Friends' comments on Meta Platforms and Starbucks; Getting ready for the Berkshire Hathaway annual meeting
1) Over the years, I've developed relationships with people who are experts on certain stocks or industries. It's a huge asset – their insights have helped me identify many successful investments.
Fortunately, many of them allow me to share what they tell me with my readers, so they can benefit as well. Today is a great example...
Two of my smartest friends, who know Meta Platforms (META) and Starbucks (SBUX) better than anyone, sent me their thoughts on the companies' latest earnings reports.
Let's dive in, starting with Meta...
In yesterday's e-mail, I looked at the company's phenomenal first-quarter numbers, in which revenue grew a remarkable 33% year over year.
Nevertheless, the stock dropped 8.6% due to concerns about rising capital expenditures ("capex") to keep up in the artificial intelligence ("AI") race.
I concluded that it makes no sense for the stock of one of the greatest businesses of all time to be trading below the multiple of the average large U.S. business.
My friend agrees. A highly successful private investor, he invested in Meta when it was private and still owns shares he bought at less than $1. So he knows the company better than anyone.
Here's what he had to say in an e-mail titled "The Market is Repeating a Known Mistake":
Meta had an exceptional quarter, and the stock's reaction yesterday reflects investors' recognizable, repeated misreading of the business.
The company's 33% revenue growth was its highest in nearly five years, despite a mature global ad business and a mere 4% growth in users. How was this possible? Ad impressions rose 19% and pricing jumped 12% simultaneously. That combination at this scale is not normal.
The only plausible explanation is that the AI/machine learning ("ML") investments are already converting in the form of better targeting, ranking, creative, and measurement factors, all flowing through the consolidated ad line.
The reason investors don't understand this is because Meta doesn't have a segment labeled "AI revenue." So analysts looking for the return don't find a discrete line and they default to, "We can't see it, therefore it isn't there." That's an analytical failure. A huge, mature business growing revenues 33% is the return.
This reminds me of what happened in late September 2021 to November 2022, when Meta's stock declined by more than 75%. When Apple restricted tracking, it blew around $10 billion out of Meta's targeting capability, which led to the consensus narrative that the ad business was structurally impaired. The market couldn't have been more wrong.
What was actually happening was CEO Mark Zuckerberg was scaling ML infrastructure to recover the lost signal probabilistically. Its ad stack of Andromeda, GEM, Lattice, and Advantage+ are all downstream of that 2022 capex decision. By 2024, the business was structurally more profitable than before – and the stock went from $88 to $700-plus.
The same thing is happening today: Meta has aggressively increased capex, without a discrete revenue line attached. This is causing the stock to trade down on the spending rather than up on the underlying performance, with the narrative yet again coalescing around "spending without payoff."
For the second time in less than five years, the market is misreading what's going on because institutional memory is short and the underlying analytical blind spot hasn't been fixed.
This isn't an isolated case. Zuckerberg's pattern is consistent: Identify a structural opportunity, validate the ML/AI solution at a smaller cohort scale, then scale capex once the return on investment is proven. He's willing to suffer short-term margin compression to emerge stronger.
He has been proven right again and again (the metaverse is the one significant exception, but he recognized his mistake and scaled it way back). So I think he has earned the benefit of the doubt raising 2026 capex to $125 billion to $145 billion. He's not spending blindly.
My investment thesis going forward isn't that Meta builds the best frontier model. It's that consumer AI agents become a meaningful interaction surface, and Meta is structurally the best-positioned company to monetize that surface regardless of who builds the underlying behavior first.
Its 3.56 billion daily users and 10 million advertisers are plugged into Meta's existing targeting and measurement. And Click-to-WhatsApp ads are already proving the agent-mediated commerce template. The revenue model isn't speculative – it's the existing ad model extended to a new surface Meta already owns.
Investors' concern about execution is that Meta is behind on frontier models and hasn't yet figured out the agent UX (user experience). But Meta's track record as a fast follower is essentially perfect: Stories was Snap, Reels was TikTok, Threads was Twitter, Marketplace was Craigslist.
The company has never been a behavior pioneer and has never needed to be. Some competitors will validate which agent behaviors stick, and Meta will absorb them at superior scale. Frontier models are commoditizing fast enough that "good enough" inside WhatsApp with integrated contacts, businesses, and payments dominates marginal model quality differences in this context.
In conclusion: Being bearish here requires believing AI agents won't matter, that consumer AI is winner-take-all in a way that excludes fast followers with distribution, or that Meta will fail to execute a fast-follow despite a 15-year track record of doing so. Each outcome individually has a low probability. And the market is implicitly pricing several of them simultaneously.
Yesterday's drop in the stock was a sentiment trade. The fundamentals and historical track record suggest that it gets reversed.
Thank you, my friend!
2) Turning to my other friend, Lloyd Khaner of Khaner Capital has been the ax on Starbucks for decades. I shared his thoughts in my February 12 e-mail, in which he wrote:
The textbook turnaround by Starbucks that I've been watching for the last few years is now starting to bear fruit...
Bottom line, I'm looking for mid-single-digit sales growth and double-digit earnings growth as far as the eye can see – and that's pretty far... If all goes even close to plan, Starbucks will be better than ever.
He concluded:
The stock looks cosmetically expensive because they've underperformed for the last two to three years. I see no reason why the stock can't rise at least 50% over the next three years.
Right now I think they'll do $5 per share in earnings in fiscal 2028. Give that a 30x multiple and you get $150 per share. And if I had to bet, I'd say my $5 estimate will probably be too low rather than too high. We'll see...
The company reported strong earnings after the close on Tuesday, and the stock popped 8.5% on Wednesday.
So I asked Lloyd for this latest thoughts, which he was kind enough to share. He began:
With the latest earnings report, Starbucks decisively planted a flag – this turnaround is now underway in earnest. I'll be honest: The results were even better than I expected, and I was expecting a lot.
This is becoming a textbook case study in how to turn around a world-class franchise with one of the most powerful consumer brands in history.
He continued by reviewing some of the standout financials:
Same-store sales rose 7%, driven more by increased transactions than pricing – wow! I'm now expecting mid- to high-single-digit same-store sales growth in 2026, 2027, and 2028 – up from my prior expectation of mid-single digits.
Operating margin expansion also looks stronger than I thought possible. We could see at least 100 to 200 basis points of improvement per year.
What shouldn't get lost amid the strong sales and earnings growth is the underlying quality of the business. Starbucks is generating free cash flow that could run roughly 10% above net income over the next few years.
Most importantly – and often overlooked – is return on invested capital ("ROIC"). It's already above 20% and likely to improve meaningfully over the next three years. In my view, the best companies in history focus relentlessly on ROIC, and sustaining a 20%-plus level earns a spot in my personal "Corporate Hall of Fame."
I asked Lloyd about his expectations for the stock, and he replied:
While my fiscal 2028 earnings-per-share estimate remains at $5 – still about $1.50 above Wall Street – it now looks increasingly achievable... and increasingly conservative.
For now, I'm maintaining my $150 price target. It looks increasingly likely to be reached sooner than 2028 – and increasingly likely to prove too low. Way too low...
Thank you for sharing an excellent idea with my readers, Lloyd!
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3) I just landed in Omaha, Nebraska to attend the Berkshire Hathaway (BRK-B) annual meeting for the 27th time tomorrow.
It won't be the same without Warren Buffett on stage as CEO, answering questions and dispensing his timeless wisdom... But I'm looking forward to hearing from his successor, Greg Abel, and three of Berkshire's top executives: Ajit Jain (insurance), Katie Farmer (BNSF Railway), and Adam Johnson (NetJets and retail).
The events I'm attending today are sold out. But tomorrow, I'll be speaking on a panel at the 12th Annual Global Investor Conference starting at 4:00 p.m. (tickets here).
And on Sunday, I'll be running the Berkshire 5K race at 8 a.m. and going to a breakfast hosted by my friend Vitaliy Katsenelson at the Omaha Marriott Downtown (click here to RSVP and access his helpful guide to the weekend).
Then I'll attend and present a stock idea at the 2nd Annual IdeaHouse Value Investing Best Stock Ideas Conference starting at 1 p.m. (tickets here).
I hope to see you there!
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.