Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is a breaking
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Speaker 1: three thousand journalists and analysts around the world.
Speaker 2: We've got Meta platforms, Microsoft both out with earnings. Those
Speaker 2: are the big ones. There's a lot that are out there,
Speaker 2: but we want to get to We've got great team
Speaker 2: coverage here at Bloomberg and also some great outside voices.
Speaker 3: So let's get to it with Dan Ives.
Speaker 2: He's managing director and senior equity analyst and global head
Speaker 2: of Technology Research at Webbush Securities. We're going to start
Speaker 2: with Meta. Let's talk about it. The stocks up about
Speaker 2: eight and a half percent a year in the aftermarket.
Speaker 2: What do you like and what don't you like? Do
Speaker 2: you not like anything?
Speaker 4: There's nothing not to wy.
Speaker 1: I like book.
Speaker 4: It speaks to.
Speaker 5: You.
Speaker 4: Go through this AI revolution, it's in his next stage
Speaker 4: of growth. And all the money that you're seeing these
Speaker 4: big tech players hat bocsw you're ultimately starting to see
Speaker 4: some of those differdence get paid. And then you think
Speaker 4: about the advertising growth and of what we saw with Alphabet,
Speaker 4: what you see with meta subscriber growth. I mean this
Speaker 4: it's goldilocks.
Speaker 1: You know, for for tech, how how does Meta harness
Speaker 1: AI to make money? Apart from making its advertising more efficient, It's.
Speaker 4: About the billions of users. It's about going forward, how
Speaker 4: they're going to monetize AI. They're not just spending to spend.
Speaker 4: They're going to be able to monetize from an advertising perspective.
Speaker 4: When you think about the billions of users.
Speaker 1: They have, that's how do they do that?
Speaker 5: Though?
Speaker 4: Dan, And the reason Zuckerberg right now is what I
Speaker 4: do is like a wartime CEO. It's the view that
Speaker 4: when you think about AI today, this is just the beginning.
Speaker 4: You're gonna and you're gonna have AI driven search, You're
Speaker 4: going to have sort of the future that Meta alphabet
Speaker 4: are going to play huge pieces in the advertising piece.
Speaker 3: But I want to.
Speaker 2: Go so it's just advertising that that's where they're going
Speaker 2: to make all their money back. We know that they
Speaker 2: have been on such an aggressive AI talent grab and
Speaker 2: you know Meta.
Speaker 1: Has hundreds of millions of dollars, Yeah, like pay individuals.
Speaker 2: So there that's all going to pay off their return
Speaker 2: on just the beginning.
Speaker 4: Okay, advertising advertising just to begin when you think about
Speaker 4: full what I've used sort of like fully GI and
Speaker 4: it was like the Holy graul. What Meta is trying
Speaker 4: to build, what every big tech player is trying to build,
Speaker 4: Meta is basically, we're going to create a whole nother
Speaker 4: company over the next decade. That's what they're spending on.
Speaker 1: This is what I'm still waiting for, like you know,
Speaker 1: meta platforms. Look, no question, this was in a credible quarter.
Speaker 1: The stock is up nine point three percent in the
Speaker 1: after hours. Just to repeat the numbers. Second quarter earnings
Speaker 1: per share a huge beat, seven dollars and fourteen cents,
Speaker 1: the estimus for five dollars and eighty nine cents. Second
Speaker 1: quarter revenue a huge beat, forty seven point five billion dollars,
Speaker 1: the estimus for forty four point eight billion dollars. Third
Speaker 1: quarter revenue forty seven point five to fifty point five billion,
Speaker 1: that's the outlook. The estimate was for below that at
Speaker 1: forty six point two billion. But I want, Dan, I
Speaker 1: want to look with you years out when the hardware
Speaker 1: that they're working on that they're spending billions of dollars
Speaker 1: on will start paying dividends. What does that future look
Speaker 1: like for Meta users and for Meta investors?
Speaker 4: And you have to think about it like, what's the
Speaker 4: future in terms of robotics, in terms of software, in
Speaker 4: terms of how AI is going to play a role
Speaker 4: in the every day of a consumer. I mean Meta
Speaker 4: is thinking not in the next year, three, five, eight,
Speaker 4: ten years out.
Speaker 2: I want to bring in man deep saying if I
Speaker 2: may of our Bloomberg intelligence team.
Speaker 3: I don't know if it's too soon.
Speaker 2: I know you're going through all the numbers because I
Speaker 2: want to bring into the conversation with.
Speaker 3: Dan good quarter killer quarter. How do you see it
Speaker 3: for that?
Speaker 6: Yeah, I mean there is a sequential acceleration in ad
Speaker 6: impressions as well as ad pricing growth, and to my mind,
Speaker 6: there is a sign of them applying AI to boost engagement. Obviously,
Speaker 6: the user growth has been almost the same every quarter,
Speaker 6: you know, four to five percent, So the fact that
Speaker 6: impressions grew eleven percent is a sign that people are
Speaker 6: spending more time on their family of apps. And then
Speaker 6: the ad pricing going up nine percent, That to me
Speaker 6: is the real tailwind, because that was the risky part.
Speaker 6: Chinese advertisers like Timu and Cheen pull it back because
Speaker 6: of the Deminimus rule changes that didn't happen, that didn't
Speaker 6: show up in the numbers, and look when it comes
Speaker 6: to applying AI. I mean small advertisers are now connecting
Speaker 6: META to their CRM systems and actually that is what's
Speaker 6: driving the at targeting and efficiency. That wasn't the case before.
Speaker 6: That has been enabled by JENNYI. So that's why you
Speaker 6: see that list.
Speaker 3: Do you agree with Dan?
Speaker 6: I think jenny I use case is quite prominent. We
Speaker 6: keep hearing about coding agents, customer service. Here is the
Speaker 6: precise use case for meta, and that is what they
Speaker 6: are showing in their ad pricing numbers.
Speaker 1: Dan, come on in I saw you. You're saying something
Speaker 1: that sounds like that.
Speaker 4: Sounds like a bullish man deep. I mean that's probably
Speaker 4: on the man deep scale. That's that's pretty both.
Speaker 1: I like that. Hey, Dan, I noticed something striking today
Speaker 1: when I opened up Instagram. I was searching for a
Speaker 1: video from Mike Berbigley, a comedian who I really like.
Speaker 1: And what I noticed when I was just I was
Speaker 1: just looking for his profile. When I typed in his name,
Speaker 1: what appeared was as an AI answer about a biography
Speaker 1: of who he was. Information about him is the goal?
Speaker 1: What is the vision for Instagram? Is this going to
Speaker 1: be metas super app.
Speaker 4: I mean to some extent, they're basically creating a super
Speaker 4: I mean similar to what you see in China, but
Speaker 4: an AI driven super Adit that's and you start to
Speaker 4: go through that, you look in at a four digit stop.
Speaker 1: They tried to do this years ago with David Marcus
Speaker 1: on the messenger side. Man Deep, it didn't necessarily work.
Speaker 1: It was supposed to be payments and everything. Is that still,
Speaker 1: in your view, an area of growth for the company
Speaker 1: here or is that strategy gone?
Speaker 6: I mean right now, it feels like they have a
Speaker 6: lot of runway with ads and there is a clear
Speaker 6: use case for Jenni with ads. I mean, they still
Speaker 6: have to fix the model. So I think the advantage
Speaker 6: that they have is really they are the best when
Speaker 6: it comes to at targeting and know with everything that's
Speaker 6: going on, I mean, they have the surface area to
Speaker 6: apply jen Ai. But look when it comes to payments
Speaker 6: and other areas, they still lack the diversification of a
Speaker 6: Microsoft or a Google. It's still a one trick set.
Speaker 6: I mean, albeit a two dollar company, yees still dependent
Speaker 6: on ads.
Speaker 1: Dan.
Speaker 2: You know, it's funny because I was thinking about that
Speaker 2: because we you know, we talk about all of these companies,
Speaker 2: and I think about the hyperscalers like an alphabet. We've
Speaker 2: talked about that a lot man deep about just all
Speaker 2: of their different platforms and how much data that gives
Speaker 2: them to make their model smarter and smart smarter. I mean, Dan,
Speaker 2: is it going to be okay for Meta to be
Speaker 2: kind of a one trick pony even if it's I
Speaker 2: mean it's a massive one trick pony, But is it enough?
Speaker 5: Well?
Speaker 4: I mean, like, look, I think if you think about
Speaker 4: like on a packing scale of course, like Nvidio the
Speaker 4: top Microsoft, and you'll get these numbers just just unbelievable
Speaker 4: in terms of across the board. You look at Meta, Yeah,
Speaker 4: you call one trick pony ish, but that's but they're
Speaker 4: going to significantly expand that over the coming years.
Speaker 6: I mean, at least for now, there is no proof.
Speaker 6: I feel they are under earning by twenty percent because
Speaker 6: of all the losses in reality labs, But the street
Speaker 6: doesn't care because their ad business is really going gangbusters.
Speaker 6: When the ads slow down and the comps will get
Speaker 6: tougher and there will be a point when ads will
Speaker 6: not grow twenty percent, That's when I think the question
Speaker 6: will be asked why are they losing twenty billion dollars
Speaker 6: on reality labs because it's not making any money.
Speaker 1: When will it start making money?
Speaker 6: Dan?
Speaker 3: And does it matter?
Speaker 4: I mean, look, that's it's going to be okay, it's
Speaker 4: going to be a while. But the whole point is
Speaker 4: right now, that's background noise. Like you know, it's like
Speaker 4: Street wants them to continue to in fast and vast
Speaker 4: builders further out and at the end of the day,
Speaker 4: that is going to come into the fold. But you're
Speaker 4: not right now in this arms race in big tab
Speaker 4: you're a weaser focused on who's going to be the winner,
Speaker 4: and that's what we're seeing from Microsoft to Alphabet to
Speaker 4: Meta you know obviously you know across bording we'll scale
Speaker 4: with Amazon as well. Like it's an arm trace.
Speaker 6: I mean, the one other data point I would want
Speaker 6: to bring in is token counts. So Google and Microsoft
Speaker 6: have shared the GENII consumption, the token count We don't
Speaker 6: know how much metas models are being used. Yes, their
Speaker 6: AT targeting is great, which is why AT pricing was
Speaker 6: such a solid number this quarter. But at the end
Speaker 6: of the day, if you're investing seventy billion dollars in capex,
Speaker 6: you want to see your model being used and the
Speaker 6: open series strategy work. We have no proof points of that,
Speaker 6: so I still believe they have the most uphill task
Speaker 6: in terms of showing ROI on the you know, the Capex,
Speaker 6: besides their family of apps. And that's still the case.
Speaker 4: Dan.
Speaker 1: I know you got to go, but thirty seconds, last
Speaker 1: question for you. What's the one question you'd ask Mark
Speaker 1: Zuckerberg tonight.
Speaker 4: Look, I think it's really about cap back trajectory because
Speaker 4: I think that's even though that was slow a bit,
Speaker 4: they're putting as they continue to spend, you know what,
Speaker 4: That shows confidence and that's what we saw on Alphabet.
Speaker 4: That's what you've seen the Microsoft, and that means it
Speaker 4: continues to be like the AI revolution is AI party.
Speaker 4: It's ten pm, was nine pm, party goes to four am.
Speaker 2: Hey, listen before you go. I know we said last question,
Speaker 2: but not that we lie. But you know you're here
Speaker 2: in your Dan ives Microsoft you said that was also
Speaker 2: a big, big, big killer report. I mean the stock
Speaker 2: was just crazy in the aftermarket's up about six point
Speaker 2: eight percent.
Speaker 4: Scotti Scheffer like results, right. I mean the point is
Speaker 4: like massive beat on cloud. You see more and more
Speaker 4: of these use cases, these hyper scalers, those are the
Speaker 4: best indicators. That just shows where the next spending in
Speaker 4: AI is going. And that's why right now, if you're
Speaker 4: attagged back, you're in hibernation mode in that cave and
Speaker 4: you can't find AI in the spreadsheet.
Speaker 3: Pretty crazy, pretty interesting.
Speaker 2: Hey, listen, we know you're busy, we know you're bouncing
Speaker 2: around and got stuff to do, but always good to
Speaker 2: get some time with you. Dan I was managing director
Speaker 2: and senior equity analyst oft web Bush Securities, also Globe
Speaker 2: Ahead of Technology Research.
Speaker 1: I just want to remind everybody where we've come in
Speaker 1: the last few years with Meta Platforms. There was a
Speaker 1: lot of talk in late twenty twenty two of leaving
Speaker 1: this company for dead. When they made their pivot to
Speaker 1: the Metaverse, shares were trading at eighty eight dollars.
Speaker 3: Now it's back to the IPO. Oh sorry, yeah, I.
Speaker 1: Mean, but I mean even a recent history. Right, it's
Speaker 1: up six hundred and eighty six percent since then. That
Speaker 1: doesn't include the surge in the after hours, which, if
Speaker 1: it holds, will be a new record for Meta Platforms tomorrow.
Speaker 6: Yeah, and look when people were, you know, selling the
Speaker 6: stock at eighty dollars. Then they didn't really factor in
Speaker 6: you know, Meta's engagement. So what's really brought them back
Speaker 6: in such a big way is people are still spending
Speaker 6: over an hour and a half across their family of apps,
Speaker 6: so that's sort of engage. And look, that's where the
Speaker 6: real risk comes in. So Chatchipt now is about thirty
Speaker 6: minutes across its daily active users, which is much smaller
Speaker 6: than Meta. Meta has over three billion, and chat ChiPT
Speaker 6: is still you know, less than four or five hundred million,
Speaker 6: so still much small, but they are taking share in
Speaker 6: terms of engagement time. People are spending thirty minutes on chatchipt.
Speaker 6: So as long as Meta keeps growing engagement, I think
Speaker 6: they will keep growing earnings. And that's what they're showing
Speaker 6: with their AD revenue.
Speaker 2: All Hell's man Deep Man, Deep seeing of course, with
Speaker 2: our Bloomberg Intelligence team. He is Bloomberg Intelligence Globalhead of
Speaker 2: Technology Research. Be sure to check out his research on
Speaker 2: the Bloomberg When it comes to Meta.
Speaker 3: So appreciate it.
Speaker 2: Meta shares, by the way, are up about eleven percent
Speaker 2: here in the aftermarket, the company giving us stronger than
Speaker 2: expected third quarter revenue. Four has to sign that that
Speaker 2: core AD business is still growing quickly enough to support
Speaker 2: aggressive spending on AI. Devil in the details, and we
Speaker 2: heard that certainly from Mandeep. And then we've also got
Speaker 2: Microsoft that stock is up here in the aftermarket, and
Speaker 2: that one some really really strong numbers as well, quarterly
Speaker 2: cloud sales profit exceeding expectations.
Speaker 3: They say they brought in more than seventy five billion.
Speaker 2: Dollars in the past year in terms of its cloud
Speaker 2: business as the company continues to commercialize AI services.
Speaker 1: Tim, We've got a great group of folks, a great
Speaker 1: duo to talk Microsoft and more. I want to bring
Speaker 1: in Greg Halter, director of research at the registered investment
Speaker 1: advisor Carnegie Investment Council. They've got about six and a
Speaker 1: half billion dollars in assets under management. I also want
Speaker 1: to bring in Bloomberg Intelligence senior tech analyst anurog Rana.
Speaker 1: He joins us from our Chicago bureau. Greg. Just for
Speaker 1: some context, Microsoft is the largest holding, Is it the
Speaker 1: largest individual holding for your group or is it because
Speaker 1: it's an index funds I just want to set the
Speaker 1: stage before we get into the details.
Speaker 7: Thank you, Tim, and thanks for having me. We do
Speaker 7: not count the index fund holding positions in that number.
Speaker 7: If you look at our latest thirteen F filing, Microsoft
Speaker 7: is the largest individual stockholding at Carnegie.
Speaker 3: All right, so Microsoft investors certainly like it.
Speaker 2: In the aftermarket, as we mentioned, Greg, the stock is
Speaker 2: definitely soaring up about seven eight percent.
Speaker 3: Now as I speak, what jumps out at you?
Speaker 7: I think the Azure growth thirty nine percent versus the
Speaker 7: thirty four percent expected, that is huge. I'll also point
Speaker 7: out that their EPs beat of eight percent plus is
Speaker 7: the best in seven quarters. Usually they do beat. I
Speaker 7: think it's been now only three times four times over
Speaker 7: the last forty five periods they have missed on earnings,
Speaker 7: and this is a larger point of exceeding the estimate
Speaker 7: that they've had in seven periods.
Speaker 3: All Right, I want to agree you like it? All right,
Speaker 3: Anna rag Grana, I want to bring you in here.
Speaker 3: I'm not sure. I think we all went into this
Speaker 3: week with a little trepidation.
Speaker 2: Over everything that was coming at investors, including some of
Speaker 2: these big tech earnings. But this certainly investors like what
Speaker 2: they got from the company, and certainly with the outlook.
Speaker 2: What's your take here, what's important for investors to learn
Speaker 2: off of this release?
Speaker 5: You know, I would go what our other guests said.
Speaker 5: I mean, the acceleration in Azure is pretty impressive. And
Speaker 5: one of the things I think it's going to do.
Speaker 5: It's case, it's going to tell people that all the
Speaker 5: capex Microsoft is spending, you know, they're getting the benefit
Speaker 5: of it on the other side of it, and they're
Speaker 5: probably the first one to recognize a bigger, you know,
Speaker 5: load of AI revenue coming in. And you know, this
Speaker 5: will pacify a lot of people out there that may
Speaker 5: be worried that wire these companies spending so much on
Speaker 5: infrastructure and you know, and where is the other side
Speaker 5: of the equation. So I think a good results not
Speaker 5: just from Microsoft, but the entire tech platform.
Speaker 2: Well, that's what I want to just follow Ana Rogic.
Speaker 2: You know, our preview of all of this was Microsoft
Speaker 2: Meta investors are going to be scrutinizing over the AI
Speaker 2: spending bench. So for Microsoft, clearly do you we are
Speaker 2: clearly seeing the ROI when it comes to that AI spend.
Speaker 5: Yeah, both on the top side and you know, they
Speaker 5: are doing extremely well on the expense management side. Because
Speaker 5: what happens is when you're seeing a rapid growth and Azure,
Speaker 5: which has a relatively lower gross margin than the rest
Speaker 5: of the Microsoft business. Profitability does get dented with In
Speaker 5: addition to all the AI investments that they're making, what
Speaker 5: they did this time was, you know, year over year
Speaker 5: they kept their headcount flat. I mean that's a huge
Speaker 5: boost to you could say profitability as well as productivity,
Speaker 5: and you know, I think that's that's something for people
Speaker 5: to take home.
Speaker 1: Also, Hey, Greg, I want to bring you back in here.
Speaker 1: Looking at the Azure growth here, the company reported better
Speaker 1: than expected growth in its cloud business, the Microsoft saying
Speaker 1: it brought in more than seventy five billion dollars in
Speaker 1: the past year. The company continues to commercialize AI services.
Speaker 1: Give us your bull case on AI and Microsoft because essentially,
Speaker 1: this company is deploying AI tools and it's betting that
Speaker 1: these conversant chatbots and more powerful automation tools are going
Speaker 1: to boost sales of Microsoft productivity software and cloud services.
Speaker 1: Is that bet paying off right now?
Speaker 7: I don't know that you can say it's one hundred
Speaker 7: percent paying off. The reaction to the stock indicates that
Speaker 7: investors believe that it will. You know, this stock was
Speaker 7: coming into the report at thirty four times earning, so
Speaker 7: a lot has to go right and it appears that
Speaker 7: a lot is going right. So yes, you know, we've
Speaker 7: done a look at their CAPEX and R and D
Speaker 7: over the last ten twelve years or so. It's not
Speaker 7: like this is new. It's just that the numbers are big.
Speaker 7: I mean the percentages are also fairly large. But you
Speaker 7: know they're spending a billions and billions on R and D.
Speaker 7: Of course, now they can get the text benefits from
Speaker 7: that billions of dollars, not just Microsoft but others, and
Speaker 7: you would hope that they're wisely investing in that R
Speaker 7: and D for future profitable products and services.
Speaker 2: Hey, I do want to point out too that we
Speaker 2: see Amazon shares up about two point seven percent here
Speaker 2: in the after market, shares of alphabet or down about
Speaker 2: four tenths of a percent. But of course Amazon reporting
Speaker 2: along with Apple tomorrow, Anna Rag, I don't know, is
Speaker 2: there any any cause for concerns or things that you
Speaker 2: want to question or would question with the C suite
Speaker 2: following Microsoft's release here?
Speaker 5: No, I think I would talk about the headcount growth
Speaker 5: for next year. You know, what are they baking because
Speaker 5: it's been almost two years where they have added very
Speaker 5: little headcount to the overall company size. And the big
Speaker 5: question over there is is this something that we should
Speaker 5: anticipate going forward, that you know, you're getting all this
Speaker 5: cloud revenue, but you're not adding a lot more headcount.
Speaker 5: Because I think that's slightly concerning. I mean not so
Speaker 5: much for Microsoft, but the rest of the tech industry,
Speaker 5: because you know, somebody that is selling HR software or
Speaker 5: sales software depends on companies hiding quite a bit because
Speaker 5: it's a seat based model, and I think that's an area.
Speaker 5: But that's not so much I would say Microsoft's problem,
Speaker 5: but that the rest of the tech industry is issue.
Speaker 4: All right.
Speaker 3: Going to leave with there, folks, thank you so much.
Speaker 2: Anda Grana, senior tech analyst with Bloomberg Intelligence out there
Speaker 2: in Chicago, and Greg Halter are thanks to you as well,
Speaker 2: director of research at the registered investment advisor Carnegie Investment,
Speaker 2: with the latest on Microsoft and NETA.