WEBVTT - Instant Reaction: Microsoft, AMD Earnings 0:00:02.600 --> 0:00:11.719 Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg BusinessWeek 0:00:12.080 --> 0:00:15.320 inside from the reporters and editors who bring you America's 0:00:15.320 --> 0:00:19.400 most trusted business magazine, plus global business, finance and tech 0:00:19.440 --> 0:00:23.400 news as it happens. Bloomberg Business Week with Carol Messer 0:00:23.760 --> 0:00:26.560 and Tim Steneveek on Bloomberg Radio. 0:00:26.880 --> 0:00:29.760 Okay, the call has not started yet, Carol. Investors are 0:00:29.800 --> 0:00:33.480 still taking note of the numbers that we got from Microsoft. 0:00:33.600 --> 0:00:37.560 Shares down six point eight percent in the after hours. 0:00:37.720 --> 0:00:40.320 The company reported Microsoft Cloud revenue for the fourth quarter 0:00:40.320 --> 0:00:44.200 that met the average analyst estimate capex though coming into 0:00:44.240 --> 0:00:47.199 at thirteen point eighty seven billion, that was higher than 0:00:47.240 --> 0:00:50.160 analysts wanted to see at thirteen point twenty seven billion dollars. 0:00:50.280 --> 0:00:52.680 Yeah, kind of interesting, So let's get to it. Dan 0:00:52.720 --> 0:00:55.200 Morgan is with a senior portfolio manager at Sonvs Trust 0:00:55.240 --> 0:00:58.280 Company about twenty billion in acids under management, joining us 0:00:58.320 --> 0:01:00.520 once again from Atlanta. Hey, Dan, so good to have 0:01:00.600 --> 0:01:05.000 you back with us. Having said that, yeah, Hey, it 0:01:05.000 --> 0:01:07.440 feels like all of the numbers are kind of right 0:01:07.480 --> 0:01:10.480 where the street was expecting. We were talking ahead of 0:01:10.520 --> 0:01:12.920 it that we needed to see some outperformance in order 0:01:12.920 --> 0:01:15.840 for investors to be impressed. Are you impressed with these 0:01:16.520 --> 0:01:18.080 results from Microsoft? 0:01:19.360 --> 0:01:21.080 Well, you're right, Carol. You know, the two numbers that 0:01:21.160 --> 0:01:23.839 really stay out stand out to me. You've already mentioned 0:01:23.840 --> 0:01:26.840 these as terms of ASER growth only up twenty nine percent. 0:01:27.640 --> 0:01:30.560 They had guided on the previous third quarter that they 0:01:30.560 --> 0:01:33.240 would hit growth between thirty and thirty two. The street 0:01:33.280 --> 0:01:36.720 was actually looking for something north of that. And then Tim, 0:01:36.760 --> 0:01:39.880 you mentioned that Campex number coming in a little bit 0:01:39.920 --> 0:01:43.440 higher than expected. Of course, there's some rollover going on 0:01:43.600 --> 0:01:48.560 right now from the Alphabet report that we came out earlier, 0:01:48.680 --> 0:01:52.600 when it really raised concerns about, you know, how much 0:01:52.680 --> 0:01:57.640 gain are you getting in regards to your AI initiatives 0:01:57.840 --> 0:02:00.800 versus the amount of CAPEX that you're spending. And I 0:02:00.840 --> 0:02:03.440 was kind of hoping, Carol and Tim that this Microsoft 0:02:03.520 --> 0:02:06.920 report might kind of dampen those worries and just kind 0:02:06.920 --> 0:02:10.160 of blow numbers out, you know, ASER up thirty four 0:02:10.200 --> 0:02:13.800 percent and so forth, But unfortunately it was a little 0:02:13.800 --> 0:02:16.040 bit shy. So I think that conversation is going to 0:02:16.040 --> 0:02:18.640 have to come back in in these concerns that we 0:02:18.720 --> 0:02:22.800 saw after the Alphabet report are going to reignite again. 0:02:23.040 --> 0:02:27.239 Yeah, Shares down six point six percent. Right now, help 0:02:27.320 --> 0:02:30.920 us help us understand exactly, Dan, where we should be 0:02:31.000 --> 0:02:37.440 seeing the results of Microsoft's investments in AI and in 0:02:37.600 --> 0:02:40.160 open AI. Where should we be looking in this earnings 0:02:40.200 --> 0:02:42.880 report to see benefits from AI. 0:02:45.440 --> 0:02:48.960 Well, foremost is in the data center, right, Tim and Carroll, 0:02:49.040 --> 0:02:51.280 That's been the area where we've seen the biggest amount 0:02:51.280 --> 0:02:54.160 of spending. That's going to be out of their ASER group, 0:02:54.480 --> 0:02:59.720 which is encompassed in the umbrella of Commercial Cloud and 0:03:00.000 --> 0:03:03.880 Intelligent Cloud. Those are the two segments that report. Of course, 0:03:04.120 --> 0:03:06.840 we don't get the hard numbers. We just get a 0:03:06.880 --> 0:03:10.280 growth rate from Microsoft. That's what they disclose to us. 0:03:10.280 --> 0:03:13.560 But if you look at intelligent Cloud and Commercial Cloud, 0:03:13.600 --> 0:03:16.720 they both looks like they both kind of keen in line. 0:03:17.240 --> 0:03:20.360 I noticed the cloud segment was a little bit shy 0:03:20.480 --> 0:03:24.160 three point eight to zero versus eight four, which I 0:03:24.160 --> 0:03:27.200 think was the estimate. The other area that we'd like 0:03:27.240 --> 0:03:28.959 to get a little more clarity on, Tim M and 0:03:29.040 --> 0:03:32.400 Carroll is what's going on with copilot. That's kind of 0:03:32.480 --> 0:03:35.280 buried in a lot of different areas, but it's hard 0:03:35.320 --> 0:03:37.960 to distinguish it. But we're always hoping that Microsoft, maybe 0:03:38.000 --> 0:03:41.320 on the conference call, will come out and basically release 0:03:41.480 --> 0:03:45.160 how many seats they've been able to license on that product, 0:03:45.160 --> 0:03:48.960 because that's another one of their core AI products. We 0:03:49.000 --> 0:03:51.640 all know that they ink that deal back a year 0:03:51.640 --> 0:03:54.560 and a half ago with chat GPT, But that's kind 0:03:54.560 --> 0:03:56.800 of hard to really figure where that comes into the 0:03:56.840 --> 0:04:00.360 earnings reports. But you know, the key areas is ASER growth, 0:04:00.400 --> 0:04:04.560 commercial cloud, intelligent cloud, and then any additional information that 0:04:04.640 --> 0:04:09.200 we can get on copilot in terms of additional disclosure. 0:04:09.360 --> 0:04:12.560 So again, guys, Tim and Carroll, it's very difficult, right 0:04:12.600 --> 0:04:15.920 to really distinguish, you know, we look at these segment 0:04:16.000 --> 0:04:19.360 data points that came in on this, you know, headlines 0:04:19.400 --> 0:04:22.599 coming through. It is very hard to distinguish exactly where 0:04:23.120 --> 0:04:27.440 all this capex is impacting in regards to AI initiatives. 0:04:27.520 --> 0:04:29.360 So what do you Okay, So wait, you just threw 0:04:29.400 --> 0:04:30.960 a lot at us. So what is the question to 0:04:31.040 --> 0:04:35.440 Microsoft in the aftermarket or on the analyst call Dan 0:04:36.080 --> 0:04:39.159 to kind of get more clarity to try and figure 0:04:39.160 --> 0:04:42.400 out if the AI spend is maybe not living up 0:04:42.440 --> 0:04:44.400 to expectations or it is slowing down. 0:04:46.279 --> 0:04:48.800 Right, So if we look back, for example, Carol and 0:04:48.839 --> 0:04:51.520 Tim and we look at the last quarter they came 0:04:51.560 --> 0:04:57.560 out and specifically said that ASER was positively benefited about 0:04:57.760 --> 0:05:01.159 seven hundred basis points compared to six center basis points 0:05:01.680 --> 0:05:05.440 in the second quarter in terms of increased growth coming 0:05:05.480 --> 0:05:07.760 out of the data centered unit, which is huge for them. 0:05:07.800 --> 0:05:13.200 That's huge recipe for their overall growth. So obviously, Carroll Tim, 0:05:13.240 --> 0:05:15.279 that's a number that everyone's going to be looking at 0:05:15.800 --> 0:05:19.080 when they publicly disclose of the twenty nine percent growth 0:05:19.120 --> 0:05:23.040 they did in ASER. What percentage of that or what 0:05:23.160 --> 0:05:25.640 boost did you get from AI and the past they've 0:05:25.680 --> 0:05:29.040 disclosed that, So that's a really key number that everyone's 0:05:29.080 --> 0:05:31.360 going to be queuing in on the conference call. 0:05:31.360 --> 0:05:34.400 What's the question that you have for Satinadella? 0:05:36.640 --> 0:05:38.760 Well, I think you know, again, you know, just trying 0:05:38.800 --> 0:05:42.600 to weigh out CAPEX expense. You know, where is it going? 0:05:42.680 --> 0:05:45.240 I mean, let's be let's be honest, Carroll Tim. I mean, 0:05:45.240 --> 0:05:47.000 you're looking at a company it's going to probably spend 0:05:47.040 --> 0:05:51.440 about fifty billion dollars in campex, So everybody wants to 0:05:51.480 --> 0:05:53.560 know what kind of ROI are you getting from that? 0:05:53.720 --> 0:05:55.360 And at this point we really haven't seen a lot 0:05:55.400 --> 0:05:58.559 of ROI from anybody, So again it's just them laying 0:05:58.600 --> 0:06:02.000 out that roadmap in and again going into what they're 0:06:02.000 --> 0:06:04.600 doing and their hopes in terms of how this will 0:06:04.600 --> 0:06:07.320 come to fruition and pay off for them. Yes, I 0:06:07.320 --> 0:06:09.640 think that's what everyone's going to be really focusing on 0:06:09.680 --> 0:06:11.560 Tim and Carroll after that Alphabet report. 0:06:11.760 --> 0:06:16.440 I mean, how, how does this response from investors explain 0:06:16.920 --> 0:06:21.400 how investors are pricing companies right now? Because Microsoft reported 0:06:21.440 --> 0:06:24.960 a slight four tenths of one percent beat on EPs 0:06:25.480 --> 0:06:28.440 and then a small one tenth of one percent miss 0:06:29.040 --> 0:06:32.840 on cloud revenue, and Microsoft shares are just getting punished 0:06:33.000 --> 0:06:34.599 after hours. 0:06:34.800 --> 0:06:38.599 Yeah, you know, Tim, the stock really traded up anticipation 0:06:38.640 --> 0:06:42.080 of the reporter. Is actually trading at forty four times earnings, 0:06:42.680 --> 0:06:45.880 about thirty eight thirty nine times Physical year twenty twenty 0:06:45.880 --> 0:06:50.200 four estimates the average pe on Microsoft over the last 0:06:50.240 --> 0:06:53.680 five years is about thirty two times earning. So these stocks, 0:06:53.680 --> 0:06:57.279 including Alphabet, Meta is going to report here in the 0:06:57.320 --> 0:07:00.440 next day or two. We've got Apple and Amazon all 0:07:00.480 --> 0:07:04.240 are trading at the very high bandwidth of their multiples 0:07:04.279 --> 0:07:08.520 because of excitement surrounding AI. So it doesn't surprise me 0:07:08.560 --> 0:07:12.400 Tim and Carroll that unless this report is perfect, it's 0:07:12.400 --> 0:07:14.480 going to sell off. And there was enough in here. 0:07:14.880 --> 0:07:17.280 As you mentioned Tim, beyond just the top line and 0:07:17.320 --> 0:07:20.960 bottom line beat, you mentioned the commercial cloud unit. Kind 0:07:20.960 --> 0:07:23.600 of a miss on aser that's going to lead to 0:07:23.600 --> 0:07:24.640 a selloff on the stock. 0:07:24.840 --> 0:07:27.080 Hey, I do want to mention too, AMD just crossing 0:07:27.120 --> 0:07:31.880 the Bloomberg terminal. Second quarter adjusted EPs sixty nine cents 0:07:31.920 --> 0:07:33.720 is share that's a penny better than what the street 0:07:33.760 --> 0:07:36.720 was expecting. Second quarter revenue five point eight billion. The 0:07:36.840 --> 0:07:39.640 estimate on the street is five point seventy three billion. 0:07:39.960 --> 0:07:42.880 Second quarter capex one hundred and fifty four million versus 0:07:42.880 --> 0:07:45.200 an estimate of one hundred and twenty seven point one million, 0:07:45.240 --> 0:07:48.720 So that is coming in higher than forecast second quarter 0:07:48.920 --> 0:07:51.760 just an operating margin twenty two percent, that's better than 0:07:51.800 --> 0:07:54.600 the street estimate of twenty one point eight percent and 0:07:54.640 --> 0:07:58.160 giving some guidance in terms of the outlook. Third quarter 0:07:58.200 --> 0:08:02.200 revenue six point four to seven billion dollars, and that 0:08:02.240 --> 0:08:05.120 compares with an estimate TIM of six point sixty two billion. 0:08:05.240 --> 0:08:08.480 Yeah, we're seeing shares move higher sharply now in the 0:08:08.520 --> 0:08:11.920 after hours as traders look at what's going on. Up 0:08:11.960 --> 0:08:16.400 four point six percent carroll for AMD right now in 0:08:16.440 --> 0:08:19.720 the green ceas third quarter adjusted gross margin about fifty 0:08:19.760 --> 0:08:22.080 three point five percent. That came in below estimates of 0:08:22.120 --> 0:08:24.720 fifty three point eight percent. Dan, I know you're just 0:08:24.760 --> 0:08:27.480 getting these numbers as soon as we get them, but 0:08:27.680 --> 0:08:29.840 do you have any thoughts on what we're hearing from AMD? 0:08:31.680 --> 0:08:33.640 You know, Tim and Carroll, the big number that we're 0:08:33.679 --> 0:08:38.439 waiting for AMD was their data center segment. The expectations 0:08:38.840 --> 0:08:41.199 for that group was to grow over one hundred percent. 0:08:42.360 --> 0:08:46.320 Everybody was worried Tim and Carroll coming in his report that 0:08:46.400 --> 0:08:49.920 we might get some sort of color from Microsoft that 0:08:50.000 --> 0:08:53.640 they might have been backing off in terms of purchasing 0:08:54.280 --> 0:08:58.240 AMD's AI chips, which are the MI I three hundred 0:08:58.400 --> 0:09:01.520 x I three hundred A. That's what the big concerns 0:09:01.520 --> 0:09:04.200 were coming into this report. But at least based on 0:09:04.240 --> 0:09:07.520 what you've told me so far, it appears that there's 0:09:07.559 --> 0:09:11.400 been no aberration in terms of demand for those products. Yeah, 0:09:11.480 --> 0:09:13.240 they said extremely welcome record. 0:09:13.400 --> 0:09:17.280 They beat so record. Data center up one hundred and 0:09:17.280 --> 0:09:20.679 fifteen percent year over year, So that number coming in high. 0:09:20.440 --> 0:09:23.520 Two point eight three billion versus one point three two 0:09:23.559 --> 0:09:26.240 billion year over year. So all right, step to watch, 0:09:26.320 --> 0:09:30.599 Dan Morgan, thank you so much. AMD A different story. 0:09:30.440 --> 0:09:33.480 Yeah, I AMD's up by two point six percent right now. 0:09:33.880 --> 0:09:37.679 The company reported revenue of six point four to seven 0:09:37.840 --> 0:09:41.720 billion dollars versus estimates of six point six two billion dollars. 0:09:41.880 --> 0:09:45.000 Adjusted earnings per share came in just above estimates at 0:09:45.040 --> 0:09:49.200 sixty nine cents, and then data center revenue coming in 0:09:49.200 --> 0:09:51.880 at two point eight three billion versus estimates of two 0:09:51.920 --> 0:09:55.560 point seven five billion dollars. With us now to break 0:09:55.600 --> 0:09:58.000 down these numbers and more, we got Ed Ludlow, co 0:09:58.040 --> 0:10:00.760 host of Bloomberg Technology on Bloomberg TV. He joins us 0:10:00.800 --> 0:10:02.640 here in the Bloomberg Interactive Broker studio. We were just 0:10:02.679 --> 0:10:05.040 talking to Dan Morgan over at Sonovas he said data 0:10:05.040 --> 0:10:07.200 center revenue, they wanted to see growth over one hundred percent. 0:10:07.240 --> 0:10:09.320 It came in at one hundred and fifteen percent. Is 0:10:09.320 --> 0:10:10.560 that what has investors so excited? 0:10:10.679 --> 0:10:12.319 Yes, And to put it in Layman's terms, it more 0:10:12.360 --> 0:10:14.880 than doubled year on year, and it shows sort of 0:10:14.920 --> 0:10:18.760 the evolution of AMD from a standing start to taking 0:10:18.760 --> 0:10:21.040 a tiny little bite out of the market share that 0:10:21.160 --> 0:10:24.599 Nvidia has for AI accelerators. We actually didn't learn that 0:10:24.679 --> 0:10:25.480 much in that release. 0:10:25.600 --> 0:10:25.840 You know. 0:10:26.240 --> 0:10:29.360 The expectation was that data center revenue would grow more 0:10:29.400 --> 0:10:31.000 than one hundred percent. You're in year. You're going to 0:10:31.040 --> 0:10:32.640 have to wait for the call because the number we 0:10:32.720 --> 0:10:37.480 want is the full year forecast for their AI accelerator family, 0:10:37.559 --> 0:10:39.880 the mi I three hundred and with that will know 0:10:39.960 --> 0:10:42.160 if things are going better than expected in their efforts 0:10:42.200 --> 0:10:45.400 against in video or just as we thought they were. 0:10:45.600 --> 0:10:48.000 Any questions that you've got besides that for AMD. 0:10:48.000 --> 0:10:52.920 Yeah, Look, the market for high performance GPUs or AI 0:10:52.920 --> 0:10:55.600 accelerators that we train large language models on looks as 0:10:55.640 --> 0:10:59.080 follows in. Nvidia will probably do one hundred billion dollars 0:10:59.120 --> 0:11:02.960 of sales in that market this year to AMD four billion, 0:11:03.080 --> 0:11:06.360 maybe a little more. We'll find out Intel five hundred million. 0:11:06.679 --> 0:11:09.800 So the real question for me is what's different between 0:11:09.800 --> 0:11:11.960 the three of them. You know, they all talk about 0:11:12.000 --> 0:11:14.400 how they benchmark against one another in terms of energy 0:11:14.440 --> 0:11:17.200 performance and their ability to process data. But the real 0:11:17.280 --> 0:11:19.640 question for investors is, like, if we're going to believe 0:11:19.679 --> 0:11:22.880 that you can grow in this market against Nvidia, in 0:11:22.920 --> 0:11:26.400 which cases are you? Why would a big enterprise company 0:11:26.480 --> 0:11:29.839 or a META, for example, choose your A accelerator over another. 0:11:30.200 --> 0:11:34.200 Meta's very very solidly behind in video, right, it's buying 0:11:34.280 --> 0:11:37.280 hundreds of thousands of GPUs from them, And I think 0:11:37.280 --> 0:11:41.040 that's really interesting that you know, what do all these 0:11:41.080 --> 0:11:43.439 things get used for? Because right now it seems like 0:11:43.480 --> 0:11:47.200 in video seems the de facto choice for large language 0:11:47.200 --> 0:11:47.800 model training. 0:11:47.920 --> 0:11:50.040 What do all these things get used for? Because the 0:11:50.040 --> 0:11:52.320 reason I'm asking this question is because last week we 0:11:52.360 --> 0:11:56.320 saw alphabet cap x come in above estimates. We saw 0:11:56.320 --> 0:11:59.400 it come above estimates today with Microsoft. A lot of 0:11:59.400 --> 0:12:02.839 that has to do with the buildout of infrastructure around AI. 0:12:03.160 --> 0:12:05.000 What is this getting used for and when our investor 0:12:05.080 --> 0:12:06.319 is going to start to see it show up in 0:12:06.360 --> 0:12:07.040 the bottom line. 0:12:07.040 --> 0:12:09.400 This is a really worthwhile conversation to have, even in 0:12:09.440 --> 0:12:11.320 the context of earnings where you kind of focus on 0:12:11.360 --> 0:12:14.199 the numbers. When we talk about chips used for AI, 0:12:14.280 --> 0:12:16.160 we're not talking about sort of a bagg of chips 0:12:16.160 --> 0:12:18.240 you throw over your shoulder and look, I've got some. 0:12:18.679 --> 0:12:21.720 The reality is they go into many, many racks of servers, 0:12:21.760 --> 0:12:24.760 and those servers get lined up into massive data centers. 0:12:25.280 --> 0:12:28.160 And while we don't have a sense yet of how 0:12:28.240 --> 0:12:31.080 much money has been made through services or software and AI, 0:12:31.200 --> 0:12:33.520 not really. I mean, look at Microsoft's earnings as an example. 0:12:33.520 --> 0:12:36.280 We'll get to it. I think people need to understand 0:12:36.320 --> 0:12:39.480 that the workloads have increased massively. The training of the 0:12:39.520 --> 0:12:43.960 models requires an enormous amount of compute, and so Microsoft Aws, Amazon, 0:12:44.000 --> 0:12:46.880 Google Cloud Platform have no choice but to buy these 0:12:47.000 --> 0:12:49.679 chips because they work for that purpose and build more 0:12:49.760 --> 0:12:53.560 data centers and the nervousnesses will hold on. Whereas all 0:12:53.600 --> 0:12:55.720 the money going on the other side of the big moneyment. 0:12:55.400 --> 0:12:57.240 Sages, it's kind of like, build it and they will come, Well, 0:12:57.240 --> 0:12:59.520 will you know, are they coming? Will they continue to 0:12:59.520 --> 0:13:02.040 come and will payoff? Be there? So I mean, I 0:13:02.040 --> 0:13:04.640 feel like that's still the big million, tillion dollar crush. 0:13:04.800 --> 0:13:07.760 So let's jump into Microsoft, right. They very narrowly missed 0:13:07.840 --> 0:13:11.760 on their cloud services revenue or growth in cloud services revenue. 0:13:11.840 --> 0:13:14.920 I'm doing the math, but basically they had fifteen percent 0:13:14.960 --> 0:13:17.680 overall top line growth from just below thirty percent growth 0:13:17.720 --> 0:13:20.080 in the Azure unit. And the headline on the Bloomberg 0:13:20.160 --> 0:13:23.760 terminal eight points of contribution to as your revenue growth 0:13:23.760 --> 0:13:26.439 came from artificial intelligence. We readheaded it, so it must 0:13:26.480 --> 0:13:27.480 be important. 0:13:27.080 --> 0:13:30.640 Eight hundred basis point. Dan Morgan said, what was seven 0:13:30.679 --> 0:13:34.880 hundred bass points as your increased growth for the data 0:13:34.880 --> 0:13:36.439 center group? So he was looking for, I think a 0:13:36.520 --> 0:13:40.280 number that was comparable or above that. So that seems impressive. 0:13:39.840 --> 0:13:43.040 And sequentially it's an improvement from the prior quarter, but 0:13:43.160 --> 0:13:45.000 it doesn't really tell us anything. And this is what 0:13:45.040 --> 0:13:47.320 I mean by the money machine. So capex is the 0:13:47.320 --> 0:13:50.200 money going in. It's the number of dollars Microsoft spends, right, 0:13:50.320 --> 0:13:54.079 But what we don't have a good clear Layman's explanation 0:13:54.280 --> 0:13:56.120 is how many dollars are coming out the other side. 0:13:56.200 --> 0:13:59.040 You'd hope it was several more dollars for every dollar 0:13:59.080 --> 0:14:03.000 you put in. Cloud growth is important, but AI contribution 0:14:03.120 --> 0:14:05.960 can mean many things. It can mean running workloads, or 0:14:06.000 --> 0:14:09.080 storing data or doing all kinds of things. It's not 0:14:09.200 --> 0:14:11.360 evidence of sales of a generative AI tool. 0:14:11.720 --> 0:14:19.200 Can it be better placed advertisements against Instagram reels ed too? 0:14:19.720 --> 0:14:21.120 So this is why I think a lot of people 0:14:21.160 --> 0:14:23.960 are very interested in meta because we've talked a lot 0:14:24.000 --> 0:14:26.040 about how in the first half of this year the 0:14:26.080 --> 0:14:28.160 majority of the game on the SMP five hundred is 0:14:28.440 --> 0:14:31.360 attributable to those mag seven games. The idea that we 0:14:31.680 --> 0:14:34.720 believe the infrastructure will pay off in top line growth, 0:14:34.880 --> 0:14:37.160 in the EPs growth, even if they have stretched valuations. 0:14:37.360 --> 0:14:39.240 A lot of investors I speak to see a point 0:14:39.280 --> 0:14:42.640 of difference in meta. They're making all the same infrastructure investments. 0:14:42.800 --> 0:14:45.520 They're a developer of large language models with open source, 0:14:45.840 --> 0:14:49.440 but they have social platforms where you can believe more 0:14:49.520 --> 0:14:52.840 near term that you drive growth in your existing advertising 0:14:52.880 --> 0:14:56.720 based business because you're using smart artificial intelligence technology. There 0:14:56.720 --> 0:14:59.280 are many investors I speak to that believe that Microsoft 0:14:59.280 --> 0:15:01.920 doesn't have that. I mean, with respect, you guys probably 0:15:01.920 --> 0:15:04.040 have a longer standing relationship with Microsoft than I do. 0:15:04.160 --> 0:15:07.440 You know, in the early nineties when I started using computer, 0:15:07.560 --> 0:15:10.440 that's what was there. They've always been good at selling software. 0:15:11.040 --> 0:15:13.040 They still do that. It's just it's not clear to 0:15:13.120 --> 0:15:15.960 us which the AI part is. What they've really done 0:15:16.000 --> 0:15:18.280 is just make their existing software offering is a little 0:15:18.320 --> 0:15:18.720 bit better. 0:15:18.760 --> 0:15:21.720 I've heard good things about copilotes in the sense of 0:15:21.760 --> 0:15:23.720 on Microsoft teams. I mean, I think Carroly, you did 0:15:23.720 --> 0:15:25.520 this during one of your prep calls for some of 0:15:25.520 --> 0:15:27.640 the conferences that you've gone to, you know, instead of 0:15:27.640 --> 0:15:30.400 taking notes during that, yeah, you know, copilot will actually 0:15:30.480 --> 0:15:33.080 spit out some pretty solid notes. Take the notes with 0:15:33.400 --> 0:15:35.600 And I've heard from some folks in financial firms who 0:15:35.760 --> 0:15:39.040 use it ad for getting actionable items return to them 0:15:39.040 --> 0:15:39.600 after a car. 0:15:39.840 --> 0:15:43.240 Yeah, it's a good way of boosting one's efficiency or 0:15:43.800 --> 0:15:48.160 aggregating information very quickly. But at the same how much 0:15:48.160 --> 0:15:51.480 does that move a financial thinking yeah, And what we're 0:15:51.480 --> 0:15:54.760 talking about here, I think the show me the money conversation. 0:15:55.320 --> 0:15:58.080 It's not a consumer like me at my PC thinking wow, 0:15:58.120 --> 0:16:01.640 AI is wonderful. These are enterprise customers and you want 0:16:01.680 --> 0:16:04.560 to see they're committing big contracts to deck out their 0:16:04.640 --> 0:16:08.960 ten thousand person company with Microsoft Copilot. That's where the 0:16:09.000 --> 0:16:09.920 money is to be made. 0:16:10.000 --> 0:16:11.640 I'm just thinking about the conversation we had was at 0:16:11.680 --> 0:16:14.600 last week about workers saying, Okay, all the bosses said AI, 0:16:14.880 --> 0:16:17.160 our generative AI was going to help me be more productive, 0:16:17.200 --> 0:16:20.040 And in fact, it's stressing people out. It's stressing people out, 0:16:20.080 --> 0:16:23.960 and they're not necessarily finding those productivity gains. Are we ed? 0:16:24.000 --> 0:16:27.800 You know, when I think about technological cycles, is it 0:16:27.840 --> 0:16:29.800 just going to take some time for this to kind 0:16:29.840 --> 0:16:32.840 of work its way through in terms of jen AI 0:16:33.040 --> 0:16:36.880 really making an impact on how we work and creating 0:16:36.960 --> 0:16:38.560 those productivity gains. 0:16:38.680 --> 0:16:40.640 I mean in the near term. That's why Microsoft's down 0:16:40.680 --> 0:16:43.360 seven percent and after hours because investors had hoped it 0:16:43.400 --> 0:16:45.800 would be now and it's not. It is probably it's. 0:16:45.680 --> 0:16:47.560 Still many months or years ago wish, right. 0:16:48.040 --> 0:16:50.880 But you also have to say that thirty percent top 0:16:50.920 --> 0:16:52.680 line growth year on year for the second quarter in 0:16:52.680 --> 0:16:55.120 a row of azure is pretty good, you know, in 0:16:55.200 --> 0:16:57.760 any other sector industry you go, Wow, what an impressive 0:16:57.800 --> 0:17:00.680 set of earnings, right, even if you slightly miss estimates. 0:17:00.840 --> 0:17:02.640 There's something. I'm trying to tie all of this together 0:17:02.680 --> 0:17:05.240 like it's one quarter print in a big newsweek, but 0:17:05.680 --> 0:17:07.760 I think that it's very telling the comments of Mark 0:17:07.840 --> 0:17:11.720 Zuckerberg and Jensen One yesterday on stage in Denver that 0:17:11.880 --> 0:17:14.399 right now, AI is for the knowledge worker. It's for 0:17:14.440 --> 0:17:16.600 a computer scientist who has to do it for their 0:17:16.680 --> 0:17:19.640 job every day. And the vast majority of businesses, even 0:17:19.640 --> 0:17:21.640 if they know they have to invest in it, haven't 0:17:21.720 --> 0:17:23.280 quite worked out what they're supposed to. 0:17:23.320 --> 0:17:23.719 Do with it. 0:17:24.400 --> 0:17:26.400 But that's not what the promise of AI is going 0:17:26.440 --> 0:17:26.639 to be. 0:17:26.760 --> 0:17:26.879 Now. 0:17:26.960 --> 0:17:29.760 Promise of AI is, you know, for lack of a 0:17:29.760 --> 0:17:33.399 better term, getting rid of customer support agents who you 0:17:33.480 --> 0:17:36.280 call because it's so expensive for a company to pay 0:17:36.280 --> 0:17:39.919 them that you know, the idea is they'll create programs 0:17:39.920 --> 0:17:41.239 that will do their work for them. 0:17:41.359 --> 0:17:41.560 Yes. 0:17:41.600 --> 0:17:43.640 So like one example is a startup called in the Van. 0:17:43.680 --> 0:17:44.960 I just pluck it out of my head because I 0:17:44.960 --> 0:17:46.760 saw a billboard I drove past it the other day. 0:17:47.320 --> 0:17:49.480 Think about like if you have some travel disruption, or 0:17:49.520 --> 0:17:53.360 you are providing technology to a like package holiday website, 0:17:53.359 --> 0:17:55.399 and you go, my flight's cancel. Get me on another. 0:17:55.720 --> 0:17:59.679 The vision is that the agent has enough intelligence to 0:17:59.720 --> 0:18:01.840 say there's a flight at four, I'll move you on 0:18:01.880 --> 0:18:03.959 to it our refund. I'm doing this of my own 0:18:04.040 --> 0:18:06.720 volition based on the data available to me, and it's 0:18:06.720 --> 0:18:07.320 getting there. 0:18:07.520 --> 0:18:07.720 Yeah. 0:18:07.720 --> 0:18:11.040 But also the consuming's willingness to use that is important. 0:18:11.440 --> 0:18:13.480 Like I'm not using AI to write my scripts for 0:18:13.480 --> 0:18:16.399 Bloomberg Technology every morning because I still feel that please 0:18:16.440 --> 0:18:19.120 please keep me in my job as a journalist. I'm 0:18:19.119 --> 0:18:19.679 better suited. 0:18:19.760 --> 0:18:22.000 We've tried it. It's track right, So maybe I'm a 0:18:22.080 --> 0:18:24.480 bad prompt engineer. Maybe that's the problem, but we have 0:18:24.560 --> 0:18:25.760 not been able to pull it off yet. 0:18:25.920 --> 0:18:26.000 Ed. 0:18:26.160 --> 0:18:27.800 Yeah, although we talk about it. If there is a 0:18:27.800 --> 0:18:30.720 point where it is actually really good in terms of 0:18:30.760 --> 0:18:32.919 writing introductions, how great it would be to free us 0:18:33.040 --> 0:18:35.760 up to do things like booking guests and doing things 0:18:35.800 --> 0:18:38.120 like that or researcher what have you, kind of move 0:18:38.160 --> 0:18:44.080 it to a higher level. All right, so alphabet, yeah, Microsoft, 0:18:44.480 --> 0:18:46.480 So now we move on to what Meta. We're going 0:18:46.560 --> 0:18:48.600 to move on to Amazon. What are you thinking about 0:18:48.640 --> 0:18:49.520 the rest of the space. 0:18:49.760 --> 0:18:52.040 So the thing about alphabet is it goes first and 0:18:52.080 --> 0:18:54.040 you learn a lot about the week that's to come. 0:18:54.119 --> 0:18:56.720 But the big takeaway from that earnings. Even though we 0:18:56.840 --> 0:18:59.240 focused on Capex, which you've been talking your guests about 0:18:59.240 --> 0:19:01.640 for forty eight hours, and we focused on cloud growth, 0:19:01.960 --> 0:19:04.560 the most important takeaway was it was their search business 0:19:04.560 --> 0:19:07.080 that was the biggest contributors to growth. And they didn't 0:19:07.160 --> 0:19:10.080 expressly say that it was AI that did that. They 0:19:10.080 --> 0:19:12.520 just said it was our search business. They old fashioned 0:19:12.560 --> 0:19:14.880 bread and butter search business. And so when you look 0:19:14.880 --> 0:19:17.560 ahead to a Meta or an Amazon, you're going to 0:19:17.600 --> 0:19:20.080 get AWS cloud growth from Amazon, You're going to get 0:19:20.080 --> 0:19:23.760 Meta talking up at Capex and it's AI agents. But 0:19:23.840 --> 0:19:27.000 it's very likely that they'll also say growth came from 0:19:27.000 --> 0:19:29.280 one of our many other businesses. That's why they have 0:19:29.359 --> 0:19:32.000 some differentiation. But that might also be a cause for disappointment. 0:19:32.200 --> 0:19:36.000 Do the increasing visibility of AI agents within what's Happened 0:19:36.000 --> 0:19:39.800 within Instagram? Does that do anything for the bottom line? 0:19:40.280 --> 0:19:40.800 They hope? 0:19:40.840 --> 0:19:41.000 So. 0:19:41.280 --> 0:19:43.920 I mean, I don't know how many of Meta's platforms 0:19:43.920 --> 0:19:45.720 you guys are on. On most of them, yeah, I 0:19:45.800 --> 0:19:49.280 like Instagram What's Happened? I use the Meta AI quite 0:19:49.320 --> 0:19:52.679