Latest / The Financial Exchange Show / AI continues to propel markets and the economy

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AI continues to propel markets and the economy · The Financial Exchange Show

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Speaker 1: Chuck Zada and Mike Armstrong.
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Speaker 2: As you just heard, it is Chuck, Mike and Tucker
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Speaker 2: with you, and we continue through the most boring week
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Speaker 2: in finance of the year. Turn us off, don't listen.
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Speaker 2: Nothing happened yesterday. There was no FED press conference, there
1:25
Speaker 2: were no earnings from Meta and Microsoft. There was no
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Speaker 2: GDP report. There is no PCE report this morning. There
1:34
Speaker 2: is no jobless claims this morning. There's not going to
1:37
Speaker 2: be an Apple or Amazon earnings report after the bell
1:41
Speaker 2: today either it's all canceled on account of the first
1:44
Speaker 2: rain that the New England region is getting in twelve
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Speaker 2: weeks or whatever the heck it did. Remember we went
1:49
Speaker 2: through that thing where it rained every Saturday for like
1:52
Speaker 2: four months straight, and now it hasn't rained at all
1:54
Speaker 2: for two months. So we got to complain about both. Yes, yes,
1:59
Speaker 2: it's kind of like when it intrates are too damn
2:01
Speaker 2: high and too low at the same time, how do
2:04
Speaker 2: we get them just right? Let's start not with interest rates.
2:07
Speaker 2: But quite honestly, what happened after the bell yesterday. It
2:11
Speaker 2: was just wild. So I'm sitting there and you know,
2:16
Speaker 2: normally you hear like, okay, earnings are going to be
2:18
Speaker 2: after the bell, and you always kind of wait around
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Speaker 2: because they all have their own little cadence. You know
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Speaker 2: that Apple always likes to wait until like four point
2:24
Speaker 2: thirty to put theirs out. Amazon's usually pretty prompt, and
2:28
Speaker 2: with Microsoft and Medica can vary. It was like four
2:31
Speaker 2: oh one and I get the alert coming from CNBC.
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Speaker 2: I'm like, oh, like, let me take a look.
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Speaker 3: If I had these earnings, I'd be telling you four
2:37
Speaker 3: oh one.
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Speaker 2: Too, exactly, because both of these stocks were up ten
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Speaker 2: percent after hours yesterday, Meta and Microsoft. And as we
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Speaker 2: sit here today, Meta is now up over twelve percent,
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Speaker 2: while Microsoft is giving back a decent chunk of its
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Speaker 2: gains and now is up just a mere five percent, which,
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Speaker 2: by the way, is two hundred billion dollars.
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Speaker 3: That still put them in four trillion dollar Yeah, it
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Speaker 3: does four trillion dollar company territory.
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Speaker 2: So just some monster numbers here. And I want to
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Speaker 2: give this a little bit of scale, just to put this,
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Speaker 2: you know, in perspective here. And this is from uh,
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Speaker 2: Brent Donnelly, who's someone who I cite fairly off and
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Speaker 2: he's a trader, and I just think gives some some
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Speaker 2: good perspective on this. Brent Brent's Canadian which is why
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Speaker 2: this is his statistic. Got it. Microsoft's fiscal twenty twenty
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Speaker 2: five profit is the same as all of the profits
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Speaker 2: of the fifty largest companies in Canada combined.
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Speaker 3: So let's think about some of those Toronto, Dominion Bank, Bank,
3:41
Speaker 3: Bank of Monte, Shopify, not a small company.
3:44
Speaker 2: Suncore, Enbridge, Manulife, Imperial Oil, Royal Bank of Canada. I
3:49
Speaker 2: mean you're talking just like big companies. Yeah, my names
3:53
Speaker 2: that you know. Even as an American, Microsoft's fiscal twenty
3:56
Speaker 2: twenty five profit is the same as the profit of
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Speaker 2: all fifty large companies in Canada. He sums this up
4:04
Speaker 2: better than I ever could have. The Mag seven flywheel
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Speaker 2: is so big, I'll make the case that it shouldn't
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Speaker 2: be the mag seven anymore. We'll discuss that in a minute.
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Speaker 2: Is so big that it completely dwarfs anything in the
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Speaker 2: real economy anywhere. Until the Aikpex peaks. It kind of
4:21
Speaker 2: feels like nothing else matters. The rest of the economy
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Speaker 2: is a rounding error as far as profits are concerned.
4:27
Speaker 2: And this kind of sums up my feelings this morning,
4:31
Speaker 2: because for the last week and a half or so,
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Speaker 2: we've been getting earnings that have been coming out and
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Speaker 2: buying large The earnings have been okay, they've been good,
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Speaker 2: not great, Yeah, but companies have just been getting punished
4:44
Speaker 2: because hey, tariff impacts from this, profit impacts from that.
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Speaker 2: Like it's just like whether it's Proctor, Gamble, General Motors,
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Speaker 2: Ford up, Yes, Like you go down the list bunch
4:56
Speaker 2: of other semiconductor companies that have gotten whacked, Like all
4:59
Speaker 2: along the process. It's just been a really messy couple
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Speaker 2: of weeks broadly for earnings or at least performance of
5:07
Speaker 2: companies after earnings. And these two come out Microsoft and
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Speaker 2: Meta and combined at four hundred billion dollars in market
5:15
Speaker 2: cap in a single day, and you're kind of like,
5:18
Speaker 2: what gives man? Because the economic data that we've been
5:22
Speaker 2: getting again is fine. It's not really showing anything horrible
5:25
Speaker 2: in the US economy. There was a modest slowing in
5:28
Speaker 2: the first half overall, but hiring data has gotten better
5:32
Speaker 2: in the last month, and so the labor market seems
5:35
Speaker 2: to be finding a bottom potentially and maybe improving a
5:38
Speaker 2: little bit. We are seeing inflation data worsening, so that's,
5:42
Speaker 2: you know, a little bit concerning, but it's it's not
5:44
Speaker 2: crazy it's it's nothing that's nuts. And so you kind
5:49
Speaker 2: of look at this and you're like, Okay, the real
5:50
Speaker 2: economy is fine. It's not doing great, it's not doing terribly.
5:55
Speaker 2: It's it's fine. Like it's it's it's moving along. And
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Speaker 2: this year, this AI spend was, you know, a real question.
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Speaker 2: I remember back in February and March combination of things
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Speaker 2: where you had earnings come out for a lot of
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Speaker 2: these companies that were a little bit lack luster. Then
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Speaker 2: in February you get this deep seak announcement and everyone's like, oh,
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Speaker 2: are we gonna need to do the same kind of
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Speaker 2: AI capex that we needed to And this is on
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Speaker 2: the back of these companies really not being leadership since
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Speaker 2: July of last year, and all of a sudden in
6:24
Speaker 2: the last couple months now it's like, no, if you're
6:28
Speaker 2: not buying tens of thousands of chips and expanding your
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Speaker 2: AI you know, data center plans, you're losing. Like that's
6:38
Speaker 2: where we are back to. The AI trade is the
6:42
Speaker 2: thing that is driving both the US economy and the
6:45
Speaker 2: market right now. There is a great stat that I
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Speaker 2: saw yesterday that and this is from yesterday's GDP report
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Speaker 2: where in the second quarter there was more economic activity
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Speaker 2: generated from data center build out than from consumer spending
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Speaker 2: in terms of like its net change on the US economy.
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Speaker 2: We've never seen that before, and like all that stuff
7:15
Speaker 2: is a tiny fraction, but the growth rate is so high.
7:19
Speaker 3: Remember a few years ago we were talking about the
7:21
Speaker 3: industrial demand from Amazon building out warehouses and how all
7:26
Speaker 3: the shopping centers we're going to be turned into. Like
7:29
Speaker 3: it's that story on steroids with a different sector.
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Speaker 2: It is, And I want to get the phrasing on
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Speaker 2: it right just because it's like just it's the magnitude
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Speaker 2: of this is just monstrous. Here we go. AI capex,
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Speaker 2: which we define as information processing equipment plus software, has
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Speaker 2: added more to GDP than consumer spending. Wow, like that,
7:55
Speaker 2: And this is the whole thing. The engine of growth
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Speaker 2: right now is AI capex in the United States. Everything
8:03
Speaker 2: else is kind of just fluttering around. It's not great,
8:06
Speaker 2: it's not terrible. It's just kind of fluttering out there,
8:10
Speaker 2: like waiting for what can happen. Housing to be fair
8:12
Speaker 2: is getting pretty bad in some parts of the country.
8:15
Speaker 2: But this is the story, and so the companies that
8:19
Speaker 2: are front and center on it. This is where I
8:22
Speaker 2: get to my idea that's no longer than mag seven.
8:25
Speaker 2: Who you're kicking out. I'm kicking out Tesla. Yeah, they're
8:29
Speaker 2: not really that story anymore. And I'm kicking out Apple
8:33
Speaker 2: because they're not in the AI thing. They're still, you know,
8:35
Speaker 2: huge obviously, But in terms of what's driving this market
8:41
Speaker 2: and what's driving the US economy, it's in video, it's Google,
8:47
Speaker 2: it's Meta, it's Amazon, and it's Microsoft, and Amazon's we'll
8:52
Speaker 2: see it tonight. Amazon has been a question mark to me.
8:55
Speaker 2: There everyone's gonna get nervous about. Oh, like, how do
8:57
Speaker 2: things look on the retail side. The retail sites never mattered?
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Speaker 3: Oh yeah, No, I don't care about that. It is
9:04
Speaker 3: are you competing appropriately with Microsoft on this cloud? Because
9:06
Speaker 3: Microsoft dominate this. But let's go to metaphor a moment here,
9:10
Speaker 3: because they are clearly speaking about artificial intelligence, what they're
9:14
Speaker 3: dubbing superintelligence. They have acquired a few firms, they have
9:17
Speaker 3: acquired a massive amount of talent, but they seem to
9:20
Speaker 3: be just now building their artificial intelligence team, while at
9:24
Speaker 3: the same time telling us that their earnings are growing
9:27
Speaker 3: specifically because of artificial intelligence. I don't really care because
9:30
Speaker 3: they posted twenty two percent revenue growth. So whether you
9:34
Speaker 3: used AI to get that or didn't, my per good point.
9:38
Speaker 3: You grew your revenue by twenty two percent year over
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Speaker 3: year as a multi or a one plus trillion dollar company.
9:44
Speaker 3: That is very impressive in and of itself. I'm just
9:48
Speaker 3: curious where is that coming from, right Like, are you
9:51
Speaker 3: picking up all the TikTok advertising that's just disappearing? Is
9:54
Speaker 3: it coming from YouTube? Where are you getting twenty two
9:57
Speaker 3: percent year over year revenue growth?
10:00
Speaker 2: I don't know.
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Speaker 3: At this stage of the game. Your Facebook and Instagram,
10:02
Speaker 3: it's not exactly a new technology, like what You're not
10:05
Speaker 3: growing that user base?
10:06
Speaker 2: What companies are raising their ad budget by twenty percent
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Speaker 2: this year?
10:09
Speaker 3: I don't know. It's fascinating to me. It's wild now,
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Speaker 3: you know. I think that is certainly boosting the stock today.
10:17
Speaker 3: I think there's another piece of it that is making
10:20
Speaker 3: a bet on this massive increase in spend. I think
10:24
Speaker 3: if they follow through on their plans for twenty twenty six,
10:27
Speaker 3: their CAPAC spend is gonna be forty percent of revenue.
10:29
Speaker 2: That is which also, by the way, would be up
10:32
Speaker 2: two hundred percent from two years ago. Their capex last
10:35
Speaker 2: year was thirty five billion in change. They're targeting north
10:40
Speaker 2: of one hundred billion dollars next year, which also then
10:45
Speaker 2: brings us to the question where is the power for
10:48
Speaker 2: all of this going to come from? Because you can't
10:50
Speaker 2: just be like, hey, let's fire up another nuke in
10:52
Speaker 2: the next six months. You know, the last nuclear power
10:55
Speaker 2: plant that was built in the US cost like twenty
10:57
Speaker 2: billion dollars and took thirty yers to build, so beers
11:00
Speaker 2: or years both.
11:01
Speaker 3: Yeah, the last time we were talking about power generation
11:05
Speaker 3: like this, it was EVS, and we were seemingly far
11:09
Speaker 3: more obsessed about it. Then it was like, where is
11:11
Speaker 3: this money going to come from in order to power
11:13
Speaker 3: the grid to charge all these electric vehicles? And it
11:15
Speaker 3: turned out we didn't need to because nobody bought the
11:17
Speaker 3: electric vehicles. But this doesn't seem to be slowing down
11:21
Speaker 3: on this expansion. So in any case, when it comes
11:23
Speaker 3: to Meta, that revenue growth was incredibly impressive.
11:28
Speaker 2: And this, by the way, this was from I found
11:30
Speaker 2: this on x This is from a former Meta employee
11:35
Speaker 2: talking about like the limitations on the buildout and everything,
11:40
Speaker 2: and this is his direct quote. If we will get
11:42
Speaker 2: any of the transformers or power equipment or cooling equipment,
11:45
Speaker 2: or even the construction or availability of power. There's no
11:47
Speaker 2: way you can get to one hundred and fifty billion
11:50
Speaker 2: dollars in spend. If you talk about Snyder, which is
11:54
Speaker 2: Schnyder Electric, who supplies a lot of power equipment, they're
11:57
Speaker 2: completely full until twenty thirty. They're not negotiating on price.
12:02
Speaker 2: It's basically you're lucky to get in order. Everyone talks
12:05
Speaker 2: about in video, but there are many things beyond in
12:07
Speaker 2: video for this thing. Even if you have the money,
12:10
Speaker 2: you can't spend it. They're going to try to. They
12:13
Speaker 2: guided for one hundred billion in CAPEX next year and
12:19
Speaker 2: it's going to be wild.
12:20
Speaker 3: So in any case, they are using this giant revenue
12:23
Speaker 3: from advertising to power this spend and their vision for
12:27
Speaker 3: the future, said said Zuckerberg, you know, expecting AI to
12:31
Speaker 3: power all levers of his business in the future. Touted
12:34
Speaker 3: its ability to improve metas ads, give people chatbout companions,
12:37
Speaker 3: and assist engineers with coding, spending lavishly to get there.
12:43
Speaker 3: I think, just you know, we need to take a break.
12:45
Speaker 3: I recognize, but that is his vision of the future.
12:48
Speaker 3: Everything that we are seeing so far, in my opinion,
12:51
Speaker 3: at least Yeah, there are others that would disagree with
12:53
Speaker 3: me on this case, and you know, people that are
12:55
Speaker 3: pretty familiar with Facebook that would say AI is already
12:57
Speaker 3: having an impact.
12:58
Speaker 2: I don't see it, but maybe it is.
13:01
Speaker 3: But that vision for the future is what you know,
13:04
Speaker 3: Meta actually needs to execute on with all this massive
13:07
Speaker 3: revenue increase they're seeing.
13:09
Speaker 2: I want to talk more about like this is I
13:12
Speaker 2: don't know why, but like yesterday afternoon for some reason
13:16
Speaker 2: was just like a crystallizing moment in my mind on
13:20
Speaker 2: some of this stuff, and so I want to continue
13:22
Speaker 2: to dig into it, including something that you just mentioned.
13:25
Speaker 2: Did you say chatbot companions. Yes, let's discuss that and
13:30
Speaker 2: other uses for AI when we return.
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Speaker 2: So I want to spend some time talking about AI
14:21
Speaker 2: use cases and where the growth can actually come from.
14:28
Speaker 2: Hit me personal companions. Oh boy, No, let's discuss because
14:35
Speaker 2: this is something that Zuck mentioned. Yep, he did. As
14:40
Speaker 2: much as I want to believe that humans will find
14:46
Speaker 2: personal AI companions off putting, we won't, Okay, not in
14:53
Speaker 2: the aggregate you listening might personally say, I would never
14:57
Speaker 2: like just spend time like chatting with a personal AI companion.
15:01
Speaker 2: That's fine, respect to you, respect to the person who
15:03
Speaker 2: chooses otherwise, to your own life, go live it as
15:06
Speaker 2: long as it's not hurting anyone else. It's something where
15:13
Speaker 2: all of the information that we have a about how isolated
15:18
Speaker 2: so many people feel today, combined with what we are
15:23
Speaker 2: already seeing before these you know, customized companions, as far
15:28
Speaker 2: as how people are talking to different AI systems and
15:34
Speaker 2: getting themselves into some really hairy situations because the systems
15:38
Speaker 2: are just not ethical, leads me to believe we're going
15:46
Speaker 2: to be heading down the path where AI companions become
15:50
Speaker 2: more popular than we may think. Do they become to
15:54
Speaker 2: do they become profitable? I don't think so, because I
15:59
Speaker 2: do think as much as you know, how much would.
16:01
Speaker 3: It suck to be a lonely person talking to an
16:04
Speaker 3: AI companion who's constantly feeding you product recommendations or.
16:08
Speaker 2: You have to pay for it. I got to pay
16:11
Speaker 2: for my friends. No, that's not the Facebook.
16:13
Speaker 3: If Facebook's the one to do this, then they are
16:15
Speaker 3: going to discreetly drive this AI companion to suggest that
16:20
Speaker 3: you need more to read us today.
16:21
Speaker 2: Hey, AI companion, what do you think I should do tonight?
16:24
Speaker 2: Have you considered going to Buffalo Wild Wings? There's ten
16:27
Speaker 2: percent off if you get a dozen wings. No, I hadn't,
16:31
Speaker 2: but now that you mentioned it, I'd love to thank you.
16:33
Speaker 2: Be sure to use the code META when you go.
16:37
Speaker 3: So yeah, I won't deny that that's a distinct possibility.
16:41
Speaker 3: I think about our aging demographics. I think about a
16:44
Speaker 3: number of different factors that could lead to AI companions
16:47
Speaker 3: being a big thing. I still have questions about how
16:49
Speaker 3: you monetize it, but that you know, if I'm going
16:52
Speaker 3: to take the other side of Meta's earnings, which were fantastic,
16:56
Speaker 3: no way to debate it. They are spending a lot
16:59
Speaker 3: of money on something that there is not, to me,
17:02
Speaker 3: a real clear vision of what the public facing future
17:07
Speaker 3: is for this product.
17:08
Speaker 2: So they're trying. What Zuck is signaling with his memo
17:12
Speaker 2: or whatever he put out yesterday is what he's calling superintelligence,
17:16
Speaker 2: what other people would call artificial general intelligence AGI, which
17:21
Speaker 2: is the idea that hey, you're building a something that
17:24
Speaker 2: is smarter than humans. They can interact across multiple domains,
17:28
Speaker 2: multiple platforms, not even necessarily just in the technological world,
17:32
Speaker 2: maybe you know, physically, and Arnold Schwarzenegger, you know, might
17:35
Speaker 2: actually be coming for us. That is where Zuck is
17:39
Speaker 2: signaling he wants to go. And his letter yesterday was
17:41
Speaker 2: basically like, we can see the end in sight. Which
17:45
Speaker 2: that's one thing that I don't know that I completely believe.
17:49
Speaker 2: Having spent some time playing around with it. You know
17:52
Speaker 2: a number of these platforms, I can tell you that
17:55
Speaker 2: they are incredibly powerful and fast at things that they do.
17:58
Speaker 2: I mean, they can do things that would take me
18:01
Speaker 2: hours to do otherwise. But you also really have to
18:05
Speaker 2: hold their hands still because they can get stuff wrong.
18:09
Speaker 2: Just as an example, I was poking around on some
18:12
Speaker 2: CPI data asking for a little bit of help analyzing something,
18:17
Speaker 2: and it couldn't find the data that I was looking
18:20
Speaker 2: for until I had I had to literally like spoon
18:22
Speaker 2: feed it because it couldn't find it in the PDF
18:24
Speaker 2: and just was having a hard time getting there. That's
18:28
Speaker 2: not really a sign of super intelligence yet.
18:30
Speaker 3: Yeah, agreed, And I think that's the message is in
18:33
Speaker 3: my view, metas business core business is doing amazingly well.
18:38
Speaker 3: They are going to spend a ton of that revenue
18:40
Speaker 3: on developing the next greatest thing and they have to
18:44
Speaker 3: execute on that for this to be a success story.
18:49
Speaker 3: You know, it's a big promise. It's not core to
18:52
Speaker 3: their business today. It is very different from attracting advertising dollars.
18:57
Speaker 3: But they are spending as much as almost anyone else
19:01
Speaker 3: on researching how to do it. And so that's what
19:04
Speaker 3: you are betting on with Meta today.
19:06
Speaker 2: Do we want to talk about Microsoft separately or if
19:08
Speaker 2: we've done enough.
19:09
Speaker 3: Now you want to talk Okay, if about Microsoft separately,
19:11
Speaker 3: So Wall Street Watch is coming up next and then
19:14
Speaker 3: we'll cover whatever Tucker doesn't on Microsoft.
19:33
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Speaker 1: TFE Show Breaking Business News is always first, right here
19:40
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall Street.
19:45
Speaker 1: Watch a complete look and what's moving market so far
19:48
Speaker 1: today right here on the Financial Exchange Radio Network.
19:52
Speaker 4: Busy week on Wall Street continues as traders assess a
19:55
Speaker 4: world wind of second quarter earnings, fresh economic data including
19:59
Speaker 4: Core PCE, jobless claims.
20:01
Speaker 2: And trade deals.
20:02
Speaker 4: With tomorrow's deadline looming, the Federal Reserve also met yesterday,
20:06
Speaker 4: with two feed governors dissenting in favor of a rate cut.
20:09
Speaker 4: Right now, the Dow is up by about a tenth
20:12
Speaker 4: of a percent, or sixty points higher. S and P
20:14
Speaker 4: five hundred is up six tenths of one percent or
20:17
Speaker 4: forty one points, Nasdaq up one percent higher, or two
20:21
Speaker 4: hundred and fifteen points. Rusted two thousand is flat. Ten
20:24
Speaker 4: year Treasure reeled up four basis points at four point
20:27
Speaker 4: three six eight percent, and crude oil retreating about a
20:30
Speaker 4: third of a percent, trading just below seventy dollars a barrel.
20:34
Speaker 4: Impressive second quarter earnings from major AI players Meta and
20:38
Speaker 4: Microsoft are helping propel the tech rally today, Meta surging
20:42
Speaker 4: twelve percent higher after the Facebook parent company beat revenue expectations,
20:46
Speaker 4: driven by strength in its core ad business. Meta also
20:50
Speaker 4: reported in an optimistic third quarter outlook. As for Microsoft,
20:54
Speaker 4: that stock is up nearly five percent and has surpassed
20:57
Speaker 4: four trillion dollars in market value. At the Giant reported
21:01
Speaker 4: strong quarterly results driven by cloud services in AI demand,
21:05
Speaker 4: Chuck and Michael at Moore and Microsoft coming up here
21:07
Speaker 4: on the show. Meanwhile, Qualcom retreating four percent. Despite the
21:10
Speaker 4: chip maker posting better than forecasted second quarter results, some
21:14
Speaker 4: of the company's business segment revenues came in lighter than expected. Elsewhere,
21:19
Speaker 4: CBS Health posted an earnings and revenue be for the
21:22
Speaker 4: previous quarter, where the company cited strength and its retail
21:24
Speaker 4: pharmacy business and some improvement in its insurance units. CBS
21:28
Speaker 4: also boosted its adjusted profit outlook that stock up by
21:32
Speaker 4: five percent. Norwegian Cruise Lines jumping eleven percent after the
21:37
Speaker 4: company posted mixed second quarter results but reiterated its full
21:41
Speaker 4: year guidance, noting strong travel demand. Beer brewer Anheuser Busch
21:46
Speaker 4: InBev sinking almost twelve percent after the company reported a
21:49
Speaker 4: worse than anticipated decline in second quarter volumes. Online used
21:54
Speaker 4: car retailer Carvana posted higher profit and revenue in the
21:58
Speaker 4: previous quarter, sending that stock up by twenty percent, and
22:02
Speaker 4: after today's closing bell, we'll see more mag seven earnings
22:05
Speaker 4: from Amazon and Apple. I'm Tucker Silva, and that is
22:08
Speaker 4: Wall Street Watch.
22:10
Speaker 3: Can I give us a weird gold Rush analogy here?
22:14
Speaker 2: I mean yeah.
22:15
Speaker 3: Also, if we're going to compare the AI drive to
22:18
Speaker 3: the gold Rush, Meta is, in my mind, trying to
22:22
Speaker 3: strike gold. They're taking a bunch of revenues everyone in
22:25
Speaker 3: the gold Rush. Uh No, Like people made a ton
22:29
Speaker 3: of money selling shovels, got it?
22:31
Speaker 2: Okay.
22:32
Speaker 3: Microsoft is making all of their money right now selling shovels.
22:36
Speaker 3: They're also trying to strike some gold. But they're selling shovels.
22:39
Speaker 3: They're selling space on their servers to people who are
22:43
Speaker 3: trying to develop the next, latest and greatest.
22:46
Speaker 2: Are you don't think so? No? They don't need.
22:52
Speaker 3: Okay, So I'm looking at the I'm looking at them
22:55
Speaker 3: and putting them in the same pit as in video
22:56
Speaker 3: where I don't think so No. I mean Microsoft, it
23:00
Speaker 3: is certainly developing tools that they want. The products they're
23:02
Speaker 3: selling they do. They are developing those products and trying
23:06
Speaker 3: to sell them. They're trying to develop better and greater
23:09
Speaker 3: AI tools for Microsoft Office Suite products, but it seems
23:14
Speaker 3: to me where they're making all their money right now
23:17
Speaker 3: is on their cloud unit, which is just selling space
23:20
Speaker 3: to run these models.
23:21
Speaker 2: To other companies.
23:23
Speaker 3: So they're trying to do both, but I think they're
23:25
Speaker 3: making all the money by selling shovels right now.
23:29
Speaker 2: Maybe I just need a better understanding of what's in cloud.
23:32
Speaker 2: I don't know where, Like I don't know where copile
23:36
Speaker 2: revenue ends up. Yeah, maybe that's in CLA. I don't know.
23:43
Speaker 3: So their AZERI cloud business grew by thirty nine percent
23:46
Speaker 3: in the most recent quarter. I take that to mean
23:49
Speaker 3: that they are now selling massive amounts of data center
23:54
Speaker 3: capacity to other businesses that are running their own artificial
23:58
Speaker 3: intelligence products on Microsoft's cloud. I could be wrong about
24:02
Speaker 3: some of the specifics there, but that was my takeaway
24:04
Speaker 3: from the analysis of Microsoft earning so far, because I
24:08
Speaker 3: don't see anything. You have spent a fair bit of
24:11
Speaker 3: time with Microsoft's own AI tools, and I think they've
24:13
Speaker 3: generally been found to be.
24:17
Speaker 2: Fine, but not the most cutting edge. So I I
24:20
Speaker 2: guess what I'm trying. I don't know what's included in cloud, sure,
24:24
Speaker 2: I don't know like who else is there? I guess
24:31
Speaker 2: that needs to be on Microsoft's servers.
24:38
Speaker 3: I'm not sure I understand the question.
24:39
Speaker 2: Show well, open Ay is building out a bunch of
24:41
Speaker 2: their own data centers, Meta's got their own, Amazon's got
24:44
Speaker 2: there like, oh, so who are the people paying Microsoft
24:47
Speaker 2: billions of dollars for? Oh?
24:50
Speaker 3: I think every other company out there, Like if you're
24:52
Speaker 3: Goldman Sachs, who's not right now trying to create your
24:55
Speaker 3: own in house artificial intelligence system? I think if you're
24:58
Speaker 3: a JKA Morgan, if you're any of these other companies,
25:01
Speaker 3: they're building in house.
25:02
Speaker 2: Oh, I know they are building.
25:04
Speaker 3: Okay, So if you're any of these other businesses who
25:08
Speaker 3: are attempting to build in house artificial intelligence systems because
25:12
Speaker 3: you don't want your data on chat GPT, which is
25:16
Speaker 3: probably any defense company, any financial services company, anybody that
25:20
Speaker 3: handles private data, then I would think you're going to
25:24
Speaker 3: Microsoft right now. And that's where I think they are
25:26
Speaker 3: seeing these massive buildouts in.
25:28
Speaker 2: What do you think Microsoft instead of like AWS?
25:32
Speaker 3: That was kind of my question, is Okay, if Microsoft's
25:35
Speaker 3: picking all of this up right now, and again, like
25:38
Speaker 3: with Meta, there is little to criticize in Microsoft's earnings
25:41
Speaker 3: most recently, But if all of the growth is coming
25:45
Speaker 3: from this piece, then what makes you special compared to Aws,
25:50
Speaker 3: Oracle and all these other companies that can do the
25:52
Speaker 3: same thing. I think the answer might be that Microsoft
25:55
Speaker 3: legitimately does this better than anybody else.
25:58
Speaker 2: Can we just before even going further, just talk talk
26:00
Speaker 2: about how quickly these companies are still growing their revenue
26:05
Speaker 2: at their size. I mean, you look at Microsoft just
26:11
Speaker 2: as like again kind of the first example here and
26:16
Speaker 2: Microsoft again, both these companies you've seen basically twenty percent
26:20
Speaker 2: year over year revenue growth, revenue growth like it's it's
26:24
Speaker 2: it's reaccelerating for them, and it's kind of wild. I mean, like,
26:29
Speaker 2: look at it by segments. So you mentioned asserve, So
26:31
Speaker 2: thirty nine percent revenue growth there, it's up from thirty
26:34
Speaker 2: three in the previous quarter. Dynamic products in cloud services again, like,
26:38
Speaker 2: I don't know what the heck goes into these categories was?
26:41
Speaker 2: Why was that not just on Azer okay fine up
26:45
Speaker 2: eighteen percent compared to eleven Microsoft three sixty five, Commercial
26:49
Speaker 2: cloud up eighteen compared to twelve three sixty five. Computer
26:53
Speaker 2: consumer products and cloud services up twenty one percent compared
26:56
Speaker 2: to ten. Search up twenty one compared to twenty one.
26:59
Speaker 2: So search is just fine. Uh, Windows up three percent,
27:03
Speaker 2: still just chugging along, Xbox up thirteen percent compared to eight. Ultimately,
27:10
Speaker 2: you look at the stuff like basically anything that is
27:12
Speaker 2: cloud based, whatever vertical it is for cloud just saw
27:17
Speaker 2: like a six to ten percent acceleration in the quarter.
27:22
Speaker 2: It's kind of monstrous. Yeah, I mean you talk about, hey,
27:27
Speaker 2: how do you justify these valuations? You grow at twenty
27:30
Speaker 2: if you start you know, it's more than that. I mean, look,
27:33
Speaker 2: if you start growing, like if this is just the
27:35
Speaker 2: first phase, now you're going from you know, twenty to
27:38
Speaker 2: you know, twenty five percent growth. Okay. Microsoft then goes
27:41
Speaker 2: from being a three hundred billion dollar revenue company to
27:43
Speaker 2: four hundred billion. They're no longer thirteen x revenue now
27:47
Speaker 2: they're ten x. If they can do that. Like I'm
27:51
Speaker 2: not saying they can or can't, but it's it's kind
27:55
Speaker 2: of wild what we're seeing here. And yeah, it's it's
27:59
Speaker 2: it's just it's these are some of the most impressive
28:04
Speaker 2: quarters that I have seen in a while from anyone. Now,
28:09
Speaker 2: the interesting piece is you've got stocks broadly rallying today,
28:15
Speaker 2: say broadly because all three major US indices are green
28:19
Speaker 2: right now. The Russell two thousand is still red just
28:22
Speaker 2: because small caps just continue.
28:26
Speaker 3: The companies that are the companies are winning right now
28:28
Speaker 3: are for trillion dollar companies.
28:29
Speaker 2: Of course, small caps are getting Well. Here's the other
28:31
Speaker 2: thing that's interesting to me. The Semiconductor index is currently
28:36
Speaker 2: off one point seven percent today. So this is not
28:40
Speaker 2: factoring into like or filtering down to you know, kind
28:43
Speaker 2: of if Microsoft is the shovels, these are the picks,
28:47
Speaker 2: you know, that's like, they're not picks and shovels, they're
28:49
Speaker 2: just picks. Like therefore, like the the real gritty work.
28:54
Speaker 2: And some of this is on the back of you know,
28:56
Speaker 2: Qualcom had a pretty good quarter yesterday, beat up down
28:58
Speaker 2: five percent. We've talked about how ASML guided you know, hey,
29:04
Speaker 2: we might not grow our sales next year. They're you know,
29:08
Speaker 2: off two and a half percent today, you know, continuing
29:10
Speaker 2: to slide. Broadcom, who's all involved in AI buildouts, down
29:14
Speaker 2: one percent. So I'm trying to reconcile what I'm seeing
29:20
Speaker 2: in semis with what Microsoft and Meta are telling me.
29:23
Speaker 2: Because Microsoft and Meta are telling me, guys, we are
29:26
Speaker 2: going to ramp our CAPEX through the roof, and I
29:33
Speaker 2: got the entire semiconductor complex basically selling off, And I'm
29:38
Speaker 2: trying to reconcile what that means, because it just capacity. Well,
29:44
Speaker 2: if it is, then you can't actually spend that much more, right,
29:48
Speaker 2: in which case, what are we you know what?
29:53
Speaker 3: In which case Microsoft and Meta even look more profitable
29:56
Speaker 3: next year because they can't spend the capex they want to.
30:00
Speaker 2: Well, here's the other here's the other thing that I
30:02
Speaker 2: wonder about then, And this is just cynical old me,
30:07
Speaker 2: because occasionally I get to these places. Are they guiding
30:12
Speaker 2: that higher capex because they know that they can't actually
30:14
Speaker 2: do it?
30:16
Speaker 3: Hmm No, I mean maybe I tend to take CEOs
30:21
Speaker 3: at face value. We intend to spend this money, We're
30:23
Speaker 3: gonna find any way we can to do it, and
30:27
Speaker 3: Microsoft and Meta will outbid every other person there. So
30:29
Speaker 3: if anybody's gonna get the chips, it's gonna be them.
30:32
Speaker 2: Fair point, they do have. It's not even deep pockets
30:35
Speaker 2: at this point. It's like, what's what's what's bigger than pockets?
30:38
Speaker 2: They it's honestly, it's it's Scrooge McDuck money.
30:42
Speaker 3: Yeah, yeah, I mean, if you if you are any
30:46
Speaker 3: of the semiconductor manufacturers. You're not exactly about to say
30:49
Speaker 3: to Meta, hey, sorry, but we really got to get
30:52
Speaker 3: this chip to uh, give me a Intel this.
30:57
Speaker 2: We gotta get this chip to Tucker because he it.
31:00
Speaker 3: Yeah, no.
31:03
Speaker 2: In Nvidia is up half a percent today, right. I
31:07
Speaker 2: mean you could say, like, hey, it's priced in. I guess,
31:10
Speaker 2: but what gives that the whole rest of the complex
31:14
Speaker 2: can't move? And by the way, you just look at
31:16
Speaker 2: the indices. Overall, the S and P five hundred, two
31:19
Speaker 2: hundred and sixty stocks up two hundred and forty down
31:22
Speaker 2: right now, it gets to that thing that Brent was
31:25
Speaker 2: talking about in his piece. Hey, the rest of the
31:28
Speaker 2: US economy is fine. The engine that is driving this
31:33
Speaker 2: thing right now is AI. And if that falters at
31:37
Speaker 2: a time when the other stuff is you know, a
31:38
Speaker 2: little dodgy. When we talk about housing in the labor
31:40
Speaker 2: markets still not on the strongest footing, that's where you've
31:44
Speaker 2: got problems. But the AI think is just so strong.
31:46
Speaker 2: Right now, we had to a monster. We had to
31:49
Speaker 2: take a quick break.
31:49
Speaker 3: When we come back, do we want to start getting
31:51
Speaker 3: into data or do we want to talk about Apple
31:52
Speaker 3: and Amazon coming up tonight?
31:54
Speaker 2: Let's just stick straight earnings here.
31:56
Speaker 3: Yeah, yeah, Apple, Amazon, and they're earnings that are expected
32:00
Speaker 3: that after the bell today. That's next to the Financial Exchange.
32:02
Speaker 1: Business and financial news affecting the markets and your wallet.
32:06
Speaker 1: We've got it all straight from Wall Street right here
32:09
Speaker 1: on the Financial Exchange Radio network.
32:21
Speaker 2: All right, Apple's going to be reporting earnings after the
32:23
Speaker 2: bell today. And Applestock has not been in a great
32:26
Speaker 2: spot this year. They're down about seventeen percent. Reasons why
32:31
Speaker 2: take your pick. They don't have the most captivating AI strategy.
32:36
Speaker 2: They're potentially exposed to tariffs. Remember they were moving a
32:38
Speaker 2: bunch of their shipments of iPhones that are going to
32:41
Speaker 2: be coming to the US from China to India, and
32:46
Speaker 2: India is now being threatened with the twenty five percent
32:48
Speaker 2: tariff that may end up lower in excruge smartphones anyway,
32:50
Speaker 2: So it might be a whole bunch of moths. It
32:53
Speaker 2: might like we don't know, I mean, the China tariffs
32:56
Speaker 2: excluded smartphones, they did, Okay, you know it's uh, can
33:01
Speaker 2: we talk about the Brazil ones that were announced yesterday? No,
33:04
Speaker 2: let's not. Let's do that. Let's do that. Let's let's
33:05
Speaker 2: do that later. We got to focused here. Uh, so
33:09
Speaker 2: they've also got this lawsuit that's going on between them
33:14
Speaker 2: in the federal government, with the federal government saying, hey,
33:17
Speaker 2: stop accepting a bunch of money from Google to make
33:19
Speaker 2: it the automatic search engine. There's some stuff's gone on,
33:24
Speaker 2: questions about you know, hey, they appear to be losing
33:26
Speaker 2: market share in the US. China's got, you know, kind
33:29
Speaker 2: of a questionable relationship as far as how domestic demand
33:32
Speaker 2: goes there. So their earnings tonight are gonna be interesting
33:37
Speaker 2: to watch. Victations are low. I think I almost feel
33:41
Speaker 2: like a lot of investors at this point kind of
33:44
Speaker 2: view Apple as almost what it finally has developed into,
33:49
Speaker 2: which is like a boring, mature company at this point,
33:54
Speaker 2: with still some high risks that are out there. Yep,
33:57
Speaker 2: you know, it's unlike tell there's nothing there that necessarily
34:04
Speaker 2: ties you in quite the same way you can see
34:05
Speaker 2: the Apple ecosystem does. And that's true. But we are
34:09
Speaker 2: seeing some market share fluctuation on the margins. And again
34:13
Speaker 2: it's not to say that Apple is a bad company.
34:15
Speaker 2: They still print money hand over fist. If Microsoft has
34:19
Speaker 2: Scrooge mcdoc company, Apple is like Scrooge and the whole
34:22
Speaker 2: family money.
34:23
Speaker 3: Yeah, I tend to think that the concerns about their
34:26
Speaker 3: lack of AI success are overblown, mainly because I don't
34:30
Speaker 3: think that anybody else has a great consumer facing AI
34:32
Speaker 3: tool for smartphones generally, and so what it exactly is
34:35
Speaker 3: Apple missing out on. But those tariff threats are real,
34:39
Speaker 3: The other threats of their business are real, and it
34:41
Speaker 3: is just a mature tech company that does not have
34:43
Speaker 3: a lot of great avenues for massive growth at this stage.
34:46
Speaker 2: And so those are those are real questions.
34:49
Speaker 3: As we talk about AI, Chuck, I want to get
34:51
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35:44
Speaker 2: We've also got Amazon reporting after the bell today, and
35:48
Speaker 2: with them, I think obviously, look, you got the two
35:50
Speaker 2: core businesses. You've got the retail side, You've got Amazon
35:54
Speaker 2: Web services. You've also got, by the way, this advertising
35:58
Speaker 2: business that is now freaking huge.
36:01
Speaker 3: Terms of you forget about that, right, Like, you don't
36:03
Speaker 3: really think it's Amazon as an advertiser. And it's not
36:06
Speaker 3: just you know, obviously they have Prime Video and stuff
36:09
Speaker 3: like that, but it's not just coming from there. It's
36:11
Speaker 3: coming from all of the ads that you see and
36:15
Speaker 3: sometimes ignore on Amazon dot Com itself, right, all the
36:18
Speaker 3: sponsored you know, all the sponsored products that are on there,
36:21
Speaker 3: all the ads that are on the side. It is
36:23
Speaker 3: a big, big business these days that has been taking
36:27
Speaker 3: away a little bit of revenue from those traditional online advertisers.
36:31
Speaker 2: Given what we've seen everywhere else Inason this year, my
36:35
Speaker 2: expectations are AWS probably gonna knock the cuver off the ball.
36:39
Speaker 3: I mean, it had better given what Microsoft just did.
36:41
Speaker 2: The retail side could appear a little sluggish.
36:45
Speaker 3: Yeah, from what we read, I mean their their prime
36:48
Speaker 3: day sales did not go over.
36:49
Speaker 2: To it's gonna be fine. Like again, it's a low
36:53
Speaker 2: single digit margin business. It doesn't really matter. It's strange
36:56
Speaker 2: to say that, like one hundred billion dollar you know,
36:58
Speaker 2: a quarter of business doesn't matter, but but it doesn't.
37:01
Speaker 2: That's not why people own Amazon stock at this point. Uh.
37:05
Speaker 2: And the ad business, this one's gonna be interesting given
37:09
Speaker 2: what we saw from Meta with how strong their AD
37:12
Speaker 2: sales are. Question that I have, Hey, is this something
37:15
Speaker 2: that's happening across the board or is Meta taking market
37:17
Speaker 2: share somehow? Like if if Meta is taking market share,
37:22
Speaker 2: then maybe you point to hey, maybe there is some
37:25
Speaker 2: truth to their AI integration being you know, a better
37:28
Speaker 2: selling point and something that's really driving more activity there.
37:33
Speaker 2: If it's just hey, everyone's spending through the nose on
37:36
Speaker 2: AD sales right now, Okay, that's interesting. I'd be curious
37:41
Speaker 2: you know why that's the case. How long can it last?
37:44
Speaker 2: But it's an interesting data point. Yeah, go, okay, Like
37:48
Speaker 2: we might have something interesting there. Let's take a quick break.
37:51
Speaker 2: We got a whole bunch an hour two, we're talking FED,
37:53
Speaker 2: PCE and much more.
38:11
Speaker 1: Sh