Tech Stocks Crash Again… Apple & Palantir Expose Bigger Problem

We're going to take a deep dive on the financials of two tech heavyweights today. Apple and Palantir both reported earnings after the closing bell on Monday, November 2nd. Both beat Wall Street expectations, but both stocks sold off afterward. Apple fell 2.8% in after-hours trading, while Palantir dropped about 3%. The selling continued on Tuesday, November 3rd, as Apple fell as much as 3.8% during the session, and Palantir dropped as much as 7.3%. We're seeing a pattern across the technology stocks. Even when companies beat earnings forecasts, their shares can fall. I'll link to the video I released last Friday about the sell-off that happened last week. We covered Alphabet's roughly $500 billion one-day loss in market value, Intel's 28% drop, its worst closing day since 1974, and the declines in Amazon, NVIDIA, AMD, and Micron. Link down below. But back to Apple and Palantir, starting with Apple. Fourth quarter revenue rose about 12% to $114.5 billion, beating Wall Street's forecast of about $113.5 billion. Earnings per share also came in above expectations, and iPhone revenue rose 17% to $57.6 billion. So why did the stock sell off despite those strong numbers? Let's look at China. Profit margins. And the transition to Apple's new CEO for clues. Greater China revenue was $17.5 billion, compared with an analyst estimate of $18.75 billion. That's a miss of about $1.2 billion, or roughly 6.5% below the analyst forecast. One important distinction, China revenue was still up about 21% from a year earlier, so this was a miss against expectations, not a year-over-year collapse in China's sales. Next are profit margins. Apple reported a gross margin of 47.9%, but around one percentage point of that came from tariff refunds. For the holiday quarter, Apple is expecting gross margin of about 45% to 46%, so slightly lower than Q3. Management pointed to higher memory costs and expenses related to Siri AI. In other words, the company is forecasting a lower gross margin next quarter, even as sales continue to grow. There's also new leadership at Apple to take a look at. John Ternus took over as CEO on September 1st, and Tim Cook became executive chairman. Ternus is 50 years old. He joined Apple in 2001 and previously led hardware engineering. He's been CEO for about two months now, so most of the fiscal year's results reflect decisions that were made before he took over. So let's now take a look at Apple's revenue over the last five fiscal years. It was $394.3 billion in... 2022, $383.3 billion in 2023, $391 billion in 2024, and $416.2 billion in 2025. And finally, $478.8 billion in this year, 2026. So far, annual growth went from negative 2.8% in 2023 to positive 2% in 2024, 6.4% in 2025, and 15% in 2026. So Apple's annual revenue growth has actually accelerated for three consecutive years. Looking at the two biggest product and service categories, annual iPhone revenue went from $209.6 billion in 2025 to $254 billion in 2026. Services revenue went from $109 billion to $123.3 billion. That services business brings in revenue from Apple's existing base of devices. But future growth still depends partly on how often customers upgrade and whether Apple can hold its market share. Here's a major difference in how Apple and Google spend money, and this is the key that I want to stress. Apple spent about $9 billion on company-wide capital expenditures during the entire 2026 fiscal year, down from $12.7 billion in 2025. Alphabet, on the other hand, Google's parent company, spent about $51.4 billion on CapEx in the third quarter alone. Those are different reporting periods, so it's not an apples-to-apples, no pun intended, comparison. But Apple's annual spending was far below Alphabet's spending in just one quarter. That's the point. So Apple doesn't report a separate figure for AI data center spending, so we can't treat all $9 billion as AI spending, and we can't say Apple has no data centers. The report of CapEx do show a different level of infrastructure spending from companies like Alphabet and Meta. The idea is that Apple can focus on its devices, Siri, software, and customer experience, and use outside cloud providers or AI partners when it comes to making financial sense. That can reduce how much capital Apple needs to put into data centers and specialized chips. It also means Apple depends, at least partly, on other companies' AI models and computing infrastructure. For shareholders, spending less on infrastructure can leave more free cash flow available for buybacks, dividends, or other investments. It also reduces the risk of owning equipment that becomes outdated or obsolete. The trade-off is whether Apple can offer an AI experience that keeps customers buying its products without controlling all the underlying infrastructure itself. I'm convinced the most exciting time in my career to be building product because AI has so much potential to kind of allow us to Change products, make new products, all of that. Our focus is what it always is. We focus not on technology, but on product and how do we leverage technology to build products and features and experiences that really matter to people, that people love. And if we're doing that right, you don't even really know. No one has to know that it was AI that had it happen. They just want to know that, wow, I was able to do that thing that I couldn't do before and it was fun and it was easy and we can make it happen. So that's our focus. And we are really keen to enable sort of the personal side of it. Which we talked about today, there's so much of your personal life is on your phone, right? Your phone is such like a key part of your life. And. The beauty of our system is that privacy is just all built in. And so that using Siri AI, you can tap into that personal context, but nobody else can see it. Apple can't even see it. We don't want to see it, and we can't see it. It is your information. And I think that is going to be our contribution in this space, is how do we build deeply personal experiences leveraging AI that help us all be more creative, be more productive, do whatever it is that we want to do. So now let's take a look at the cash flow. In fiscal 2026, Apple generated about $145.1 billion in operating cash flow. Subtract about $9 billion in CapEx, and conventional free cash flow comes to about $136.1 billion. Apple ended the year with approximately $136.9 billion in cash and marketable securities, compared with about $80.1 billion in term debt and commercial paper. That's approximately $56.8 billion in net cash if we include marketable securities. So that brings us to three financial tests. Revenue growth, return on invested capital, and leverage. Three metrics I keep stressing on this show when looking at a company's financial statements. We've already seen that Apple's revenue growth accelerated to about 15% this year. That's great. So let's take a look at the next metric. Apple's estimated return on invested capital for fiscal 2026 was approximately Before we continue with the video, let's talk about a company that's building serious gold leverage for the long term. Our sponsor today, Stellar Gold, is sitting on three major Canadian projects. Tower and Colomac are among the largest undeveloped gold sites in the country. The Tower project alone could be worth $2.5 billion after tax at a $3,200 gold price assumption. And if prices go higher, so does its value. Colomac spans over 1,000 square kilometers of greenstone deposits and could be Canada's next big gold camp. They also have Hollinger Tailings, a cleanup project that could deliver near-term cash flow. Across all projects, they've drilled over 16 million ounces of gold, which would cost over $2 billion to replicate today. With a seasoned team, Stellar Gold is one company to watch. Scan the QR code here on screen or visit StellarGold.com slash David Lin to learn more. That's based on a back-of-the-envelope calculation on after-tax operating income divided by invested capital, which we calculate using shareholders' equity, debt, lease liabilities, and cash in investments. We're assuming a 21% tax rate and using year-end balances, so this is a simplified estimate, not Apple's reported return on invested capital. On leverage, Apple's debt-to-equity ratio was approximately 71.5%, but it also held $56.8 billion more in cash and investments than debt. These figures come from its reported borrowings, shareholders' equity, cash, and marketable securities. Total liabilities, including obligations other than debt, represented about 72.3% of assets. Compare that with Meta. Meta is increasing its spending on AI infrastructure, which can reduce free cash flow before the new investments generate a return. Apple has a different approach altogether by spending less on its own infrastructure. The question for Apple is whether that approach will support its product and services growth as AI becomes more important. So that's the bigger picture for Apple. Revenue and earnings beat expectations. China revenue came in below the analyst estimate and management expects a lower gross margin next quarter. The company has also substantial free cash flow and a different capital spending profile from the largest AI infrastructure builders. Now let's turn to Palantir, where revenue grew 96% year over year, but the stock also sold off. Palantir closed Monday at $178.34 a share. On Tuesday, it traded as low as about $165.25, a decline of roughly 7.3% from Monday's close, before recovering some of its losses. Now, let's look at the earnings. Third quarter revenue climbed 96% from a year earlier to $2.3 billion, above an analyst estimate of roughly $2.17 billion. Adjusted earnings per share came in at $0.44, compared with estimates around $0.40 to $0.41. Management raised its full-year revenue outlook to about $8.53 billion. Now, moving on to valuation, Palantir stock rose about 110% in 2025. As of November 3rd, 2026, its market cap was roughly $420 billion. Billion dollars. One widely used data provider put its trailing price-to-earnings ratio at about 123 and its forward ratio at about 78. Different data providers can calculate those ratios differently, Definitely, but both show the price. Investors were paying relative to reported and expected earnings. That helps explain why the stock can fall on a quarterly earnings beat. So that leads to our next point. Let's take a look now at new contracts. Palantir reported total contract value of about $2.92 billion, up 6% from a year earlier. Remaining performance obligations were about $4.88 billion, compared with $4.9 billion in the previous quarter. So that measure was roughly flat. U.S. commercial total contract value was about $1.46 billion, up 11% from a year earlier. These aren't revenue figures. They measure different aspects of contracted business. Together, they show that the pace of new contract growth was slower than the 96% growth reported in revenue. That doesn't mean revenue has to slow immediately because sales can still be recognized from contracts signed earlier. Another number to watch is sequential revenue growth. Palantir expects roughly $2.65 billion of revenue in the fourth quarter. Compared with the $2.3 billion it just reported, that's growth of about 15% from one quarter to the next. Let's see if it actually delivers. Third quarter revenue grew 20% sequentially, so the fourth quarter guidance implies slower quarter-over-quarter growth than the company just delivered, even though it's still projecting an increase in revenue. Let's look at where that revenue came from. U.S. commercial revenue rose 148% from a year earlier to $984 million. U.S. government revenue rose 96% to $953 million. And for the first time, Palantir's U.S. commercial revenue exceeded its government revenue. Its commercial figure was about $31 million higher. Palantir also closed 212 deals worth at least $1 million each. That includes 107 deals worth at least $5 million and 64 worth at least $10 million. Net dollar retention reached 165%. Put simply, revenue from the existing customer group measured over the company's defined trailing periods was 65% higher than the revenue from the same group in the earlier period. That measures expansion among existing customers, not the growth rate of the whole company. Palantir's business model is different from the company's building data centers. It primarily sells software that can run on infrastructure supplied by customers or cloud partners. That means it doesn't need to finance the same level of physical infrastructure to expand its software revenue. It still has expenses for engineers, salespeople, and computing services, but its business isn't built around owning billions of dollars of GPUs, as an example. Now, look at profitability. GAAP operating income reached about $1.085 billion, representing a 47% operating margin. Adjusted operating income was about $1.427 billion, with a 62% margin. Operating cash flow was $1.2 billion, and adjusted free cash flow was $1.2 billion, or 53% of revenue. With revenue growing 96% year over year, these figures show how much of Palantir's revenue translated into operating profit and reported cash flow. The difference between GAAP and adjusted operating income was about $342 million. There are some accounting distinctions worth keeping in mind. Palantir's adjusted operating income excludes stock-based compensation and related employer payroll taxes. Its adjusted free cash flow also excludes certain items, including the employer payroll taxes on stock compensation and purchases of property and equipment. Those adjusted figures aren't the same as GAAP income or a conventional cash flow calculation. GAAP operating income on its own was about $1.085 billion this quarter. So now let's go back to our three financial tests, revenue growth, ROIC, and leverage. First, revenue grew 96% year over year, like we discussed. Second, its return on invested capital. Palantir's estimated ROIC annualized was approximately 340%. That's based on annualizing its latest quarter's GAAP operating income, applying an assumed 21% tax rate, and dividing by invested capital, which we calculated using shareholders' equity, Lease liabilities. This is a simplified estimate, not Palantir's reported ROIC. It assumes the latest quarter's earnings continue for a full year and uses the third quarter end balance sheet rather than the average invested capital. Third, leverage. As of September 30th, Palantir held approximately $10.56 billion in net cash, including marketable securities with no outstanding borrowings. That puts its debt-to-equity ratio at 0%. These figures come from its cash, marketable securities, borrowings, and shareholders' equity. Total liabilities, though, represented approximately 15.4% of assets, but not all liabilities are... Exactly. Debt. They also include deferred revenue from customers who've paid for services. Palantir hasn't delivered yet. Customer deposits and lease obligations. These are financial obligations, but they're different from borrowing money outright and paying interest on it. So the picture is that the mix of government and commercial work matters. Government contracts can be affected by procurement schedules, budgets and security requirements. It's a commercial contract. Depend on whether customers continue to see enough benefit from Palantir software to renew and expand their use. Right now, both U.S. segments are growing, although at different rates. CEO Alex Karp talks about demand for what he calls sovereign AI. That's the idea that organizations want to use AI while keeping control of their own data and systems. The company sees this as an opportunity in both government and commercial markets. For the stock, the separate question is how much of that future growth is already reflected in its valuation. Take a listen to what Karp had to say. By the way, that's not the revolution that we launched. That is a part of the revolution. Since you came on. No, no, that's not the revolution. The revolution we launched was sovereign AI and the open weight is a component of that. But the sovereign AI revolution really is about you create value, you keep the value, and we don't care what tools you use. So, of course, we are a large supporter, one of the earliest supporters of this letter that was organized by our partner, Jensen Huang, and that's a very, very important part of this so that enterprises can control the weights of their model. But at the end of the day, what we care about is from beginning to end, Our partners get to control the value, their alpha, meaning what they create stays with them and what is made their business, their expertise of their business. So you can think of this as pure intelligence and expertise. Expertise meaning this is how you create value in an enterprise. That has to stay with the enterprise whether it's on the battlefield or commercially. And that revolution, which I think really was launched together, has changed how American enterprise views the landscape. And again, what every enterprise we interact with, and that includes some of the biggest and most important government enterprises in the world, is saying, why would we token max, pay people for something that's not useful, and then not control the means that allow us to advance our business while keeping the value of the business inside? Zoom out and you can see different financial models across the AI sector. Alphabet is spending $51.4 billion on capital expenditures in one quarter. Meta has also increased its AI infrastructure spending. Apple spent about $9 billion over a full fiscal year, but faces questions about its China results and margin guidance. Palantir sells software with a 47% gap operating margin, no outstanding borrowings, and about $10.56 billion in cash and securities. Those are very different balance sheets and capital requirements. So ultimately, is the AI bubble bursting? Well, I think we can conclude looking at these two companies' latest earnings that they don't show demand for AI disappearing yet. In fact, Palantir's revenue grew 96% year over year. Don't forget. And the biggest cloud companies are still spending heavily on infrastructure. The market question is how much of that future growth and profitability is already priced into the stocks and how much capital companies have to spend to achieve it. Here's the takeaway from both reports. Apple grew annual revenue by 15.1%, generated about $136 billion in conventional free cash flow, and guided to a lower gross margin next year. Palantir grew quarterly revenue by 96%, reported a 47% gap operating margin, and held roughly $10.56 billion in net cash. These two companies have different investment requirements, different valuations, and... Much different risk profile. So which one do you think offers a better investment at today's prices and valuations? Let me know in the comments. Thanks for watching as usual, and I'll see you next time.