Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is Bloomberg business Week Daily reporting from the magazine
Speaker 2: that helps global leaders stay ahead with insight on the people, companies,
Speaker 2: and trends shaping today's complex economy. Plus global business, finance
Speaker 2: and tech news as it happens. The Bloomberg Business Week
Speaker 2: Daily Podcast with Carol Masser and Tim Steneveek on Bloomberg Radio.
Speaker 1: It is the fifth FOMC decision of the year, that's
Speaker 1: for sure, and it was an interesting one. Got to say,
Speaker 1: first of all, FED officials as expected, leaving interest rates unchange,
Speaker 1: downgrading their view of the US economy. It's assigned policymakers
Speaker 1: could be edging closer to lowering barring costs.
Speaker 3: But gotta say we moved around a bit in terms
Speaker 3: of expectations.
Speaker 1: Governors Christopher Waller and Michelle Bowman voted against the decision
Speaker 1: in favor of a quarter point cut.
Speaker 3: You kept pointing this out to me.
Speaker 4: Yeah, it's the first dub descent going back to nineteen
Speaker 4: ninety three for the FED.
Speaker 3: So is that right in thirty years?
Speaker 4: Yeah, nineteen ninety three, So it's pretty wild. So one
Speaker 4: thing that I noticed about what Jay Powell said We're
Speaker 4: going to get to some of his comments in a second,
Speaker 4: but I just want to He was asked what their
Speaker 4: conversations were about the descents. He was like, I'm going
Speaker 4: to let them speak about it in the coming days,
Speaker 4: so you will hear from them. So stay tuned.
Speaker 1: Blackout period stops on Friday, so we're going to hear stuff.
Speaker 3: Hey, what we should point out?
Speaker 1: Man, It was kind of an interesting meeting at today's
Speaker 1: press conference with reporters.
Speaker 5: Fetcher J.
Speaker 3: Powell covered a lot of.
Speaker 1: Ground, a lot of ground, and what he said was
Speaker 1: one of the better meetings of the US Central Bank.
Speaker 6: Inflation has been running somewhat above our two percent longer
Speaker 6: run objective. Recent indicators suggests that growth of economic activity
Speaker 6: has moderated. The moderation in growth largely reflects a slow
Speaker 6: down in consumer spending. Inflation has eased significantly from its
Speaker 6: highs in mid twenty twenty two, but remains somewhat elevated.
Speaker 6: Higher tariffs have begun to show through more clearly to
Speaker 6: prices of some goods, but their overall effects on economic
Speaker 6: activity and inflation remain to be seen. Basically, this was
Speaker 6: quite a good meeting all around the table. We have
Speaker 6: made no decisions about September.
Speaker 1: We don't do that in advance, as you just heard
Speaker 1: a lot from the FED chair today, certainly in his
Speaker 1: statement as well as the Q and A with reporters.
Speaker 1: So it's made for an interesting trade because we definitely
Speaker 1: have stocks off of our highs of the session. We've
Speaker 1: seen rates bounce around as well, I think, initially moving
Speaker 1: a little bit lower and then bouncing back up. So
Speaker 1: there's a lot for investors and traders to take in
Speaker 1: from this FED meeting.
Speaker 4: Yeah, there really is. Let's bring in Karen very Para,
Speaker 4: managing director and head of I Shares US fixed income
Speaker 4: strategy at Blackrocks. She joins us from San Francisco. It
Speaker 4: is the world's largest asset manager, had twelve point five
Speaker 4: to three trillion dollars in assets under management at the
Speaker 4: end of the second quarter. Karen joins us once again
Speaker 4: from San Francisco. Karen, did the FED get this right?
Speaker 5: I think so.
Speaker 7: So we were just like also watching the press conference
Speaker 7: here on our trading desk, and I think that their
Speaker 7: main message was we're keeping rates on hold because inflation
Speaker 7: is still above target, and that would speak to really
Speaker 7: keeping a little bit more restrictive. So I think this
Speaker 7: is actually a good thing in the long run for
Speaker 7: investors because they're still getting higher levels of interest rates,
Speaker 7: they're able to reinvest and keep the fixed income asset
Speaker 7: allocation on track. And so I think for a lot
Speaker 7: of investors watching the FED, one of the things that
Speaker 7: they should take note of is really is if these
Speaker 7: inflation prints are going to continue to come in a
Speaker 7: little hotter than they expect, maybe you should consider adding
Speaker 7: some inflation links bonds to portfolios. So we're seeing that
Speaker 7: being a big trend, people really refocusing on adding inflation
Speaker 7: protection back in.
Speaker 3: I love that you went right there.
Speaker 1: I mean, anybody who's a bond investor, I mean at
Speaker 1: this point has to coming off of this press conference,
Speaker 1: with all the pressure that the FED chair has gotten
Speaker 1: from the President of the United States, have to think that, Okay,
Speaker 1: this guy is going to do his job no matter what.
Speaker 5: Yeah, I think that's right.
Speaker 7: I think we're just so focused here on the long
Speaker 7: term trends and meeting to meeting, we're going to see
Speaker 7: i'd say a lot of price action in the bond markets.
Speaker 7: But I think it's really important to think long term
Speaker 7: and whenever we're you know we're looking to the next meeting,
Speaker 7: as you highlighted September seventeenth, there's still a chance they're
Speaker 7: gonna cut at that meeting, but they've still got two.
Speaker 5: More on the calendar.
Speaker 7: And if we just take a look at the dot
Speaker 7: plot from June, we saw a couple of governors. Two
Speaker 7: governors favorite three cuts, and I think we now know
Speaker 7: who they are, But then the other eight favored about
Speaker 7: two cuts, and that's still what the bond market is
Speaker 7: pricing in. So I think anybody looking at at the
Speaker 7: short term focus, they can probably still use that as
Speaker 7: a barometer.
Speaker 4: So you say there's a chance that they'll cut at
Speaker 4: the September meeting, you don't think that's a done deal
Speaker 4: at this point.
Speaker 5: It's hard to say.
Speaker 7: I think, especially Chairman Pal's comments during the press conference,
Speaker 7: we're really telling is that they don't want to get
Speaker 7: ahead of themselves. We actually got core PCE coming out tomorrow,
Speaker 7: and that's also been trending about two point seven percent.
Speaker 7: I think that's an important number to watch, and we're
Speaker 7: seeing a lot of investors you are slowly starting to
Speaker 7: move back into fixed income assets even with some of
Speaker 7: the uncertainty here. There's still about seven trillion dollars sitting
Speaker 7: in money market funds, earning those overnight rates, and then
Speaker 7: we're slowly seeing people allocate back into more core fixed
Speaker 7: income exposures, even international bonds, rather than just sit in cash.
Speaker 7: And they're trying to get ahead of the FED meeting,
Speaker 7: and that's what we're seeing money move towards.
Speaker 1: You know what's interesting too, Diane Swank and our FED
Speaker 1: coverage earlier today, noting that we had an inflation print today,
Speaker 1: reminding us where we saw inflation in both goods and services.
Speaker 1: I am curious to throw on top of that tax
Speaker 1: cuts targeted spending by the legislation that just passed in Congress,
Speaker 1: expectations on more deregulation and AI making companies workers, if
Speaker 1: you will, more productive. That sounds to me like it's
Speaker 1: stimulative policies.
Speaker 7: I think that's really the trick is finding the balance
Speaker 7: between some of the good data that we are getting
Speaker 7: and some of the productivity gains.
Speaker 5: We've seen positive wage growth.
Speaker 7: I think there's been even though the GDP print came
Speaker 7: out higher than expected, there was a lot of noise
Speaker 7: in that, just with imports and exports. But I do
Speaker 7: think the economy is pretty strong, and the Feds just
Speaker 7: trying to get back to that neutral rate and figuring out.
Speaker 5: The timing of that is really the tough part. So
Speaker 5: there's a lot of investigation.
Speaker 3: No, I get it, there's a lot. So is it
Speaker 3: smarter in your view?
Speaker 1: And it sounds like this is where Jay Powell is
Speaker 1: leaning to make sure that inflation they really do have
Speaker 1: under control. You don't want to make the mistake of
Speaker 1: cutting and then having to kind of backtrack and re
Speaker 1: raise rates because of inflation taking higher.
Speaker 5: That's right. I think their weight and see approach is
Speaker 5: going to be the playbook for the rest of the year.
Speaker 3: So no more rate cuts.
Speaker 7: No, I think they're just going to wait and see
Speaker 7: what the data is telling them. So I mean, I
Speaker 7: think personally we'll still get one or two cuts, probably
Speaker 7: in the back half of the year. So that really
Speaker 7: speaks to those October December meetings. The Fed did not
Speaker 7: want to take September off the table either, so I
Speaker 7: think they left a lot of optionality open during this meeting.
Speaker 4: What would make you change your mind about September over
Speaker 4: the next month and say essentially that September will definitely
Speaker 4: see a right cut.
Speaker 5: I think a couple of factors.
Speaker 7: If we see some of those inflation prints coming in
Speaker 7: lower than expected in a meaningful way. I think if
Speaker 7: the trade deals solidify and we get some teriff rates
Speaker 7: that are not expected to be passed through with inflation,
Speaker 7: because that's still the big uncertainty out there.
Speaker 4: And just to make sure I have this clear from you,
Speaker 4: are you are you certain that the next move by
Speaker 4: the Fed will be a cut and not necessarily an increase.
Speaker 5: I don't think it'll be an increase.
Speaker 7: I think that's that's not really what's being priced into
Speaker 7: bond markets, and I think a lot of the discussion
Speaker 7: around the cuts is really just trying to move it
Speaker 7: back towards that neutral rate and not becoming more.
Speaker 4: The reason now, yeah, sorry to cut you off. We
Speaker 4: only have about a minute left. The reason I'm interested
Speaker 4: in that is because we haven't necessarily seen the effect
Speaker 4: or the impact of tariffs make their way into numbers.
Speaker 4: And what economists tell us is just wait, just wait,
Speaker 4: just wait, it'll happen. But it hasn't happened. So if
Speaker 4: that does happen, does that change the trajectory of the Fed?
Speaker 7: I think, if anything, it just keeps them on hold
Speaker 7: for even longer because I think they're going to be
Speaker 7: reluctant to do you have done a couple of cut
Speaker 7: a few cuts already and then and then make it hike.
Speaker 7: So I think it'll it'll really just come down to
Speaker 7: the data and how quickly they can model that. And
Speaker 7: I think that was something that was highlighted in the
Speaker 7: press conference today.
Speaker 1: Just to wrap up, because we talked a little bit
Speaker 1: about I think where you were finding either opportunities or
Speaker 1: suggestion to investors. But going back to a FED that
Speaker 1: and a FED share that understands is mandate, understands what
Speaker 1: the FED ja our's job is, understands what the fomc's
Speaker 1: job is, and the Federal Reserve in terms of monetary
Speaker 1: policy and what global investors expect.
Speaker 3: Having said that.
Speaker 1: You feel pretty confident maybe going longer out in terms
Speaker 1: of buying into the US treasury market and just quickly
Speaker 1: that about thirty seconds.
Speaker 8: Yeah.
Speaker 7: I think rates remaining high are good for investors. I
Speaker 7: think stepping out of cash if cash rates are projected
Speaker 7: to come down, locking in some of those bond yields
Speaker 7: are really good for investors. I think getting your duration
Speaker 7: back towards called the three to seven year. Part of
Speaker 7: the curve is probably prudent for a lot of investors
Speaker 7: right now. Her overweight cash.
Speaker 1: Great stuff, Karen, thank you so much busy, We know
Speaker 1: for you as well as for us, but really appreciate
Speaker 1: you carving out some time for us. Karen Vera Perry,
Speaker 1: she is head of US. I share his fixed income
Speaker 1: strategy over at the massively.
Speaker 3: Black Rock. I mean, what are we talking about?
Speaker 4: Massively massive blacks twelve.
Speaker 1: Point fifty three trillion in assets under management that was
Speaker 1: at the end of the second quarter.
Speaker 2: You're listening to the Bloomberg Business Weekdaily Podcast. Catch us
Speaker 2: live weekday afternoons from two to five pm Eastern. Listen
Speaker 2: on Apple CarPlay and Android Auto with the Bloomberg Business app,
Speaker 2: or watch us live on YouTube.
Speaker 1: All right, everybody, we've got meta platforms, Microsoft, both aut
Speaker 1: with earnings.
Speaker 3: Those are the big ones.
Speaker 1: There's a lot that are out there, but we want
Speaker 1: to get to We've got great team coverage here at
Speaker 1: Bloomberg and also some great outside voices, So let's get
Speaker 1: to it. With Dan Ives, he's managing director and senior
Speaker 1: equity analyst and global head of Technology research at Webbush Securities.
Speaker 1: We're going to start with meta. Let's talk about it.
Speaker 1: The stocks up about eight and a half percent of
Speaker 1: year in the aftermarket. What do you like and what
Speaker 1: don't you like? Do you not like anything?
Speaker 8: There's nothing not to lie.
Speaker 5: I like.
Speaker 8: Look it speaks to you go through this AI revolution.
Speaker 9: It's in this next stage of growth and all the
Speaker 9: money that you're seeing these big tech players at BACS
Speaker 9: now you're ultimately starting to see some of those differdence
Speaker 9: get being And then about the advertising growth and of
Speaker 9: what we saw with alphabet, what you see with meta
Speaker 9: subscriber growth.
Speaker 8: I mean this it's goldilocks, you know for tech.
Speaker 4: How does meta harness AI to make money? Apart from
Speaker 4: making its advertising more efficient, it's about.
Speaker 8: The billions of users.
Speaker 9: It's about going forward, how they're going to monetize AI.
Speaker 8: They're not just spending to spend.
Speaker 9: They're going to be able to monetize from an advertising perspective.
Speaker 8: When you think about the billions of users.
Speaker 4: They have, that's how do they do that?
Speaker 8: Though?
Speaker 9: Dan, and the reason Zuckerberg right now is what i
Speaker 9: U is like a wartime CEO.
Speaker 8: It's the view that when you.
Speaker 9: Think about AI today, this is just the beginning. You're
Speaker 9: gonna and you're going to have AI driven search, You're
Speaker 9: going to have sort of the future.
Speaker 8: That Meta alphabet are going to play huge pieces in
Speaker 8: the advertising piece.
Speaker 1: But I want to go so it's just advertising that
Speaker 1: that's where they're going to make all their money back.
Speaker 1: We know that they have been on such an aggressive
Speaker 1: AI talent grab and you know Meta has so you.
Speaker 4: Need hundreds of millions of dollars. Yeah, like pay individuals.
Speaker 1: So there that's all gonna pay off the return on
Speaker 1: in beginning.
Speaker 9: Okay, advertising advertising just to begin When you think about
Speaker 9: full what I've used sort of like FULLYGI and it
Speaker 9: was like the Holy graw. What Meta is trying to build?
Speaker 9: What every big tech player is trying to build. Meta
Speaker 9: is basically, we're going to create a whole nother.
Speaker 8: Company over the next decade. That's what they're spending on.
Speaker 4: This is what I'm still waiting for, like you know
Speaker 4: Meta platforms. Look, no question, this was an incredible quarter.
Speaker 4: The stock is up nine point three percent in the
Speaker 4: after hours. Just to repeat the numbers. Second quarter earnings
Speaker 4: per share a huge beat, seven dollars and fourteen cents.
Speaker 4: The estim was for five dollars and eighty nine cents.
Speaker 4: Second quarter revenue a huge beat, forty seven point five
Speaker 4: billion dollars. The estimate was for forty four point eight
Speaker 4: billion dollars. Third quarter revenue forty seven point five to
Speaker 4: fifty point five billion, that's the outlook. The estimate was
Speaker 4: for below that, at forty six point two billion. But
Speaker 4: I want, Dan, want, I want to look with you
Speaker 4: years out when the hardware that they're working on, that
Speaker 4: they're spending billions of dollars on will start paying dividends.
Speaker 4: What does that future look like for META users and
Speaker 4: for Meta investors?
Speaker 9: And you have to think about it, like, what's the
Speaker 9: future in terms of robotics, in terms of software, in
Speaker 9: terms of how AI is going to play a role
Speaker 9: in the every day of a consumer. I mean Meta
Speaker 9: is thinking not in the next year, three, five, eight,
Speaker 9: ten years out.
Speaker 1: I want to bring in man deep saying if I
Speaker 1: may of our Bloomberg intelligence team.
Speaker 3: I don't know if it's too soon. I know you're
Speaker 3: going through.
Speaker 1: All the numbers because I want to bring into the
Speaker 1: conversation with Dan, good quarter killer quarter, How do you
Speaker 1: see it for better?
Speaker 10: Yeah, I mean there is a sequential acceleration in ad
Speaker 10: impressions as well as at pricing growth, and to my mind,
Speaker 10: that is a sign of them applying AI to boost engagement. Obviously,
Speaker 10: the user growth has been almost the same every quarter,
Speaker 10: four to five percent, So the fact that impressions grew
Speaker 10: eleven percent is a sign that people are spending more
Speaker 10: time on their family of apps. And then the ad
Speaker 10: pricing going up nine percent, that to me is the
Speaker 10: real tailwind because that was the risky part Chinese advertisers
Speaker 10: like Timu and Cheen pulling back because of the Deminimus
Speaker 10: rule changes that didn't happen, that didn't show up in
Speaker 10: the numbers. And look when it comes to applying AI,
Speaker 10: I mean small advertisers are now connecting META to their
Speaker 10: CRM systems and actually that is what's driving the ad
Speaker 10: targeting and efficiency that wasn't the case before. That has
Speaker 10: been enabled by JENII. So that's why you see that list.
Speaker 3: Do you agree with Dan?
Speaker 10: I think JENNYI use case is quite prominent. We keep
Speaker 10: hearing about coding agents customer service. Here is the precise
Speaker 10: use case for META, and that is what they are
Speaker 10: showing in their ad pricing numbers.
Speaker 4: Dan, come on in I saw you you're saying something
Speaker 4: that sounds.
Speaker 9: That sounds like a bullish Man Deep. I mean that's
Speaker 9: like on the man Deep scale. That's that's pretty both.
Speaker 4: I like that. Hey, Dan, I noticed something striking today
Speaker 4: when I opened up Instagram. I was searching for a
Speaker 4: video from Mike Birbigli, a comedian who I really like.
Speaker 4: And what I noticed when I was just I was
Speaker 4: just looking for his profile. When I typed in his name,
Speaker 4: what appeared was as an AI answer about a biography
Speaker 4: of who he was. Information about him?
Speaker 3: Is the goal?
Speaker 4: What is the vision for Instagram? Is this going to
Speaker 4: be metas super app?
Speaker 9: To some extent, they're basically creating a super app, I mean,
Speaker 9: similar what you see in China, but an AI driven
Speaker 9: super abb that's and you start to go through that,
Speaker 9: you look in at a four digit stop.
Speaker 4: They tried to do this years ago with David Marcus
Speaker 4: on the messenger side Man Deep. It didn't necessarily work.
Speaker 4: It was supposed to be payments and and everything. Is
Speaker 4: that still, in your view an area of growth for
Speaker 4: the company here or is that strategy gone?
Speaker 10: I mean, right now it feels like they have a
Speaker 10: lot of runway with ads and there is a clear
Speaker 10: use case for JENNYI with ADS, I mean, they still
Speaker 10: have to fix the model. So I think the advantage
Speaker 10: that they have is really they are the best when
Speaker 10: it comes to at targeting and with everything that's going on.
Speaker 10: I mean, they have the surface area to apply GENAI.
Speaker 10: But look when it comes to payments and other areas,
Speaker 10: they still lack the diversification of a Microsoft or a Google.
Speaker 10: It's still a one trick set. I mean, albeit a
Speaker 10: twi dollar company, Yes, still dependent on ADS.
Speaker 5: Dan.
Speaker 1: You know, it's funny because I was thinking about that
Speaker 1: because we you know, we talk about all of these
Speaker 1: companies and I think about the hyperscalers like an alphabet.
Speaker 1: We've talked about that a lot in Mandeep, about just
Speaker 1: all of their different platforms and how much data that
Speaker 1: gives them to make their model smarter and smart smarter.
Speaker 1: I mean, Dan, is it going to be okay for
Speaker 1: Meta to be kind of a one trick pony, even
Speaker 1: if I mean it's a massive one trick pony.
Speaker 3: But is it enough?
Speaker 7: Well?
Speaker 9: I mean, like, look, I think if you think about
Speaker 9: going to packing scale, of course I can vidio the
Speaker 9: top Microsoft and you'll get these numbers just just unbelievable.
Speaker 8: In terms of you across the board. You look at Meta, Yeah.
Speaker 9: You call it one trick pony ish, but that's but
Speaker 9: they're going to significantly expand that over the coming years.
Speaker 10: I mean, at least for now, there is no proof.
Speaker 10: I feel they are under earning by twenty percent because
Speaker 10: of all the losses in reality labs. The Street doesn't
Speaker 10: care because their ad business is really going gangbusters. When
Speaker 10: the ads slow down and the comps will get tougher
Speaker 10: and there will be a point when ads will not
Speaker 10: grow twenty percent, that's when I think the question will
Speaker 10: be asked, why are they losing twenty billion dollars on
Speaker 10: reality labs because it's not me making any money.
Speaker 4: When will it start making money?
Speaker 10: Dan?
Speaker 3: And does it matter?
Speaker 9: I mean, look, that's it's gonna be okay, it's gonna
Speaker 9: be a while. But like the whole point is right now,
Speaker 9: that's background noise, Like you know, there's like Street wants
Speaker 9: them to continue to invest in vast builders further out
Speaker 9: and at the end of the day that is going
Speaker 9: to come into the fold. But you're not right now
Speaker 9: in this arms race in Big Tac. You're a weezer
Speaker 9: focused on who's going to be the winner, and that's
Speaker 9: what we're seeing from Microsoft to Alphabet to Meta you
Speaker 9: know obviously you know acrossbord.
Speaker 8: We'll see it with Amazon as well. Like it's an
Speaker 8: arms race.
Speaker 10: I mean. The one other data point I would want
Speaker 10: to bring in is token counts. So Google and Microsoft
Speaker 10: have shared the GENII consumption, the token count We don't
Speaker 10: know how much metas models are being used. Yes, there,
Speaker 10: AT targeting is great, which is why AT pricing was
Speaker 10: such a solid number this quarter. But at the end
Speaker 10: of the day, if you're investing seventy billion dollars in Capex,
Speaker 10: you want to see your model being used and the
Speaker 10: open ser strategy work. We have no proof points of that.
Speaker 10: So I still believe they have the most uphill task
Speaker 10: in terms of showing ROI on the you know, the
Speaker 10: Capex besides their family of apps. And that's still the case.
Speaker 4: Dan, I know you got to go, but thirty seconds,
Speaker 4: last question for you, what's the one question you'd ask
Speaker 4: Mark Zuckerberg tonight?
Speaker 9: Ookay, It's really about Capex trajectory, because I think that's
Speaker 9: even though that was slow a bit, they're putting as
Speaker 9: they continue to spend, you know what, that shows confidence
Speaker 9: and as we saw on alpbet. That's what we've seen
Speaker 9: in Microsoft, and that means it continues to be I
Speaker 9: think it's the AI revolution, is the AI party. It's ten pm,
Speaker 9: was nine pm, party goes to four am.
Speaker 1: Hey, listen, before you go, I know we said last question,
Speaker 1: but not that we lie. But you know you here
Speaker 1: in your dan Ives Microsoft you said that was also
Speaker 1: a big, big, big killer report. I mean the stock
Speaker 1: was just crazy in the aftermarket's up about six point
Speaker 1: eight percent.
Speaker 9: Scotti Scheffer like results, right. I mean the point is
Speaker 9: like massive beat on cloud. You see more and more
Speaker 9: of these use cases, these hyperscalers, those are the best indicators.
Speaker 9: That just shows where the next spending in AI is going.
Speaker 9: And that's why right now, if you're a tag bear,
Speaker 9: you're in hibernation mode in that cave and you can
Speaker 9: find AI in the spreadsheet.
Speaker 3: Pretty crazy, pretty interesting. Hey listen, we know you're busy.
Speaker 1: We know you're bouncing around and got stuff to do,
Speaker 1: but always got to get some time with your Danives
Speaker 1: Managing director and senior equity analyst of at web Bush
Speaker 1: Securities also Globe Ahead of Technology Research.
Speaker 3: What would be your number question?
Speaker 11: Though?
Speaker 3: Man deep to ask on the call.
Speaker 1: Because I think it's interesting what you said about the
Speaker 1: information we get from Alphabet. Do they never answer those
Speaker 1: questions in terms.
Speaker 10: Of do you have to come care the token Isaiah.
Speaker 10: The reason why Alphabet and Microsoft are more upfront is
Speaker 10: because they have a cloud business where they are monetizing
Speaker 10: the consumption and that's what's driving the cloud revenue and
Speaker 10: the AI portion of that. In the case of Alphabet,
Speaker 10: they don't have a cloud business meta sorry Meta, yeah,
Speaker 10: And so in their case, you know, it's all internal usage.
Speaker 10: They don't rent their GPUs or the AI infrastructure to
Speaker 10: anyone else. And if you are using internally, then I
Speaker 10: mean the ecosystem doesn't know what kind of usage is
Speaker 10: there for LAMA model.
Speaker 3: Like what it's costing right to juice what they're doing.
Speaker 10: You know what it's costing because they are spending you know,
Speaker 10: seventy billion dollars in capex, But in terms of what
Speaker 10: is the utilization because this kind of infrastructure depreciates very fast,
Speaker 10: you're going to write it off in the next three years.
Speaker 10: So granted you're using it internally and it's showing up
Speaker 10: in the numbers this quarter, but if you are spending
Speaker 10: this every year, then you want to show very high utilization,
Speaker 10: especially because you're open sourcing your model, and if your
Speaker 10: model is not getting adopted, then the open source rategy
Speaker 10: isn't working.
Speaker 4: I just want to remind everybody where we've come in
Speaker 4: the last few years with meta platforms. There was a
Speaker 4: lot of talk in late twenty twenty two of leaving
Speaker 4: this company for dead. When they made their pivot to
Speaker 4: the metaverse, shares were trading at eighty eight dollars.
Speaker 3: Now it's back to the IPO. Oh sorry, yeah, I.
Speaker 4: Mean, but I mean even a recent history. Right, it's
Speaker 4: up six hundred and eighty six percent since then. That
Speaker 4: doesn't include the surge in the after hours, which if
Speaker 4: it holds, will be a new record for meta platforms tomorrow.
Speaker 5: Yeah.
Speaker 10: And look, when people were you know, selling the stock
Speaker 10: at eighty dollars, then they didn't really factor in you know,
Speaker 10: meta's engagement. So what's really brought them back in such
Speaker 10: a big way is people are still spending over an
Speaker 10: hour and a half across their family of apps, so
Speaker 10: that's sort of engaged. And look, that's where the real
Speaker 10: risk comes in. So chat ChiPT now is about thirty
Speaker 10: minutes across its daily active users, which is much smaller
Speaker 10: than Meta. Meta has over three billion, and chat ChiPT
Speaker 10: is still, you know, less than four or five hundred million,
Speaker 10: so still much small, but they are taking share in
Speaker 10: terms of engagement time. People are spending thirty minutes on
Speaker 10: chat ChiPT. So as long as Meta keeps growing engagement,
Speaker 10: I think they will keep growing earnings. And that's what
Speaker 10: they're showing with their ad revenue.
Speaker 1: All Hell's Man deep Man, deep seeing of course, with
Speaker 1: our Bloomberg Intelligence team. He is Bloomberg Intelligence Globalhead of
Speaker 1: Technology Research. Be sure to check out his research on
Speaker 1: the Bloomberg when it comes to Meta, so appreciate it.
Speaker 2: You're listening to the Bloomberg Business Weekdaily podcast. Catch us
Speaker 2: live weekday afternoons from two to five pm Eastern. Listen
Speaker 2: on Applecarplay and Android Auto with the Bloomberg Business app,
Speaker 2: or watch us live on YouTube.
Speaker 1: And then we've also got Microsoft. That stock is up
Speaker 1: about seven point nine percent here in the aftermarket, and
Speaker 1: that one some really really strong numbers as well, quarterly
Speaker 1: cloud sales profit exceeding expectations. They say they brought in
Speaker 1: more than seventy five billion dollars in the past year.
Speaker 3: In terms of its cloud.
Speaker 1: Business as the company continues to commercialize AI services.
Speaker 4: Tim, We've got a great group of folks, a great
Speaker 4: duo to talk Microsoft and more. I want to bring
Speaker 4: in Greg Halter, director of research at the registered investment
Speaker 4: advisor Carnegie Investment Counsel. They've got about six and a
Speaker 4: half billion dollars in assets under management. I also want
Speaker 4: to bring in Bloomberg Intelligence senior tech analyst anurog Rana.
Speaker 4: He joins us from our Chicago bureau. Greg, Just for
Speaker 4: some context, Microsoft is the largest holding. Is it the
Speaker 4: largest individual holding for your group? Or is it because
Speaker 4: it's an index funds. I just want to set the
Speaker 4: stage before we get into the details.
Speaker 11: Thank you, Tim, and thanks for having me. We do
Speaker 11: not count the dex fund holding positions in that number.
Speaker 11: If you look at our latest thirteen filing, Microsoft is
Speaker 11: the largest individual stockholding at Carnegie.
Speaker 1: All right, so Microsoft investors certainly like it. In the aftermarket.
Speaker 1: As we mentioned Greg, the stock is definitely soaring up
Speaker 1: about seven eight percent. Now as I speak, what jumps
Speaker 1: out at you?
Speaker 11: I think the Azure growth thirty nine percent versus the
Speaker 11: thirty four percent expected that is huge. I'll also point
Speaker 11: out that their EPs beat of eight percent plus is
Speaker 11: the best in seven quarters. Usually they do beat. I
Speaker 11: think it's been now only three times four times over
Speaker 11: the last forty five periods they have missed on earnings,
Speaker 11: and this is a larger point of exceeding the estimate
Speaker 11: that they've had in seven periods.
Speaker 3: All right, I want to bring it. You like it?
Speaker 3: All right, Anna rag Grana, I want to bring you
Speaker 3: in here. I'm not sure.
Speaker 1: I think we all went into this week with a
Speaker 1: little trepidation over everything that was coming at investors, including
Speaker 1: some of these big tech earnings. But this certainly investors
Speaker 1: like what they got from the company, and certainly with
Speaker 1: the outlook. What's your take here, what's important for investors
Speaker 1: to learn off of this release?
Speaker 12: You know, I would go what our other guests said.
Speaker 12: I mean, the acceleration in Azure is pretty impressive and
Speaker 12: one of the things I think it's going to do.
Speaker 12: It's case, it's going to tell people that all the
Speaker 12: capex Microsoft is spending, you know, they're getting the benefit
Speaker 12: of it on the other side of it, and they're
Speaker 12: probably the first one to recognize a bigger, you know,
Speaker 12: load of AI revenue coming in and you know, this
Speaker 12: will pacify a lot of people out there that may
Speaker 12: be worried that wired these companies spending so much on
Speaker 12: AI infrastructure and you know, and where is the other
Speaker 12: side of the equation. So I think it's a good
Speaker 12: result not just for Microsoft, but the entire tech platform.
Speaker 1: Well, that's what I want to just follow Ana Argic.
Speaker 1: You know, our preview of all of this was Microsoft
Speaker 1: Meta investors are going to be scrutinizing over the AI
Speaker 1: spending bench. So from Microsoft, clearly do you We are
Speaker 1: clearly seeing the ROI when it comes to that AI spend.
Speaker 12: Yeah, both on the top side and you know, they
Speaker 12: are doing extremely well on the expense management side, because
Speaker 12: what happens is when you're seeing a rapid growth and Azure,
Speaker 12: which has a relatively lower gross margin than the rest
Speaker 12: of the Microsoft business, profitability does get dented with. In
Speaker 12: addition to all the AI investments that they are making,
Speaker 12: what they did this time was, you know, year over
Speaker 12: year they kept their headcount flat. I mean that's a
Speaker 12: huge boost to you could say profitability as well as productivity.
Speaker 12: And you know, I think that's that's something for people
Speaker 12: to take home.
Speaker 4: Also, Hey, Greg, I want to bring you back in
Speaker 4: here looking at the Azure growth here. The company reported
Speaker 4: better than expected growth in its cloud business, the Microsoft
Speaker 4: saying it brought in more than seventy five billion dollars
Speaker 4: in the past year. The company continues to commercialize AI services.
Speaker 4: Give us your bull case on AI and Microsoft because essentially,
Speaker 4: this company is deploying AI tools and it's betting that
Speaker 4: these conversant chatbots and more powerful automation tools are going
Speaker 4: to boost sales of Microsoft productivity software and cloud services.
Speaker 4: Is that bet paying off right now?
Speaker 11: I don't know that you can say it's one hundred
Speaker 11: percent paying off. The reaction to the stock indicates that
Speaker 11: investors believe that it will. You know, this stock was
Speaker 11: coming into the report at thirty four times earning, so
Speaker 11: a lot has to go right, and it appears that
Speaker 11: a lot is going right. So yes, you know, we've
Speaker 11: done a look at their CAPEX and R and D
Speaker 11: over the last ten twelve years or so. It's not
Speaker 11: like this is new. It's just that the numbers are big.
Speaker 11: I mean, the percentages are also fairly large, but they're
Speaker 11: spending billions and billions on R and D. Of course,
Speaker 11: now they can get the text benefits from that billions
Speaker 11: of dollars, not just Microsoft, but others, and you would
Speaker 11: hope that they're wisely investing in that R and D
Speaker 11: for future profitable products and services.
Speaker 1: Hey, I do want to point out too that we
Speaker 1: see Amazon shares up about two point seven percent here
Speaker 1: in the after market, shares of alphabet Or down about
Speaker 1: four tenths of a percent. But of course Amazon reporting
Speaker 1: along with Apple tomorrow, Anna rog I don't know, is
Speaker 1: there any any cause for concerns or things that you
Speaker 1: want to question or would question with the c suite
Speaker 1: following Microsoft's release here?
Speaker 12: No, I think I would talk about the headcount growth
Speaker 12: for next year. You know, what are they baking because
Speaker 12: it's been almost two years where they have added very
Speaker 12: little headcount to the overall company size. And the big
Speaker 12: question over there is is this something that we should
Speaker 12: anticipate going forward, that you know, you're getting all this
Speaker 12: cloud revenue, but you're not adding a lot more headcount,
Speaker 12: Because I think that's slightly concerning, not I mean not
Speaker 12: so much for Microsoft, but the rest of the tech industry,
Speaker 12: because you know, somebody that is selling HR software or
Speaker 12: sales software depends on companies hiding quite a bit because
Speaker 12: it's a seat based model, and I think that's an area.
Speaker 12: But that's not so much I would say Microsoft's problem,
Speaker 12: but that the rest of the tech industry is issue.
Speaker 9: All right.
Speaker 3: Going to leave it there, folks, Thank you so much.
Speaker 1: Enter rog Rana, senior tech analyst with Bloomberg Intelligence out
Speaker 1: there in Chicago, and Greg Halter are thanks to you
Speaker 1: as well, director of research at the registered investment advisor
Speaker 1: Carnegie Investment, with the latest on Microsoft and Meta.
Speaker 2: This is the Bloomberg Business Week Daily podcast, available on Apple, Spotify,
Speaker 2: and anywhere else you get your podcasts. Listen live weekday
Speaker 2: afternoons from two to five pm Eastern on Bloomberg dot com,
Speaker 2: the iHeartRadio app, tune In, and the Bloomberg Business app.
Speaker 2: You can also watch us live every weekday on YouTube
Speaker 2: and always on the Bloomberg terminal.