, either before uh, you know, before two years or after two years, I think today's announcements really start to set the clock on expectations for robotaxis and humanoid robots in a way that we haven't seen before in Tesla's uh earnings.
After the break, we're gonna talk about the dichotomy of Meta and Microsoft's earnings uh happening today in the market.
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The new seat Ibiza, a hundred five and six euro monatlich leasen.
In other magnificent seven earnings uh this week, we kind of had the tale of two reports coming out today.
Shares of Meta are up about 9% as we record the show.
It beat revenue and expectations, but what blew me away was the CapEx guidance.
We were just talking about 20 billion dollars at Tesla, but Meta plans to spend a close to double its 2025 CapEx, and that's between 115 and 135 billion dollars in 2026.
On the other side of the coin, we have shares of Microsoft, which are down 12% as we're recording after the company reported that it's Azert Cloud Computing Unit growth slowed a bit.
It's it too is ramping up capital spending.
And it also said its future sales backlog nearly doubled, with a significant increase coming from its kind of its investment in open AI.
Guys, it feels like we're having a freaky Friday moment because I've last we did this last quarter, more or less, and it felt like we had the exact opposite uh uh reaction here, where everyone looked at Meta's ambitious spending and went, whoa, whoa, whoa.
And while Microsoft was wholly solid and people were like, yeah, there's a business behind this to really drive this forward, and now we're getting like the exact opposite reaction three months later.
I'm curious if both of you saw this as well, but I really want to start to wonder is are we betting on AI or open AI specifically with a lot of these uh in uh AI investments?
You know, with Microsoft this quarter, that backlog number we saw, it was very much an open AI story and a lot of it going to them.
We saw this kind of reaction last quarter after Oracle announced its massive backlog was basically a bet on open AI as well.
So, should investors in companies with large exposure to open AI like Microsoft or Oracle be a little more nervous than perhaps some of these other AI bets we've been talking about.
Tyler, I I noticed that trend too.
In the third quarter, there was a clear theme of Meta and a few others being punished for increasing their caps capex outlooks.
But now it seems the market's buying into it, or at least just assuming that CapEx is going to be more than initially expected, no matter what.
Uh in Meta's case, as he mentioned, it's a very big increase, roughly double 2025's level.
And what makes it even stranger that the market's fine with it is that Meta is spending all of this money to largely provide infrastructure for the least profitable parts of its company.
So, I mean, they they gave fantastic first-quarter guidance.
So I have to think that's the main reason we're seeing the stock rally higher.
On Microsoft, you really hit the nail on the head with the open AI concern.
Look how much Oracle is off of its highs recently.
Um, you know, open AI is substantially all of their backlog.
Um, but with Microsoft, it makes up 45% of the company's remaining performance obligation or RPO, which we can call it the backlog.
Uh CapEx turned out to be higher than expected in the fourth quarter.
And I think that made the slowdown in cloud revenue, which wasn't a big slowdown.
It was, you know, 39% this quarter versus 40% a year ago.
It made it a little bit worse in the minds of investors.
The stock has been largely priced for perfection recently, though.
Even after falling 25% from its 52-week high, yes, Microsoft is officially in a bear market.
Uh Microsoft trades for 30 times earnings now.
So it that's after a 25% decline.
Yeah, I don't think that we should necessarily look at how the stocks are performing this week or today and make broad statements about how investors feel.
I mean, yeah, maybe the reaction was different last quarter than this quarter, but I think that what's going on in a more general sense, is investors are saying, hey, we're seeing all of these capital expenditures.
And can we just pause a moment and be and just appreciate the fact that we're using numbers over 100 billion dollars here annually?
That's insane that that's even coming out of my mouth.
But investors are looking at the capital expenditures and saying, what is the return on investment?
And it's really hard to quantify.
And I think that for sure with Microsoft, they were looking at, yeah, the growth of the cloud unit and looking at the capital expenditures and saying, Am I getting a return here based on what it's paying out?
And management pointing out, listen, we're not just investing in capital expenditures for our cloud unit for the AI models.
There's plenty that we're investing in for ourselves, not just our customers.
And so look at it holistically.
Meta, a little bit more straightforward, I think that they saw the big increases in ad revenue production for the company.
Some of that is attributable to AI and how its models are improving.
And so I think that in one hand, investors are like, okay, we see the return a little bit more today with Meta, but it's really hard to quantify.
But really looking at what Meta is building here, it is interesting, Matt, as you point out that it's kind of spending in the most in the least profitable parts of its business.
It just kind of feels like a coiled spring, you know, just spending and building aggressively behind this the scenes.
And then we're expecting it to suddenly launch something impressive.
That's what Zuckerberg is talking about.
Uh, it's talking about wanting to build and control its own technology so it's not beholden to any of the other players in the industry.
And interesting as well, Zuckerberg kind of talking about how I think we've all written off the metaverse at this point, but Zuckerberg's kind of talking about it like, listen, we're going to build personalized AI that's going to know you and create content on the fly for you to consume.
And perhaps you're going to be consuming that in a metaverse context, maybe not with a headset from Oculus, but maybe with the AR glasses.
Um, so I'm not sure that we have a full grasp on where Zuckerberg and Meta are playing to go here with AI and how it intends to incorporate that into the metaverse, but it'll be interesting to watch.
This time last year, most of the market chatter was Alphabet is the AI loser, it's falling behind.
And now I think over the past twelve years, uh twelve months, excuse me, they have been the obviously the large uh best performer in towards stock performance of the mag seven, especially with those uh related to AI.
So it'll be interesting to see if any of these companies you know we'll we'll probably change our mind like four times by the end of twenty twenty-six.
Coming up after the break, we'll do our traditional stocks on the radar.
Clink spanning.com slash career.
As is our Thursday show, we like to head on out with giving some stocks on our radar.
Probably not in the Mag Seven, even though we did just do a lot of uh earnings uh reviews of them.
But I'm sure we got some other stuff to think about.
Matt, what is on your mind?
Yeah, I'm I'm watching Southwest Airlines.
Ticker symbol is LUV, although maybe not enough to actually buy an airline stock.
But it it's really interesting right now.
It's up more than fifteen percent today after earnings as we're recording this.
And the short answer is that its management finally decided to join its competitors in caring about profitability by ending the longstanding free bags policy.
Just yesterday they ended their open seating policy, which had been you know a big differentiator for a long time.
You know, analysts were expecting closer to three.
Um, and that gives it a price to earnings of less than twelve even after this move, and with revenue per seat mile, essentially how much they're making off each passenger rising by almost ten percent, as travelers pay for things that were previously free.
And I would say that, you know, throughout over the years, Southwest's biggest strength has been its best in breed balance sheet.
It's got under $5 billion dollars of total debt compared with a twenty-five billion dollar market cap.
For context, American Airlines has about a $9 billion dollar market cap and forty-three billion dollars in debt.
So with the adoption of this upcharge model, it has more profit potential and needle moving potential than its competitors.
So it's an interesting company to me right now.
So for me, I want to go back to kind of the picks and shovels of AI infrastructure.
And I'm looking at a company called Ion, ticker AAON.
And they are a HVAC cooling, chilling, whatever you want to call it, facilities construction company.
Basically, they build a lot of these, you know, rooftop style uh air conditioners, chillers, what have you.
Uh, been very, very successful in working with like big box retailers, hospitals, schools, things like that.
But in 2023, they made an acquisition for a data center-specific cooling company.
It was called uh, and basically what ended up happening was with that acquisition, their sales have gone through the roof.
Backlog is growing like crazy, but the company had struggled a little bit making that transition from their traditional HVAC uh equipment to this data center specific stuff.
And sales and stock performance has suffered because of it.
And if you look at it right now, it looks like a lot of the issues that they were having with that integration of its acquisition have gone away.
And it's starting to look like they're ramping up and really bringing uh data center chilling, cooling to the forefront here.
Its backlog is up like a hundred percent compared to this time last year.
Uh, management is starting to put some like operational efficiencies in place at some of the manufacturing's facilities to make this all happen.
It really looks attractive, especially in an industry where you're seeing a lot of companies trading for very, very high premium valuations for the simple fact that everyone's on to this AI picks and shovels play.
This seems to be like a turnaround company where the stock is still beaten down in an industry that is clearly poised for growth.
So it's something that's very interesting to me right now.
John, what do you have?
So 120 years ago, two guys in Wisconsin figured out how to make a water meter that could withstand freezing temperatures.
Now, Wisconsin is called the Badger State, and so they named the country, the company Badger Meter, ticker symbol BMI.
Today, this business is thriving more than ever.
It provides smart meters to track flow, water pressure, even water quality.
And in the background, it provides analytics software for its grid-based customers.
The tailwinds guys here are strong.
They they're not making any more water, and there's over 8 billion thirsty people in the world.
So we need to manage our water better, and that's what Badger Meter can help grids do.
Data centers and nuclear power plants also need water.
Those are some trends that are pushing adoption here.
Listen, Badger Meter, the reason I wanted to highlight it today was it just got crushed after its earnings results earlier this week.
Basically, the company expects slower growth over the next five years compared to the previous five years.
That said, there will still be growth, and there are some big projects coming online, such as 1.6 million meters in Puerto Rico.
Uh, this gives management the confidence that it can continue to grow, albeit at a slightly slower rate.
Margins are hitting all-time high.
I think that's important.
The operating margin is around 20%.
The balance sheet is pristine.
It's paid a dividend for over 30 years.
This is the newest stock to my portfolio personally.
I wish I'd have bought it after it fell after earnings, but still, uh, it's one that I expect to be a long-term drama free contributor to my stock performance, and one that I like here.
Well, with airlines, HVAC equipment, and water meters compared to our Mag 7 discussion earlier.
It's really like that Monty's Python joke, and now something completely different.
But that's all the time we have for today.
Matt, John, thanks for sharing your thoughts.
I'm gonna hit the disclosure and we'll get out of here.
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Thanks to our producer Dan Boyd and the rest of the Motley Fool team.
For Matt, John, and myself.
Thanks for listening, and we'll chat again soon.