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Alphabet, Amazon Outpace Meta in AI During Earnings Bonanza · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
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  Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am
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  Speaker 2: Yesterday after the close, a lot of the big tech
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  Speaker 2: names reporting, and it's kind of the market's kind of
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  Speaker 2: trying to suss out some winners and losers. Google, I
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  Speaker 2: guess on the plus side Meta, Yeah, not so Mindsight.
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  Speaker 2: So let's check in with man Deep Singh. He does
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  Speaker 2: all the technology stuff for Bloomberg Intelligence. Man Deep metatrating
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  Speaker 2: down ten percent. Let's start there. What's the market reacting to?
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  Speaker 3: Oh, the market is reacting to the capex increase when
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  Speaker 3: they don't have much to show, unlike their hyperschol Cloud peers,
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  Speaker 3: who clearly have seen that top line benefit. I mean,
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  Speaker 3: Metta's top line growth is very strong, you know, thirty
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  Speaker 3: three percent at the two hundred million dollar run rate
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  Speaker 3: is very impressive. It's just that when you look for
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  Speaker 3: that extra line item where AI is categorized separately, they
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  Speaker 3: don't have much to show for it. And right now,
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  Speaker 3: the growth in AI is around coding agents. So Meta
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  Speaker 3: has a model, they've released it, but it's not something
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  Speaker 3: that specializes in coding agent. They are targeting more of
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  Speaker 3: the personalized superintelligence personal assystem that kind of a use case,
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  Speaker 3: and they just haven't given us enough in terms of
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  Speaker 3: our timeline when they will start monetizing that use case. So,
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  Speaker 3: all in all, CAPEX increase tied to memory components, not
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  Speaker 3: really tied to additional capacity, but it was enough to
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  Speaker 3: cause this, you know, ten percent drawdown in the stock.
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  Speaker 3: Overall fundamentals were still strong when they reported the quarter
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  Speaker 3: for their core business.
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  Speaker 4: Yeah, I guess investors don't like it to year when
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  Speaker 4: the CEO is saying there isn't a very precise plan
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  Speaker 4: for how each AI product will be cultivated sounds too
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  Speaker 4: generic for their liking. We should mention as well. Meta
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  Speaker 4: is now looking to sell up to twenty five billion
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  Speaker 4: dollars in investment grade bonds to kind of fund out
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  Speaker 4: all those spending plans they have. Speaking of spending plans,
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  Speaker 4: alphabet is increasing its spending plans by I think about
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  Speaker 4: another ten billion dollars.
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  Speaker 3: Yeah, and look when you compare the magnitude of increases
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  Speaker 3: from Microsoft, which raised almost you know, by thirty five
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  Speaker 3: forty billion dollars in capex. Meta raised it by over
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  Speaker 3: almost twenty billion, and that was mostly attributed to memory
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  Speaker 3: price increases. So the question is why was Alphabet increased
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  Speaker 3: not of the same magnitude. Yes, they raised, but it
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  Speaker 3: was a very slight increase. And that kind of goes
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  Speaker 3: to show that Alphabet, out of all the hyperscalers, has
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  Speaker 3: the best capex efficiency. They are able to use their
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  Speaker 3: commute across their apps so that it's searched YouTube. Also,
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  Speaker 3: the cloud business is growing at the fastest rate compared
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  Speaker 3: to other hyperscalers, so that capex efficiency is what's driving
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  Speaker 3: a lot of the margin upside, and it's reflected, you know,
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  Speaker 3: in their numbers and guidance. So even though it was
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  Speaker 3: a bet and race from everyone, Alphabet's beaten race was
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  Speaker 3: the most impressive and hence the stock reaction.
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  Speaker 2: Mandy, where do you think we are in this hyper
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  Speaker 2: investment phase for AI? Is are we going to do
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  Speaker 2: this for another quarter or two or is this going
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  Speaker 2: to be a couple three years.
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  Speaker 3: I mean, this definitely has the makings of a super cycle.
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  Speaker 3: Almost everyone you know on the call yesterday from the
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  Speaker 3: management teams talked about how you know demand far exceeds supply,
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  Speaker 3: and look, the compute usage is showing up in the
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  Speaker 3: cloud numbers. When you think about even Amazon one hundred
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  Speaker 3: and fifty billion dollar business growing at twenty eight percent
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  Speaker 3: and Google eighty billion dollars cloud business growing at sixty
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  Speaker 3: three percent. So you are seeing that ROI with these
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  Speaker 3: AI investments. There's no reason to curtail that investment when
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  Speaker 3: you're seeing this kind of a top line lift. The
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  Speaker 3: only thing is, you know, component pricing a memory notably,
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  Speaker 3: is eating up a lot of this CAPEX increase. That's
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  Speaker 3: just again a function of demand being much higher than
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  Speaker 3: what these companies can supply in terms of components.
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  Speaker 4: Stay with us more from Bloomberg Intelligence coming up after this.
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  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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  Speaker 1: weekdays at ten am Eastern on Apple Corplay and Android
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  Speaker 1: you get your podcasts, or watch us live on YouTube.
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  Speaker 4: Doing some of the big earnings. Meta and Microsoft are
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  Speaker 4: big drags on the Nasdaq one hundred, while you have
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  Speaker 4: Alphabet going off basically to the moon right now because
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  Speaker 4: it's seen as the winner, and it's seen as the
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  Speaker 4: most efficient user of capex. It's been able to turn
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  Speaker 4: around investments and returns on that Capex. Let's bring in
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  Speaker 4: on rog Rana of Bloomberg Intelligence. He is our tech
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  Speaker 4: analyst joining us from Chicago. Onrag walk us through the
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  Speaker 4: results from Microsoft. First of all, Alexis mentioned how the
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  Speaker 4: cop business saw good growth, but perhaps not good enough
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  Speaker 4: for investors.
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  Speaker 5: You know, again, it's a question of relative growth compared
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  Speaker 5: to their peers. So for Microsoft, growth accelerated one hundred
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  Speaker 5: one percentage points from thirty eight percent to thirty nine
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  Speaker 5: in constant currency, But when you look at Google it
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  Speaker 5: went from forty eight percent to sixty three. So I
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  Speaker 5: think it's all it's a relative game. Even in the
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  Speaker 5: case of Amazon Web Services last quarter they grew at
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  Speaker 5: twenty four percent this quarter twenty eight, So we are
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  Speaker 5: really splitting hairs. But I think that's what's really happening
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  Speaker 5: at this point.
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  Speaker 2: There's no scenario where Microsoft's not a huge winner in
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  Speaker 2: a is there on a roun.
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  Speaker 6: No, No, absolutely, you're right about it.
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  Speaker 5: But again it's a matter of One of the things
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  Speaker 5: we discussed even yesterday was if you go back in
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  Speaker 5: the history of Microsoft, they were the first company to
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  Speaker 5: showcase AI revenue and they saw a lot of benefit
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  Speaker 5: for that one one and a half years when everybody
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  Speaker 5: thought Amazon and Google is behind. Now it's slightly on
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  Speaker 5: the other side. They are seeing the benefit of AI
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  Speaker 5: which they didn't see, which means relative growth rates a
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  Speaker 5: higher for them. But in the case of Microsoft, they
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  Speaker 5: have a very successful AI business. Their AI round rate
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  Speaker 5: is much higher than anybody at this point. They have
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  Speaker 5: Copilot adoption very fast paced. Azure is doing well, and
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  Speaker 5: the funny thing is Azure is now one hundred plus
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  Speaker 5: billion dollar business. I think we think it's somewhere around
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  Speaker 5: one hundred and ten billion, growing at forty percent. I mean,
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  Speaker 5: I think that's very impressive. But again it's a question
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  Speaker 5: of if Google can beat by such a big margin, well,
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  Speaker 5: why why couldn't you.
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  Speaker 4: I'm glad you bring up copilot because isn't there some
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  Speaker 4: concern that there's only a small percentage of Microsoft Office
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  Speaker 4: users who are paying for Copilot AI tools. I mean,
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  Speaker 4: everyone has access to it, but not everyone wants to
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  Speaker 4: pay for it.
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  Speaker 5: That is the biggest growth opportunity for them. Frankly, if
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  Speaker 5: you see they have about four hundred plus million users.
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  Speaker 5: Out of those four hundred million users, we think about
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  Speaker 5: two hundred of them are power users people like you
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  Speaker 5: and Paul, and then within that cohote, only twenty million
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  Speaker 5: of them are paying right now.
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  Speaker 6: So the penetration rate is let's say about ten percent.
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  Speaker 5: Over time, that's going to increase, and that's where the
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  Speaker 5: art to increase is going to be. And see a
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  Speaker 5: much rapid growth rate both in terms of the number
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  Speaker 5: of users going up and then you know, taking up
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  Speaker 5: dollars a long with it.
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  Speaker 2: So get them hooked first, right, Paul, yep, this is
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  Speaker 2: a milestone day for AI Universe.
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  Speaker 7: You know why why I downloaded the chat gpt today
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  Speaker 7: for the first time ever, first time? What was your
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  Speaker 7: first question to chat gpt?
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  Speaker 2: Well, Sarah Livesey, one of our producers, show me. She
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  Speaker 2: went in said, hey, give me a picture of traders
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  Speaker 2: looking for direction, you know, like in the market, and
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  Speaker 2: it gave her like a great image. So I did
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  Speaker 2: the same thing and it wasn't as good an image,
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  Speaker 2: but it was a pretty good good image. So Sara
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  Speaker 2: is much better than that than I am. But Fursing,
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  Speaker 2: I'm getting there an rock. How about Amazon here their
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  Speaker 2: cloud that business seems to be big and again another
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  Speaker 2: one of these companies thrown a lot of money at
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  Speaker 2: this business.
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  Speaker 5: Now, Amazon Web Services over one hundred and fifty billion
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  Speaker 5: dollars run rate. Business grew twenty eight percent. We think
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  Speaker 5: that rate of growth actually improves in the next few
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  Speaker 5: quarters because of the massive backlock. Imagine just a few
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  Speaker 5: days ago they added open EI models into their entire ecosystem,
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  Speaker 5: which they didn't have access to before. That's going to
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  Speaker 5: you know, spur even more enterprise AI adoption. One of
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  Speaker 5: the things people don't realize is when it comes to
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  Speaker 5: Fortune two thousands, who are the biggest spenders of money,
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  Speaker 5: bulk of their data is in Amazon Web Services. That's
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  Speaker 5: all the cloud transition that get happening for the last
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  Speaker 5: fifteen twenty years. So they are actually at the center
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  Speaker 5: of this agentic shift for enterprises going from you know,
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  Speaker 5: the legacy way of doing stuff towards agents.
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  Speaker 7: Stay with us more from Bloomberg Intelligence coming up after this.
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  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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• 9:29
  Speaker 1: get your podcasts. Or watch us live on YouTube.
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  Speaker 7: Let's head over to London.
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  Speaker 2: Sam Fizzelli, director of Research for Global Industries, senior pharmer Analysts.
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  Speaker 7: I have no idea where he is. He could be London,
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  Speaker 7: convenientingwhere in the world.
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  Speaker 2: That's how this guy rolls, but he covers all the
• 9:41
  Speaker 2: pharmer for Bloomberg Intelligence. Sam, I assume you and your
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  Speaker 2: team have been kind of busy here. We've got some
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  Speaker 2: earnings coming out of the farmer companies here Eli Lilly
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  Speaker 2: raising its annual sales and profit forecast to high demand
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  Speaker 2: forro BC medications, where that's just like perfect for this
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  Speaker 2: market and a stocks up nine percent today.
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  Speaker 7: What did you hear from Lill Yeah.
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  Speaker 6: So, Paul.
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  Speaker 8: I mean, the interesting thing here is that there's been
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  Speaker 8: quite a lot of skipts.
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  Speaker 6: Particularly everybody was so focused on this oral drug, you know.
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  Speaker 8: The pill that they've got launched in the US, YEP,
• 10:14
  Speaker 8: and so focused on that and tracking the weekly prescriptions
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  Speaker 8: that they forgot. Actually there's an en homeost Jugger note
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  Speaker 8: of a business behind it and was driven this two
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  Speaker 8: billion dollar increase from eighty to eighty two. On the
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  Speaker 8: little side of the guidance for twenty twenty six in
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  Speaker 8: sales is x US sales. So that's actually quite good
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  Speaker 8: because a lot of people always just keep thinking that
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  Speaker 8: everything is all US based and everything's.
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  Speaker 6: Going to be driven by US.
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  Speaker 8: But of course here we've got that increase and that's
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  Speaker 8: what's driving it. High quality beat nine percent, nine point
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  Speaker 8: one percent up this minute.
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  Speaker 4: All right, so good news for those who are investors
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  Speaker 4: in Eli Lilly. That's a massive move nine percent up
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  Speaker 4: for the company.
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  Speaker 8: It had been suffering Scarlett because of the issues people
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  Speaker 8: worrying about that pill.
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  Speaker 4: Ah, so maybe a little bit of catch up there
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  Speaker 4: as well. Mark also reported results and it beat its
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  Speaker 4: sales estimates. Demand for newer drugs remind me, does Mark
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  Speaker 4: have a weight loss drug on the market or is
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  Speaker 4: it developing any weight.
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  Speaker 6: Loss drug they are developing.
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  Speaker 8: They're developing one, yes, there, I think everybody is kind
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  Speaker 8: of they've got one that they've licensed. Pretty much everybody's
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  Speaker 8: got their finger in that pie. I can't say absolutely everybody.
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  Speaker 8: Most people have got their finger in the pie trying
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  Speaker 8: to get a something on the market. And rash AstraZeneca
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  Speaker 8: and time will tell whether they can compete in this.
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  Speaker 8: Clearly these guys are sewing up the market. Between themselves
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  Speaker 8: and Nova Noor Disk. So Mark's results were a little
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  Speaker 8: bit more I would say, meh, and as a sure
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  Speaker 8: price suggested pointy six percent up, there was a beat.
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  Speaker 8: But then of course that much of that was driven
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  Speaker 8: by inventory build, which is not something that the market
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  Speaker 8: gets too excited by because it's one off. And then
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  Speaker 8: of course one of the reasons I think they've been
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  Speaker 8: able to guide to a higher EPIS is because they're
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  Speaker 8: going to have lower charges associated with an ideal they've
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  Speaker 8: done and that's not really that's not a quigh quality beat.
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  Speaker 6: So business steady issue.
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  Speaker 7: Goes Mark based in Rahway, New Jersey station stop Rahway.
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  Speaker 3: There you go.
• 12:17
  Speaker 7: That's how I know Rahway station stop Rahway, Like I
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  Speaker 7: never get off. That's where k is is big farmer land.
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  Speaker 7: It is Jersey that you can just have an that's
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  Speaker 7: the entire state practically.
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  Speaker 2: Mark so sam for these oral obesity drugs. To what
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  Speaker 2: degree do you think that's going to expand the market.
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  Speaker 6: Yeah, so I think cann get down these expectations.
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  Speaker 8: Folks are looking for one and a half billion dollars
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  Speaker 8: from a Lily's pill this year and it's only.
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  Speaker 6: Been on the market for a couple of a couple of.
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  Speaker 8: Weeks to or three weeks, right, so, and that might
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  Speaker 8: be a tough number to get to, especially listening to
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  Speaker 8: what the management were saying a little bit about the
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  Speaker 8: fact that they need to activate a whole bunch of
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  Speaker 8: et cetera. And there is a question that comes to mind.
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  Speaker 8: We know that there we go VW pill. Although it's
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  Speaker 8: a bit more of a cumbersome thing. You have to
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  Speaker 8: take it half an hour before eating breakfast, et cetera.
• 13:12
  Speaker 8: It gives you a better weight loss in terms of
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  Speaker 8: the average weight loss, say fourteen percent versus twelve Let's
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  Speaker 8: say let's say that's about the delta between them and we.
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  Speaker 8: So what are you going to do? You're going to
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  Speaker 8: worry so much about your breakfast. I mean, nobody gets
• 13:28
  Speaker 8: up and eats straight away, right, so they're going to
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  Speaker 8: take their job, potentially, shower, get ready, et cetera. So
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  Speaker 8: maybe it's a bit more likely that people will continue
• 13:38
  Speaker 8: on that and that really will have a tough time
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  Speaker 8: gaining momentum with its aural pill, which is an aural
• 13:43
  Speaker 8: pill literally an oral pill. You just pop it, nothing
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  Speaker 8: to do with its fasting or anything. And then of
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  Speaker 8: course you go to twenty thirty, you get to twenty
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  Speaker 8: eight billion dollars. So look, they have the better obesity
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  Speaker 8: injection today in terms of efficacy.
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  Speaker 6: Nova has the better pill in terms of efficacy.
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  Speaker 8: So it's just going to be both of them are
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  Speaker 8: going to be finding for that market share, and Nova's
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  Speaker 8: kind of corrected quite a lot.
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  Speaker 7: Stay with us.
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  Speaker 4: More from Bloomberg Intelligence.
• 14:14
  Speaker 7: Coming up after this.
• 14:18
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
• 14:25
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• 14:28
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 14:32
  Speaker 2: All right, let's get back to some of these earnings here.
• 14:36
  Speaker 2: Caterpillar some really strong numbers here, and when we want
• 14:38
  Speaker 2: to talk all that big machinery stuff, we go to
• 14:40
  Speaker 2: Chris Giolino. He's a Bloomberg Intelligence follows all those big
• 14:44
  Speaker 2: engineering companies and construction companies.
• 14:47
  Speaker 7: Chris talked to us about Caterpillar here and their quarter.
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  Speaker 9: Yeah, you know, kat continues to deliver against pretty lofty
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  Speaker 9: expectations with another top and bottom line beat this quarter,
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  Speaker 9: really solid across the highlighted by better than expected performance
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  Speaker 9: in their construction business and sustain momentum power and energy.
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  Speaker 9: But I think really more importantly here, their record backlog
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  Speaker 9: continues to grow significantly quarter over quarter, and management raised
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  Speaker 9: their long term twenty thirty growth targets. They also announced
• 15:19
  Speaker 9: that they're going to invest in some additional large engine
• 15:22
  Speaker 9: capacity expansion. So the long term visibility just continues to improve,
• 15:27
  Speaker 9: which we think, you know, should continue to drive these
• 15:30
  Speaker 9: upward earning cycle revision.
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  Speaker 4: And this is something that Matt Griffin of Bloomberg News
• 15:35
  Speaker 4: has highlighted. He came on to talk to us about
• 15:37
  Speaker 4: how Caterpillar was another way to play the AI boom.
• 15:40
  Speaker 4: How much of this backlog and the growth that Caterpillar
• 15:45
  Speaker 4: is seeing is directly tied to AI build out.
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  Speaker 9: So it's a large portion, right, It's you know, now
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  Speaker 9: power and energy is approaching, you know, roughly half the
• 15:55
  Speaker 9: size of the business. But I think one of the
• 15:58
  Speaker 9: takeaways I took from this COO was that the backlog
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  Speaker 9: was really up across all businesses, and it's kind of
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  Speaker 9: at a unique time for Caterpillar, and that not only
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  Speaker 9: do we have all these secular tailwinds on the power
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  Speaker 9: generation side, but now we're starting to see that the
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  Speaker 9: cyclical tailwinds start to kick in in terms of construction
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  Speaker 9: and mining, So all three businesses really starting to contribute
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  Speaker 9: to the overall enterprise.
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  Speaker 2: And shares a Caterpillar today are up eight point eight
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  Speaker 2: percent of fifty three percent this year, up one hundred
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  Speaker 2: and eighty four percent on a trailing twelve month basis. Wow,
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  Speaker 2: fifty two week high, an all time high for the
• 16:35
  Speaker 2: stock eight hundred and eighty dollars a share.
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  Speaker 7: They need a ten for.
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  Speaker 2: One split badly. I think so it is just because
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  Speaker 2: of the power business matter. When I think it, you know,
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  Speaker 2: company like Caterpillar, I think of a cyclical business.
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  Speaker 7: Is this making this business less cyclical?
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  Speaker 9: You know, it may help mitigate some of the cyclicality
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  Speaker 9: At the end of the day, I don't think it
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  Speaker 9: changes the underlying fundam mentals of the business. This is
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  Speaker 9: still ultimately going to be a cyclical business over time.
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  Speaker 9: But you're certainly seeing that, you know, the power gen
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  Speaker 9: power energy business, that backlog just continues to grow. So
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  Speaker 9: we have that additional production visibility which has really helped,
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  Speaker 9: you know, provide a little bit of a floor at
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  Speaker 9: least during this downturn. As construction and mining were quite
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  Speaker 9: soft over the past few years. So yeah, short answer,
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  Speaker 9: it helps mitigate it, but longer term it's still it's
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  Speaker 9: going to be a cyclical business.
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  Speaker 4: Okay, I'm still kind of stunned by some of the
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  Speaker 4: numbers that Paul just rattled off. Who is Caterpillar's biggest competitor,
• 17:40
  Speaker 4: who picks up some of the slack that Caterpillar can't
• 17:42
  Speaker 4: get to.
• 17:44
  Speaker 9: Yeah, I mean, as Paul alluded to, I mean, the
• 17:46
  Speaker 9: numbers are quite staggering, and really if you look at
• 17:49
  Speaker 9: the valuations, it's quite hard to digest as well. But
• 17:54
  Speaker 9: you know, they continue to deliver and exceed expectations. It
• 17:58
  Speaker 9: seems like quarter and in quoter out In terms of competition,
• 18:02
  Speaker 9: you know, if you think about some of the more
• 18:04
  Speaker 9: traditional equipment, particularly in the dirt or mining, it's Comatsu.
• 18:09
  Speaker 9: They are the largest competitor to cat particularly on some
• 18:13
  Speaker 9: of the equipment businesses. You also have Deer who's trying to,
• 18:17
  Speaker 9: you know, make bigger inroads into construction equipment. They're launching
• 18:20
  Speaker 9: a whole new excavator lineup, and then there's a number
• 18:24
  Speaker 9: of other regional players. The hatachis Volvos of the world,
• 18:28
  Speaker 9: and then on the power gen side, it's pretty diverse.
• 18:32
  Speaker 9: You know where Cat plays, it still tends to be
• 18:33
  Speaker 9: kind of at the smaller end of the spectrum, right,
• 18:36
  Speaker 9: So think you know companies like Cummins who also have
• 18:39
  Speaker 9: the standby your backup power capacity.
• 18:43
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