4Q25 Earnings Updates:  Part One – META, IBM, and AAPL

Meta Platforms (META): There are two big takeaways from Meta’s latest quarter: it showed AI is boosting growth in advertising, and it outlined the next spending wave. Ad impressions rose 18% while pricing rose 6%. Management attributed ad strength to clearer proof of results for advertisers, better ad targeting in feeds, and AI tools that speed up campaign setup and creative, so more ad spend turns into sales and signups. Ads are expanding across Threads, ads in WhatsApp Status are rolling out carefully, and paid business messaging is scaling. Analysts mostly pressed on durability and payback, because the company is stepping up spending on data centers, chips, and rented cloud servers while capacity stays tight. META anchored the debate by targeting higher operating profit dollars compared to last year and also cautioned against extrapolating the early-year pace. One expected headwind is a shift in Europe to less personalized ads. Reality Labs remains a drag, but the message is that virtual reality spending gets dialed back while glasses and wearables take the lead. If ad creation and targeting improvements keep showing up in advertiser results, and Threads and WhatsApp add steady new revenue, the stock can work even with heavier spending. If regulation bites harder and ad growth cools, the same spending plan becomes the headline. At roughly 24x 2026 EPS today, we see upside toward $900-$1,000 as the valuation moves to match GOOG closer to 30x EPS.

Meta’s latest quarter reinforced two key points: artificial intelligence is clearly improving advertising performance, and the company is entering its next phase of heavy investment. Ad impressions rose 18% while pricing increased 6%, driven by better targeting, clearer proof of results for advertisers, and AI tools that make campaign setup and creative faster and more effective. Advertising continues to expand across newer platforms like Threads, WhatsApp Status, and paid business messaging. At the same time, management outlined higher spending on data centers, chips, and cloud capacity, which raised questions about durability and near-term returns. Meta addressed those concerns by emphasizing growth in absolute operating profit dollars, while cautioning investors not to extrapolate early-year trends. Europe remains a potential headwind due to limits on ad personalization, and Reality Labs continues to weigh on results, though spending there is being reined in as wearables take priority. Overall, if AI-driven ad improvements continue to deliver measurable results and new platforms scale steadily, Meta can perform well even with higher investment. At roughly 24x expected 2026 earnings, we see room for upside toward $900–$1,000 if the valuation moves closer to peers like Alphabet.

IBM (IBM): IBM’s latest quarter was the cleanest proof yet that the return-to-growth plan Northlake has backed since 2019 is no longer a one-product story. Software did the heavy lifting again, and management doubled down on a simple 2026 setup: mid-single-digit revenue growth, higher free cash flow, and software growing at 10%. Red Hat cooled, but recently acquired HashiCorp momentum, the step-up in data and automation demand, and a transaction-processing tailwind tied to the mainframe cycle were points of strength. Analysts remain focused on what is needed for Red Hat (hybrid cloud) to re-accelerate, how quickly consulting signings convert to revenue, and whether the cost and productivity offsets are enough to absorb the near-term drag from the soon-to-close Confluent acquisition without sacrificing the margin story. On Red Hat, management is taking a prudent stance pointing to one-off timing issues tied to U.S. government last fall, while claiming that simply getting back to solid double-digit growth is enough to achieve the broader software guide, with upside if normalization arrives later in 2026. IBM is leaning into hybrid and private deployments as the practical path for enterprise AI, and the company said it will stop reporting standalone AI results because AI is now woven through everything. With IBM now priced more like a quality software compounder, the bar has been raised for execution going forward. Our base case is high single-digit to low double-digit upside over the next 12 months if IBM hits the software-led plan and Red Hat stabilizes. The bull case needs faster Red Hat bookings and cleaner consulting conversion, while the bear case is mostly a valuation reset if execution wobbles.

IBM’s latest quarter offered the clearest confirmation yet that the return-to-growth strategy Northlake has backed since 2019 is no longer dependent on a single product or cycle. Software again led results, and management reinforced a straightforward 2026 outlook: mid-single-digit revenue growth, rising free cash flow, and software growing around 10%. While Red Hat growth cooled, strength elsewhere helped offset that slowdown, including momentum from the recently acquired HashiCorp platform, increased demand for data and automation, and a transaction-processing boost tied to the mainframe refresh cycle. Investor focus remains on what it will take for Red Hat to re-accelerate, how quickly consulting signings turn into revenue, and whether productivity gains can absorb near-term pressure from the pending Confluent acquisition without undermining margins. Management characterized the Red Hat slowdown as largely timing-related, particularly tied to U.S. government spending last fall, and suggested that a return to steady double-digit growth would be sufficient to meet overall software targets. Strategically, IBM continues to position hybrid and private deployments as the most practical approach for enterprise AI and has stopped reporting AI as a standalone metric now that it is embedded across the business. With IBM now valued more like a quality software compounder, execution matters more than ever. Our base case calls for high single-digit to low double-digit upside over the next year if the software-led plan stays on track and Red Hat stabilizes.

Apple (AAPL):

AAPL reported a very strong quarter with record revenue and profit per share both up in the mid-to-high teens, led by 23% iPhone sales growth and a sharp rebound in China to 38% growth. Services grew 14% and set new records in areas like advertising and cloud, even as analysts pressed on whether App Store growth is slowing. Apple is rushing to refill inventory, with supply of its latest chips limiting production of high-end iPhones, and rising memory costs pressuring future margins. On AI, Siri is partnering with Google, but the economics are undisclosed. Northlake remains constructive on AAPL, expecting steady but moderate long-term growth and financial strength, but the valuation at 30x 2026 EPS leaves investors focused on execution.

Apple reported a very strong quarter, with record revenue and earnings per share both rising in the mid-to-high teens. Results were led by 23% growth in iPhone sales and a sharp rebound in China, where revenue rose 38%. Services grew 14% and reached new highs in areas such as advertising and cloud, even as analysts questioned whether App Store growth may be slowing. Apple is moving quickly to rebuild inventory, with supply constraints on its latest chips limiting production of higher-end iPhones, while rising memory costs could pressure margins going forward. On artificial intelligence, Siri is partnering with Google, though the economic details have not been disclosed. Northlake remains constructive on Apple given its durable business model, strong balance sheet, and consistent cash generation, but at roughly 30x 2026 earnings, the stock leaves little room for missteps and keeps investor focus squarely on execution.

META, IBM, and AAPL are widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts.  Steve is sole proprietor of Northlake, a registered investment advisor.  Northlake’s regulatory filings can be found at www.sec.gov.