Sections 3-7 are for paid readers. They include full reviews of Apple and Starbucks earnings, Uber news and more.

A lot of this week’s content has already been sent. In case you missed it:

Next week, earnings coverage will include Palantir, Hims, Shopify, Cava, DraftKings, Uber, Duolingo, Coupang, Robinhood, The Trade Desk etc.

Finally, I started a new position this week.

Now let's dig in.

I will publish full reviews of both quarters sometime this month. There were not enough hours in the week to get to them, and next week is looking just as busy. For now:

Demand:

Profits & Margins:

Balance Sheet:

Guidance & Valuation:

Roughly met Q2 revenue and EBIT estimates (both missed by less than 0.1%).

Microsoft trades for 31x forward EPS. EPS is expected to compound at a 17% clip over the next 3 years.

Demand:

Profits:

Balance Sheet:

Guidance & Valuation:

NET trades for 227x forward EPS. EPS is expected to grow by 22% this year and 28% next year.

I plan to create a 101 archive that I can link to in the future so that people familiar with the company can conveniently skip this section. I will say that the 101 sections do change a bit from quarter to quarter as news evolves, but they’re largely the same.

Product Niche:

ServiceNow is one of the largest enterprise software firms in the world. It infuses layers of automation into productivity-enriching software and infrastructure. For this reason, it calls itself the “leading digital workflow company.” All products and services are neatly tied into its unified platform layer called the “Now Platform.

In terms of product organization, ServiceNow splits work by technology workflows, customer resource management (CRM), industry and core business workflows and creator workflows:

Product Innovation:

ServiceNow has been hard at work on GenAI innovation to bolster automation capabilities. It seemingly launches a new platform every quarter, with exciting new ways to drive enterprise AI adoption. They focus on tighter partner integrations (like Microsoft Copilot), incremental AI-inspired automation, more open interdepartmental data sharing and agentic task completion. All of these releases also included its security and threat management products. NOW uses models that are trained on a company’s own data, which has been shown to accelerate incident response. Automated threat triaging helps as well.

For Developers:

ServiceNow offers the “workflow studio” as a way to create intricate workflows via a wonderfully easy, no-code or low-code drag-and-drop process. It’s a unified workspace to tap into all of the automation and workflow performance analytics tools ServiceNow provides, without requiring a talented developer to work. Various teams can easily access the studio to enable seamless collaboration and better work. StarCoder 2 provides developer access to large language models (LLMs) to automate code creation. Bring Your Own (BYO) GenAI model support allows for ultimate developer flexibility as they pick and choose which models serve them the best. And for more managed developer support, the NOW Assist Skill Kit helps developers deploy new GenAI prompts and workflows. ServiceNow has templates for pretty much all common needs, but it cannot possibly build models for every niche workflow. That’s where GenAI comes into play.

The NOW App Engine is ServiceNow’s platform for building apps. Creator Studio was just added to the NOW App engine to push its “low-code app leadership” to fully no-code building.

More AI Products to Know:

“Plus SKUs” are how ServiceNow bundles all of its GenAI work into subscription packages. It up-charges clients for access to these SKUs, as its approach to GenAI monetization has been more aggressive than most. These Plus SKUs do things like automate customer service, expedite issue resolution and provide more conversational fetching/querying of a firm’s data.

NOW trades for 47x forward EPS. EPS is expected to grow by 25% this year, 18% next year and 20% the year after.

Zurich:

NOW unveiled its latest AI platform iteration this quarter called Zurich. The purpose of this release was to deepen NOW’s presence in agentic creation and accelerate large enterprise adoption of this technology. That acceleration will mean increased product demand and workloads and more NOW growth. The release also came with powerful new developer tools such as vibe coding agents alongside data and identity controls to match innovation with sound security. With Zurich, NOW uplevels its ability to provide valuable agents for customers not wanting to build their own, and tooling for customers that do. Relatedly, Zurich also boasts a large upgrade to its Workflow Data Fabric offering. This enhancement includes something called zero copy connectors, which are agents that can access whatever eligible data they need without data replication or storage. That greatly lowers costs associated with deploying these autonomous assets. And finally, Zurich takes a proactive step forward by actively recommending how customers can use or build other AI agents to automate certain manual tasks, cut costs and improve outcomes.

More on AI:

“This outstanding Q3 performance is the clearest demonstration yet that ServiceNow is the AI platform for business transformation.” – CEO Bill McDermott 

Now Assist is driving higher Pro Plus (subscription this is part of) attach rates. The product’s net new annual contract value (ACV) outpaced expectations and puts NOW on pace to beat its $500M annualized AI revenue goal for 2025. They’re also optimistic about surpassing their $1B in annualized AI revenue for next year. During the quarter, the GenAI assistant signed twelve $1M+ per year deals (including a $10M+ deal) and grew client agent consumption by 55x since May. The AI assistant’s exponential growth is a byproduct of the value it provides – like speeding up case resolution by 35% for Lenovo. Customers are quickly finding ways to deploy more complex and agentic workflows, which directly leads to more token consumption and product growth.

Its AI Control Tower is also performing very well. It quadrupled Q/Q deal volume. Small base, but still impressive. They think this product is helping them distance themselves from the competitive pack. The “single pane of agent glass” that it provides matters dearly. Companies are overwhelmed by the task of organizing, guardrailing and deploying agents without ballooning expenses, vulnerabilities or waste. This is what ServiceNow does for them with the Control Tower. They automate agent governance, and allow companies to focus on innovation, growth and improvement, knowing they’ll have security, support and order every step of the way. This is ServiceNow monetizing products that help make companies feel more comfortable with embracing AI agents, while it also has plenty of those agents to monetize these relationships further.

“Now Assist, Workflow Data Fabric, and RaptorDB were all ahead of plan.” – CFO Gina Mastantuono

Platform-Level Adoption:

NOW continues to solidify itself as a dominant enterprise workflow platform. As we talk about constantly, that means vendor consolidation, better interoperability, better ServiceNow products, higher customer retention and loftier company margins. Cross-selling matters a lot. All 3 major workflow buckets were in at least 13 of its top 20 deals. $50M+ revenue customers rose 20%+ Y/Y and it signed 103 $1M/year+ contracts vs. just 89 last quarter. Furthermore, its budding risk and security segment became its 5th $1B+ per year business.

Federal:

Aside from losing a federal contract this quarter and enduring the small renewal rate hit, federal performance was strong. Material productivity and efficiency gains are cutting through the noise and allowing it to win in this part of the market. They surpassed internal net new ACV expectations and signed a new partnership with the U.S. General Services Administration (GSA) to “power AI first modernization for a new era of government.” It’s expected to simplify product onboarding and cut billions in costs for agencies via 30% efficiency improvements.

Investments, Partnerships & Accolades:

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Good quarter. If we’re being picky, I was hoping to see a raise for the Q4 constant currency subscription revenue guidance. At the same time, to hear that the forecast included incremental prudence stemming from the government shutdown made it more impressive in my mind. The AI ramp is quite healthy, its AI Control Tower is positioned compellingly, and expansions into giant areas like CRM should provide plenty of opportunity to grow. The pace of margin expansion is also great. Simply put, they’re executing at a high level like they’ve done for many years.

I’m a big fan of this company. The forward multiple is still a bit lofty at 38x forward FCF, but NOW deserves a premium and that’s not at all egregious. I think I want to own this, but I don’t want to drain the cash pile again right now. There are some smaller enterprise software positions in the portfolio that have become extremely expensive lately. If they get much richer in valuation, I may trim more shares to make room for this name.

Apple revenue guidance was 3.9% better than expected, while its 47.5% gross margin guidance slightly beat estimates. Its EBIT guidance was about 3.6% ahead of expectations and includes a $1.4B tariff impact. Following this report, fiscal year consensus revenue estimates rose by 2.8% and consensus EBIT estimates rose by 2.1%. Operating expenses are expected to rise by 19% Y/Y next quarter to support more AI and product-related R&D investments.

Apple trades for 33x forward EPS. EPS is expected to compound at a 10% clip for the next few years.

Always a light earnings call.

iPhone:

iPhone had an ok quarter. It enjoyed strong upgrade growth and was the top-seller across the USA, urban China, the UK, Japan and a few other places.

The slightly underwhelming iPhone quarter is not a matter of poor demand. Apple just didn’t have enough supply to service robust levels of interest. Before the iPhone 17 family launch last month, the iPhone 16 outperformed their demand forecasts and led to some supply shortages. They “could have sold more” if they had more in stock. And encouragingly, the iPhone 17 debut has been highly successful, with a large base of backorders quickly forming thanks to new releases like the smaller iPhone Air. Per the team, this warm reception is a response to heightened product quality, as a new Liquid Glass design, and a better camera have helped win customers over… even before the highly anticipated Siri upgrade. The Apple Intelligence software tools are also helping. Some of these include better call screening and hold experiences, photo cleanup and visual intelligence (use the camera to teach you about your surroundings. Moving some of these AI features from only the more expensive iPhone model to the base models should help drive more adoption too. Better matching supply with demand is why iPhone growth is set to accelerate above 10% Y/Y next quarter. That is despite also being supply constrained on some of these models due to demand outpacing expectations, just like it did for iPhone 16.

-4% Y/Y growth in China was again driven by iPhone weakness, but that weakness was also supply-related just like it was everywhere else. Good to hear. They’re “thrilled with what they’re seeing right now” in that market thanks to things like strong positive store traffic growth. Some of that is being aided by more subsidies, but even models that don’t qualify for that incentive are enjoying healthy trends. They expect this to allow China iPhone and overall revenue growth to turn positive next quarter.

Other Hardware:

MacBook Air was the standout for this segment, but really everything was strong. From its smaller, cheaper Mac Mini all the way up to its Mac Studio model, strength was notable. They’ve just released a new 14-inch MacBook Pro with their brand new M5 chip that “delivers 3.5x faster AI performance” vs. M4. Despite this, leadership was quick to call out an abnormally tough growth comp for this product coming next quarter. They’re lapping several launches compared to one launch this year.

As discussed at recent product events, the new Apple Watch series includes a host of new health tracking tools that should create real value. For example, its AI-enabled hypertension tracker is on pace to alert a million users of this issue. That should go a long way in improving preventative care and quality of life. And less importantly, I think that should drive considerable demand. The better battery life and larger display on certain models are both nice, but this is more exciting as an upgrade or new customer motivator in my mind.

Software & More on Apple Intelligence:

We heard nothing about the delayed upgraded Siri. They talked about building out the private cloud infrastructure that will eventually power this offering, but not much else. They also finished work on a new Houston factory that will make the servers used in this private data center network for Apple Intelligence workloads.

More on Services:

Developed and emerging markets both delivered 10%+ Y/Y growth while this segment accelerated to its fastest rate of growth in two years. This was via broad-based product strength across Apple Pay, advertising, news and pretty much everything else. Most of these categories enjoyed Q/Q accelerations, with continued active install base expansion paving the way for more growth.

Other Notes:

Decent quarter and strong guidance. Forward growth expectations look better than they have in a very long time for this company. That’s partially thanks to Chinese incentives, but also related to more broad-based structural product traction. Its growth multiple is well over 3x and very lofty, but with the kind of world-class visibility this company offers, that makes some sense. I prefer owning cheaper mega-cap tech names that I view as having more compelling growth opportunities looking ahead. 

More Y/Y Comp Sales Growth Data:

Beyond all of the investments they’re making to fix the business, aggressive coffee inflation (which they only partially hedge) and tariffs are weighing on margins.

“We know this continues to be a multi-year turnaround. We remain focused on driving our top-line while managing the costs that are within our control to deliver durable, sustainable growth and long-term shareholder value… As I've said before, we expect to grow the top line first, and then earnings will follow.” – CFO Cathy Smith

We didn’t get formal guidance, but did get some commentary that was useful. They’re excited about entering a holiday season with store quality having taken such a large leap forward. They expect to keep spending a lot on fixing the rest of their stores, while cost cuts elsewhere enable G&A expense relief to offset a chunk of that headwind. That offsetting will become a lot more noticeable starting in Q2 and building in Q3 of next year (the spring). That’s when a lot of the investments in its “Back to Starbucks” campaign (much more later) will be lapped, while comps get far easier, stores keep improving and it laps decisions to end a lot of discounting. That’s all expected to occur while coffee inflation hopefully dissipates around the same time, leaving yet another source of meaningful operating leverage. This is all why EPS growth is expected to surpass 30% Y/Y during Q2-Q4 of the upcoming fiscal year. 

SBUX trades for 33x forward EPS. EPS is expected to compound at a 20% clip over the next 3 years. I think they'll end up doing better than that and I think revision trends will turn convincingly positive next year.

One Year In:

We're a year into CEO Brian Niccol’s tenure, and I think the progress and turnaround are both obvious. They’ve worked hard to improve stores via returning condiment bars, handing finished beverages to customers, in-store ceramic mugs, some free refills and premium add-ons, normalized seating and more. They’ve spent the time needed to rethink order sequencing, unleashing strong throughput gains and multi-channel growth without sacrificing order quality. They’ve added sorely missing labor to make sure all of these changes are optimally implemented while supporting bottleneck-free growth. Simply put, they’ve laid a brand new and much better foundation. It positions them to play offense on growth and innovation in a profitable, replicable and scalable way. One year in… and Starbucks has stabilized. It’s certainly not back to where it needs to be, but it has stopped the bleeding. That is a paramount step 1.

USA Fixes Working – Green Apron Service Model:

Following the 650-store test, they rolled the Green Apron Service Model out as the new standard across the entire USA portfolio in August. The revamped staffing is a big piece of this initiative. It has already helped it extend hours for half of its U.S. stores with most locations now open at or before 5:00 AM once more – with record low labor turnover and rising service scores. This is so incredibly important for a coffee chain. People need to know they can rely on you for the needed hit of caffeine at 5:00 AM. If you’re not giving it to them consistently, they’ll happily go somewhere else. A central goal of the Green Apron model is fixing the throughput issues that have been crippling this company. The model is working extremely well here. Shortly after going live, 80% of its owned U.S. stores are at or below their goal of 4 minutes. These stores are enjoying better comp sales trends than the rest, showing that people will respond positively to good service. What a concept. Drive-thru service times are similarly below its 4 minute fulfillment goal.

Better throughput based on better order sequencing algorithms is how they can manage in-store, drive-thru, mobile ordering and delivery channels without sacrificing the end product. Getting that aforementioned foundation nailed into place drives growth across all of these categories. Perhaps as a result, mobile order accuracy remains very high and delivery rose by 30% Y/Y to cross $1B annually. Its Clover Vertica brewing machine, which will start rolling out this quarter, should build on speed of service and throughput improvements.

Encouragingly, Starbucks now feels like they have the labor in place to sustainably and profitably grow store sales. They will not need to do more defensive hiring to fix stores… just potential offensive hiring to spur growth. More spending will come only if they “earn the right.” That’s exciting to hear. It means the incremental cost headwind will be lapped next year, which will remove a large source of margin pressure. It also means incremental costs will only come if they coincide with incremental revenue. Starbucks feels like they can deliver enough incremental demand to justify opening stores for longer hours, which would be a great source        of comp growth.

I think this offensive hiring will eventually be likely. We got direct, immediate and encouraging evidence that all of these changes are quickly working. Comp store transactions in the USA turned positive during September right after this was implemented. The 0% Y/Y overall comp store growth in the USA this quarter was a byproduct of 1% ticket growth offsetting -1% transaction growth. It’s great to see the transaction piece of that (more structural) finally turn positive. That acceleration continued through the first month of this quarter, while the percentage of U.S. stores with positive Y/Y transaction growth tripled for the quarter. Green Apron (along with better stores discussed next) is a massive reason for this. 

Furthermore, the first 650 stores where it implemented this approach continue to accelerate and outperform the overall portfolio, showing how fully introducing this initiative should keep boosting results over the coming quarters and years. It will take time for all of this change to be implemented and operationalized and for customers to appreciate the improved experience. But these processes are well under way, and more advancement should yield more financial momentum. We’re still only a few weeks into the full debut… much more progress left to enjoy.

USA Fixes Working – Better Stores:

Starbucks finished evaluating its North American portfolio and decided to shutter some stores. It did not feel like it could deliver the service or profitability needed to justify keeping them open. That led to the Q/Q store count decline and will actually support margins a bit going forward. They continue to test a new store concept with lower build-out costs. They changed one of their sunsetting pickup-only concepts in New York to this and are in the learning phase. Next year, with their new assistant managers in place, SBUX will formalize and simplify store reporting. The goal is to get these people focused on the right things, with just 5 key performance indicators to optimize.

USA Fixes Working – Better Marketing & Menu Innovation:

The new cold foam protein platform is working and providing customers that option for 90% of the drink options. Feedback has been strong, including customers excited by the “tremendous value and macros associated with it.” This is successfully raising order frequency for low engagement customers, with so much more menu innovation left in the pipeline to keep supporting brightening trends. Again, Starbucks had to fix the basics to allow things like this to be added to stores without creating chaos. Now they have. In 2026, new bake cases and matcha products are coming while it keeps working with supply chain partners to lower out-of-stock rates.

Marketing has also gotten more holistic, rational and effective. For non-members, transactions in the USA grew Y/Y for the second straight period. It recorded its highest brand affinity score since 2023, gains in value perception and enjoyed happier customers overall. I repeat… the changes are working and more thoughtful marketing is amplifying that momentum. The impacts right now remain subtle, but they’re quickly building. Rewards members rose 1% Y/Y while transaction trends lag non-members, but continue to improve. As a reminder, they greatly slashed discounting for loyalty members throughout the year, which is a comp headwind for that segment but not for non-members.

USA Dayparts:

Starbucks is enjoying the most progress with its important morning daypart. Throughput gains and more consistent hours are making people more comfortable with going to these stores amid their busy mornings. That’s what is leading the transaction growth recovery in the USA. For the afternoon, menu fixes will matter more. Right now, the food options are underwhelming and it will take time for them to fill that void. They will not rush menu releases like the old team did.

International:

Great quarter. People will look at headline numbers and call me crazy, but I’d call them lazy. There are so many reasons to think financials will greatly improve next year and going forward for Starbucks. The turnaround is increasingly obvious and I think everyone will agree by the time we get to 30%+ Y/Y EPS growth and more comp acceleration next year. Niccol came into a situation where nothing was done well. There was so much low-hanging fruit for a CEO that knows how to optimally run a large quick-service chain. And he’s showing clear signs of being able to deliver once more.

I’ve added to this name around these levels a few times. I’ve pretty aggressively built out the stake. I think it’s time for me to be patient, own what I own and see if Mr. Market wants to give me an irrational opportunity. One more quarter of negative EPS growth to come. Then one quarter of slower EPS growth remaining. Then a high probability explosion to and beyond 30% Y/Y. I think there’s considerable upside to estimates despite those estimates already being encouraging, and am happy to pay a 34x multiple in the meantime. That multiple is sky-high because they’re investing so aggressively. As investments fade and growth intensifies, profits will explode and it will be clear why they’re getting that valuation today. That’s how I feel.

The existing Nvidia partnership is meaningfully expanding. The two are working together to build autonomous vehicle fleets. The first OEM partner is Stellantis, which will build 5,000+ Level 4 AVs for Uber’s global fleet. These cars will use Nvidia’s driverless software platform & operating system. The partnership could see upwards of 100,000 vehicles built over time.

This marks a continuation of a recent trend of Uber taking direct ownership (partial or full) in autonomous fleets (Lucid & Avride the other recent equity stakes). And I love this approach. They have a beautiful balance sheet. They can spend on this, invest in the core business and buy back a ton of stock. No sacrifices needed. They are confident in their ability to sell these autonomous assets to 3rd parties down the road. They have world-class data and arguably the best AI compute partner on the planet for advancing autonomous fleet proliferation. Why not use the balance sheet in near-term to push the industry forward and show all of these autonomous vendors a proven business model for profitably operating? This news, to me, is Nvidia and Uber doing exactly that. The two are already together helping AV disrupters such as Avride, Momenta, May Mobility and so many more to market. A lot of those companies will be big pieces of creating these fleets.

This arrangement is expected to easily extend to other automakers too, which gives a lot more companies the partners and assets needed to actually compete in AVs. With this package of partners, automakers will be able to plug into Uber’s data, Nvidia’s world-class models, next-gen AV software partners and financing all in one place. If that doesn’t speed things up I don’t know what will.

And if they’re successful with all of this? Uber’s fleet gets much larger and diverse with a proven path to making these assets economically viable & optimally run. We also get more perfect competition in the robotaxi space, which takes considerable power away from current leaders (Waymo/Tesla) and gives it to the demand aggregator that can maximize utilization… Uber. Waymo and Tesla can’t displace Uber unless they control large portions of the future market. All of this work makes that outcome less likely.

Nvidia & Uber also announced a new “robotaxi data factory.” This is probably why Uber is paying its drivers for labeling tasks. Uber will provide the highly relevant dataset for autonomous model training, and Nvidia will provide the world-class GPUs and physical AI models.

DraftKings New York State weekly handle (volume) growth was over 20% Y/Y. That's a really good after last week was underwhelming. A single week is not overly important, as it's influenced by event timing and how the calendar shakes out from year to year. Still, it could have turned into a new trend, and that's thankfully looking a lot less likely now. It's good to see that quickly revert and for DKNG to be maintaining strong volume growth through football season in one of its most mature states. The company again sold off on the expected news that Polymarket was re-entering the USA. Sentiment is awful. The data looks fine. The quarter should too. We'll see.

Well… Meta strongly hinted at it during the earnings call. They're raising $30B in new debt to fund its CapEx plans. Looks like the deal is more than 4x oversubscribed.

The Trade Desk's Chief Revenue Officer is leaving the company after 13 years there. In normal times, this wouldn't even get a second look. But with how negative TTD sentiment currently is and how they've overhauled the leadership team, this will be placed under a microscope and obsessively analyzed. Anders Mortensen was named as the replacement. He's a current VP at Google where he "led one of the largest and fastest-growing ad businesses." I think they're going to prove a lot of people wrong next week. Earnings next week. We'll see.

Poor earnings from Chipotle sent quick service uniformly lower this week. I think their macro excuses were somewhat valid. But I also think store execution has something to do with this. There's a reason why Starbucks is gaining momentum while this company loses it. That's the Brian Niccol effect.

CrowdStrike deepened its Nvidia partnership to add integrations of Nvidia's Nemotron models and NIM microservices into Charlotte AI AgentWorks. That's CRWD's no-code platform for agent building, and these tools from Nvidia are highly popular for developers. It's always good to give them what they want. Agents will be built for cloud, data center and edge environments.

The Fed cut rates by 1 point to 3.75%-4.00%. 2 officials dissented. As Powell already told us, quantitative tightening will also end in December.

He talked about inflation looking like it's tariff-related, as it's based on goods rather than services. That's good news, as it means the recent rise should be short-lived, rather than structural. He's more focused on weaker labor trends than somewhat elevated inflation. Very similar commentary compared to the last meeting.