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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is a breaking

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Speaker 1: news update from Bloomberg, instant reaction and analysis from our

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Speaker 1: three thousand journalists and analysts around the world.

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Speaker 2: We really want to go all in on Alphabet and Tesla.

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Speaker 2: We've got a great team effort to do just that.

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Speaker 2: In the house with us is our Man Deep, saying

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Speaker 2: he is, of course Bloomberg Intelligence excuse me, head of

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Speaker 2: Global Technology. We've also got our Keith not in Bloomberg

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Speaker 2: News Auto reporter. He joins us here in our Bloomberg

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Speaker 2: Interactor Brokers studio along with Man Deep. And then we've

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Speaker 2: got Edla Love, Bloomberg Tech host out.

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Speaker 3: There in our San Francisco bureau.

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Speaker 2: All right, where to start? I do want to start

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Speaker 2: with you, Man Deep, only because I feel like the

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Speaker 2: AI trade is so important.

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Speaker 3: What do you make of it?

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Speaker 4: I mean great print. I think overall the results were

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Speaker 4: great Cloud eighty two percent growth.

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Speaker 5: It's one hundred billion in our rundread.

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Speaker 4: Business now, which is phenomenal, you know for a company

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Speaker 4: like Alphabet, which was really consumer focused. But backlog is

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Speaker 4: probably where I would say the visper number was higher

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Speaker 4: simply because when I look at Microsoft's backlog number, it's

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Speaker 4: higher than alphabets.

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Speaker 5: And given it's growing eighty two percent and it.

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Speaker 4: Has got Entthropic as one of its main customers of

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Speaker 4: Google Cloud, I would have expected that to go up.

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Speaker 4: I mean, Anthropic is signing deals left and right, so

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Speaker 4: why is it not showing up in the Google backlog number.

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Speaker 1: Gemini models now process twenty two billion API tokens per minute,

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Speaker 1: and the Gemini app as nine hundred and fifty monthly

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Speaker 1: active users. Contextualize that mandate for us compared to open

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Speaker 1: Ai into Anthropic.

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Speaker 4: I mean, it's great, but look, Gemini has an attached

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Speaker 4: rate because of all the other properties that Google has

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Speaker 4: the search, YouTube. So for me, until analysts they talk

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Speaker 4: about usage of Gemini really taking off relative to the

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Speaker 4: last quarter, it's hard for me to extrapolate that into

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Speaker 4: you know, Gemini really taking share away from a chat

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Speaker 4: CPT and all these companies are reporting very high MAU numbers,

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Speaker 4: but it's really the usage that counts. And to my mind,

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Speaker 4: the nine to fifty million is a reflection of the

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Speaker 4: high attached rate that Google has because of the distribution through.

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Speaker 5: Search and the operating system and browser.

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Speaker 3: And we're going to come to you in just a

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Speaker 3: moment on both.

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Speaker 2: But I want to bring Keith not named Tesla, it

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Speaker 2: is it is a lot of technology in that one.

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Speaker 2: So as we talk about all of this, what do

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Speaker 2: you make of kind of some of the numbers that

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Speaker 2: we got from Telah.

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Speaker 6: That's a big mess, you know, thirty three cents versus

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Speaker 6: fifty one cents, and I get that Tesla is no

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Speaker 6: longer really a car play.

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Speaker 5: It's an it's an AI play.

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Speaker 6: It Well, here's the problem with that, Tim. The thing

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Speaker 6: is is that to fund that twenty five billion in

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Speaker 6: capex they have planned for this year, they need to

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Speaker 6: sell a lot of cars. So they did sell well

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Speaker 6: in the second quarter, right, but yet we're coming in low.

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Speaker 6: You saw the growth margins also, yeah, yeah, so they

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Speaker 6: made money. They went negative cash flow. We expected that.

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Speaker 6: They didn't go as negative as was expected, so that's good,

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Speaker 6: but they did go negative cash flow. So you know,

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Speaker 6: you got to generate revenue and profit from the car

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Speaker 6: side of the house in order to pay for the

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Speaker 6: robotics and the AI and the cyber caps.

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Speaker 1: Yeah, ed Love, look, come on in on in this conversation.

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Speaker 1: Is Tesla in your view and based on the folks

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Speaker 1: you talked to is it's still a car company.

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Speaker 7: Yeah, the street wanted to see Tesla spend a lot

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Speaker 7: of money, more money than they are spending currently based

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Speaker 7: on the trajectory of Capex, to make some progress on

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Speaker 7: robotaxis and robotics. And you know, looking back at the court,

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Speaker 7: it was the problem that they had is even though

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Speaker 7: they had record vehicle deliveries, you know they are spending

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Speaker 7: on R and D. That's an impact. Stock based compensation

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Speaker 7: is a big impact. Remember like talent and stock based

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Speaker 7: compensation in the valley. On the software and engineering side

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Speaker 7: is like a really important factor. They had lower average

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Speaker 7: selling prices, so you have record vehicle deliveries, but lower

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Speaker 7: ASP has not gone well for them. It's such a

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Speaker 7: simple story. Capital expenditures came in in line with expectations,

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Speaker 7: but on the buy side, just put your money where

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Speaker 7: your mouth is. Is Elon Musk spend more money on

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Speaker 7: the AI story and it hasn't really translated. But again

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Speaker 7: it's just an earnings deck. The real meat of it

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Speaker 7: probably comes in the call.

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Speaker 2: All right, So yeah, I want to bring well ed

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Speaker 2: before we I want to bring Mandy back in your

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Speaker 2: thoughts on also alphabet here.

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Speaker 7: Yeah, I was listening very carefully to everything that man

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Speaker 7: Deep said. I mean the way that I look at it.

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Speaker 7: You know, we looked at the backlog, Mandeep explained Gemini,

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Speaker 7: and the trajectory of the cloud business search is where

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Speaker 7: the slight miss is. And so I guess the other

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Speaker 7: way of looking at it is that there's a concern

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Speaker 7: out there that the core search business gets more impacted

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Speaker 7: by the behavior of using a chat bot in lieu

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Speaker 7: of the search engine, and so it's a slight miss, right,

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Speaker 7: that's not evidence of that. Again, a very high ibar

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Speaker 7: quarter for alphabet I just can't get over the cloud growth,

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Speaker 7: like Mandy, like, just save me a bit, like cloud

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Speaker 7: growth eighty two percent, pretty good like relatives what you

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Speaker 7: and I thought it's about earlier in the week.

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Speaker 4: Yeah, look, I think overall it's hard to find any

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Speaker 4: fault in the print. It's just, you know, because everyone

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Speaker 4: is expecting Capex to go up to three hundred billion.

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Speaker 4: I mean, look, believe it or not, this company will

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Speaker 4: have negative free cash flow next year. So from that perspective,

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Speaker 4: you have.

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Speaker 5: Wild why because of Capex investment.

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Speaker 4: Right now, there are probably you know, ten to fifteen

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Speaker 4: billion dollars free cash flow for this year. Next year,

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Speaker 4: if it goes to three hundred billion, there's no way

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Speaker 4: they're going to be positive free cash flow. So from

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Speaker 4: that perspective, despite that twenty four percent top line growth,

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Speaker 4: we're talking about a company that will have negative free

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Speaker 4: cash flow at their scale. And that's where you know,

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Speaker 4: you want to see all these businesses really doing well.

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Speaker 4: Right now, it's cloud that's carrying all the weight, but

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Speaker 4: you want to see that, to Edg's point, and search

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Speaker 4: and you know, YouTube and other businesses, and you're not

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Speaker 4: seeing that kind of lift.

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Speaker 3: And you're laughing why at the amount?

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Speaker 7: No, no, are Actually I take it super seriously. But

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Speaker 7: like remember when Oracle flipped a negative free cash flow

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Speaker 7: for the first time since the nineties, the markets melted down.

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Speaker 7: When Amazon goes to negative free cash flow, So what

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Speaker 7: to our audio listeners, I shrugged my shoulders and made

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Speaker 7: a funny face. But like you know, the interpretation of

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Speaker 7: mandi It's analysis and the research that Bi's done on this.

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Speaker 7: The market's very sanguine about that. They want to see

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Speaker 7: capital expenditure high. They also want to see top line

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Speaker 7: growth directly evidenced as a result of the capex. But

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Speaker 7: on the cash flow thing, Like everyone seems pretty calm

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Speaker 7: about that.

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Speaker 1: Mandy, when's the payoff on this spand is it already happening.

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Speaker 5: It's happening in a big way with the cloud business.

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Speaker 4: I mean, then have you seen you know, a company

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Speaker 4: get to one hundred billion dollar new business line in

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Speaker 4: a matter.

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Speaker 5: Of you know, three four years.

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Speaker 4: So they are seeing that in the cloud business, and

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Speaker 4: it's a great investment. It's just I think with Alphabet,

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Speaker 4: search is always the cash cow that funds everything. And

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Speaker 4: even though the top line growth, to my mind, seventeen

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Speaker 4: percent isn't bad in terms of top line growth, it's

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Speaker 4: just I think the backlog number combined with where search

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Speaker 4: would be two three years from now, that's where you

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Speaker 4: start to get a little worried. But you know, maybe

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Speaker 4: they come out in the call and say Gemini nine

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Speaker 4: hundred and fifty million users saw engagement growth of x percent,

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Speaker 4: and then suddenly everyone will be okay, But you really

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Speaker 4: want to see Gemini delays not carry forward. Remember they

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Speaker 4: have seen a delay in their Gemini Pro three point

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Speaker 4: five release. Now, all that is adding to the anxiety.

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Speaker 4: Is Alphabet really falling behind when it comes to the

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Speaker 4: frontier mind yes, they're doing very well on the cloud side,

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Speaker 4: but what is it that will prevent search from really

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Speaker 4: going down or you know, the company falling behind in

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Speaker 4: the front of your model race.

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Speaker 2: It's interesting you have to spend right to build out

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Speaker 2: some of these businesses in a big time and that

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Speaker 2: is certainly a metric in terms of how you're judged.

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Speaker 2: I want to go back to Tesla, same thing, though

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Speaker 2: they want Elon to spend to kind of do what

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Speaker 2: he needs to do.

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Speaker 6: Yeah, I mean he's made some very large promises, hasn't

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Speaker 6: he about AI and about the cybercabs who are supposed

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Speaker 6: to all be writing in them by now, right, and

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Speaker 6: that hasn't happened. The launch is slower. Optimist is not

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Speaker 6: being built yet out in Fremont, although he says that

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Speaker 6: will happen by the end of the year. But we've

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Speaker 6: heard that before, right, Yeah, So until he actually delivers

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Speaker 6: some you know, deliverable, some tangible results, you know, we're

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Speaker 6: still relying on the car business to deliver the mail

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Speaker 6: and you know, this report isn't showing that that's meeting expectations.

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Speaker 1: And is the case being made by investors or by

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Speaker 1: at least Elon's investments Tesla right now that yeah, base

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Speaker 1: X could absorb this company at some point in the

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Speaker 1: near future.

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Speaker 7: You know, it's still the prevailing sentiment in the industry

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Speaker 7: and of the existing investigation on the SpaceX side, that

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Speaker 7: this will happen with time. Right. The financial mechanics of

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Speaker 7: that are a bit of a mystery, you know, one

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Speaker 7: public company backing into another. But to lots of people,

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Speaker 7: you just go back to why they believe that. They

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Speaker 7: believe that the joint scale makes sense too, very deeply

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Speaker 7: vertically integrated companies that have a shared initiative on the

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Speaker 7: compute side and semiconductor's side, where there is already a

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Speaker 7: lot of cooperation on the engineering side. You know, to

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Speaker 7: lots of people, it's just logical. We just don't have

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Speaker 7: an answer for that. I found it, you know, I

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Speaker 7: put it in the blog, right, I found it amazing that,

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Speaker 7: you know, But but is it to be expected? There's

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Speaker 7: no mention really is SpaceX at all in the Tessa

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Speaker 7: roundings deck. And the only thing is that they have

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Speaker 7: a one billion dollar unrealized game from their prior equity

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Speaker 7: investment in Xai which rolled into SpaceX.

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Speaker 2: Interesting, Yeah, I do wonder too, and I want to

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Speaker 2: bring this question to both man Deep and to Keith.

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Speaker 2: I mean, Mandeep, do you you have to think about

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Speaker 2: Tesla and you have to think about SpaceX and their

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Speaker 2: role in AI and kind of where this company is going. Right,

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Speaker 2: We've talked with you about this. I mean you've got

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Speaker 2: to kind of think about where this goes next.

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Speaker 4: I mean, to my mind, why did Google have to

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Speaker 4: rent compute from SpaceX at such a high price? You know,

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Speaker 4: when they have their own cloud business that well maybe

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Speaker 4: they can monetize it better than SpaceX data centers can

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Speaker 4: on their own. So from that perspective, Google cloud business

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Speaker 4: is more established, they can get a lot more out

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Speaker 4: of that compute than SpaceX can. But really that's the

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Speaker 4: case to be made that Google should go big in

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Speaker 4: terms of Capex increase because right now they're renting from SpaceX.

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Speaker 2: Well the same thing though, to you, Keith, I mean,

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Speaker 2: do you increasingly think about Okay, you know, Tesla is

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Speaker 2: not just going to be this car company anymore.

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Speaker 3: You really have to think about the whole elon universe.

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Speaker 6: Right, and he and he has to start showing that

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Speaker 6: and just talking about that, and he also has to

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Speaker 6: make promises that he can achieve and so far he's

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Speaker 6: over promised and under delivered.

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Speaker 2: Yeah, it's just the date always moves.

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Speaker 4: That takes his two gigabotts of capacity, and suddenly that

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Speaker 4: will be another you know, fifty billion dollars in revenue

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Speaker 4: that SpaceX can add. So it's not that hard right now,

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Speaker 4: at least in this environment, more gigabot capacity is equal

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Speaker 4: to twenty five billion dollars in revenue per gigawatt.

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Speaker 3: Man, I do you think.

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Speaker 2: It's odd that there's no mention, as Ed mentioned, really

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Speaker 2: of SpaceX in the Tesla results.

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Speaker 4: I mean, right now, these are independent companies. Why would

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Speaker 4: they be mixing those up?

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Speaker 1: Same boss? You know, ish Ish Keith. I want to

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Speaker 1: play this out with you a little bit and what

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Speaker 1: we were talking to Ed about in the idea of

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Speaker 1: Tesla being absorbed by SpaceX at some point. I know

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Speaker 1: there's no historical precedent for this, but you do have

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Speaker 1: in some cases auto manufacturers that are part of big conglomerates.

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Speaker 1: But you know, Tata comes to mind for me. But

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Speaker 1: is there is the history mixed?

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Speaker 5: Well?

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Speaker 1: I think with this sort of like a huge company

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Speaker 1: that also turns out cars.

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Speaker 6: Tesla as a car company, is not really a growth

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Speaker 6: story anymore. They are contracting or they had a good quarter,

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Speaker 6: but the previous two years they were down in car sales.

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Speaker 6: And they're not even a luxury car maker anymore. They

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Speaker 6: stopped making models, they stopped making Model X. Their most

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Speaker 6: common trade in now is a Toyota, a Toyota hybrid,

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Speaker 6: so meaning people come with people trade in their Tesla Toyota.

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Speaker 6: Now that's what's happening, Edmonds tells us today. Wow, people

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Speaker 6: are getting out of Tesla's and going into Toyota hybrids.

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Speaker 6: So they're a mass market car maker. Now that's why

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Speaker 6: the margin shrink. Right, You're no longer run the luxury business.

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Speaker 6: The most common trade out of a Tesla previously had

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Speaker 6: been a luxury car maker, a German car maker, are

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Speaker 6: going into Toyotas. So Tesla's growth engine is slowing on

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Speaker 6: the car side of the business. And that and so

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Speaker 6: linking up with SpaceX could give them new ways to

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Speaker 6: find revenues and to monetize the AI side of the business,

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Speaker 6: which so far it doesn't.

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Speaker 1: But at ed to Keith's point, could the cyber cab

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Speaker 1: or the you know, the robotaxi come to the rescue here.

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Speaker 7: You know, there is a they stopped the S and

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Speaker 7: X in the period, right, Those will higher margin, higher

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Speaker 7: price point vehicles. So like what keeps outlining is completely correct.

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Speaker 7: People forget the business model, and actually, what I would

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Speaker 7: say the biggest tone shift in the deck it's just

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Speaker 7: a document, is that this is Tesla the sort of

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Speaker 7: complicated compute industrial robotics company. You know, that's the kind

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Speaker 7: of inaggregate takeaway from it. The Robotaxi business plan is multifaceted.

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Speaker 7: Cyber Cab is a vehicle that Tesla purpose produces and

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Speaker 7: operates within a proprietary ride heading fleet itself, but also

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Speaker 7: plans to sell the consumer. Makes not a lot of

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Speaker 7: sense to a lot of people. But there's also like

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Speaker 7: the Airbnb model, where you, as an existing Tesla owner,

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Speaker 7: submit your vehicle to the fleet, so when you're not

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Speaker 7: using it, it goes out and operates in the ride

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Speaker 7: hailing fleet like an Uber, but it's your vehicle that

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Speaker 7: you own. And what's not clear is the economics of

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Speaker 7: that mixed fleet. People just don't understand it, and Tesla

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Speaker 7: hasn't really explained it since they first made the proposals,

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Speaker 7: So that doesn't answer your question. Tim but that's the

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Speaker 7: problem with this print. The cord of gone was bad,

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Speaker 7: and there's not a lot of evidence that the future

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Speaker 7: is underway.

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Speaker 3: All right, I want to go back to Alphabet if

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Speaker 3: I may.

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Speaker 2: Tesla's still under pressure, selling off a bit after the

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Speaker 2: market trade here, Alphabet's been bouncing around. So I want

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Speaker 2: to go back to you, Mande, because I'm looking at

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Speaker 2: our live blog, our market's live blog, and they're pointing out.

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Speaker 3: Most of its biggest businesses.

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Speaker 2: We're head of alst expectations, with the exception of search,

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Speaker 2: which was a touch below. What is it that you

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Speaker 2: think we need to hear the call? Is it about

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Speaker 2: what's happening, what's going on with spending like the outlook

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Speaker 2: here more.

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Speaker 4: I mean, the world of AI is measured in terms

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Speaker 4: of token consumption, and even though they gave a token

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Speaker 4: consumption metric around API usage going to twenty two billion

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Speaker 4: from sixteen billion last quarter, so that's a nice uptick,

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Speaker 4: but really on the whole, you want to see them

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Speaker 4: continue to grow that token consumption across the family of apps,

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Speaker 4: and I think that's where you will see the usage

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Speaker 4: of the model, how much Gemini is getting used. So

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Speaker 4: token consumption along with that Kapex guide to me, those

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Speaker 4: are the two key metrics.

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Speaker 1: Do we have metrics on AI overview versus traditional Google search?

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Speaker 5: They do talk about how much that does that matter

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Speaker 5: to you?

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Speaker 4: I mean, I care more about the aggregate, even if

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Speaker 4: there are some offsets that they are moving some of

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Speaker 4: the traffic to AI overviews and AI mode. At the

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Speaker 4: end of the day, it's the time spent on Google

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Speaker 4: Family of Apps.

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Speaker 5: That's what.

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Speaker 1: Okay, So that's okay, ed, come on back in here.

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Speaker 1: I don't think we've talked to you about this, which

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Speaker 1: is sort of the little incremental updates that alphabet is making.

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Speaker 7: Two.

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Speaker 1: I don't want to call family of apps because I

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Speaker 1: don't want to confuse meta. But it's like, you know,

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Speaker 1: Google's Gmail having this sort of like AI inbox or

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Speaker 1: you being able to ask Google Maps questions that are

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Speaker 1: more conversational and AI. Does that move the needle in

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Speaker 1: your view? Do analysts talk about that making this stuff

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Speaker 1: more engaging? Because AI inbox is great for me?

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Speaker 7: You know, I'm not deflecting. I really got I would

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Speaker 7: go to Mandeep on this, but it's not the consumer

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Speaker 7: that moves the needle, right, you know, look at what

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Speaker 7: they did say, ninety percent of the Fortune one hundred

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Speaker 7: are using the Gemini Enterprise. According to the statement, Gemini

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Speaker 7: models process twenty two billion API tokens per minute. You know,

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Speaker 7: this is the token economy. That's how we're judging a

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Speaker 7: success of the utilization of different AIS that the frontier

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Speaker 7: labs and the hyperscalas are developing. That's in the enterprise.

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Speaker 7: You know, it has very little to me to see

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Speaker 7: the needle move on the existing suite of software that

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Speaker 7: Google ads, just like Microsoft's having a very hard time

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Speaker 7: telling me that three point sixty five has anything to

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Speaker 7: do with the AI story and then boosting cloud sales.

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Speaker 7: It just doesn't.

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Speaker 1: Yeah, that's a good point, I mean, Mandeep, But if

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Speaker 1: a lot of consumers are sort of interacting with Google's

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Speaker 1: AI through these tools that they've used for years, then

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Speaker 1: certainly that makes them more engaging. It does it, But

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Speaker 1: like Ed said, maybe it doesn't move the needle.

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Speaker 4: I mean, to my mind right now, because the LLM

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Speaker 4: companies don't have a premium models with ADS, the consumer

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Speaker 4: side is somewhat shielded and the battleground is really the

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Speaker 4: enterprise side to ADS point, because that's where the consumption

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Speaker 4: is measured around tokens, and you are seeing that backlog

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Speaker 4: really come to fruition. But the consumer side is important

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Speaker 4: in the sense all the Internet platforms leverage the data

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Speaker 4: to make the platforms better. That's why Google has been

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Speaker 4: so successful over the years. So if you lose the

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Speaker 4: engagement on the consumer side over time, it's going to

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Speaker 4: affect how good your product is. And that's where people

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Speaker 4: moving their queries to chatchpt or cloud will have an impact.

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Speaker 4: Because right now Google has that monopoly ninety percent it

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Speaker 4: used to have. I don't think that's the case anymore,

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Speaker 4: but that's how the platform got so much better. The

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Speaker 4: search box got so much better is because of the usage.

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Speaker 4: So I won't underestimate the usage on the consumer side.