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Speaker 1: Bloomberg Audio Studios, podcasts, radio, news and earnings Palooza.

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Speaker 2: Looking at shares of meta platforms right now. They are

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Speaker 2: lower in the after hours, but not by much. They

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Speaker 2: were bouncing around a little bit, but now down about

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Speaker 2: one point one percent. We got news at the company.

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Speaker 2: He's fourth quarter revenue coming pretty much in line with

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Speaker 2: estimates forty five billion to forty eight billion dollars. Mark

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Speaker 2: Zuckerberg himself calling it a pretty good quarter, a good

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Speaker 2: quarter in the press release. Let's see what Mandeep Saying

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Speaker 2: has to say about that. Mandeep joins us here in

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Speaker 2: the Bloomberg Interactive Broker Studio's Bloomberg Intelligence senior technology analyst.

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Speaker 2: He's looking at these numbers. What sticks out to you,

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Speaker 2: especially in the wake of what we heard yesterday from Alphabet.

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Speaker 3: Yeah, I think most of the numbers that I see

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Speaker 3: are in line with the expectations. I mean, the one

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Speaker 3: thing is ad pricing. So ad pricing continues to tick up.

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Speaker 3: If you look at this quarter, I think it was

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Speaker 3: around eleven percent. Impressions went down a little bit, and

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Speaker 3: it's just the function of how well they have been

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Speaker 3: executing in terms of, you know, implementing generative AI and

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Speaker 3: really making changes that compared to Snap who reported yesterday

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Speaker 3: we saw snaps at pricing decline. So you know, that

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Speaker 3: just goes to show at what scale care we really

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Speaker 3: compare the two well, I mean, digital ads is a

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Speaker 3: function of how much you are better in terms of

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Speaker 3: targeting versus the other platforms. So Google Search at pricing

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Speaker 3: grew seven percent, Meta platforms at pricing grew eleven percent,

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Speaker 3: Snap at pricing down seven percent. So it just goes

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Speaker 3: to show it's easy to monetize on Snap, but you

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Speaker 3: are not getting the ROI. In the case of Google

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Speaker 3: and Meta, you are getting an ROI on your ad

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Speaker 3: spend and that's why advertisers are willing to spend more.

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Speaker 3: So it's a function of scale, but the effectiveness is there,

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Speaker 3: and that's evident in meta platforms.

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Speaker 4: To talk about all kookie things that they're still spending

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Speaker 4: money on. Reality Labs posting a four point four billion

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Speaker 4: dollar loss in the third quarter, it's revenue did rise

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Speaker 4: twenty nine percent year over year to two hundred and

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Speaker 4: seventy million dollars in the third quarter. That was actually

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Speaker 4: below analyst expectations four point four billion dollars. What are

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Speaker 4: they doing over at Reality Labs.

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Speaker 3: Mean, we know, it's the investments in the VR headsets,

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Speaker 3: the ray bang glasses we have talked about at Land

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Speaker 3: and look, I think they will always be a drag

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Speaker 3: on the overall operating profit because even if they sell

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Speaker 3: you know, one hundreds thousands millions of these, the margins

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Speaker 3: will never be comparable to their core ADS business, which

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Speaker 3: is north of fifty percent. So hardware is a money

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Speaker 3: losing business for Meta right now. And that's what's evident

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Speaker 3: in that four point four billion dollar loss.

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Speaker 2: One of the headlines coming out of these numbers. Meta

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Speaker 2: still sees significant capital expenditures growth in twenty twenty five.

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Speaker 2: I feel like I'm talking to someone right now about

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Speaker 2: the Federal Reserve minutes. What does quote significant mean here?

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Speaker 4: Help us?

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Speaker 3: Well, So, look at how much the capex grew in

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Speaker 3: twenty twenty four so far, and we're talking about already,

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Speaker 3: you know, a twenty percent bump. In the case of Microsoft,

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Speaker 3: it's fifty percent, so significant could be fifty percent from

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Speaker 3: you know, forty billion this year, and that would get

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Speaker 3: it closer to sixty billion. Now. The difference between Meta

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Speaker 3: and Microsoft is the capex intensity for Meta is already

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Speaker 3: north of twenty percent. Normally for large tech companies, CAPEX

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Speaker 3: intensity is like ten to fifteen percent. That's where Alphabet

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Speaker 3: is at.

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Speaker 2: So where are they spending this money? Katie mentioned that

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Speaker 2: about ten percent of in Nvidia's revenue comes from Meta platforms,

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Speaker 2: about twenty percent coming from Microsoft. Yeah, where's where does

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Speaker 2: Meta spend this money next year?

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Speaker 3: It's going towards GPUs. I mean it's every large tech

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Speaker 3: company right now is looking to build bigger data centers

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Speaker 3: where they can train their AI. And Meta has that

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Speaker 3: distinction of owning a large ANGLD model, their Lama language model,

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Speaker 3: which they didn't mention a lot in their release, but

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Speaker 3: it will come up on the call. And they have

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Speaker 3: talked about Meta AI having five hundred million monthly active

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Speaker 3: users that is powered by Lama. In fact, there was

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Speaker 3: some talk about Lama being licensed to an Amazon AWS

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Speaker 3: so they could start monetizing that. I mean, there's no

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Speaker 3: mention of it in the press release, but we will

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Speaker 3: hear about that on.

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Speaker 1: The earning spot.

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Speaker 4: I want to talk a little bit about the share reaction.

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Speaker 4: Meta shares currently down over three percent right now, but

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Speaker 4: I mean it's been an incredible run for Meta. You

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Speaker 4: talk about price to Perfection. I don't know if Perfection

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Speaker 4: exactly was priced in, but the bar was certainly high

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Speaker 4: for this stock.

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Speaker 3: And look at the multiple. The price to earnings multiple

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Speaker 3: of Meta is twenty five times forwardunnings compared to an

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Speaker 3: Alphabet which is still below twenty times forward earning. So

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Speaker 3: clearly there is that gap that Alphabet could catch up

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Speaker 3: to these guys in terms of multiples, and Microsoft is

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Speaker 3: close to thirty times earning. When you know, the setup

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Speaker 3: is such that expectations are higher. I mean, Microsoft had

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Speaker 3: thirty four percent growth in Azure. Still that wasn't good

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Speaker 3: enough to drive up those stock, So that's where expectations

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Speaker 3: come into play.

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Speaker 2: You mentioned Lama and the potential integration. Explain to everyone

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Speaker 2: what Lama is and how Meta Platforms is actually using

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Speaker 2: it outside of sort of internally. I mean, I know,

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Speaker 2: I don't know. Am I seeing Lama when I go

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Speaker 2: search on Instagram, when I search on WhatsApp?

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Speaker 3: Yeah?

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Speaker 2: So Lama.

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Speaker 3: We've started hearing about Meta getting into their own search business.

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Speaker 4: Yeah.

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Speaker 3: And look, Google and Meta have that distinction of owning

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Speaker 3: their large anglid model, whereas everyone else is dependent on

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Speaker 3: open Ai or Anthropic, which are independent companies. So in

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Speaker 3: the case of Meta, they've had a lot of success.

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Speaker 3: It's like Lama is on three point two release and

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Speaker 3: every release is getting better in terms of the native capabilities.

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Speaker 2: But can I download Yama as at and alone app

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Speaker 2: right now?

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Speaker 3: No? No, So this is a large I can't.

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Speaker 2: I can't download it like I download Chat GPT and

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Speaker 2: use Chat GPT.

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Speaker 3: I mean, they're looking to go towards that model where

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Speaker 3: you can use Lama in that form. But right now,

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Speaker 3: Lama is just being deployed across their family of apps,

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Speaker 3: which is Instagram, you know, WhatsApp and Core Blue App.

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Speaker 3: But again, owning a large anglid model is such a

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Speaker 3: huge moat, and that's where you know, all these companies

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Speaker 3: spending on data centers, the compute capacity. What they're looking

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Speaker 3: to do is to really build on that large anglid

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Speaker 3: model mode.

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Speaker 2: There you go, There you go, and deep. We should

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Speaker 2: let him get back to work. Call to listen to.

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Speaker 2: He's got a report to write, he's busy after Alphabet

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Speaker 2: and Snap. Yesterday we made him talk about Reddit. He

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Speaker 2: didn't even know he was going to talk about Reddit. Yesterday.

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Speaker 2: We made you go everywhere Mannie, thanks so much for

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Speaker 2: joining us. Really do appreciate it. Okay, so Meta platform

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Speaker 2: shares moving in the after hours, they were down as

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Speaker 2: much as three percent, now down about two point seven percent. Katie,

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Speaker 2: help me out with Microsoft and what Microsoft is doing.

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Speaker 4: I mean, I think it comes back to those high

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Speaker 4: expectations as well. You see shares right now was a

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Speaker 4: pretty clean quarter overall, and I can't seem to quite

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Speaker 4: get off the ground in the after hours trade. We've

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Speaker 4: been toggling around what thirty four times earnings, that's what

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Speaker 4: it's trading at. That's a pretty high bar, tim.

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Speaker 2: Yeah, it is Microsoft clouds computing business, the office software fields,

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Speaker 2: stronger then expected quarterly revenue growth. It's a sign that

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Speaker 2: the company's heavy investments in AI are starting to pay off.

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Speaker 2: All right, let's get more.

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Speaker 5: Now.

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Speaker 2: We got aniog Rana joining us. He has been looking

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Speaker 2: at these numbers for the past thirteen minutes or so.

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Speaker 2: He's from Bloomberg Intelligence. Aniog what sticks out to you

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Speaker 2: from this report?

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Speaker 5: Yeah, the Azure number sticks out to us. That's thirty

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Speaker 5: four percent increase in constant currency. That's fairly impressive given

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Speaker 5: the size of that business. And another thing they basically

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Speaker 5: mentioned was it includes our twelve percentage points of growth

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Speaker 5: coming from AI related workloads, and Microsoft is the only

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Speaker 5: company that's really quantifying it at a very, very, i

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Speaker 5: would say, credible way at this point compared to any

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Speaker 5: of the other companies. So you know, But at the

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Speaker 5: same time, they're going to give guidance on the conference

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Speaker 5: call that's going to be an hour from now, and

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Speaker 5: I think that dictates what happens to the stock tomorrow.

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Speaker 4: Yeah, and of course it'll be interesting to see how

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Speaker 4: the market continues to digest these numbers bouncing around all

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Speaker 4: over in the after hours trade. Talk to us a

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Speaker 4: little bit more about the conference call, I mean, in

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Speaker 4: addition to some more details on the cloud, what else

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Speaker 4: will you be listening.

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Speaker 5: For capital expenditures and how much more are they're going

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Speaker 5: to spend and what is it going to do for margins.

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Speaker 5: This is the first year where we're going to see

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Speaker 5: Microsoft's operating margin dip probably about one hundred to one

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Speaker 5: hundred and fifty basis points because of all the investments

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Speaker 5: that they're doing, and they need to convince the street

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Speaker 5: that these investments are worth the effort.

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Speaker 1: That means they're.

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Speaker 5: Going to spend the money this year and over the

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Speaker 5: next few years, You're going to see that money come back,

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Speaker 5: and I think that's going to be a lot of

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Speaker 5: discussion around capital expenditure as well as you know, growth.

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Speaker 4: And ansure, and of course we're coming off the heels

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Speaker 4: a pretty strong alphabet results. I want to talk about

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Speaker 4: the search business in particular. It feels like BANG has

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Speaker 4: been the butt of the joke forever.

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Speaker 2: Really is it still you doing things?

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Speaker 4: I don't just bring it?

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Speaker 2: Yeah, you got a question, just bring it.

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Speaker 4: I'm going to start saying that. Are people saying that more?

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Speaker 2: Though?

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Speaker 4: You think about all these investments that Microsoft has made

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Speaker 4: in AI in particular, is the search business seeing the

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Speaker 4: fruits of that?

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Speaker 1: No, I would not say that.

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Speaker 5: I've been Their market share has remained kind of in that,

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Speaker 5: you know, same number compared to the pre AI era.

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Speaker 5: Microsoft made a big deal about it when they launched,

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Speaker 5: you know, their bing with AI features, and that was

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Speaker 5: the big thing that it's going to take down Google

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Speaker 5: or take some market share away from it. So far

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Speaker 5: it hasn't happened. But I think, you know, my Microsoft

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Speaker 5: is making a big noise about it. I also feel

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Speaker 5: they are trying to do this because they may want

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Speaker 5: to be you know, get a deal with Apple for

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Speaker 5: the search in that particular ecosystem. So it's a good business, frankly,

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Speaker 5: but that's not what's going to drive the stock. The

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Speaker 5: stock is going to be driven by how the cloud

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Speaker 5: growth is and how stable their office business is.

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Speaker 2: One thing that was pretty remarkable about yesterday's results on

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Speaker 2: IRAQ from Alphabet, the parent of Google, is the cloud

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Speaker 2: growth for that company. And men Deep was in here

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Speaker 2: reminding us that when it comes to the cloud race,

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Speaker 2: you got Aws, you got Microsoft, and then in third

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Speaker 2: place you have Alphabet. So you're focused on Microsoft, the

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Speaker 2: number two player when it comes to cloud. Why does

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Speaker 2: somebody go to Microsoft that somebody who isn't Open AI

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Speaker 2: for example, why do they go to Microsoft instead of

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Speaker 2: going to AWS or Google.

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Speaker 1: That's a very good question.

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Speaker 5: And you know, if you go back to the history

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Speaker 5: of cloud, Aws was the first company that really championed

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Speaker 5: the cause of public cloud services. Microsoft game and said, listen,

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Speaker 5: go back to the companies that have been doing a

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Speaker 5: lot of tech spending and say, you already have a

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Speaker 5: lot of your workloads on Microsoft's products, which is Microsoft servers,

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Speaker 5: Microsoft operating system in databases. Why don't you port over

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Speaker 5: that workloads?

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Speaker 1: To Micloud.

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Speaker 5: So they really sold a lot of services as a

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Speaker 5: function of hybrid cloud services, and that's really their bread

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Speaker 5: and butter. But while when it comes to AWS in

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Speaker 5: Google they're going after startups and trying to get more

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Speaker 5: money from them.

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Speaker 4: How do you gain share in the cloud business? Is

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Speaker 4: it a game of inches? I mean, what does that

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Speaker 4: look like? That competitive landscape?

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Speaker 1: This is probably the most important thing we try to

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Speaker 1: tell people that.

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Speaker 5: You know, if you go back and look at ten

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Speaker 5: years ago, AWS has held its market share just in

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Speaker 5: the cloud infrastructure space, there's somewhere roughly around thirty five

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Speaker 5: to forty percent, somewhere in that range. But the size

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Speaker 5: of the cloud market has become so big. When it

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Speaker 5: was about one hundred two hundred billion at this point,

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Speaker 5: you know, this is probably six hundred and seve hundred

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Speaker 5: billion and above at that point. So the whole market

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Speaker 5: is growing and I think one of the places where

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Speaker 5: people don't talk about because of Genai, we think cloud

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Speaker 5: growth is going to be even bigger. So in our view,

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Speaker 5: all three companies and for that matter, the fourth vender, Oracle,

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Speaker 5: they're all going to.

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Speaker 1: Make good money over the next few years.

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Speaker 5: Because it's easy to run those AI workload and experiments

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Speaker 5: on the cloud rather than doing it on premise.

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Speaker 2: Okay, so is there anything we should be focused on

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Speaker 2: in these results that don't have to do with Azure

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Speaker 2: or the cloud, the capital expenditures?

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Speaker 5: I think, yeah, well, you can talk about gaming and

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Speaker 5: a few other things. But to be very honest, the

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Speaker 5: valuation Microsoft and AWS and Google have at this point,

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Speaker 5: it's largely driven by how they're going to monetize the

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Speaker 5: AI investments.

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Speaker 1: Everything else is secondary.

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Speaker 5: The good thing about Microsoft is it has the Windows

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Speaker 5: operating system. It has office that provides a lot of

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Speaker 5: cash flow where they can invest without investors.

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Speaker 1: Get letty about it.

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Speaker 2: Okay, Katie reminding me throughout the day that twenty percent

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Speaker 2: of in Vidia's revenue.

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Speaker 4: Click eighteen point nine percent, but close enough, Almost twenty

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Speaker 4: percent of in Vidia's revenue comes from this one company,

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Speaker 4: Microsoft another roughly ten percent. Ten percent Meta.

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Speaker 2: Platforms is according to the SPLC function on the Bloomberg

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Speaker 2: terminal on IRAQ, how should we think about CAPEX from

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Speaker 2: and then, look, I know you don't cover in video,

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Speaker 2: but how should we think about CAPEX spend from Microsoft? Also,

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Speaker 2: what we heard from other companies this week with regard

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Speaker 2: to in Vidia, because that's certainly a focus for us

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Speaker 2: and for our audience this week.

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Speaker 5: Yeah, and again it's you know, it's very difficult to

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Speaker 5: tie at what part of capex is going towards data center,

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Speaker 5: what is going to GPU. Well, one of the analysis

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Speaker 5: that we did in recent weeks was from two thousand

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Speaker 5: and three to two thousand and five, we are looking

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Speaker 5: at an incremental ninety billion dollars from the life so

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Speaker 5: the top cloud providers and Apple and some other companies, and.

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Speaker 1: A lot of that is going to build the infrastructure.

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Speaker 5: I think one of the things that can you know,

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Speaker 5: break down some of the AI craze would be when

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Speaker 5: all these companies said, wait, we're not going to be

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Speaker 5: investing as much as.

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Speaker 1: We did before.

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Speaker 5: I think that brings it down. But at so far,

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Speaker 5: what we have heard, investments are just ramping up right now,

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Speaker 5: they are not slowing it down.

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Speaker 2: Okay, we got you for a couple more minutes. I

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Speaker 2: want to make sure we continue to pick your brain

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Speaker 2: before you have to go and write this note on IRAQ.

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Speaker 2: But give us an idea of what you'll be listening

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Speaker 2: for on the call a little later today, And how

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Speaker 2: are you thinking about the note that you're going to

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Speaker 2: end up writing tonight or tomorrow.

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Speaker 5: Yeah, So when you look at Microsoft results again, the

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Speaker 5: question is going to be where is this growth coming from?

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Speaker 5: Is it coming from directly the AI workloads or is

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Speaker 5: it coming from non AI related cloud spending as well?

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Speaker 5: Because that matters a lot for AWS, which is going

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Speaker 5: to report Thursday night, because AWS does not have that

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Speaker 5: level of AI related revenue coming in at this point.

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Speaker 5: So there's going to be a lot of discussion whether

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Speaker 5: Google and Microsoft are taking some share away from AWS

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Speaker 5: or not. So I think over the next day or

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Speaker 5: so we get a big clarity that have we seen

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Speaker 5: a big push in all cloud spending or are we

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Speaker 5: seeing some kind of a market share shift.

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Speaker 1: I think it's all the vendors are going to benefit

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Speaker 1: from that.

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Speaker 5: But I think for us today, when we are listening

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Speaker 5: to the call, the question is going to be where

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Speaker 5: is that spend coming from?

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Speaker 2: Okay, and before we let you go, one more question

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Speaker 2: on Amazon tomorrow? What's the most Obviously AWS is important,

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Speaker 2: but given what we heard from Alphabet and what we

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Speaker 2: heard from Microsoft, what's your expectation for Amazon and AWS tomorrow?

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Speaker 5: We should see an improvement in growth rate for AWS

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Speaker 5: because after these two companies, if they don't report that,

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Speaker 5: I mean to be honest, that's not going to be

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Speaker 5: good for them.

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Speaker 1: I don't think that's unlikely. But at the same time,

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Speaker 1: we also want to know what's going to happen with

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Speaker 1: their margins.

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Speaker 5: We have heard a lot about the company, you know,

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Speaker 5: trying to rein in extra expenditures, trying to keep boots

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Speaker 5: their margins. At the same time they're investing a lot

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Speaker 5: in GENEI. So I think those two elements almost for

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Speaker 5: every cloud company or any software company right now are

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Speaker 5: what's your GENI contribution and what is happening to your

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Speaker 5: margin structure.

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Speaker 2: Anna rad Rana, senior tech analogy analyst at Bloomberg Intelligence,

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Speaker 2: joining us from Chicago.