In this episode of Motley Fool Hidden Gems Investing, Motley Fool contributors Tyler Crowe, Matt Frankel, and Lou Whiteman discuss:
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Meta and Microsoft’s earnings reports.
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The best “Magnificent Seven” stock to buy now.
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Hidden Gems earning highlights.
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Maibag: Buy single stocks or bet on several companies in the same industry?
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A full transcript is below.
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This podcast was recorded on July 30, 2026.
Tyler Crowe: Two stocks diverge on an earnings day today on Motley Fool Hidden Gems Investing. Welcome to Motley Fool Hidden Gems Investing. I’m your host, Tyler Crowe. Today, I’m joined by longtime Fool contributors Lou Whiteman and Matt Frankel. It is the depths of earning season, so we’re going to try to hit as many companies as we can in what we call a relatively short show that we have here. We’re also going to hit some earnings questions. We want to start with earnings, especially with the two magnificent seven companies that happened to report after the close yesterday, and that’s Microsoft and Meta.
Guys, there was some pretty large divergence between what the market thought of those results. As we’re taping right now, shares of Meta are down about 8.8% while Microsoft is up a whopping 15%. Now, last quarter and throughout the show, we have discussed Meta’s, what is all this spending for question, quite a bit. But what stands out to me in the stark contrast of these two earnings reports, is that Microsoft is the first major AI capex spending company to announce earnings and see a positive earnings reaction in the quarter. Is this just a one-time blip like yeah, things look nice comparatively, or is there some through line here that shows Microsoft is doing the right thing? As we discussed previously with Alphabet and here with Meta, that they’re making riskier bets.
Matt Frankel: I’m not at all surprised to see Microsoft spike like it is after earnings. It isn’t the only major AI capex spender like you said to report solid earnings and accelerating growth in the right ways. Alphabet reported that Google Cloud revenue was accelerating as well, and that stock fell right after earnings. Microsoft says, your revenue accelerated to 43% growth in the first quarter. But it’s also showing a clearly solid ROI on that CapEx you’re mentioning without having to constantly increase these eye-popping numbers. Microsoft actually trimmed, we haven’t heard that word, trimmed its full-year capex projection a little bit in this quarter. Now it’s an accounting change mostly related to how long they assume the useful life of their AI data centers are. But it’s still a welcome reduction in a sea of companies that just seem to not be able to announce enough spending.
Speaking of not being able to announce enough spending, Meta’s story was the opposite here. Meta missed estimates for profitability, kept its Q3 revenue guidance the same, and didn’t do anything to reduce its capex forecast, which a lot of investors were thinking they might. It isn’t showing investors yet that their money is being well spent. Now, to be totally fair, we’ve said before on these shows that Meta is great at one thing, social media advertising. That business is still growing very strong, but it’s not what the bulk of their money is being spent on, and that’s what’s concerning people.
Lou Whiteman: The whole AI trade is basically suffering right now due to one question, and Microsoft did a better job of answering the market’s biggest question than anybody else has. It’s really that simple. With Meta, the spending is continuing. Guidance for revenue. But there is no answer to the question of when sales growth from all of this spending will emerge or how this all ends with a rosier future. Where is the pot of gold? Microsoft meanwhile, reminded the market of what a diversified business looks like. They saw strong software results, strong ASR AI expansion, real growth across the business. It isn’t really about this quarter’s business for any of these companies in the stock reaction. It’s about the narrative about what the business will look like in two years due to all of this AI excitement. Microsoft just presented a much better, clearer picture of the future, and the market’s rewarding it.
Tyler Crowe: We and other investors have been assessing the best of the Cloud hyperscalers or the best investors in AI right now. I haven’t seen it really out in the lead. I think last year, the big narrative was Google was winning the race, Apple was falling behind. At some various point, one company was doing the best for the other. But if we were to look at Microsoft’s stock, prior to today’s jump, basically before the market opened, the stock was more about the same as January of 2024. It’s been a up and down, but at the same time, hasn’t really done much in terms of performance for investors. Some of that’s with the concerns of capex. Some of it was that very question about ROI and stuff like that. But today, after this earnings report. Answering the question to your point, Lou, shares of Microsoft are trading about 25 times trailing earnings. Based on that where the stock has gone and where it has positioned itself in this AI race, it kind of begs the question to me, is Microsoft now the best bargain stock among the Mag 7 companies out there?
Lou Whiteman: Yes. To me, Microsoft and Alphabet are the only two Mag 7s that really interest me right now, and Microsoft has a better multiple. My answer is yes. Both of these companies are again, don’t want to sound like a broken record, but there’s just a lot more ways to win with these guys than there are. Most of the Mag 7 are just very good at one thing. Microsoft and Alphabet stand out to me as diversified bits.
Matt Frankel: I completely agree with what Lou just said that Microsoft and Alphabet are the two most attractive in the Mag 7. If you’re just looking at a purely PE basis, video looks cheap, especially relative to that growth rate that it’s posting. But I have more questions about the growth sustainability than I do with Microsoft. Like Lou said, they do one thing really well. Microsoft grew revenue by 18% year over year. It’s not an eye-popping number like Nvidia‘s producing. The most important part of the business that AI Cloud revenue is accelerating. Like you said, the stocks trading for about 25 times earnings today. I would actually argue that Microsoft is also probably the most bulletproof business in the Mag 7 even ahead of Alphabet, given that enterprise software mode that it has, there’s no moonshot story that it’s depending on like robotaxis, like chip pricing power staying at historically elevated levels or anything like that. It’s just a solid business with a rare combination of a relatively low valuation, and growth that’s accelerating in all the right ways.
Tyler Crowe: There’s something else to be said about Microsoft and Google not exactly shelling out hundreds of billions of dollars to guarantee revenue for some of its clients. Maybe a little bit less of that. Hey, is this circular revenue thing going to be a problem or not with these two as well. A little bit of the story here looks a little bit more complete, a little bit more assured than some of the other things that happened to be going on like the other ones. Coming after the break, we’re going to do a lightning round of earnings mostly related to stocks that we consider in the Hidden Gems universe.
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Tyler Crowe: When you hear the term “hidden gem,” you probably think that we’re talking about companies nobody’s ever heard of or really obscure stocks, those things that are just hiding in the markets. But we have a little bit more of an approach. Sometimes there are businesses that have hidden assets, hidden appreciation. That can even be well-known companies. In the terms of The Motley Fool, the Hidden Gems universe can span a lot of the member services that we have in terms of recommendation services and things like that. I call it the extended universe of Hidden Gems stocks because there’s a lot of services that apply these Hidden Gem principle. What we’re going to do now is do a quick lightning round of companies that have basically reported earnings in the past 24 hours or so that have shown some relatively large moves or something that really excited us. I asked you guys before the show here to pick two, and we’re just going to go back and forth. Matt, the first one you picked was Mastercard, and shares are up 2.5% after earnings reports.
Matt Frankel: Not exactly a hidden company, as you just mentioned, but it’s a company that often gets overlooked as a legacy financial, and it’s really not. They’re investing heavily in stable coins, for example, they’re owning the rails in that area of financial infrastructure, the cross-border payments continue to grow. They just posted a pretty solid beat on both the top and bottom lines, operating margin expanded by 150 basis points, and Mastercard and Visa are both very high-margin businesses. A lot of people don’t realize just how high the net margins on these companies are. The payment network revenue group by 10% year over year, well ahead of inflation, so it’s not just inflation-driven or anything like that. Cross-border activity was surprisingly strong, given that the Iran conflict continues to pressure that. It was a very solid quarter. Nothing terribly surprising. Mastercard is just an excellent long-term compound or has been for years, and this quarter was just really further proof of that.
Tyler Crowe: Lou, probably Hidden Gems more in the traditional sense because I’m sure not as many listeners have heard this company as well, but shares of EMCOR Electrical Mechanical Contractor, very much associated with the AI infrastructure build-out. That stock’s up 19% after reporting earnings this morning.
Lou Whiteman: Glass half full or glass half empty here, Tyler, because, yes, it’s up almost 20%, but it’s also just back to the same price as trading in early to mid July. Pick your narrative here. The narrative going into earnings was picks and shovels AI trade was under pressure. We have questions about data center spending. We have questions about how sustainable it is. EMCOR, which as you say, is a construction company that is up 500% over the last few years thanks to data center construction spending was feeling the pressure. Coming to earnings today, they topped expectations. More importantly, they raised full-year guidance. The takeaway here, I think, is the sky is not falling, at least not yet. The stock is reacting by taking back what it had given up in the few weeks leading up to this. I don’t want to get too excited about up 20%, given that it’s just a round trip, but good to see the pressure reversing post earnings.
Tyler Crowe: For all the fitness enthusiasts out there probably maybe wearing a Garmin watch. Shares are down 1.5% today, but they reported yesterday, and shares were up 17%. A move like that, we did want to at least highlight it because that’s a big move, and I’m sure there’s a lot of investors that are excited about that, Matt.
Matt Frankel: It is a hidden company in a way. People who don’t wear Garmin watches often think of this as just a company that used to make their navigation system for their car. But they’ve done a tremendous job with fitness smartwatches, just the differentiation of that product line. For literally every outdoor hobby you might have, they make a different purpose-built smartwatch for. They reported an absolute blowout quarter. Revenue and earnings were up 11% on revenue, 29% on earnings. Earnings came in 20% higher than expected. The operating margin improved by over four percentage points in the quarter. That fitness segment grew by 25%. That was the real highlight.
But guidance was really what stood out to investors. Management raised guidance significantly for both revenue and earnings for the full year, rather, and not just to reflect those excellent second quarter numbers. They’re expecting higher earnings and higher revenue than the market thought they would for the rest of the year, as well, and management flagged higher memory costs. We’ve talked about companies like Micron and just how big the memory bottleneck is as a headwind for the second half of the year. In my opinion, that makes Garmin’s expectations even more impressive.
Tyler Crowe: Rounding on for the last one, we have L3Harris, what should be in theory, one of the biggest beneficiaries of rebuilding America’s munitions after a round of wars in Iran and in Ukraine. But the stock didn’t exactly reflect that, it’s down about 10% after earnings today, Lou.
Lou Whiteman: Look, this was down 10% after beating on the top and bottom line, raising its full year guidance, and reporting a record high backlog of $42 billion in future business. Why is the stock down? For one, they’re delaying the planned spinoff of their missile solutions unit until 2027, basically due to choppy market conditions. They claim it’s nothing to do with the company. It’s just this isn’t when they want to float an IPO. The market really likes that spinoff, and so do I. I think, that’s hitting at the stock, and at the same time, they are continuing with the capex to boost missile production. They’re going to spend now for that business, but they aren’t going to get the payoff. I think that’s good business, but it does hurt the near term. There’s also a bit of margin pressure on the space side. That tends to be choppy quarter to quarter. I see nothing that’s worrisome. I think they are a big winner from space and munitions, and a lot of the trends. But defense businesses tend to be choppy quarter to quarter, and we’re certainly seeing that today.
Tyler Crowe: We go four companies here, Mastercard, EMCOR, L3Harris, and Garmin. All of them, I was just checking. All of them trade somewhere between 22-33 times earning. It’s not like there’s a huge disparity in terms of valuation from one or the other. Guys, if I had to put you on the spot right now, which of these four companies looks the most attractive to you?
Matt Frankel: I’d have to go with Garmin here. It’s impressive execution quarter after quarter recently.
Lou Whiteman: I own L3Harris, so I’ll do Mastercard, I guess, since I own L3Harris already.
Tyler Crowe: I own it, but I think I’ll go with the other one. Fair enough. Coming after the break, we’re going to hit the mailbag.
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Tyler Crowe: Hey all, as always, a quick reminder, if you want to get an email into us and have it read on air, go ahead and email us at podcast@fool.com. That’s podcast with an s@fool.com. The email is also in the description. The three request we always have is No. 1, keep it Foolish, two, keep it short. Number 3, make sure that it’s not personalized device so we don’t get in any trouble.
Today’s question comes from Ben from Sacramento, his question is, “Hi Fools as always appreciate your insight on the nature of the stock market. How would you approach the idea of owning two companies that operate in the same space and may even rival each other?” The examples he give are Caterpillar and Deere, Home Depot and Lowe’s, Nvidia, AMD. “Do you think it’s best to call your shot on one company outperforming the other, or is it OK to own both, potentially mitigate the upside by doing so? Thanks.” I find this interesting because several years ago and several hosts ago, Matt, you, and Jason Moser put together a thing called the War on Cash Basket. I think it was one of the more popular topics that we had on the podcast several years ago was building baskets of stocks based on themes, and it’s the theory here is, is it better to build baskets of themed ideas, or as Ben says, shoot your shot on a single company.
Lou Whiteman: For me, I don’t know. It’s going to be a weird answer because I don’t have a role here, because I don’t think of investments in this way. I’m not too worried about diversification of my stocks. I have a lot of index funds, and that’s my diversification. When I buy stocks, I’m buying the best ideas. If the best ideas are tied to some trend that’s going to affect multiple companies, and that means I’m buying two companies that compete, I’m fine with that. But if it’s I like this one company because of what they’re doing, I’m probably just going to be one company. For me, this is more about the opportunity you see than picking a winner in the category. I have zero issue with buying a Lowe’s or Home Depot if I wanted to get into there or something like that. But I’m also not necessarily looking to just like, I need big box retailers, and so I need to check this box by a couple. It’s just not the way I’m thinking of investing.
Matt Frankel: For me, the key question here is whether you’re more confident in picking a winner or investing in a trend. Lou’s talked about Rocket Lab on the show before. That’s clearly a case of picking a winner rather than just buying a space ETF. But look at the war on cash basket that Tyler just mentioned. For those who weren’t listening years ago, it included both Visa and Mastercard, which have both performed incredibly well, but it also included PayPal, which has not. The basket approach served investors well here because the trend was directionally correct, but not every company that was a leader then is still a leader. If the pie is growing, there’s not necessarily a need to figure out who is going to get the bigger slice of the pie. Just to invest in the trend.
But the listener is also right that you’re trading away potentially some of your upside by trying to nail down a winner, but you’re also helping to limit your downside risk if you’re wrong. It’s not just an either or question in my mind, of a basket or a single stock as well. There’s a third option here. For example, you could own several different AI chipmakers, but just to be a little overweight on the one that you feel the most confident on. It’s not just an either or I’d really want to reframe it to, create that third option of taking a basket approach, but doubling down on your highest conviction investments.
Tyler Crowe: Single stock is a very like an overconfident way of doing it. In the sense of it’s basically saying, you know the one that is going to benefit the most from a trend or the one company in the industry that’s going to do better than the others, which may be, but sometimes it doesn’t always work out that way. There’s a great, what I would say misinterpreted Warren Buffett quote here. He’s gone on record saying diversification is ignorance insurance. I think a lot of people think that means insurance from people who are ignorant, when it more or less means insurance against things you just don’t know out there, the unknowns, the CEO gets hit by a bus, things that we just can’t anticipate because of how life happens.
When you start thinking about it, the inversion instead of trying to pick the best winner, sometimes you’re also trying to mitigate the fact that you could be wrong. In that vein, sometimes picking a couple companies within a sector might make a little bit more sense unless in some cases, there are one or two companies that are far and ahead well above the others. You can have one great company in a relatively dismal industry. But for the most part, that’s the whole point of buying diversified portfolios is the idea. Not one company. You might get it right, you might get it wrong, and you want to be able to spread those bets out over several companies. Directionally, you can be right over the long haul.
As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don’t buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content provided for informational purposes only. To see the full advertising disclosure, please check out our show notes. Thanks to our producer Dan Boyd and the rest of The Motley Fool team. For Lou, Matt, and myself, thanks for listening, and we’ll chat again soon.
Lou Whiteman has positions in L3Harris Technologies and Rocket Lab. Matt Frankel, CFP® has positions in PayPal and has the following options: long January 2027 $75 calls on PayPal, long January 2027 $95 calls on PayPal, short January 2027 $135 calls on PayPal, and short January 2027 $85 calls on PayPal. Tyler Crowe has positions in EMCOR Group. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Apple, Caterpillar, Deere & Company, EMCOR Group, Garmin, Home Depot, L3Harris Technologies, Mastercard, Meta Platforms, Micron Technology, Microsoft, Nvidia, PayPal, Rocket Lab, and Visa. The Motley Fool recommends Lowe’s Companies and recommends the following options: short September 2026 $47.50 calls on PayPal. The Motley Fool has a disclosure policy.
Microsoft Shows the “Magnificent Seven” What AI Investment Looks Like was originally published by The Motley Fool
