WEBVTT - Week Ahead: Alphabet, Microsoft, Amazon

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio, news.

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<v Speaker 2>The Stock Movers Report, your roundup of companies making moves

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<v Speaker 2>in the stock market, harnessing the power of Bloomberg data.

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<v Speaker 1>Let's take a look now at some stocks making news

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<v Speaker 1>in the week ahead. I'm Nathan Hager, joined by Bloomberg

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<v Speaker 1>Intelligence Global Head of Tech Research, Mandeep Singh, because we

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<v Speaker 1>do have another Very busy week for tech earnings in

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<v Speaker 1>the days ahead. I think we're going to hear from, what,

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<v Speaker 1>three of the Mag7 this week, Mandeep?

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<v Speaker 2>Is that right?

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<v Speaker 3>Yeah. Yeah.

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<v Speaker 1>So which are the most important ones for you, as

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<v Speaker 1>I think we're hearing from Alphabet, Microsoft, and Amazon this week?

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<v Speaker 3>Agreed. And look, I think what we saw from SpaceX

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<v Speaker 3>and Meta was that they are looking to raise their

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<v Speaker 3>CapEx in a big way. SpaceX actually gave the numbers,

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<v Speaker 3>but Meta didn't. And When I extrapolate that to what

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<v Speaker 3>we can expect from Microsoft and Google and Amazon, it's

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<v Speaker 3>very obvious that CapEx numbers will be revised higher. Now,

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<v Speaker 3>the difference will be that all three of them will

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<v Speaker 3>talk about how they expect cloud segment growth to accelerate. Remember,

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<v Speaker 3>these are the three biggest hyperscalers when it comes to

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<v Speaker 3>cloud infrastructure. And what we have already started to see

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<v Speaker 3>is their growth rates are accelerating. And this quarter will

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<v Speaker 3>be another proof point of that. And that will be

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<v Speaker 3>the basis for them to increase their CapEx for next

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<v Speaker 3>year and possibly 2028.

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<v Speaker 1>Is that going to be something that's well-received by investors?

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<v Speaker 1>You mentioned the SpaceX forecast, and we saw a pretty

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<v Speaker 1>big stock jump there. But when Meta Platforms announced that

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<v Speaker 1>they were raising their CapEx forecast, the stock got punished

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<v Speaker 1>pretty badly.

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<v Speaker 3>Yeah, and Meta did not give the specifics in terms

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<v Speaker 3>of how much are they looking to raise CapEx and

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<v Speaker 3>what kind of equity issuance or debt issuance they're looking

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<v Speaker 3>to do. But the difference is Meta doesn't have a

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<v Speaker 3>cloud infrastructure business. So that's where all these three companies,

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<v Speaker 3>which have a combined backlog of over $ 1. 5 trillion, if

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<v Speaker 3>you add up the backlogs of Microsoft and Azure, Google Cloud,

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<v Speaker 3>and Amazon AWS. It will be north of $ 1. 5 trillion already.

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<v Speaker 3>And a lot of it is coming from the two

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<v Speaker 3>frontier labs, OpenAI and Anthropic. But there is no doubt

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<v Speaker 3>that in terms of monetization, These three hyperscalers are at

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<v Speaker 3>the forefront of monetization because of their scale in cloud infrastructure.

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<v Speaker 3>And I think that will be the big difference. If

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<v Speaker 3>they're able to show a significant acceleration in cloud business

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<v Speaker 3>with holding margins steady, which has been the case so far,

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<v Speaker 3>I think the stock reaction will be different from what

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<v Speaker 3>we saw with Meta.

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<v Speaker 1>So how do you see the horse race now, Mandy,

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<v Speaker 1>between Google Cloud, Microsoft Azure, and Amazon Web Services?

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<v Speaker 3>So Amazon AWS used to have almost a 50% market

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<v Speaker 3>share in the traditional cloud world. Now with all the

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<v Speaker 3>new clouds coming to the scene, which are specializing in

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<v Speaker 3>these AI data centers, that market share has dropped. So clearly,

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<v Speaker 3>you know, Amazon AWS is not 50%. It's much lower.

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<v Speaker 3>And you've got a long tail of new clouds that

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<v Speaker 3>are growing very fast in the AI data center world.

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<v Speaker 3>Among the hyperscalers, I feel Google Cloud has taken a

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<v Speaker 3>leap forward in terms of growing its market share relative

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<v Speaker 3>to Amazon, partly because of their vertical integration with TPUs

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<v Speaker 3>and what they're able to do with their own infrastructure

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<v Speaker 3>stack where they have got everything from chips to models

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<v Speaker 3>to the cloud infrastructure. and they're doing it at the

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<v Speaker 3>lowest cost. So that will be a big differentiator in

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<v Speaker 3>terms of Google cloud margins and Amazon AWS does have

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<v Speaker 3>its own chips, but Google cloud right now has a

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<v Speaker 3>bigger scale and it's reflected in Anthropix leaked numbers in

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<v Speaker 3>terms of their $ 750 billion commitments. About one third of

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<v Speaker 3>that go to Google. So from that perspective also, Google

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<v Speaker 3>has the most backlog from Entropic, and I think that

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<v Speaker 3>may help their faster growth.

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<v Speaker 1>And what about Microsoft Azure? You mentioned Anthropic's $ 750 billion

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<v Speaker 1>spend and maybe Google Cloud being a big part of that.

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<v Speaker 1>Is Microsoft Azure going to be a beneficiary of that

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<v Speaker 1>as well?

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<v Speaker 3>Yes, all three of them. In fact, Amazon and Google

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<v Speaker 3>is where Anthropic has mostly deployed its infrastructure so far.

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<v Speaker 3>But going forward, they do have over a $ 100 billion

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<v Speaker 3>commitment with Microsoft Azure as well. So Like I said,

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<v Speaker 3>all these three clouds will benefit. It's just a question

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<v Speaker 3>of whether Google Cloud will go 90% and Amazon AWS

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<v Speaker 3>will grow slightly lower. But all three are growing in

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<v Speaker 3>this case.

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<v Speaker 1>Are high double-digit growth expectations enough for investors at this point, Mandeep?

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<v Speaker 3>They are given the scale of these businesses. I mean,

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<v Speaker 3>Google Cloud is already north of $ 100 billion. And, you know,

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<v Speaker 3>if they're growing 90%, that's a stellar growth rate. Even

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<v Speaker 3>for Amazon, which is $ 150 billion business, growing 40% is

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<v Speaker 3>a very impressive growth rate. And it shows the ROI there.

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<v Speaker 3>when it comes to all this huge CapEx spend that

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<v Speaker 3>we are talking about. And that's what I meant. These

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<v Speaker 3>companies have the revenue to show for the CapEx. In

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<v Speaker 3>the case of Meta, the revenue will come. It's just

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<v Speaker 3>not there right now. And it's going to test investors' patience.

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<v Speaker 1>So then, after all the jitters that we've seen in

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<v Speaker 1>the AI trade, depending on which company reports earnings from

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<v Speaker 1>one day to the next, what are your expectations in

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<v Speaker 1>terms of whether these reports this coming week are going

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<v Speaker 1>to underpin the AI trader or maybe add to some

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<v Speaker 1>more of those jitters?

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<v Speaker 3>I think that may calm some of the fears that

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<v Speaker 3>we have seen around monetization and obviously the neocloud bond

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<v Speaker 3>yields going up. So these companies have some of the

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<v Speaker 3>best credit in terms of the ratings and they have

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<v Speaker 3>a lot of firepower when it comes to issuing debt

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<v Speaker 3>and raising their capex. And if they are able to

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<v Speaker 3>show commensurate ROI on that capex spend without having the

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<v Speaker 3>investors to wait for when the returns will show up,

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<v Speaker 3>I think that will be cheered.

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