Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. You are listening to
Speaker 1: Bloomberg day Break. We want to get right back to
Speaker 1: the tech earning story. Microsoft and Google parent Alphabet are
Speaker 1: both on the rise this morning, delivering results for both
Speaker 1: companies that suggest investments in artificial intelligence and cloud computing
Speaker 1: are paying off. Now for more on these results. Are
Speaker 1: really pleased to be joined by Gene Munster, managing partner
Speaker 1: at Deepwater Asset Management, and Dan Ives in our studio
Speaker 1: this morning, the Interactive Broker Studio, senior equity research analyst
Speaker 1: at Webbush Securities, for a roundtable discussion on these results.
Speaker 1: It's great to have both of you back on with
Speaker 1: us this morning. Gene, I'll start off with you. Is
Speaker 1: the AI narrative back on track now?
Speaker 2: Absolutely?
Speaker 3: I think the only off track was what happened with
Speaker 3: interest rates, and I think it kind of spooks some
Speaker 3: tech investors. But this is a pretty unique dynamic We're
Speaker 3: seen not only in terms of the demand side, whether
Speaker 3: it's Nvidia or AMD, they're just breathtaking reacceleration, but also
Speaker 3: on the demand side for the actual products, not just building,
Speaker 3: but what we saw with Google Cloud and Azure growth
Speaker 3: thirty one percent versus thirty percent in December twenty nine percent.
Speaker 3: That is an acceleration by definition. The same thing is
Speaker 3: going on with Google Cloud. We'll wait to see next
Speaker 3: week from Amazon. But I think the big picture here
Speaker 3: is the building blocks of AI are coming nicely into place.
Speaker 3: We're still a year, two, three years out before the
Speaker 3: applications really take off, but this is I think still
Speaker 3: the first stage of a three to five year bowl
Speaker 3: market that's going to ultimately end in a bubble. Dan.
Speaker 1: I think I saw you on Bloomberg Television earlier this week,
Speaker 1: after we got the disappointing results from Meta platforms. You
Speaker 1: were saying, the knives are out between the bulls and
Speaker 1: the bears. Are we going to be on a continued
Speaker 1: dispersion between where some companies go with tech, like Microsoft
Speaker 1: and Alphabet, and where companies like Meta go with it.
Speaker 2: Yeah. Look, but when you look at Meta, they're spending
Speaker 2: like nineteen eightys rock stars, but where they spending on AI?
Speaker 2: And I think the AI revolution is here. I think
Speaker 2: gene As always did a phenomenal job summarizing if you
Speaker 2: look at these results last night, this was a drop
Speaker 2: to mic movement for AI from Alphabet from Microsoft. This
Speaker 2: nineteen ninety five moment is just starting, and that's why
Speaker 2: I think the bears for tech continue to go in
Speaker 2: their caves into hibernation mode.
Speaker 1: We are seeing from both these companies, though Gene, that
Speaker 1: they are expecting that they're going to have to continue
Speaker 1: ramping up spending on this technology. Could that potentially pose
Speaker 1: a headwind if we continue to see a ramp up
Speaker 1: in capex.
Speaker 3: Let's put the capex. The simple answer is investors need
Speaker 3: to get their heads around what this is going to
Speaker 3: cost for an investment phase and agree with Dan, this
Speaker 3: is the right move to be making these investments. Just
Speaker 3: to put some quick context on this, as Google's capec
Speaker 3: screw ninety one percent the year over year in the
Speaker 3: March quarter, the CAPEX number was twenty one percent higher
Speaker 3: than analysts were looking for for March, and yet the
Speaker 3: stock is up and the reason is last quarter they
Speaker 3: said three times to expect a significant acceleration capex. So
Speaker 3: they did a good job of explaining to investors and
Speaker 3: I think this is the absolute right move for these companies.
Speaker 3: A question I had for Dan is just ultimately, well,
Speaker 3: might well will Apple as they start to talk about
Speaker 3: their AI initiatives have some moment coming up, maybe on
Speaker 3: May second, where they start to talk more about their
Speaker 3: capex and how do you think are going to do that?
Speaker 2: I look, I think Gene summarises right now with Apple
Speaker 2: because the AI story is going to becoming a Coupertino
Speaker 2: and you know, g and I will both be you know,
Speaker 2: focused on WWDC. This is just the next phase now
Speaker 2: of Cooper Tina betting on AI, and that is going
Speaker 2: to create a ripple effect where we believe this is
Speaker 2: a trillion dollars of incremental spend over the next decade.
Speaker 2: Betting against that, in my opinion, it's like betting against
Speaker 2: the Knicks in his playoffs.
Speaker 1: Still the ways to go on both those counts though,
Speaker 1: But looking ahead to the whatever announcement we get from
Speaker 1: Apple next week, I mean, we saw the disappointment from
Speaker 1: Meta platforms. They're focused as well on some of the hardware,
Speaker 1: the Quest device and what that could mean in terms
Speaker 1: of applying artificial intelligence into that. How high is the
Speaker 1: bar for Apple to show that? You know, there's been
Speaker 1: so much question about whether they're actually implementing AI quickly
Speaker 1: enough to put it into their vision pro product.
Speaker 2: Dan look, and I think actually right now, expectations are
Speaker 2: very very low and extremely negative. I think New York
Speaker 2: City cab drivers, Parish and Apple. And that's why I
Speaker 2: love to hear Gene's view. My view is in terms
Speaker 2: of this renaissance of growth, it will be on the horizon.
Speaker 2: They're navigating challenges. But as AI's coming to the services
Speaker 2: as well as iPhone sixteen, that is not what I
Speaker 2: view as sort of a small moment. I think this
Speaker 2: could be a big moment. I like to get Gene's
Speaker 2: thoughts there.
Speaker 3: Yeah, I'm on the same page. I think investors are
Speaker 3: largely dismissive of what Apple's going to do in AI,
Speaker 3: and they've got just a wonderful opportunity ahead of them.
Speaker 3: Specifically related to this agent or personalized AI or Zuckerberg
Speaker 3: referred to it on the call as agentic AI, but
Speaker 3: because of Apple's forward view on privacy, I think that
Speaker 3: gives them an opportunity to build this next generation of
Speaker 3: AI agents that basically will get things done for you.
Speaker 3: We're not going to see that in a WWDC. Agree
Speaker 3: with Dan, that's going to be a big event for
Speaker 3: AI and Apple, but that will probably be more related
Speaker 3: to Syrians. Some improvements there. But I think this concept
Speaker 3: of agentic AI and what it can mean for Apple's
Speaker 3: business longer term is grossly underappreciated by investors.
Speaker 1: Speaking with Gene Munster, their deep water asset management managing partner,
Speaker 1: along with Dan Ives of Webbush Securities, the senior equity
Speaker 1: research analyst, in terms of what we saw guys from
Speaker 1: Microsoft and Alphabet, I mean there's a lot of focus
Speaker 1: as well on the enterprise customer. The application of this
Speaker 1: technology in the cloud is that where the growth is
Speaker 1: as opposed to some of these more consumer facing products
Speaker 1: like what Meta is offering in the Metaverse, or perhaps
Speaker 1: Vision Pro from Apple.
Speaker 2: I mean to me, it's all about the enterprise and
Speaker 2: in the near term, this AI revolution is playing out in
Speaker 2: front of our eyes, and now the second third fourth
Speaker 2: derivatives across software arrest attack we're seeing play out. Of course,
Speaker 2: it starts with the godfather of AI, Jensen Nvidia. But
Speaker 2: when when Redman and the Della talks, everyone listens, and
Speaker 2: that's why I think it was another drop to mic quarter,
Speaker 2: not just for Microsoft, but of course Alphabet now getting
Speaker 2: in on the AI party.
Speaker 1: So this sets us up as well for what we're
Speaker 1: going to get from Amazon next week in terms of
Speaker 1: their offerings in the cloud, Amazon Web Services, GENE. How
Speaker 1: high is the bar now for Amazon to deliver the
Speaker 1: kind of results that we did see from Microsoft and
Speaker 1: Alphabet last night.
Speaker 3: It's pretty high. I mean it's last quarter. They grew
Speaker 3: their AWS at thirteen percent. That compared to twelve percent
Speaker 3: in September, so they saw a slight uptick. Again, we're
Speaker 3: talking twenty nine thirty one one percent for average for
Speaker 3: Azure in Google Cloud. So AWS, even though they have
Speaker 3: leading market share, they've been losing share. They've got to
Speaker 3: show an acceleration. The street estimates are for fifteen percent
Speaker 3: growth in AWS, and I think they need to exceed
Speaker 3: that to kind of comfort investors that AAWS has a
Speaker 3: seat at the table. And the other piece to all
Speaker 3: this is, of course Google has what they're doing Gemini
Speaker 3: that helps feed GPC their cloud GCP, and separately, of
Speaker 3: course what Opening Eye is doing with Azure. All that benefits.
Speaker 3: But when it comes to AWS, they have a relationship
Speaker 3: with Anthropic, but they still just don't have that punch
Speaker 3: when it comes to really integrating AI. And so I
Speaker 3: think that investors they always scrutinize the AWS number. It's
Speaker 3: going to be hyper scrutinized next week.
Speaker 1: Gene. I'm glad you mentioned Gemini product because there was
Speaker 1: that stumble over how it depicts race of some people.
Speaker 1: They had to pull back on that, Dan. Did Microsoft
Speaker 1: get past that in terms? I'm sorry, did Google get
Speaker 1: past that in terms of what they're offering on Gemini.
Speaker 2: Look black eyed moments that they saw. They're past it,
Speaker 2: and I think this is the mood jo now returning
Speaker 2: to Google. I think you're really starting to see a
Speaker 2: new phase in terms of AI. But it comes down
Speaker 2: to in this AI party, they're no longer outside in
Speaker 2: the cold waiting online to get in. They're now in
Speaker 2: the party with nadellagens and a video.
Speaker 1: And speaking of Nadella and Microsoft, you recently, Dan raised
Speaker 1: your price target on Microsoft to five hundred. Are you
Speaker 1: thinking things might need to go up even further after
Speaker 1: these results?
Speaker 2: I think it's get out the popcorn movement. This is
Speaker 2: just getting started. I think a year from now to
Speaker 2: four trillion dollar markp.
Speaker 1: Where are you on that? Gene? I mean, the growth
Speaker 1: of these companies has been so staggering. I mean, just
Speaker 1: in this quarter they deliver for investors what's the runway
Speaker 1: for big tech over the next several years.
Speaker 3: I think you have to ask yourself the question, do
Speaker 3: you believe that AI can be transformative? And to what
Speaker 3: level you believe that? And you listen to Dan and
Speaker 3: I you can sense the optimism we have around this.
Speaker 3: If you have that level of optimism, these companies are
Speaker 3: going to continue to go higher because they have data,
Speaker 3: because they have infrastructure. The small companies aren't going to
Speaker 3: come out of nowhere. We do private investing, and it
Speaker 3: is really hard to compete with the big dogs. And
Speaker 3: so I think despite all the value the creation over
Speaker 3: last decade from some of these big companies, we're going
Speaker 3: to see a next wave because what's happening in AI
Speaker 3: puts what happened on mobile internet and PC. Those are
Speaker 3: small paradigm shifts relative to what's going on, and these
Speaker 3: companies got the pole position.
Speaker 1: I'm going to close this out with you.
Speaker 2: Dan.
Speaker 1: Of course, with this kind of growth, it raises the
Speaker 1: questions for a lot of critics about whether this technology
Speaker 1: is growing too fast, whether it could be dangerous. Your
Speaker 1: thoughts on.
Speaker 2: That look, I mean, I think even to really show
Speaker 2: how strong this technology is, you see it last night
Speaker 2: the technology is going ninety five miles an hour left
Speaker 2: lane or ferrari. The regulatory is in a beat up
Speaker 2: minivan going forty five miles an hour in a right
Speaker 2: land with no radio. The point is that it's going
Speaker 2: to be an issue, but it is not stop in
Speaker 2: this free train, and that's something that's going to be
Speaker 2: more self regulation. But to me, it's all about the growth.
Speaker 2: And I think when you look at last night, it
Speaker 2: was a droping mic moment for tech.
Speaker 1: And we are seeing that certainly reflected in the price
Speaker 1: action this morning. Both companies leading tech shares as a
Speaker 1: whole hire, with Microsoft leading the I'm sorry with Google
Speaker 1: parent Alphabet leading the way again of more than eleven
Speaker 1: and a half percent following results for the Google parent,
Speaker 1: and Microsoft is higher by nearly four percent as well
Speaker 1: this morning. Guys, both of you, thank you so much
Speaker 1: for giving us some insights on these earnings. Dan Ives
Speaker 1: senior equity research analyst at Webush Securities, along with Gene Munster,
Speaker 1: managing partner at Deepwater Asset Management