3Q26 Earnings Updates: Part One – META, IBM, GOOG, TMUS, LLY, VICI

Meta Platforms (META) had another strong quarter, with revenue growing 26% to $64.6 billion, better than Wall Street expected. Advertising continues to perform extremely well, helped by AI tools that make ads more useful to consumers and more effective for businesses. This has been an important part of our investment thesis, and the latest results give us more confidence that Meta can keep growing. We are also encouraged by the early response to Muse, Meta’s new personal AI assistant. More than 10 million people signed up in its first six weeks, and many are already using it to shop. We think Muse could eventually become a meaningful new source of revenue, although it will take time to see how much money Meta can make from it.

The biggest concern is how much the company is spending on AI. Meta spent nearly $35 billion on new equipment and infrastructure during the quarter, and its longer-term plans could require raising hundreds of billions of dollars. That is an enormous amount of money, even for Meta. The company could borrow some of it or sell new shares, which would mean existing shareholders own a smaller percentage of the business.

We think Meta has a good chance of building valuable new businesses with AI, but the cost of getting there is becoming harder to ignore. Our $740–$800 stock valuation still gives us a starting point, but we want to learn more about Meta’s spending plans before deciding whether it needs to change. For now, we think the stock may have trouble making sustained gains until investors get more comfortable with how much Meta is spending and how much it can earn from those investments.

IBM (IBM) reported a solid third quarter that addressed some concerns following a disappointing second quarter. Revenue grew 6% in constant currency, and adjusted earnings of $2.95 per share exceeded expectations. Most importantly, Software revenue increased 9%, including a 10% rebound in Transaction Processing, the business that helps large companies run critical systems such as banking and airline reservations. IBM also closed about two-thirds of the large software transactions that had slipped from the prior quarter, confirming management’s view that much of the earlier weakness was a timing issue rather than lost business.

Our thesis is that IBM can grow faster and become more profitable as software accounts for a larger share of its business. Red Hat, which helps companies manage applications across their own data centers and the cloud, remains central to that opportunity. Its revenue grew 11%, while new bookings grew in the high teens, suggesting healthy demand ahead. Software profitability also improved significantly as IBM continues to operate more efficiently.

Not everything was encouraging. Consulting growth remained sluggish, and new contract signings declined. IBM is winning substantial AI-related business, but that activity has yet to produce much faster Consulting revenue growth. Acquisitions are also helping Software grow, so we want to see stronger growth from businesses IBM already owns.

Overall, the quarter strengthened our confidence in IBM’s ability to deliver better growth and profitability. However, the stock’s initial after-hours gain reversed, with shares declining 1–2% the following morning. At approximately 19 times expected 2027 earnings, the valuation seems reasonable, but investors are looking for more than one good quarter. Near term, the stock may struggle to make sustained gains until IBM demonstrates that stronger Software growth can continue into 2027.

Alphabet (GOOG/GOOGL) third-quarter earnings highlighted both the opportunities and challenges created by artificial intelligence. Google Cloud delivered exceptional growth, with revenue more than doubling and profitability improving substantially. Demand for Google’s AI computing capabilities remains strong, reinforcing our belief that Alphabet will be a major beneficiary of AI adoption. However, the company’s core Search advertising business, which generates much of its earnings and cash flow, showed signs of slowing. Search revenue increased 12%, and management indicated that growth could slow further in the fourth quarter.

Importantly, consumers are not abandoning Google. Search activity is actually accelerating as people use new AI-powered features. The challenge is that these newer searches currently generate less advertising revenue than traditional searches. Improving that monetization may take several quarters.

Meanwhile, Alphabet is spending enormous amounts building AI infrastructure, with 2026 capital expenditures expected to reach $195–205 billion. That investment supports Cloud growth and Google’s competitive position, but it also pressures cash flow and raises questions about future returns.

GOOG shares fell approximately 13% following earnings. Our new valuation range is $288–$320, reflecting a reduced 2027 earnings estimate of approximately $16 per share and a lower valuation multiple. Both adjustments reflect the greater challenges and uncertainty revealed in the third quarter. Although the stock now trades near the lower end of that range, the decline does not automatically make it more attractive.

We remain constructive on Alphabet’s long-term prospects, in part because Google has successfully navigated major technology transitions before, adapting its Search business without losing its competitive advantages. We believe it can do so again, although the outcome is not guaranteed. For now, we expect the stock to remain under pressure or trade in a relatively narrow range until investors see improving Search monetization and clearer financial returns from AI spending.

T-Mobile (TMUS) delivered a solid third quarter, but the stock continues to struggle as investors question whether the company’s best years of customer growth are behind it. T-Mobile built its success by offering a strong wireless network at attractive prices and steadily taking customers from competitors. Now management is shifting its focus toward earning more from existing customers rather than simply adding as many new subscribers as possible. That makes sense, but the transition has been uneven. Customers are switching providers more frequently, and promotional spending is putting some pressure on profitability.

Another concern is competition from SpaceX’s Starlink satellite network. While we believe traditional wireless networks have significant advantages in capacity and reliability, investors worry that Starlink could eventually compete more directly with T-Mobile’s home internet and mobile businesses. That uncertainty has contributed to the stock’s substantial decline from its earlier highs.

Despite these concerns, T-Mobile remains a highly profitable business generating substantial cash flow, which supports network investment, dividends and share repurchases. We believe the third quarter may represent a turning point after several quarters of declining growth expectations. The company still has opportunities to increase revenue from existing customers and improve profitability, but management needs to demonstrate that those gains can offset slower subscriber growth.

Our revised valuation is $180 per share, reflecting more conservative growth expectations and competitive risks. We are comfortable maintaining existing positions for now, although T-Mobile remains on our watchlist for a potential sale. Over the next several months, we expect the stock to struggle to gain sustained momentum until management provides a more encouraging outlook for 2027 and investors become more comfortable with the competitive threat from Starlink.

Eli Lilly (LLY) delivered another excellent quarter, reinforcing our view that its diabetes and obesity treatments have a long runway for growth. Third-quarter revenue increased approximately 39%, well ahead of expectations, and management raised its full-year revenue guidance by $5.5 billion to $91–92 billion.

Even after adjusting for some one-time revenue benefits, the results were impressive. Demand for Mounjaro and Zepbound continues to exceed expectations, particularly outside the U.S., where Lilly is gaining market share and obesity treatments remain available to only a small percentage of potential patients. In the U.S., expanded Medicare access is also bringing new patients into the market, with roughly 80% of patients using Lilly’s new Medicare Bridge program having never previously received this class of treatment. These developments reinforce an important part of our thesis: Lilly is serving an underpenetrated and expanding obesity market rather than simply competing for existing patients. Its new obesity pill, Foundayo, and promising next-generation treatments could further expand the patient population and provide additional opportunities for growth.

Importantly, higher sales are translating into faster earnings growth as Lilly benefits from its expanding scale, although lower drug prices remain a headwind. Wall Street’s 2027 earnings estimates are moving higher, and we suspect they may still prove conservative.

We have increased our valuation from $1,350 to $1,500 per share, based on approximately $50 in 2027 earnings and a 30-times multiple. The stock rallied sharply following earnings, leaving relatively modest upside to our revised valuation. Nevertheless, we believe Lilly’s exceptional growth prospects justify continuing to own the shares. Near term, the stock may consolidate following its strong advance, with further gains likely requiring another round of earnings estimate increases.

VICI Properties (VICI) delivered another solid quarter, reinforcing our view that the company can generate attractive long-term returns through a combination of substantial dividends and modest earnings growth. VICI owns casino and entertainment properties, including some of the best-known resorts in Las Vegas, and leases them to operators under long-term contracts. This provides relatively predictable rental income without the day-to-day operating risks of running casinos. Third-quarter adjusted funds from operations (AFFO), a measure of cash earnings available to support dividends, increased 4.3% per share, modestly exceeding expectations. Management raised its full-year earnings outlook and increased the quarterly dividend by 2.2%, marking its ninth consecutive annual increase. We find the dividend increase particularly encouraging given the concerns surrounding several tenants and loans.

The biggest uncertainty remains Caesars Entertainment, one of VICI’s largest tenants. Caesars’ financial challenges have raised questions about whether some of its regional casino leases might eventually need to be renegotiated. Management is actively evaluating alternatives, including potential lease modifications and property sales. A sensible resolution could improve the long-term stability of rental income, although concessions might reduce earnings. VICI also announced a $2 billion share repurchase authorization, providing another potential way to create shareholder value.

Our investment thesis remains constructive. At approximately 9.6 times expected 2027 cash earnings, VICI offers a dividend yield near 7.5% alongside anticipated annual earnings growth of 3–4%. If that growth continues and the valuation remains stable, the combination suggests potential annual returns of roughly 10–12%, without requiring the stock to become more expensive relative to earnings. Those returns are not guaranteed, particularly if tenant problems reduce rental income. Near term, we expect the stock to remain somewhat constrained until investors gain greater clarity on Caesars, but we believe the dividend and steady earnings growth provide an attractive foundation for long-term returns.