Speaker 1: This is Bloomberg Business Week with Carol Masser and Tim
Speaker 1: Stenevek on Bloomberg Radio.
Speaker 2: It is Bloomberg BusinessWeek. I'm Tim Stenevek. That is Carol Masser,
Speaker 2: and we are following what's going on with all the
Speaker 2: companies that are reporting right now so far. In terms
Speaker 2: of the big companies that we're following this afternoon, Carol,
Speaker 2: we're looking at shares of Tesla, which are lower in
Speaker 2: the after hours. In addition to that, we're also looking
Speaker 2: at shares of Microsoft, which are following after their report.
Speaker 3: Yeah. Absolutely, we've got Microsoft down almost four percent here
Speaker 3: in the aftermarket. As we said, some disappointment over maybe
Speaker 3: some of the numbers in the second quarter revenue sixty
Speaker 3: nine point sixty three billion estimate, estimate was sixty eight
Speaker 3: point nine two.
Speaker 4: That's actually better.
Speaker 3: Second quarter Azure revenue was at thirty one percent. The
Speaker 3: estimate was for gain of thirty one point eight percent.
Speaker 3: But the second quarter cloud revenue that missed estimate, and
Speaker 3: so that second quarter intelligent cloud revenue twenty five point
Speaker 3: fifty four billion dollars, the estimate was just a tad
Speaker 3: above that at twenty five point eighty nine billion. So again,
Speaker 3: maybe some concerns over that and expectations are high right now.
Speaker 2: Okay, he doesn't ignore it, but he doesn't cover it
Speaker 2: like some of his colleagues. Man keep seeing his Bloomberg
Speaker 2: Intelligence senior technology analyst as we await meta earnings to cross.
Speaker 2: We're going to make him go a little out of
Speaker 2: his element and speak to Microsoft, because you can't ignore
Speaker 2: what's going on with Microsoft. Man, deep, give us an
Speaker 2: idea of what sticks out to you from this company.
Speaker 5: I mean, look, the Intelligent Cloud number missed. Probably that
Speaker 5: has to do with, you know, a lower adoption of
Speaker 5: three sixty five co pilots. They've been touting that and
Speaker 5: the expectations had gone up. And look, it's one of
Speaker 5: those products where the ROI so far hasn't been there.
Speaker 5: The promise is there, and that's why they are emphasizing
Speaker 5: the Azure number. The thirteen billion dollar rund rate, one
Speaker 5: hundred and seventy five percent growth. Look, it's stellar by
Speaker 5: any comparisons. And from that perspective, the infrastructure side looks
Speaker 5: solid right now. It's the copilots and the application side
Speaker 5: where you're seeing some hesitation. And look, I think the
Speaker 5: native integration with open AI as long as it's there,
Speaker 5: it should help all their products. But there's more competition.
Speaker 5: I mean, Salesforce has been launching their agent so there
Speaker 5: is more competition in the application there now than there
Speaker 5: was before.
Speaker 3: And the point is you will build it, but will
Speaker 3: they come? And that's what it's kind of like what
Speaker 3: they're waiting for.
Speaker 5: Correct, Well, if you're asking enterprises to pay thirty dollars
Speaker 5: extra per user for that copilot feature, it better be good.
Speaker 5: I mean, that's the you know, the key takeaway is like,
Speaker 5: if you want to upsell such an expensive product has
Speaker 5: to have some level of productivity.
Speaker 2: So remind everybody where Microsoft stands in terms of the lms,
Speaker 2: because you mentioned a company like Salesforce. Is a company
Speaker 2: like Salesforce building its own LLLM or they building an
Speaker 2: agent on top now an existing LLLM, maybe from Microsoft,
Speaker 2: maybe Lama from Meta, maybe chat GPT from open Ai
Speaker 2: or claud from.
Speaker 5: mPire exactly, So they are not building their own LLLM.
Speaker 5: At the same time, they have gone big in their
Speaker 5: agent force concepts and they're saying AI agency is where
Speaker 5: they are doubling down on and they don't need to
Speaker 5: own an LLLM. So that's where I think with the
Speaker 5: open source saying, you know of deep seek and the
Speaker 5: fact that pricing is coming down, all that is positive
Speaker 5: for every application software provider, not just Salesforce, even word
Speaker 5: Day or SAP. They can integrate LLLM functionality now and we.
Speaker 3: Saw software names certainly rally this week. Having said that,
Speaker 3: Microsoft has a specially unique exposure to open AI and
Speaker 3: chat Gypt in terms of the what thirteen fourteen.
Speaker 4: Billion dollars or so that they have invested.
Speaker 3: So does that put them on a certain level of
Speaker 3: vulnerability Perhaps, No.
Speaker 5: Because they are benefiting from the infrastructure revenue that thirteen
Speaker 5: billion dollar rund rate. It's all Azure cloud consumption, nothing
Speaker 5: to do with the co pilots, just companies that are
Speaker 5: leveraging their infrastructure to run their cloud operations or deploy
Speaker 5: their applications. So that meter is still running, and it's
Speaker 5: running very fast. I mean, one hundred and seventy five
Speaker 5: percent growth just on infrastructure is very impressive. It's just
Speaker 5: the application side, the lift from copilot.
Speaker 2: I think that's.
Speaker 5: Where they'll probably see more competition and probably expectations were
Speaker 5: too high.
Speaker 2: Well, speaking of expectations, we're expecting Meta platform shares with
Speaker 2: platforms earnings across very soon. We have no idea what
Speaker 2: those shares are going to do in the after hours
Speaker 2: revenue estimate coming in at close to forty seven billion dollars,
Speaker 2: what's the most important line item that you're looking at here?
Speaker 5: So big Meta raised its capex right before we had
Speaker 5: this deep sixty five billion dollars.
Speaker 2: Okay, was that before? Because that had to be on
Speaker 2: Mark Zuckerberger's radar.
Speaker 5: It was, but still they chose to do it. Now
Speaker 5: the fact that this is really a positive development for
Speaker 5: open source, everyone is thinking Meta won't have to spend
Speaker 5: sixty to sixty five and they will take it back.
Speaker 5: So that capex number is still the key for me
Speaker 5: because Meta has been known for spending spending big on
Speaker 5: reality labs and now you know, building data centers.
Speaker 2: Are you saying that there's a chance we could hear
Speaker 2: a pullback in that capex number and investors might cheer
Speaker 2: that Investors cheered the investment number on Friday. I was
Speaker 2: surprised to see that.
Speaker 5: Not so soon, I think with the deep seek, the
Speaker 5: fact that you know, everyone is very excited about open
Speaker 5: source Meta coming out and saying we can monetize lama
Speaker 5: our model, which really no one will sure how are
Speaker 5: they going to monetize it? Suddenly, I think that's that
Speaker 5: becomes a very valuable proposition. And I think just his
Speaker 5: plans around how do they plan to monetize AI and
Speaker 5: really not going above sixty five billion, that's the other
Speaker 5: rest because you know, you could revise it further upward.
Speaker 5: At least, I think those fears have gone away, that
Speaker 5: they're sixty five is a cap.
Speaker 4: We talk so much about AI.
Speaker 3: I mean for Meta, it's still though, advertising, like something.
Speaker 4: As simple as that is still such an important indicator.
Speaker 4: That's their business.
Speaker 2: I mean, forty five point six of the forty seven
Speaker 2: billion dollars Carrol that's expected to be reported advertising, And.
Speaker 4: I understand it all plays together, but still that's the metric.
Speaker 5: Yeah, And the best way to compare is compare Google
Speaker 5: search revenue growth with Meta's you know, social media ad
Speaker 5: revenue growth. So Google Search is a two hundred billion
Speaker 5: dollar business growing at high single they did at best.
Speaker 5: Meta is close to one hundred and sixty billion, growing
Speaker 5: eighteen percent.
Speaker 2: How does reality Labs how do Reality Labs products help
Speaker 2: meta platforms sell advertising better? Well?
Speaker 5: So their bed is on that Meta AI, which for
Speaker 5: which they have six hundred million users now. And the
Speaker 5: form factor, their own form factor is the glasses that
Speaker 5: you can distill a model. And everyone is talking about
Speaker 5: distillation right now because that's what deep Seek showed us.
Speaker 5: That you can distill a larger model into a smaller model.
Speaker 5: Maybe that model can run on your glasses.
Speaker 2: Okay, how does that help me sell it more ads?
Speaker 5: Well, they will learn so much more about you as
Speaker 5: a person that they can show you a more personalized
Speaker 5: ad when you go to Instagram or Facebook. And that's
Speaker 5: where you know. Meta strength has always been the quality
Speaker 5: of their ads.
Speaker 2: So still, at the end of the day, that's what
Speaker 2: it's all about.
Speaker 5: Yeah, at least for now.
Speaker 3: I just want to remind everybody. I'm looking at our
Speaker 3: live blog, which is waiting for Meta's fourth quarter earnings.
Speaker 3: Our Kurt Wagner says they usually drop a few minutes
Speaker 3: after the market close at four pm New York time.
Speaker 3: Still waiting on them, they say, He says, it's a
Speaker 3: bit of a rare delay. We usually have them, like
Speaker 3: we said, right after the market close, so we're waiting them.
Speaker 3: As soon as they come across. We're going to have
Speaker 3: men deep break them down. Also in studio is our
Speaker 3: own Caroline Hyde, who's co host of Bloomberg Technology on
Speaker 3: Bloomberg Television. And Caroline, we've also had Tesla earnings. We've
Speaker 3: been talking with Man Deep about Microsoft as we await
Speaker 3: Meta go where you are because it just feels like
Speaker 3: both Microsoft and Tests I've seen some pressure here in
Speaker 3: the act.
Speaker 1: And also I don't know if you've broken down Service Now,
Speaker 1: but suddenly software became quite the thing of this week
Speaker 1: because we all suddenly freaked out about AI infrastructure and hardware.
Speaker 1: But with software going to be gaining from these Deep
Speaker 1: Seek revelations, Service now actually looking pretty lackluster. Outlook on
Speaker 1: the slower than have been anticipated. We were thinking AI
Speaker 1: was going to give it this massive bump. Overall fiscal
Speaker 1: year sales outlook fell short of those expectations. Subscription revenue
Speaker 1: going to be twelve point seven billion dollars twenty twenty five.
Speaker 1: Market want to see more, so their shares are dropping hard,
Speaker 1: and I think this is where we're going to have
Speaker 1: to hear more from Microsoft as well. Is the Open
Speaker 1: AI integrated offering not selling at the pace that they
Speaker 1: previoubly expected. I've heard from experts out there saying it's
Speaker 1: priced too high. Ultimately, at the moment, will Deep seek
Speaker 1: force open AI's own offering to get cheaper, Microsoft's offering
Speaker 1: to get cheaper, and therefore it becomes more ubiquitous.
Speaker 6: We will start using it more. But ultimately they get
Speaker 6: more bang for the back in the long term.
Speaker 2: Doesn't mean that these companies could potentially pull back some
Speaker 2: of the capeck they've already announced this year.
Speaker 1: I think that was interesting in the and we talked
Speaker 1: about it when the numbers dropped. Amy Hoard the CFOs
Speaker 1: talking about the discipline.
Speaker 6: Now, last year we were not talking about discipline. We
Speaker 6: were talking like.
Speaker 1: Let's throw eighty billion dollars at this. We just heard
Speaker 1: another half a trillion being thrown at it from Oracle
Speaker 1: Soft Bank and open Ai. I think you'll start to
Speaker 1: hear this. This is why spending. This is return on
Speaker 1: AI spending.
Speaker 2: Not quite a year of efficiency like we saw in
Speaker 2: you know, twenty twenty three, but now discipline spending.
Speaker 6: When it comes to com we're just spending wisely on
Speaker 6: your data.
Speaker 4: Just because you say it doesn't mean you're going to
Speaker 4: spend it ultimately too.
Speaker 3: I do want to point out service now reports an
Speaker 3: additional three billion dollars for share a buyback with the stuff.
Speaker 4: Yeah, but it's still down about nine percent here in
Speaker 4: the aftermarket. But men Deep come.
Speaker 3: Back in because we were talking about, you know, the
Speaker 3: news we got this week from deep seek that the
Speaker 3: beneficiary seemed to be the software software providers. Not every
Speaker 3: software provider though, is the same, correct.
Speaker 5: Well, I mean a company like Service now in theory,
Speaker 5: should benefit from lower LLM costs. I mean, all the
Speaker 5: software companies could arbitrage against the LM providers and say,
Speaker 5: if I have a cheaper open source option, I'm going
Speaker 5: to go with that because the quality of responses are
Speaker 5: very similar. So from that perspective, I mean, the news
Speaker 5: just came out, so obviously they didn't embrace open source before.
Speaker 5: And now a lot will change in the next three
Speaker 5: to six months, But for now, I think expectator to
Speaker 5: Caroline's point, expectations are high this quarter and a lot
Speaker 5: of these companies have touted AI agents in a big way,
Speaker 5: so the street wants to see their revenue and probably
Speaker 5: it's not showing up right now.
Speaker 1: And I had a really interesting conversation with that expert
Speaker 1: who's helping integrate generative AI into enterprise offerings.
Speaker 6: And here's the gap.
Speaker 7: Right.
Speaker 6: We've been talking.
Speaker 1: Deeply, exuberantly about how it's going to make our productivity
Speaker 1: so much better. Ultimately, enterprises need to know that their
Speaker 1: models work and they need to stress test them. They
Speaker 1: need to have the right companies in there ensuring that well,
Speaker 1: when you're saying it's going to get you a better
Speaker 1: mortgage outcome, when you're looking at insurance inquiries, you're actually
Speaker 1: getting the right output.
Speaker 6: Companies are trying.
Speaker 1: To integrate it, but they've got to do this with
Speaker 1: some rules of the road, so it actually takes a
Speaker 1: bit of time.
Speaker 2: Okay, speaking of rules to the road, perhaps a good
Speaker 2: segue to get to Tesla because shares are down about
Speaker 2: two point seven percent right now. It seems, Caroline like
Speaker 2: it was the adjusted EPs that came in shy of
Speaker 2: estimates seventy three cents per share versus estimates of seventy
Speaker 2: five cents per share. Is it about a lack of
Speaker 2: efficiency on the supply chain, on the product line? What
Speaker 2: is it?
Speaker 1: Am they're saying they're not getting the manufacturing savings that
Speaker 1: they wanted to see efficiency.
Speaker 2: Have they tried the blockchain?
Speaker 7: Yeah?
Speaker 6: Have they tried a blockchain.
Speaker 1: Have they tried just making everyone have to come back
Speaker 1: into the office, but more I mean, you know it's
Speaker 1: been on that for a long time.
Speaker 6: But more affordable models is where it's at.
Speaker 1: This is a company that is having to compete from
Speaker 1: a price perspective in China in a big way. And look,
Speaker 1: we saw deliveries did not live up to expectations. So
Speaker 1: already they're not selling as money, they're having to reduce
Speaker 1: the costs. It's interesting they're seeing the automotive gross margin
Speaker 1: ex regulatory credits still at thirteen point six percent. This
Speaker 1: is a company that basically makes an awful lot of
Speaker 1: money that because other car manufacturers can't get the climate
Speaker 1: initiatives out there quickly enough.
Speaker 6: I wonder if that'll dial back.
Speaker 1: But ultimately they did say they achieved record deliveries in
Speaker 1: China in fourth quarter. I wonder how they manage to
Speaker 1: be able to just keep on competing there.
Speaker 5: And no mention of robot taxis. I mean, the big
Speaker 5: bet was this administration should help expedite the rollout of
Speaker 5: Tesla robot taxis that's what investors are betting.
Speaker 2: The letter they did say this is going to be
Speaker 2: the year of supervised fully self driving, but we're still
Speaker 2: waiting to see what the guidances from the federal government.
Speaker 1: The cybercab is on track for twenty twenty six, so
Speaker 1: ultimately they're talking about still being wanting to.
Speaker 6: Get that cybercab out there. In the meanwhile, we're having
Speaker 6: to see.
Speaker 1: Whether or that cheaper price point new vehicle will happen.
Speaker 1: He's saying, new vehicles remain on track for the output
Speaker 1: start in the first half.
Speaker 6: When where how I.
Speaker 4: Just want to update.
Speaker 3: Meta shares are just down about five tenths in the
Speaker 3: after hours, five tens of one percent.
Speaker 4: Our Kurt Wagner and.
Speaker 3: Our live blog says, the latest Meta or Facebook they
Speaker 3: ever posted earnings is for sixteen pm. We have now
Speaker 3: a new record because it's for twenty pm here on
Speaker 3: this Wednesday. He says, in all seriousness, this is definitely unusual.
Speaker 3: I've asked the company what is going on? Will report
Speaker 3: back if I get any news. I was trying to
Speaker 3: see if there was any interesting activity here in the
Speaker 3: aftermarket ahead of the actual results. But again it's just
Speaker 3: down a hair down about four tens of a percent,
Speaker 3: but still waiting on Meta's results.
Speaker 4: I don't know manty if you follow them, right, they're
Speaker 4: usually up by now.
Speaker 5: I mean it reminds me on when Nvidia, I think
Speaker 5: it was a few quarters back they were delayed and
Speaker 5: everyone was like, what's going on? And sometimes I think
Speaker 5: it's one of those situations where yeah, there isn't much
Speaker 5: to it.
Speaker 2: It's just there is a delay and you just wait
Speaker 2: it out.
Speaker 5: But look, I think in the case of Meta, I mean,
Speaker 5: there's so many things that I think investors are looking
Speaker 5: forward to. Especially there was a number around Reality Laps
Speaker 5: growing forty percent for twenty twenty four, right, I mean
Speaker 5: you look at the census expectations for this quarter, it's
Speaker 5: like three percent growth. Yeah, so I don't know how
Speaker 5: they grew forty percent for the full year.
Speaker 2: Caroline, come on in here. Is that? Is that because
Speaker 2: the I don't know, the glasses exceeded expectations. Again, we're
Speaker 2: still waiting for these numbers across Reality Lads a tiny,
Speaker 2: tiny portion of the company's full revenue. I mean of
Speaker 2: tiny fraction, but an area where they're investing a lot
Speaker 2: and where they think there's a real future.
Speaker 6: And people got very excited about the product. Did you
Speaker 6: see how often Ed Ludlow has been wearing hiss. I've
Speaker 6: heard they really did.
Speaker 1: Blow people's minds as to how exciting the future could
Speaker 1: be of just the integration within your everyday where suddenly,
Speaker 1: you know, smart glasses became cool and thanks Raybound and
Speaker 1: a large part of that.
Speaker 2: But Google glasses calling. They're saying, hey, we had this
Speaker 2: ten years ago, but it didn't stick, and what you want.
Speaker 6: Is the zeitgeist.
Speaker 1: Right, Sure, people might not buy that iteration, what about
Speaker 1: the next iteration. What about the fact that this is
Speaker 1: going to in some way be infused within your work
Speaker 1: life environment as well, and suddenly you'll be able to
Speaker 1: have forced meanes wherever you are, not just to I
Speaker 1: think it suddenly just showed the power more than anything
Speaker 1: of Mark Zuckerberg to interlace General to Bai everywhere. For me,
Speaker 1: the big standout has been the fact that I do
Speaker 1: use General to Bai within my Instagram.
Speaker 2: What you do just out of curiosity my metter.
Speaker 1: Ai psidekick and I ask it questions. I get it
Speaker 1: to like design what one should wear for an event.
Speaker 1: I give it pictures of my fridge and get it
Speaker 1: to recommend what I should be.
Speaker 6: Do you follow it?
Speaker 4: Do you use it? I mean, do you like, take
Speaker 4: these things and actually do something.
Speaker 1: Yeah, yeah, yeah, definitely what they should cook sometimes the
Speaker 1: fashion sense, I like, take a little.
Speaker 2: But to be clear, you could also use chat gpt
Speaker 2: from open Ai to do that or that.
Speaker 1: I use what'sapp every day of my life to talk
Speaker 1: with my family.
Speaker 2: So I don't subscribe to the expensive versions of I
Speaker 2: take the free version of not not for my personal
Speaker 2: agent to you know, to get me a flight to wherever,
Speaker 2: which I think is a really cool idea. And I
Speaker 2: think that shows the promise of agents. And you know,
Speaker 2: we hear salesforce talking about the promise of agents and
Speaker 2: stuff like that. But are you able to do for
Speaker 2: free with Lama what you could pay chat gpt to do?
Speaker 2: Is that an issue?
Speaker 1: I have to say personally, I'm not running the two
Speaker 1: against each other, and I use chatchipt for other things.
Speaker 1: I'm using chatchipt to articulate what my O pair because
Speaker 1: we will have to rely while I'm at work on
Speaker 1: wonderful people looking after your children, how her weak should look, and.
Speaker 6: I just speak into it dictated.
Speaker 1: So I'm using different things at different points, but for me,
Speaker 1: I actually end up going towards the metal offerings A
Speaker 1: bit more.
Speaker 6: Just because they are here.
Speaker 1: We're seeing interesting an agreement from the Wall Street Journal
Speaker 1: talking about some Trump signing an agreement calling for Meta
Speaker 1: to pay some element to settle a suit.
Speaker 6: So maybe there's some breaking.
Speaker 1: News there, But I am I am using Meta AI
Speaker 1: just because it's already an app that I'm using when it's.
Speaker 3: I just want to mention Microsoft is not down as
Speaker 3: much as it was earlier. It's now down about three
Speaker 3: quarters of one percentage point. Tesla is now down only
Speaker 3: about nine tens of a percentage point. I want to
Speaker 3: mention IBM because we are seeing this one rally in
Speaker 3: the aftermarket following its earnings. This one's up about eight
Speaker 3: percent here. IBM coming out with results kind of older tech,
Speaker 3: if you will, but jumping after fiscal year revenue growth
Speaker 3: outlook tops estimates. We mentioned service now, and we are
Speaker 3: seeing that one move in a big way. We've seen
Speaker 3: that move to the downside. Some concerns there. We do have,
Speaker 3: as you said, that headline crossing from the Wall Street Journal,
Speaker 3: Trump signs of settlement for Meta to pay twenty five
Speaker 3: million dollars to settle a suit. So perhaps that is
Speaker 3: why we might be waiting ultimately for Meta's results. Meta
Speaker 3: in the aftermarket right now is just down about one
Speaker 3: quarter of one percent. And I've been also looking at
Speaker 3: the Nasdaq E Mini one hundred, Nasdaq one hundred E
Speaker 3: mini futures pretty flat in the after market, and S
Speaker 3: and P five hundred e mini futures they're down about
Speaker 3: four tens of a percent, So just kind of rolling
Speaker 3: everything together to see kind of market reaction.
Speaker 2: In Tesla though, hire now by about one percent.
Speaker 3: That's why I'm saying, it's like kind of fascinating to
Speaker 3: see the bump up. You're right now up about one percent.
Speaker 1: And I think what's interesting is remember in video you're
Speaker 1: talking tim earlier about the hit and video took the
Speaker 1: chairs a climbing now after hours because of Microsoft's long
Speaker 1: term CAPEX commitment. So maybe even though we don't get
Speaker 1: in video numbers until February the twenty sixth, Microsoft's already
Speaker 1: coming out standing by its capital expenditure commitment. If we
Speaker 1: get Meta committing to that sixty five billion dollars once
Speaker 1: and again, maybe we do start to see in video
Speaker 1: clowing back some of the loss that we've seen.
Speaker 2: And a good reminder too that we still have a
Speaker 2: lot of details that we're waiting on about deep Seek
Speaker 2: and what exactly they were able to do with what.
Speaker 6: So some investigations going on.
Speaker 2: The investigation.
Speaker 1: Microsoft got their ownings out on time and we're doing
Speaker 1: an investigation.
Speaker 2: Room of engineers reportedly, so I want to bring you
Speaker 2: back in there.
Speaker 3: Could it possibly be that there's a delay because of
Speaker 3: this settlement and they want to kind of like roll
Speaker 3: it all together.
Speaker 5: That mountain looks too small to matter.
Speaker 4: It doesn't matter.
Speaker 2: Five million for Meta, it's like.
Speaker 1: And that was under the over the Trump suspension to
Speaker 1: the use of Facebook and its family of apps.
Speaker 4: Yeah, I just think about the stories we've been putting out.
Speaker 5: They're paying billion dollar fines in the EU, so this
Speaker 5: is like a drop.
Speaker 4: This is nothing.
Speaker 3: I mean, it's kind of fascinating that to see that
Speaker 3: we're just kind of waiting for.
Speaker 1: Tesla's on time, on time, better is late what a
Speaker 1: turnaround for and Test is now up.
Speaker 3: About two point six percent in the aftermarket, So quite
Speaker 3: a turn around here, wow.
Speaker 1: I Yeah, it is notable metas delay and we have
Speaker 1: got requests out for comment on what might be holding
Speaker 1: them up. But this is I feel there's going to
Speaker 1: be a lot of redrafting of messaging going on since Monday,
Speaker 1: And look what of very difficult the week to have
Speaker 1: your earnings on when you're trying to understand the competitive
Speaker 1: threat of deep Seek to Alarma model, which are both
Speaker 1: open source, but at the same time the way in
Speaker 1: which it could enhance their products. Everyone read deep Seek
Speaker 1: as a good thing for LLM, for Lama and open
Speaker 1: source lms, but maybe there is a question of ultimately,
Speaker 1: why should you be backing AI homegrown, open source versus
Speaker 1: competing versus China.
Speaker 3: I mean, men, Deep do you think that the narrative
Speaker 3: like substantially should be different because of what we got
Speaker 3: on Monday from deep Seek, Like the conversation that we
Speaker 3: are having around AI in terms of the spend. Was
Speaker 3: it smart for us to kind of all of a
Speaker 3: sudden shift It felt like the narrative or time will
Speaker 3: tell whether again with there's so many questions still about
Speaker 3: the reality of what they did.
Speaker 5: Yeah, I mean, look, last six months you've been talking
Speaker 5: about scaling laws non stop. It's like everything is how
Speaker 5: big are the data center is going to get? How
Speaker 5: long will the scaling laws hold? So from that perspective,
Speaker 5: I think this does put a question mark around the
Speaker 5: scaling laws. You know, how big does the LLM need
Speaker 5: to get to improve its reasoning? Well, a smaller LLM
Speaker 5: can give you a similar reasoning as open AIE latest model.
Speaker 5: And look, I think with llms, because it's so hard
Speaker 5: to understand everything about how these llms are trained, the
Speaker 5: data sources, the algorithmic improvements, it's still a black box.
Speaker 5: I mean, things are getting better in terms of the transparency,
Speaker 5: but in the end common people cannot interpret what's going
Speaker 5: on in terms of building these llms, and it's really
Speaker 5: hard to explain it to someone why an llm's quality
Speaker 5: is better than the competing LLM. It's just almost impossible
Speaker 5: because it's all vectorized map.
Speaker 2: At the end of the day, do they become commodities?
Speaker 6: Caroline, I think that has been the question for a while.
Speaker 1: That will ultimately just move toggle between CHATCHBT, your meta offering,
Speaker 1: what Anthropic has been up to. That doesn't mean that
Speaker 1: you can't still see an awful lot of money having
Speaker 1: to be invested in these latest and greatest underlying foundational models.
Speaker 1: Whether eventually the money will accrue to the application layers,
Speaker 1: to the software layer.
Speaker 2: Well, I do think there's a compelling case for Google
Speaker 2: to make that behind the scenes. If you're using an
Speaker 2: AI agent and you ask it to do something complicated,
Speaker 2: Google and actually Microsoft too with being has that search
Speaker 2: engine built in that can actually do that stuff, and
Speaker 2: perhaps they make money more.
Speaker 6: Of integrated offering as well.
Speaker 1: They have to have the foundational layer to then sell
Speaker 1: you the software application as well. But would you rather
Speaker 1: be a service now that just has the software margins
Speaker 1: rather than having to do the underlying investment. What's been
Speaker 1: so interesting has been that shift as well from investment
Speaker 1: coming ultimately from private sources.
Speaker 6: What we've seen with the announcement.
Speaker 1: Of AI infrastructure money coming to the US is high
Speaker 1: soft bank Oh thanks Ale, and the chips at like
Speaker 1: nowhere to be seen for the last few weeks of late.
Speaker 5: Now what happens to projects targeate, I mean the whole
Speaker 5: timing of it, Meta raising their CAPEX projects target announcement
Speaker 5: and then deep Sea coming out. Just think of the
Speaker 5: sequence of events and they're not in sync with each other.
Speaker 5: So that's where you know, if you're trying to follow
Speaker 5: the big trend, it's not very clear what the big
Speaker 5: trend is right now in terms of scaling versus you know,
Speaker 5: how do you go about data center investments medium to
Speaker 5: long term?
Speaker 1: And do you buy the inference argument though that was
Speaker 1: the argument of videos. You're still going to need all
Speaker 1: of our very expensive GPUs for inference, and we're still
Speaker 1: all ubiquitously using gender to AI more and more and more. Well,
Speaker 1: that's when the Jevins paradox comes in that Satia wants
Speaker 1: to learn to you more than the data centers with cloud.
Speaker 5: Yeah, more than that. I think compute inherently is fungible.
Speaker 5: So if I'm using you know, certain chips for training
Speaker 5: now and I don't need to build a you know,
Speaker 5: million chip cluster, then I can use some of that
Speaker 5: compute for inferencing because it's the same GPU. So from
Speaker 5: that perspective, I do buy that argument that if AI
Speaker 5: is more pervasive and accessible, then I'll use more of
Speaker 5: that chip capacity for inferencing because everyone realizes there is
Speaker 5: ROI and you know, deploying the generator of AI.
Speaker 3: I mean, this is the technological cycle at work, right,
Speaker 3: I mean, stuff comes out of the gate initially, it
Speaker 3: catches all of our tension. We've been obsessed with really
Speaker 3: kind of a very few companies over the last couple
Speaker 3: of years here. We are more than two years in
Speaker 3: on this right, it makes sense, you guys, Caroline Mande,
Speaker 3: that we're going to start seeing other companies come to
Speaker 3: the forefront.
Speaker 4: There's going to be some competition. The model might be
Speaker 4: tweaked a little bit here.
Speaker 5: Yeah, I mean, and look the commoditization. I do think
Speaker 5: you know the modes around, Oh, you've used this LLLM
Speaker 5: and you can never get out of that. It's so sticky.
Speaker 5: I think that is going away because now you can
Speaker 5: swap you know, API from one LLLM to another, and
Speaker 5: that should be doable. And companies will arbitrage, you know,
Speaker 5: against which is the cheapest model provider because it impacts
Speaker 5: your margins. I mean, look at the scale of some
Speaker 5: of these LM deployments. We're talking about billion users, so
Speaker 5: billion users are using a generative AI query. That's all
Speaker 5: API revenue that these companies are getting. And if I'm
Speaker 5: paying the highest price per API, that's going to hurt
Speaker 5: my margins. So I'm going to go with the cheapest
Speaker 5: option that's out there.
Speaker 3: I mean, Caroline, when you think about like the conversations
Speaker 3: you have over and over, what changed so dramatically this week?
Speaker 3: Is it just kind of a rethink of these long
Speaker 3: held beliefs about AI.
Speaker 1: And I think for lots of people it was felt
Speaker 1: that people acted before or they really knew, so it's
Speaker 1: just sell.
Speaker 6: I've seen this headline.
Speaker 1: I'm worried about the valuations of these companies anyway, and
Speaker 1: video was trading at forty one times. We see generally
Speaker 1: everyone elevated versus the Nasdaq get out then ask our questions.
Speaker 1: People started to come back to software after they asked
Speaker 1: those questions, and I thought, oh, maybe this could actually
Speaker 1: change the game and make things even more margin rich
Speaker 1: for these types of companies. But I think the question
Speaker 1: is still out of ultimately, what access did they have
Speaker 1: to end? In video, GPUs were ultimately they say that
Speaker 1: they got them totally legitimately, and in video would say
Speaker 1: the same. How much it is ultimately spark inferences the
Speaker 1: use and what does it mean in terms of ultimate
Speaker 1: and infrastructure investment. I think people for the short term,
Speaker 1: most analysts I speak to say, we're misticking by it,
Speaker 1: like we're not going to see a cap it's pulled
Speaker 1: back anytime soon.
Speaker 2: Interesting stuff. We're gonna have to wait also to hear
Speaker 2: what David Sachs the ais are for the Trump administration
Speaker 2: has to say, all.
Speaker 4: Right, I think we're going to let you go.
Speaker 3: I'm really fearful to do that in both of you,
Speaker 3: because I know the minute you get out of your
Speaker 3: chair and walk it out in our studio. All right,
Speaker 3: But Mandy, we're going to let you go, and hopefully
Speaker 3: we'll maybe even bring you back a little bit later on.
Speaker 3: Mandy Seeing, of course, a key member of our technology
Speaker 3: team at our Bloomberg Intelligence unit we.
Speaker 4: Are waiting Meta results.
Speaker 3: Also a key member of our technology team here at
Speaker 3: Bloomberg News, of course, Caroline High So lucky for us,
Speaker 3: she's going to stick around. One of the co hosts
Speaker 3: of Bloomberg Technology. We do have another guest so that
Speaker 3: we want to bring into the conversation who really follows
Speaker 3: the tech sector very closely and invests in it.
Speaker 2: Yeah, I want to bring in James Chalkmack. He's technology
Speaker 2: analyst at Clockwise Capital. Clockwise Capital is the Core Equity
Speaker 2: and Innovation ETF. The ticker is time. Biggest holdings are
Speaker 2: the companies we're talking about Meta, Amazon, Microsoft, and Apple,
Speaker 2: along with smaller companies including Palanteer, Spotify, and Netflix. The
Speaker 2: ETF up about thirty five percent over the last year,
Speaker 2: four percent year to date. So let's go through it
Speaker 2: and bring in James. He joins us from Miami this afternoon. James,
Speaker 2: good to have you as always with us. I want
Speaker 2: to start with your impression of Microsoft shares following after
Speaker 2: reporting slow in growth in the cloud unit. What sticks
Speaker 2: out to you?
Speaker 7: Yeah, the big thing there with Microsoft is that the
Speaker 7: bogie was a couple of points higher than where they
Speaker 7: reported on Azure. The street was looking for around thirty
Speaker 7: three thirty four percent growth to keep the momentum in
Speaker 7: the stock going. They posted around thirty one thirty two,
Speaker 7: so it was a couple of points light. But the
Speaker 7: main thing is that the undercurrent the trends that you're
Speaker 7: seeing in productivity and the shift to the cloud and
Speaker 7: AI offerings continues. You know, you're still talking about three
Speaker 7: handle on that growth rate. So we'll see what they
Speaker 7: say on the call. As far as Capex is concerned,
Speaker 7: we do think that's going to start to come down
Speaker 7: here as we look into twenty twenty five. So I
Speaker 7: think I think it's gonna be all right. You know,
Speaker 7: we hold a position in it. We are underweight relative
Speaker 7: to the index for this very reason because though the
Speaker 7: run up, but overall, I think everything's okay with Microsoft.
Speaker 1: I'm going to jump in because we are getting Amy
Speaker 1: Hood the CFO giving an interview with our own Bloomberg
Speaker 1: reporters saying that they.
Speaker 6: Constrained in cloud capacity.
Speaker 1: Remember we got that sort of shop move that open
Speaker 1: ai is going to be building out AI infrastructure with Oracle.
Speaker 1: Of course, they signed a deal with Oracle in the
Speaker 1: summer because Microsoft just can't build them quickly enough. Talking
Speaker 1: about the bookings rising sixty seven percent partly due to
Speaker 1: the open Ai commitments and commercial bookings were better than
Speaker 1: they forecast, they're still trying to talk about how much
Speaker 1: more percentage point add ai is giving.
Speaker 6: Them to as you're more broadly.
Speaker 3: All right, so James so remains constrained in cloud capacity
Speaker 3: from the Microsoft CEO.
Speaker 4: What's your read on that?
Speaker 7: Yeah, I mean they're going to have to keep building.
Speaker 7: I'm not suggesting that capex needs to stop. It's more
Speaker 7: just what is the growth rate of that spent. You know,
Speaker 7: you saw a massive investment tiers in twenty twenty three,
Speaker 7: twenty twenty four, and we think that that sprend will
Speaker 7: be growing at a slower clip.
Speaker 2: Do you change in turn will help. Sorry, James, do
Speaker 2: you change your your holdings? Do you sell Microsoft?
Speaker 7: Actually trimmed Microsoft into the quarter today. You know, we're
Speaker 7: now at three percent weight. It's around eight percent in
Speaker 7: the in the NAVASDAK, so we are underweight there. But
Speaker 7: I would say, you know, we.
Speaker 2: Still want to hold it.
Speaker 7: You know, you still want to be there. The company
Speaker 7: is incredibly important, but at the same time, we think
Speaker 7: that there's better opportunity elsewhere with companies that offer and
Speaker 7: stocks that offer better convexity.
Speaker 2: Okay, so where does that money go? You trimmed your
Speaker 2: holding in Microsoft, where are you spending it? What are
Speaker 2: you buying?
Speaker 7: So we're looking at a lot of software names right now.
Speaker 7: You know, with the disruption in the market that was
Speaker 7: caused by deep Seek, I don't think you can take
Speaker 7: that lightly. I think that you have to re examine
Speaker 7: kind of all of your assumptions top down. You know,
Speaker 7: from that, we we did cut Nividia before the market
Speaker 7: opened on Monday and cut that exposure, and we've been
Speaker 7: rotating to software names. We picked up Data Dog for example.
Speaker 7: You know, we think that race will continue to uh
Speaker 7: trend lower.
Speaker 3: Uh.
Speaker 7: You know this year obviously two estimates baked in, but
Speaker 7: I think that that trend will help a company like
Speaker 7: an I'll start, you know, we continue to like Spotify.
Speaker 7: We actually grossed up our metaposition heading into the quarter,
Speaker 7: so we'll see how that plays out. I don't know
Speaker 7: if the numbers are out yet.
Speaker 4: No, we're still we're still awaiting meta.
Speaker 3: I want to ask you something though, from our BI team,
Speaker 3: our Ana Agrana writing about Microsoft and says Microsoft's close
Speaker 3: relationship with open AI makes it better position than most
Speaker 3: of its software arrivals to capitalize that increased generative AI spending.
Speaker 4: You agree with that.
Speaker 3: I mean they're you know, they know a little bit
Speaker 3: about software certainly Microsoft.
Speaker 7: Yeah, I'm not sure about the health of that relationship.
Speaker 7: To be honest with you.
Speaker 2: Why so.
Speaker 7: Well, I think that you know, deep seek certainly changes
Speaker 7: the game a little bit. I think that they'll increasingly
Speaker 7: have less reliance on on open AI and and as
Speaker 7: their costs come down, they'll continue to be able to
Speaker 7: you know, drive the inference and all the AI tools
Speaker 7: for their customers. So I'm not sure exactly how healthy
Speaker 7: that relationship is or how it will lay out. But
Speaker 7: at the end of the day, you know, Microsoft continues
Speaker 7: to be well positioned exsllically, I would say following Deep Seek,
Speaker 7: we came away in incrementally positive on meta on Microsoft
Speaker 7: and Amazon. So those are the three that we like
Speaker 7: following that news, and then we became incrementally negative on Nividia.
Speaker 4: All right, hang on for a second.
Speaker 3: We're talking with James CHOCKMOG partner and tech analyst Everrett
Speaker 3: clockwise Capital Caroline Hyde, co host of Bloomberg Technology, also
Speaker 3: in studio with us and just walking in our own
Speaker 3: anarag Rana. He is with our technology team with our
Speaker 3: Bloomberg Intelligence unit. He's a senior industry analyst writing. I
Speaker 3: am reading from the research he just put out on Microsoft.
Speaker 3: Microsoft now on AROG just down that eight tons of
Speaker 3: a percent, so it's definitely come off the lows that
Speaker 3: we saw earlier in the aftermarket.
Speaker 4: So far tell us what we need to know.
Speaker 8: Yeah, it's all the guidance on the conference call. We
Speaker 8: want to hear that that AZ your growth is going
Speaker 8: to pick up over the next twelve months. And I
Speaker 8: think that's really the biggest thing that we see now,
Speaker 8: that's assuming all the investments they have made in the
Speaker 8: data center side. Is picking up because I just saw
Speaker 8: the news go by what the CFO is saying that
Speaker 8: they're still supply constrained. Now, the supply constraint doesn't mean
Speaker 8: it had an impact on the current quarter growth, which is,
Speaker 8: you know, which was below the thirty one thirty two
Speaker 8: that they gave, or will it impact in the next quarter.
Speaker 8: I think that's the single biggest question right now.
Speaker 2: So is it fair to say this is totally supply side.
Speaker 1: And japin because we do have meta finalite please, And
Speaker 1: the fourth quarter revenue is beating expectations. Forty eight point
Speaker 1: three to nine billion is coming for fourth quarter, it
Speaker 1: was expected to be forty six point nine to eight billion,
Speaker 1: and they're pushing us forward to a guide of the
Speaker 1: first quarter to be thirty nine and a half to
Speaker 1: forty one point eight billion. That slightly shy of the
Speaker 1: midpoint where the expectations were for forty one point six billion.
Speaker 6: So forecast a little bit light.
Speaker 1: Fourth quarter at beats on Family of App revenue doing well.
Speaker 1: They're seeing Reality Labs operating loss of almost five billion,
Speaker 1: but the estimate was free for more than that, so
Speaker 1: I think you are seeing perhaps a slightly shy forecast,
Speaker 1: but they're seeing first quarter revenue of thirty nine and
Speaker 1: a half to forty one point eight billion, and the
Speaker 1: market wanted forty one point seven billion.
Speaker 4: Stack bouncing around.
Speaker 3: It was down five percent, it's now down about three
Speaker 3: point eight percent. Now it's down about five percent. It
Speaker 3: is bouncing around. Also some commentary in terms of the capex.
Speaker 3: We anticipate our full year twenty twenty five capital expenditures
Speaker 3: will be in the range of sixty to sixty five
Speaker 3: billion dollars, So a little bit more about that, which
Speaker 3: we just got news last week.
Speaker 2: The company also says we're not providing a full year
Speaker 2: twenty twenty five revenue outlook. Is that a surprise to you, Caroline.
Speaker 1: Yeah, Usually they are able to give clarity, And it's
Speaker 1: interesting that they're giving so much clarity on their capital expenditure,
Speaker 1: perhaps not clarity on forward revenue at the moment. Is
Speaker 1: that because they think it's just going to go through
Speaker 1: the room. Is that because they do feel that they
Speaker 1: can't give as much forward looking guidance at the moment.
Speaker 6: But whether it's an.
Speaker 1: FX perspective, cost and expenses, they're still dictating. But I'm
Speaker 1: just scrolling through the CFO and they expect first call
Speaker 1: to twenty five total revenue to be in that range,
Speaker 1: which reflects eight to fifteen percent year over year growth
Speaker 1: or eleven to eighteen percent on a constant currency basis.
Speaker 1: But we are not providing fully a twenty twenty five
Speaker 1: revenue outlook. We expect the investments we are making in
Speaker 1: our core business this year will give us an opportunity
Speaker 1: to continue delivering strong revenue growth through twenty twenty five.
Speaker 3: Also saying the regulatory landscape in the European Union the
Speaker 3: United States could impact business. We do see the stock
Speaker 3: now just down about one percent. Again, the key that
Speaker 3: everybody seems to be focusing on is that first quarter
Speaker 3: sales forecast trailing at the midpoint, also saying fiscal year
Speaker 3: depreciation expends about two point nine billion dollars less than before,
Speaker 3: again bouncing around big time in the aftermark.
Speaker 2: Yeah, I want to draw your attention to what's going
Speaker 2: on with Reality Labs, the company, saying that revenue coming
Speaker 2: in at one point oh eight billion dollars, shy of
Speaker 2: estimates of one point one to one billion dollars. I
Speaker 2: don't want to say there was a whisper number ahead
Speaker 2: of this Caroline, but folks were bullish on Reality Labs
Speaker 2: going into this. There was that report from Insider that
Speaker 2: came out earlier this week that talked about growth at
Speaker 2: growth in that unit. How are you, again, a very
Speaker 2: small portion but a very important part of the company,
Speaker 2: How are you looking into that number?
Speaker 6: Yeah, I do think that overall the losses are big.
Speaker 2: So you think the losses should be more of a
Speaker 2: focus than the revenue.
Speaker 1: Well, I think revenue one point zero eight is slightly
Speaker 1: less than anticipated, but at least their operating loss is
Speaker 1: slightly less than expected. But I think there's going to
Speaker 1: be a lot of digestion of restructuring that's currently going
Speaker 1: on in that business, and the fact that they're shifting
Speaker 1: over to the overall unit COO and they're putting up
Speaker 1: some operational changes at play. But how much is Mark
Speaker 1: Zuckerberg going to speak to his commitment to this part
Speaker 1: of the business, how much he wants to invest in
Speaker 1: Reality Labs, how much of that sixty five billion dollar
Speaker 1: up to capex in AI is ultimately going to today
Speaker 1: it's a products.
Speaker 4: All right, We're going to keep watching and reporting on Meta.
Speaker 3: As we mentioned, stock is bopping around here in the aftermarkets,
Speaker 3: really a focus on the outlook. But it's right now
Speaker 3: we're looking at just a slight move to the upside
Speaker 3: of about one quarter one percent. I want to go
Speaker 3: back to Microsoft for just a moment because we have
Speaker 3: Anna rag Rana in here, another big one after the
Speaker 3: close which has been bouncing around to you, it's now
Speaker 3: only down about eight.
Speaker 4: Tens of one percent.
Speaker 3: The Bloomberg audience thinking about these earnings, the crazy week
Speaker 3: that's been in the tech community around AI.
Speaker 4: What to be top of mind was top of mind
Speaker 4: for you?
Speaker 8: I think the biggest question is, you know, they have
Speaker 8: a commercial booking number that just you know, was absolutely
Speaker 8: spectacular and it was driven by Azure commitments and the
Speaker 8: opening eye work that they are getting. But the question
Speaker 8: is do you can you fulfill that demand or you're
Speaker 8: going to go to third party providers to take care
Speaker 8: of it? And that's really what it is. I mean, frankly,
Speaker 8: at this point, more color in that, you know, the
Speaker 8: big commercial booking number would be helpful. And also about
Speaker 8: what what does Microsoft CEO think about all the things
Speaker 8: that are happening with deep seek, because he did tweet
Speaker 8: something very interesting that you know, if the costco goes down,
Speaker 8: the adoption rate improves, which is good. But at the
Speaker 8: same time, you know he has a very strong partnership
Speaker 8: with Opening Eye right another, So there's a lot. I
Speaker 8: think we will learn about the tech landscape in general
Speaker 8: from him, not just about Microsoft's clouds numbers. Now, frankly speaking,
Speaker 8: let's say, for the sake of argument, that they do
Speaker 8: misguidance for three Q. I think people will still give
Speaker 8: them a pass over the next several days. May not
Speaker 8: give them a pass tomorrow because the bookings number is
Speaker 8: so strong.
Speaker 3: Another headline of Microsoft to add jobs and infrastructure, jen
Speaker 3: Ai and reality labs.
Speaker 2: So that's matter right.
Speaker 3: Oh did I say, oh Microsoft, they must have made
Speaker 3: a mistake.
Speaker 4: Okay, so there is a headline.
Speaker 2: We will we are going to keep covering that this
Speaker 2: is coming fast and furious. I do want to do
Speaker 2: a big thank you to Anna rog Rana for joining us.
Speaker 2: He is going to go off and listen to more
Speaker 2: of the call and as well as have more notes
Speaker 2: out for Bloomberg Intelligence. I'm putting pressure on you, unfortunately,
Speaker 2: I'm sorry. Thank you for stopping by usually in Chicago
Speaker 2: joining us here. I do want to get back to
Speaker 2: James Chockmack he's technology correction.
Speaker 4: META, which makes sense because of Reality Lab.
Speaker 2: Technology analyst at Clockwise Capital. We gave you a little break, James,
Speaker 2: to jump in and look at those META numbers as
Speaker 2: they were breaking just past four thirty five. What sticks
Speaker 2: out to you?
Speaker 7: Yeah, I mean the big thing is the first quarter
Speaker 7: guide coming in a touch light. But the fourth quarter
Speaker 7: itself was solid pretty much across the board. So we'll
Speaker 7: have to decipher what exactly is going on in the
Speaker 7: first quarter guide on the call. But as it stands,
Speaker 7: if you look at four Q in a vacuum, you know,
Speaker 7: it seems like it's all systems go. But I just
Speaker 7: got to drill down.
Speaker 4: A little bit more, all right, we want to get.
Speaker 7: Why I think this stock is bouncing around so much.
Speaker 7: Down five to three.
Speaker 4: Everything's bouncing around.
Speaker 3: Meta is now down about two tents of a verse.
Speaker 3: That man keep saying, who follows metaphor us here at
Speaker 3: our Bloomberg.
Speaker 2: Intelligence giving them a workout today.
Speaker 4: Get your steps in, buddy, get your steps in. What's
Speaker 4: your reaction to the results?
Speaker 5: Well, so one is obviously the guide for one Q
Speaker 5: is lower than consensus. The big number that sticks out
Speaker 5: to me is the total expense guide of one hundred
Speaker 5: and fourteen two hundred and nineteen billion. That is almost
Speaker 5: you know, eight billion higher than the consensus. So what
Speaker 5: that tells you is the gross margins are going down
Speaker 5: and plus the depreciation costs, the costs that they are
Speaker 5: spending on data centers, they have to depreciate those servers, right,
Speaker 5: that's going to eat into the margins. So we are
Speaker 5: talking about at least a four to five percent margin
Speaker 5: impact for twenty twenty five just from the data center costs,
Speaker 5: the depreciation costs, and so clearly there is a gross
Speaker 5: margin degradation happening here and the revenue growth is decelerating,
Speaker 5: which is what we are seeing in one queue. The
Speaker 5: Kapex guide is what they gave you know, on Friday,
Speaker 5: so no change in that, but clearly the data center
Speaker 5: expenses are eating into the.
Speaker 3: Margins, which is something Gina Martin Adams has said, watch
Speaker 3: with all of the companies reporting, but the tech guys
Speaker 3: as well in terms of margins and seeing some pressure
Speaker 3: on margins.
Speaker 5: We seem to be the case with Microsoft there. So
Speaker 5: that's the surprise here that Microsoft didn't call out, you know,
Speaker 5: that kind of a margin impact from depreciation expenses in
Speaker 5: their quarter, at least from the print that I saw,
Speaker 5: But clearly it is having an impact on matter.
Speaker 1: When you dig into what the CFO has been saying
Speaker 1: as well, and ultimately she's talking about how the single
Speaker 1: largest driver of their expense growth that you speak to
Speaker 1: is going to be infrastructure costs. They say, hire operating
Speaker 1: expenses depreciation as well of those assets or those data
Speaker 1: centers more broadly, of the chips they have to keep
Speaker 1: buying again. But then they say, employee conversations with the
Speaker 1: second largest factor, as we add technical talent.
Speaker 2: It's a good time priority that technical talent, right it.
Speaker 6: Is you can go in charge a pretty penny if
Speaker 6: you've got a nice computer.
Speaker 2: So what is that? How do you read into that?
Speaker 2: Does that mean that the folks who are the engineers
Speaker 2: doing the AI stuff? Yeah, say the helpful demand, who.
Speaker 1: Is that areas of infrastructure monetization, So interestingly obviously monetizing
Speaker 1: their referable business reality labs, generative artificial intelligence as well
Speaker 1: as regulation and compliance. They are the hr GO gets
Speaker 1: for this particular year, and they are actually overall saying
Speaker 1: that headcount has ticked high at ten percent year of
Speaker 1: a year. Despite this efficiency mode they've been in.
Speaker 2: There's also this note the majority of twenty twenty five
Speaker 2: capex to be directed to core business. What's the definition
Speaker 2: of metas core business? Is it the family of apps?
Speaker 2: The Instagrams and the WhatsApp And to say, okay, we're
Speaker 2: going to invest in that, so don't worry investors, We're
Speaker 2: spending money on the company, on the parts of our
Speaker 2: business that make money. Is that the message there?
Speaker 6: I mean, Mandeep is your man to ask what's a
Speaker 6: core business?
Speaker 1: But I'd say Reality Labs isn't it even though their
Speaker 1: company name is Meta.
Speaker 5: Yeah. Look, I think overall they will be prudent when
Speaker 5: it comes to headcom growth. They may have to pay
Speaker 5: more for the AI talent, that's what they are alluding to.
Speaker 5: But at the same time they are continuing to lose
Speaker 5: money on Reality Labs. I would have expected, you know,
Speaker 5: that will be your offset. If you see margin degradation,
Speaker 5: you offset it in terms of Reality Labs losses.
Speaker 2: You're not seeing that, So James chalk mark, this is
Speaker 2: still a company that you know to The message to
Speaker 2: investors is this is this is a company that makes
Speaker 2: money because we're opening Instagram and we're using reels and
Speaker 2: we're using the family of apps the core business. Right,
Speaker 2: that's their message. They don't want people to get worried
Speaker 2: that this is another you know, meta a foray into
Speaker 2: the metaverse.
Speaker 7: No, I mean, I think the metaverse continues to be
Speaker 7: a long term vision for the company. But you know,
Speaker 7: in this kind of market, you can't be looking at things,
Speaker 7: you know, on a moonshots. Yeah, you have to be
Speaker 7: able to just focus on the quarter and focus on
Speaker 7: the year, and then most of some cases, you know,
Speaker 7: even just focus on the week. So you know, the
Speaker 7: duration that you evaluate these companies is becoming a lot
Speaker 7: shorter and shorter, so as a volatility increase is given
Speaker 7: the increase in uncertainty. So that being said, you know,
Speaker 7: for a company like Meta, yeah, that's exactly how I
Speaker 7: describe it and think about it. And those moonshots you
Speaker 7: know as a TVD but not part of the calculus
Speaker 7: as it stands today.
Speaker 3: Hey, for those who care, and videos up about two
Speaker 3: point one percent here in the aftermarket, so we're seeing
Speaker 3: some movement there.
Speaker 4: Meta not giving a full year.
Speaker 3: Twenty twenty five revenue outlook mandep is that significant?
Speaker 5: No, I think based on the one Q guide you
Speaker 5: can see currency as a headmin In fact, it's a
Speaker 5: three percent headmind, so quite significant. And the other thing
Speaker 5: I can point out in the print is six percent
Speaker 5: in pressure growth. That's the weakest they have had. So
Speaker 5: fourteen percent pricing growth that's a result of AI, so
Speaker 5: it's paying off in ad pricing, but six percent impressions growth.
Speaker 5: There are two reasons why it's decelerating. One is they're
Speaker 5: showing you less ads and to make a better experience.
Speaker 5: Other is people are spending less time. I mean, it's
Speaker 5: still the you know, they have three billion family users
Speaker 5: across their family of apps, but incrementally there that engagement
Speaker 5: growth is slowing down because they're not showing those ads
Speaker 5: on elections over election.
Speaker 4: No, I'm just kidding.
Speaker 5: It could very well be, you know, a slew of factors,
Speaker 5: but engagement growth is how impressions grow, and so six
Speaker 5: percent is the weakest they've had for a while.
Speaker 2: Well, Caroline, our own Kurt Wagner pointing out that Meta's
Speaker 2: average price per ad increased by fourteen percent year over year.
Speaker 2: It increased ten percent year over year for the full
Speaker 2: year of twenty twenty four. Is it because the AI
Speaker 2: that they've the AA investments they've made are making those
Speaker 2: ads so much more targeted, better targeted, or.
Speaker 1: Whether people just know that if you're going to be
Speaker 1: committing any capital anywhere in terms of marketing, it's a
Speaker 1: very good bet to be doing it on the Family
Speaker 1: of Apps. That met her off as it's interesting, We've
Speaker 1: had Mick Mac on the show, which is a company
Speaker 1: the tracks digital spend in particular and efficacy, and she
Speaker 1: came on and.
Speaker 6: Said ash biograph.
Speaker 1: Rachel came on and said, the beginning of this year,
Speaker 1: we have seen a big dive in the amount of
Speaker 1: money and marketing being committed to the likes of metas
Speaker 1: Family of Apps was her take, and the data which
Speaker 1: she was seeing in her theory was on the back
Speaker 1: of some of the politicization of Mark Zuckerberg of late,
Speaker 1: and indeed, therefore, without the assessment of some of the
Speaker 1: content and some of the fact checkers that are there anymore,
Speaker 1: people have started to shy away from committing their brands.
Speaker 6: Onto that company.
Speaker 1: Now that is Mick Mac's perspective, and we'll have to
Speaker 1: see whether it's be indicated through what is said on
Speaker 1: this particular part of the business. But as you say,
Speaker 1: if there's a slight pulling back in impressions, but the
Speaker 1: average prices are managing to go up. They're managing to
Speaker 1: remain incredibly important to the brands that do remain committed
Speaker 1: and charge more for it.
Speaker 3: Going back to Meta and the business, and I think
Speaker 3: it's interesting coming off of a FED meeting today where
Speaker 3: certainly the FED chair was asked about policies coming out
Speaker 3: of the administration, regulatory or others. A little warning from
Speaker 3: our live blog when it comes to Meta metas CFO
Speaker 3: in the release, saying, in addition, we continue to monitor
Speaker 3: an active regulatory landscape, including legal and regulatory headwinds in
Speaker 3: the EEU and the US that could significantly impact our
Speaker 3: business and our financial results. James Chacmat, come on back in.
Speaker 3: I mean, let's not forget there are things that are
Speaker 3: overhanging some of these big tech companies like a Meta.
Speaker 7: Yes, that's true, but that's the case always. You know,
Speaker 7: all of these companies constantly face regular stories scrutiny both
Speaker 7: here and abroad. But I think with the change in administration,
Speaker 7: some of that may alleviate here at least the state side.
Speaker 7: We'll see what happens overseas, but overall, I mean that's
Speaker 7: an overhang I think you constantly have to grapple with,
Speaker 7: so you know, it's it's something that kind of been
Speaker 7: meal into at.
Speaker 2: This point, Caroline. Is the regulatory landscape in the US
Speaker 2: less worrisome for meta platforms now than it was a
Speaker 2: year ago? Given Mark Zuckerberg's relationship with Donald Trump, his
Speaker 2: visit Tomorrow Lago, his trip to Washington, d C. What
Speaker 2: he's saign the Joe Rogues podcast, great point, Dana White
Speaker 2: on the board.
Speaker 1: I mean, they've just settled twenty five million dollars for
Speaker 1: kicking Trump off their family of apps previously, So maybe
Speaker 1: we'll see some culmination of what that previously no love
Speaker 1: lost will currently end up being. I think people had
Speaker 1: felt actually the realignment of Zuckerberg, whether that's from a
Speaker 1: fiduciary duty perspective or whether that's just actually where he
Speaker 1: feels in terms of personal persuasion, have ultimately will bear
Speaker 1: fruit when it comes to doing business. Look, we've seen
Speaker 1: from Oracle, from open Ai, from SoftBank, from you name it, Dubai,
Speaker 1: wealth magnates and real estate billionaires.
Speaker 6: How do you do business in America? Now?
Speaker 1: You go visit mar A Lago, you pay some money
Speaker 1: to attend ultimately the inauguration, and you see what deals
Speaker 1: can be done. And I think many would say that
Speaker 1: what Zuckoworg's been doing is in line with that.
Speaker 6: I think the regulatory landscape from an M and.
Speaker 1: A perspective becomes different with a new FTC, new ultimate
Speaker 1: overseeing of what happens with the SEC.
Speaker 6: But I'm sure there's still some.
Speaker 1: He's got some way to go to make up for
Speaker 1: some of the lines that were said last year of
Speaker 1: maybe he'll end up in jail because of Trump's irritation
Speaker 1: with past misdemeanors.
Speaker 3: I'm only going to mention some of them because there's
Speaker 3: a ton of earnings out here after the close, But
Speaker 3: just to rehash, Microsoft down about one point six percently
Speaker 3: after markets, certainly off its loads of the earlier trade
Speaker 3: right after earnings. Tusla now up about three point four percent.
Speaker 3: It had been down about four or five percent.
Speaker 4: Here.
Speaker 3: IBM has rallied about eight percent after its earnings. We've
Speaker 3: been talking about Meta, it is up about one percent,
Speaker 3: and Nvidia, which doesn't report until late February, is up
Speaker 3: almost two percent in today's trade here in the aftermarket.
Speaker 3: James CHOCKMK it's been.
Speaker 4: Quite a week.
Speaker 5: You know.
Speaker 3: One of the things when I think about big tech
Speaker 3: in particular is the environment for rates. And we had
Speaker 3: a FED decision, right and it seems like FED rate
Speaker 3: moves to the downside cuts seem to be putting off
Speaker 3: more and more this year here in twenty twenty five.
Speaker 3: How are you thinking about valuations and the rate environment
Speaker 3: and what that potentially needs for some of these names
Speaker 3: or is that not as important versus maybe hearing about
Speaker 3: their AI spend or other things.
Speaker 7: Valuation is certainly a factor, you know, when it comes
Speaker 7: to rates. Now it's a big picture. When it comes
Speaker 7: to rates, we do think, you know, we perhaps have
Speaker 7: a more slightly more dobbish stance than some of the market. Well,
Speaker 7: we do kind of agree with Powell that the rates
Speaker 7: are likely trending towards zero, not zero, towards two percent
Speaker 7: inflation rates. So you know, we think that the market's
Speaker 7: currently expecting two rate cuts this year June and December.
Speaker 7: That's pretty probable scenario.
Speaker 2: So that's good.
Speaker 7: That being said, the stocks that were primarily focused on
Speaker 7: and weigh leaning into are the ones that have not
Speaker 7: only upside to estimates but also upside to their valuation.
Speaker 7: Multiple now across the big tax tech space, there's not
Speaker 7: that many of those, I'd say, with the exception of
Speaker 7: Meta really and to a certain extent Google or Alphabet.
Speaker 7: The other ones are pretty much in. Apple's up there,
Speaker 7: Microsoft's up there. You know, Tesla's certainly not cheap. So yeah,
Speaker 7: it's something that we have to be mindful of. We're
Speaker 7: there because you know, you have to benchmark yourself to
Speaker 7: a certain extent on the top ten names in the Nasdaq.
Speaker 7: But that's certainly not our oversize and we've.
Speaker 4: Only got about a minute left here.
Speaker 1: Does TikTok matter to the revenue guide for the future
Speaker 1: of Meta and just quickly.
Speaker 7: Yeah, I mean I think TikTok matters to all of
Speaker 7: these companies. We'll see what happens, but it's certainly something
Speaker 7: to be mindful of, cognizant and follow extremely closely. You know,
Speaker 7: if it does come in two domestic hands, you know,
Speaker 7: that could change the calculus to a certain extent. So
Speaker 7: I think Meta will be fine regardless. You know, TikTok
Speaker 7: is obviously already here, but you know, what does that
Speaker 7: mean for the valuations and and whatnot? So my mind
Speaker 7: full of it, not worried about it right now, but
Speaker 7: definitely keeping an eye all.
Speaker 3: Right, Well, we are keeping an eye on a lot
Speaker 3: of stuff, and we ain't done yet because it's still
Speaker 3: got We've got more stuff to come this week. Our
Speaker 3: thanks to our external guests and also of course our
Speaker 3: incredible in house team James Chackmok, thank you, first partner
Speaker 3: and technology Analystic Clockwise Capital.
Speaker 4: They're in Miami.
Speaker 3: Caroline Hyde, you rock covering so much about the tech community,
Speaker 3: and be sure to check her out on Bloomberg Technology
Speaker 3: on Bloomberg TV at eleven am Wall Street Time. She
Speaker 3: is one of the co hosts of Bloomberg Technology.
Speaker 2: Yeah, just a big thank you to our Bloomberg Intelligence
Speaker 2: team too, both here in the studio today, Man Deep
Speaker 2: Saying covering all things Meta and Moran anurad Rana on Microsoft.
Speaker 2: Check out their notes. They're out now on the Bloomberg.
Speaker 3: Terminal, and be sure to check out all of the
Speaker 3: write throughs on the stories and on the names that
Speaker 3: have been reporting here because they are moving in the aftermarket.
Speaker 4: That's going to do it for Tim And we have
Speaker 4: a good and safe evening.