The Payoff

Opening Bell

Welcome! At Founder ETFs, we help RIAs close the Founder Gap hiding in their clients' portfolios.

According to Bain & Company, Founder-Led companies in the S&P 500 generated total shareholder returns (TSR) 3.1x those of non-founder-led peers from 1990 to 2014, and 2.1x from 2015 to 2024. Past performance does not guarantee future results. Yet our research shows the 300 largest US equity ETFs (90% category AUM) own just 12.55% Founders. We built the Founders 100 ETF (100% Founders) to help close that gap.

Michael and I aren't a faceless asset manager. When you call, email, or text, you get us.

We're your partners: sharing our fundamental research, our highest-conviction Founder ideas, and following our disciplined, 80%+ rules-based process designed to help remove emotional decision making during periods of fear and greed. As two of the largest $FFF shareholders, we plan to be fully invested alongside you for the next 30 years. Your success is our success.

The loudest story in markets last week was the bill for artificial intelligence. The four largest cloud builders are on track to spend an estimated $725 billion on capital projects this year, most of it for AI — the sum of the four companies' own 2026 capital-spending guidance (Amazon ~$220B, Microsoft ~$190B, Alphabet ~$175–185B, Meta $130–145B) — and reporting season put that number on trial. Microsoft crossed $100 billion in annual Azure revenue and its shares rose. Meta, our largest holding, grew revenue 28% but watched free cash flow fall to $784 million as its own capital spending climbed, and its shares fell roughly 9%. Two companies, the same spending wave, opposite verdicts. The dividing line was evidence that the spending is turning into revenue.

We are not going to dress up a hard day for our biggest position. Meta dropped on this print, and we flagged the risk a week ago. What we would ask you to hold onto is the shape of the whole portfolio: FFF owns Founders across the AI chain, from the companies still spending to build it to the ones already earning on it. Later this week one of the clearest examples of the second group, Olivier Pomel's Datadog, steps up to report. We don't chase the tape. FFF reconstitutes quarterly on fresh fundamental data through earnings season, and we watch our 100 Founders report one by one.

We are here to answer your questions. Welcome to Issue #12.

Michael & Lauren

Founder Spotlight

Olivier Pomel at Datadog

Co-Founder & CEO · Datadog, Inc. (DDOG) · Reports Thursday, August 6

Olivier Pomel and Alexis Le-Quoc co-founded Datadog in 2010 after watching developers (who write software) and operations teams (who keep software running) argue over different aspects of the same systems. Datadog is like a fitness tracker for software, constantly monitoring the health, speed, latency, and error rates of every app and AI agent a company runs so engineers can see what their software is doing, especially as more of that software is written and run by machines.

We estimate that Datadog is worth $300/share, ~21x 2027E sales (~$5.2 billion), a premium to other monitoring companies but reasonable for a business growing revenue >20% YoY while turning ~27 cents of every $1 in sales into free cash flow (FCF). That is equivalent to ~94x 2027E adjusted EPS of $3.20 (above the $2.97 estimate), a steep price tag but a defensible one for one of the clearest winners from the AI boom.

Datadog sells three tiers of products. Its original suite watches the underlying servers and machines. The second suite includes APM (Application Performance Monitoring), which watches how apps perform, and Logs, which collects software records; together, the second suite now makes up half of Datadog's recurring revenue and is growing faster than the original suite. The third suite includes products like Bits, AI Guard, Agent Console, and LLM Observability, which watch AI agents directly. As AI agents write more code, they produce systems no person fully understands, which makes monitoring more essential. Most Datadog customers still use only one or two of these three product lines, and when a customer uses more of them, it spends meaningfully more. Datadog has a long runway of growth just from cross-selling its newer products to existing customers, without adding a single new one.

Over the next five years, Datadog has the opportunity to go after more of its $60 billion total addressable market (TAM). A fast-growing base of AI-first customers (ex-OpenAI, Datadog is already achieving sales >$100 million/year) and corporate AI spending that is only in its early innings give it a long runway ahead. We also see the market settling into a cooperative duopoly: Datadog owns the developer-driven, pay-as-you-go, AI-native end while Dynatrace owns the locked-in-contract, premium enterprise end. The two divide the market more than they steal from each other, and both are growing sales >20% YoY with sensible pricing.

A Stat That Travels

$848 billion

Three years of build-out. That is what the four hyperscalers, Amazon, Microsoft, Alphabet, and Meta, have spent on capital projects over the last twelve quarters, from the middle of 2023 through the first quarter of 2026. Amazon has carried the largest share, but all four are climbing together. Their combined quarterly spending has nearly quadrupled, from about $34 billion to $130 billion, with the majority of the spend going to data centers. The market wants to see this spending translate into sales and higher earnings, not just depreciation.

Source: Source: SEC filings via Financial Datasets, as of July 31, 2026. Each bar is the four companies' quarterly capital expenditures, stacked by company, Q2 2023 through Q1 2026 (the latest quarter filed by all four); the twelve quarters sum to about $848 billion (Amazon $298B, Alphabet $206B, Microsoft $198B, Meta $146B). Not a recommendation.

3forC: Three Talking Points for Clients

This week your clients will ask about: 1) Meta's drop, 2) whether Big Tech is overspending on AI, and 3) the Fed. Let's dive in:

1) Meta's Drop

Meta is our largest holding and it fell about 9% after reporting. The company reported a disappointing Q2 with a small sales beat (+1%) and a sizeable EPS miss (−14%, diluted EPS of $6.18 versus a $7.18 estimate). Sales grew +28% to $61B, with 3.6B people using at least one Meta app every day. Q3 sales guidance, with a $62.5B midpoint, fell slightly below the $63B expectation. META raised the low end of its FY capex guidance by $5B to a range of $130–145B, with no clarity on the size or timing of the return, though the narrowing signals confidence in the spending. FCF was under $1B, the lowest in a year, though Founder Mark Zuckerberg said that "AI is accelerating our core business today" and that he believes "[AI] is going to be a big thing." Reality Labs (Metaverse) lost $4.6B, maintaining the quarterly trend. META took a $2.4B legal charge, likely tied to youth-safety litigation; we'll know more once the 10-Q is filed. Meta also took a $1.2B severance charge from the May layoff of 8,000 employees (~10% of the workforce) and issued $25B in new debt. Having a Founder at the helm means Meta can keep investing and pivot quickly if returns fail to materialize.

2) Are We Overspending on AI?

While the spending is large and accelerating, the market has started separating the companies showing a return from the ones still promising one. Microsoft, with Azure sales >$100 billion, and Amazon, where cloud sales growth accelerated to 37% even as the firm guided to $220 billion of capex, were both rewarded, while Meta was not. We own Founders across various stages of the investment cycle and let the fundamentals, rather than the narrative, sentiment, or momentum, determine our selection.

3) The Fed

The Federal Reserve held its policy rate at 3.50% to 3.75% on July 29, the fifth consecutive meeting without a change. What was new was the split: three regional Fed presidents dissented in favor of a +0.25% hike. June's PCE inflation, released just after the meeting, eased to 3.7% headline and 3.3% core, though core has now held at or above 3.3% for four months. With oil still hovering near $90/barrel and the Iran conflict unresolved, the risk of a rate hike at the September meeting has risen substantially.

Our forward-looking views are what we believe, not what's guaranteed. Results can and will surprise.

Industry Insight

The Payoff

The market's reaction to Big Tech's Q2 reports showed the shift from AI spending to returns in real time. The four largest cloud builders, Microsoft, Amazon, Alphabet, and Meta, are on track to spend an estimated ~$725 billion on capex in 2026, +77% year-on-year and nearly 2x the prior record, based on the four companies' combined full-year capital-spending guidance. Early in the buildout, investors rewarded the ambition. Now they are rewarding the results.

Microsoft reported that Azure exceeded $100 billion in annual sales, growing in the low 40s percent, and the stock rose +8%. Amazon spent even more, yet its shares jumped double digits, because Amazon Web Services (AWS) growth accelerated to +37% year-on-year, its fastest in five years. Meta reported +28% YoY sales growth but a collapse in free cash flow (FCF) to under $1 billion, and its shares fell 9%. On the same evening, memory maker SK Hynix posted a record operating profit, up more than 550% YoY, but short of expectations, resulting in a −10% drop. Spending was welcomed where the market could see it turning into sales.

This week, BlackRock raised $12.5 billion of investment-grade debt to fund a one-gigawatt AI data-center campus for Meta in El Paso, Texas. BlackRock-backed entities hold most of the project's equity and Meta a minority, with the debt serviced by Meta's lease commitments, an arrangement that keeps the obligation off Meta's own balance sheet while giving Meta the compute it needs. The build-out is now being financed with structured, off-balance-sheet capital as well as corporate cash, which is one reason the spending can keep growing even as free cash flow tightens. The offering was significantly oversubscribed, and institutional money continues to flow into private-market and infrastructure financing.

We own Founders across the AI value chain. On the building side we hold Meta, spending through the cycle, and Nvidia, whose chips sell regardless of which cloud wins. On the earning side we hold the companies already converting AI into revenue and cash, from Palantir in software to Bloom Energy in on-site power to Fortinet in security. We would rather own the Founders across the AI ecosystem than try to guess which niche the market will favor next. In Founder hands, wise investments today can become tomorrow's higher earnings.

Portfolio Pulse

Founders in Their Own Words

Conviction Corner

RIA Q&A on FFF's Role in a Portfolio

Q. Meta is your largest holding and it just fell about 9% on earnings. Is the thesis broken?

A. No; while a disappointing quarter, the long-term thesis is intact. First, Q2 capex was ~$31 billion, but heavy investment today can become significant free cash flow in future quarters. Second, Founder control is a large part of why Meta invests for the long term, not for the quarter. We trust Mark's vision.

Macro Minutes

U.S. Economic Releases · Week of Aug. 3 - 7

What We're Watching

Our take. This is a Fed being pulled in two directions at once. Disinflation is real but grinding, so the doves can point to a core rate drifting lower. At the same time, energy prices are rebounding, so inflation hawks can point to the rising risk of higher rates. A divided committee that keeps expectations anchored is a healthier outcome than false certainty in either direction. We position by process rather than by prediction. We believe a lasting peace agreement with Iran would quickly give the Fed room to cut rates by year end, likely a winning scenario for US growth stocks, led by Tech. If the conflict persists, oil prices may move structurally higher, making rate hikes more likely to contain inflation.

Earnings Edge

FFF Holdings Reporting

Washington Wire

“I asked for a good family fight, and I got one.”

Fed Chair Kevin Warsh, on the July FOMC meeting, July 29, 2026

Our take. Warsh has run his first meetings differently from his predecessors, with shorter statements and less forward guidance. Last week he got the open disagreement he said he wanted: three regional presidents dissenting for a hike while the majority voted to hold rates steady. A committee that argues in the open and publishes the split is credible, exactly what markets need while energy keeps upward pressure on inflation from the unresolved Iran conflict. Politics aside, we are encouraged by the disagreement.