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THIS WEEK IN AI: Massive Quarterly Earnings, Anthropic's Project Deal, Cursor SDK · In the Loop AI

0:00
Ejaaz: Yesterday, four of the five most valuable companies in the world reported the
0:04
Ejaaz: biggest earnings in tech history within a 90-minute window.
0:08
Ejaaz: And now, we have a pretty good idea of whether we're in an AI bubble or not.
0:11
Ejaaz: Google, Amazon, Meta, and Microsoft reported their Q1 quarterly earnings,
0:17
Ejaaz: and it blew every single Wall Street analyst's expectations out of the water.
0:21
Ejaaz: Seriously, these numbers are pretty insane.
0:23
Ejaaz: Google's earning per share was rated 94% above expectations. That's not a typo.
0:28
Ejaaz: 94%. And every single cloud business, AWS and Google Cloud reported revenue
0:34
Ejaaz: increase average of 50%, with Google having back orders of half a trillion dollars
0:40
Ejaaz: worth of compute orders.
0:42
Ejaaz: Even Meta, who's categorically been behind in the AI race, reported massive
0:47
Ejaaz: growth in revenue for their ad business thanks to AI.
0:50
Ejaaz: In fact, it's so good that they're beating Google at their own business of search advertising.
0:55
Ejaaz: For two years, AI critics have constantly been saying that we are in an AI bubble.
1:00
Ejaaz: They're saying the house of cards is going to come down, that we're spending
1:02
Ejaaz: too much. The earnings reports of yesterday proved the exact opposite.
1:06
Ejaaz: All these companies that are spending hundreds of billions of dollars are actually
1:10
Ejaaz: making more money than they ever did before.
1:12
Josh: So are we in a bubble? The answer to that question is probably unequivocally yes.
1:16
Josh: I think we are to some extent, but what is the size of that bubble?
1:21
Josh: Chances are it's much smaller than i think a lot of people think and how
1:24
Josh: much runway is left well i think a lot more than people anticipate and
1:27
Josh: we could start with google because that's what you're mentioning a lot i mean their earnings
1:30
Josh: report showed we got to start with the capex number so for those
1:33
Josh: who aren't familiar with capex capex is the capital expenditure the amount of
1:36
Josh: money that a company is going to spend over the next x period of time now for
1:41
Josh: google they've provided capex for their next calendar year and they guided even
1:45
Josh: higher than they did previously at $180 to $190 billion.
1:51
Josh: This is a tremendous amount of money, like a stupid, crazy amount of money.
1:57
Josh: Their revenue, for reference, $110 billion, is more than Coca-Cola's annual
2:01
Josh: revenue. And this is what they did in a single quarter.
2:04
Josh: One of the most kind of worried about and concerned about categories, Google search.
2:08
Josh: I mean, I remember a few months ago, very vividly, we were on the show
2:11
Josh: talking about Google search and whether or not it's going to be a viable business
2:14
Josh: is the chatbot llm interface going to cannibalize google search the answer now
2:18
Josh: is an unequivocal no google search grew 20 to 60 billion dollars which is again
2:26
Josh: just a huge amount of money and i think that the headline here is that
2:31
Josh: Capital expenditure is going up, meaning the money is going to be spent on building
2:36
Josh: out the infrastructure required to scale AI at the same time that they're actually
2:40
Josh: generating a lot more profits from their services like Google search and Google cloud.
2:45
Josh: I think one of the themes we're going to notice as we cover these earnings reports
2:47
Josh: is that cloud revenue is kind of the bread and butter of a lot of these companies.
2:51
Josh: And it's accelerating very quick.
2:53
Josh: I mean, for their projected guidance on their cloud revenue that they're going
2:57
Josh: to make next year, they doubled it to about $460 billion.
3:01
Josh: And for reference, that's larger than the GDP of Belgium and roughly equivalent
3:06
Josh: to two of Walmart's annual revenues just in cloud search alone.
3:11
Josh: So the Google numbers are incredible.
3:13
Josh: The one thing that really sent me for a loop in terms of how I kind of calculate
3:16
Josh: the guidance of where we are in this AI bubble is a line that Sundar said in the earnings report,
3:22
Josh: CEO of Google, who said their 2027 CapEx will significantly increase Yes.
3:29
Josh: In 2027, next year, compared to this, which is already a record.
3:33
Josh: So they are really guiding towards a very strong 2026, a strong 2027.
3:37
Josh: And that was one of four that really made a pretty big impact on the market.
3:41
Ejaaz: Well, I just want to tell a slightly different story on the Google side,
3:45
Ejaaz: because really, it's that cloud business that absolutely killed it.
3:49
Ejaaz: They made $20 billion in the last three months for guidance here,
3:54
Ejaaz: that's around 63% more than they did this same time last year.
3:58
Ejaaz: So it's a massive jump up. But then you might be wondering, well,
4:01
Ejaaz: how amazing is this? How substantial is this?
4:05
Ejaaz: The projections that you just mentioned, the half a trillion dollars,
4:09
Ejaaz: so it's actually $462 billion, I believe, is already locked in orders.
4:14
Ejaaz: It's not a projection. These are orders that they already have on the backlog.
4:17
Ejaaz: And people are waiting for this to happen. In fact, I have a neat little graphic,
4:21
Ejaaz: which shows this because this caption goes, this is so crazy,
4:24
Ejaaz: it literally looks fake.
4:26
Ejaaz: And it shows you the back orders, $460 billion just for Google Cloud alone.
4:30
Ejaaz: This is one of like eight different major business units that feed into the Google profit funnel.
4:36
Ejaaz: So I just want to emphasize that. Now, Sundar also said on the call,
4:40
Ejaaz: we, and I'm quoting this, we are compute constrained in the near term.
4:45
Ejaaz: Our cloud revenue would have actually been higher if we were able to meet the
4:49
Ejaaz: demand. So the point is, they don't have enough supply TPUs and infrastructure,
4:54
Ejaaz: which is, by the way, Google Cloud is one of the biggest cloud providers in the entire world.
4:57
Ejaaz: I think they're like second to AWS, Amazon, which is the biggest one,
5:00
Ejaaz: which we'll talk about in a second.
5:01
Ejaaz: They can't supply enough. Google is like one of the biggest hyperscalers that
5:05
Ejaaz: are out there, and even they can't meet demand. So the point is...
5:09
Ejaaz: The criticism that we're faced around AI bubbles is we're investing in all this AI capex.
5:14
Ejaaz: Google alone is investing, I think, $150 to $200 billion this year to create
5:18
Ejaaz: more TPUs and AI infrastructure to supply the demand.
5:22
Ejaaz: The skepticism has been that there is no demand for this. No one's willing to pay for this.
5:26
Ejaaz: These quarterly earnings prove that categorically incorrect.
5:29
Ejaaz: And we have a half a trillion dollar backlog.
5:32
Josh: Yeah, there's no way that the spending is going to slow down.
5:35
Josh: And the fact that the only constraint that they had was compute,
5:38
Josh: not demand, given the profit margins that they already have is pretty telling.
5:42
Josh: I found one funny fact about this is that a lot of the revenue actually came
5:46
Josh: from their private investments getting marked up.
5:49
Josh: So of their total net income of $62 billion, 37 of it was unrealized gains on
5:55
Josh: equity securities that includes companies like SpaceX and Anthropic.
5:58
Josh: You mentioned the largest cloud provider, Amazon, who also reported yesterday.
6:02
Josh: They have a similar thing where I think of their net income of $30 billion,
6:08
Josh: 16.8 of it was their pre-tax gains on Anthropic shares.
6:12
Josh: So this is very much a circular economy where like they're investing in Anthropic,
6:16
Josh: the Anthropic valuation is rising, a large percent of the net income becomes
6:20
Josh: Anthropic, becomes SpaceX.
6:22
Josh: So earning season when those IPO is going to be pretty crazy,
6:25
Josh: but we have to talk about Amazon.
6:27
Josh: Their AWS services is up 28%, which is their fastest growth they said in 15
6:32
Josh: quarters that's 150 billion dollar run rate to put that in context that's larger
6:36
Josh: than the entire annual revenue of disney netflix and spotify combined
6:42
Josh: And that's AWS alone. It's bigger than the entire global movie industry at a
6:46
Josh: margin of almost 40%. So again, this is the same story we heard with Google.
6:50
Josh: Their cloud is really just constrained by compute. Their margins are high.
6:54
Josh: They have more demand than they ever had before.
6:56
Josh: And now we're seeing them move into building their own chips and working with other companies.
7:01
Josh: And now that OpenAI is not locked in with Microsoft, we're seeing them start
7:04
Josh: to serve OpenAI infrastructure as well through their bedrock.
7:07
Josh: It's a really impressive range report from Amazon as well.
7:09
Ejaaz: There's been a trend shift with Amazon in particular.
7:13
Ejaaz: Now, if you talk to an average person about Amazon a few years ago,
7:16
Ejaaz: they'd be like, oh, yeah, it's that e-commerce company. It's where I order my toilet paper from.
7:21
Ejaaz: Amazon has undergone a very categorical shift into the compute infrastructure
7:26
Ejaaz: and distribution service.
7:28
Ejaaz: Now, that sounds like a lot of buzz terms. Let me explain what that means.
7:31
Ejaaz: AWS is basically the bedrock for any internet company that exists today.
7:36
Ejaaz: If it runs online, it's most likely running off of Amazon's AWS servers.
7:42
Ejaaz: And so what that means is, okay, you can run a website, you can service all
7:45
Ejaaz: the requests that you have from people trying to buy stuff from you.
7:48
Ejaaz: But with this recent AI shift, Amazon looked at it and thought, huh.
7:52
Ejaaz: This looks really similar. We could be the distributor and infrastructure providers for AI.
7:56
Ejaaz: And guess what they already had? A bedrock of customers that already had that.
8:01
Ejaaz: And I use bedrock very specifically, by the way, because their main AI part
8:04
Ejaaz: is literally pun very much intended, was called or is called Amazon Bedrock.
8:09
Ejaaz: And just over the last week, they now officially are going to be the main distributor
8:14
Ejaaz: for OpenAI's chat GPT models.
8:16
Ejaaz: Now, the reason why that's a big thing is because Microsoft was the sole cloud provider for OpenAI.
8:22
Ejaaz: But this week, that contract broke, which meant that OpenAI can now serve their
8:26
Ejaaz: models through whatever distributor they want.
8:28
Ejaaz: And the first door that they were knocking on was Andy Jassy at Amazon saying,
8:32
Ejaaz: hey, we would love to be the main provider. Why?
8:34
Ejaaz: Because Amazon has connections to all the enterprise companies.
8:38
Ejaaz: They service all the government's AI requests and all the Fortune 500 companies' AI requests.
8:42
Ejaaz: They run all the servers. No one wants to pick the model. No one wants to set
8:45
Ejaaz: up the dev environment. AWS has got you and they are creating a crazy business
8:49
Ejaaz: for this. Like you mentioned, 28% growth.
8:51
Ejaaz: That's almost $40 billion they've made over the last three months.
8:54
Ejaaz: The fastest growth in the last four years.
8:57
Ejaaz: That is not an anomaly because in Q4, we were saying the same thing when we
9:01
Ejaaz: were reporting on their earnings as well.
9:02
Ejaaz: And it's good to see that the market is now finally starting to understand that.
9:06
Ejaaz: And they, this week, actually breached their all-time highs.
9:09
Ejaaz: I think it breached over $260 price per share, which is insane.
9:13
Ejaaz: And the final point I want to make about Amazon and Google, actually,
9:16
Ejaaz: is there's a common theme.
9:18
Ejaaz: Now, if you look at total revenue earned by both of these companies, it's increased...
9:24
Ejaaz: By a decent amount, but not like mind-blowing amounts.
9:28
Ejaaz: Where you need to look is the profit margins that both of these companies have
9:32
Ejaaz: made over the last three months.
9:33
Ejaaz: That has expanded on average by around 50%. I wanna reemphasize that point.
9:39
Ejaaz: 50% for their cloud businesses, which means that AI chips, which is what both
9:44
Ejaaz: Google and Amazon provide, and their cloud services allows them to eat more
9:49
Ejaaz: profit on the margins, which is very good if you're any kind of a shareholder
9:53
Ejaaz: of either of these companies.
9:54
Josh: Yeah. And the pricing elasticity is very high too. It's not like they are out
9:58
Josh: of customers. They just don't have the compute.
9:59
Josh: So theoretically they could raise these prices, increase those margins quite
10:03
Josh: a bit. And people will still continue to pay.
10:05
Josh: Like I know for a fact, like someone like open AI can double the cost to serve it.
10:09
Josh: And Amazon could forward that onto the customer. People would still pay.
10:12
Josh: And Amazon's CapEx, again, at $200 billion.
10:16
Josh: To put that into perspective, it's larger than the entire annual
10:19
Josh: CapEx of the US oil and gas industry
10:22
Josh: like this is a huge amount of money
10:25
Josh: and then we have one other quote from the earnings report
10:28
Josh: which i thought was was fun it was uh andy jassy
10:30
Josh: talking about the combination of their industry-leading price
10:34
Josh: performance tranium custom silicon market leading
10:37
Josh: gravitons cpus and their core aws he's
10:40
Josh: basically describing as a once-in-a-lifetime opportunity he said amazon and
10:43
Josh: his shareholders will be very well off in the future as amazon
10:47
Josh: crossed a new all-time high so it's very exciting
10:50
Josh: to see all of these numbers go up and we don't even we didn't
10:53
Josh: even talk about their logistics business like the part of
10:55
Josh: amazon that we interact with on a daily basis when you order groceries or order
10:58
Josh: things from amazon it's just an unbelievable business there's like 10 different
11:01
Josh: businesses and i think that's the theme of a lot of these larger mega cap companies
11:06
Josh: is as they take as they have their cash flow coming in they're going to spend
11:09
Josh: it efficiently and they're going to increase their margins elsewhere what an
11:12
Josh: incredible business well well
11:13
Ejaaz: Let's speak about the cash flow for a second because we sound very rosy right
11:16
Ejaaz: now and that it's like the best companies in the world. Now,
11:19
Ejaaz: I want to point out two things.
11:21
Ejaaz: As of the end of Q1, Amazon has now spent around or committed to spending 94% of their free cash flow.
11:30
Ejaaz: We're talking about like money that they have available coming in through operating
11:33
Ejaaz: income and through money that they have on the cash balance sheet.
11:37
Ejaaz: Out of the four companies that we're speaking about today, they are the most
11:41
Ejaaz: aggressive spenders on AI infra.
11:44
Ejaaz: And the bet that Andy Jassy, the CEO, was making was, we're doing this intentionally
11:48
Ejaaz: because we know for a fact that we're going to make money from this.
11:53
Ejaaz: And the projections or the reported earnings from Q1 has proven that exact point,
11:58
Ejaaz: but it's still a very aggressive maneuver, right?
12:00
Ejaaz: Like as of the next three months, you could argue that either if they don't
12:04
Ejaaz: have enough money or they run into some kind of hurdle, they might need to start
12:07
Ejaaz: having debt financing and start borrowing money.
12:10
Ejaaz: Now, as of today that we're speaking about and reported on these earnings,
12:14
Ejaaz: they aren't in a levered position.
12:15
Ejaaz: So for everyone saying that we're in an AI bubble, an AI bubble by definition
12:19
Ejaaz: means that these companies are levered up on their balance sheet.
12:23
Ejaaz: Neither of the companies that we're talking about today, Google,
12:25
Ejaaz: Amazon, and Meta and Microsoft, which we're about to, are levered.
12:28
Ejaaz: So I disagree with your earlier point, Josh, because basically,
12:32
Ejaaz: I don't think we're in a bubble yet. Big, big emphasis on yet.
12:35
Josh: Well, I think we're definitely aligned on being bullish about where we are in
12:39
Josh: this stage of the market, whatever it is, that there's a lot of runway left.
12:43
Josh: But there's an interesting dynamic to that point around free cash flow,
12:46
Josh: which is the money that basically is left over after all their expenses,
12:49
Josh: A lot of that is flowing out.
12:50
Josh: Like you mentioned, about 95% of Amazon's earnings, the free cash is flowing out. And this
12:56
Josh: is kind of inverting what we've traditionally had in the markets.
12:59
Josh: Generally, Amazon, Google, these companies have absorbed all of the cash and
13:03
Josh: they have a tremendous amount of free cash flow.
13:04
Josh: Now they're spending it. You're seeing a lot of money going out the door.
13:07
Josh: The capex is between the four companies we're going to cover is what,
13:10
Josh: 600, 700 billion dollars.
13:12
Josh: The question is like, where is that money flowing to? Because the reality is
13:15
Josh: that while cash flow is coming out of Amazon, it is finding its way into other companies as well.
13:20
Josh: And we're starting to see this with companies like Bloom Energy,
13:24
Josh: who we famously mentioned on the show a few months ago and then a few weeks
13:28
Josh: ago and still have not filled large enough bags to see the upside of this,
13:32
Josh: which is very frustrating.
13:33
Josh: But Bloom Energy is up 1400% on
13:35
Josh: the year. And this is one example of where that free cash flow is going.
13:39
Josh: When companies are building, they're spending this capex, they need to create
13:42
Josh: data centers, they need the shell, they need the energy, they need the chips.
13:46
Josh: Bloom Energy is an energy part of that equation. And it's clearly captured a
13:49
Josh: lot because it was just up 24% yesterday on huge earnings.
13:53
Josh: And now Leopold, in the most recent 13F filing, he had a position of 875 million,
13:58
Josh: is now in a position worth $2.7 billion.
14:00
Josh: This is one example of the money. The other, I guess we have SanDisk that we
14:04
Josh: should probably mention briefly.
14:05
Josh: If you invested in SanDisk two years ago, you're up 30 times your money.
14:09
Josh: Like 30X, every $1,000 you put in is $30,000. Why is that?
14:13
Josh: Well, because one of the critical thresholds and something that we heard on
14:16
Josh: all of the four earnings reports that we're gonna mention is that memory is
14:20
Josh: a serious supply constraint.
14:22
Josh: And the costs associated with that are going up and the companies are just absorbing that.
14:26
Josh: I think it was maybe Amazon or Meta who added $25 billion in CapEx just for
14:31
Josh: the increased cost of these goods.
14:33
Josh: And companies like Sandisk are the ones that are absorbing those.
14:36
Josh: So we're seeing for the first time in a while, the money flowing downhill from
14:40
Josh: these like mega cap companies down into the core infrastructure.
14:43
Josh: And I think that's an inversion that hasn't quite been priced in because it
14:45
Josh: hasn't been that way in a really long time.
14:47
Ejaaz: Exactly. And so the theme that we've spoken about for the companies so far,
14:51
Ejaaz: Google and Amazon, has been very much on AI CapEx spending, on Google Cloud,
14:55
Ejaaz: on Amazon Web Services, and whether there is customer demand for the infra.
15:01
Ejaaz: Now, another company that we want to speak about today is Meta.
15:04
Ejaaz: And in fact, they're the company that added an additional $35 or $25 billion
15:07
Ejaaz: for CapEx to their CapEx spend this year.
15:10
Ejaaz: They're playing in a bit of a different field. Like, Meta is,
15:14
Ejaaz: for better or worse, a social media company, but they're really,
15:18
Ejaaz: really good at making money from advertising.
15:21
Ejaaz: And for the longest period of time, it's been Meta versus Google.
15:24
Ejaaz: And Google has, quite frankly, always won. They're the doormat to the internet,
15:29
Ejaaz: right? They have dominated search.
15:30
Ejaaz: And Meta has come close, but never quite as close, right?
15:34
Ejaaz: Except for the last three months where they started integrating AI,
15:38
Ejaaz: specifically their newer models and Manus who they acquired for $2 billion,
15:41
Ejaaz: which just got blocked by China.
15:43
Ejaaz: And that's a whole other thing. You should go check out our episode that we
15:45
Ejaaz: published earlier this week.
15:48
Ejaaz: The point being is Meta started integrating AI and they started having higher AI search conversions.
15:55
Ejaaz: Now, I need to make it very clear. SEO, search engine optimization,
15:59
Ejaaz: is a huge business and companies and advertisers pay billions and billions of
16:04
Ejaaz: dollars per year just to get access and put their product in front of the right profile of person.
16:10
Ejaaz: Meta is pioneering the AI version of that. And we were kind of in the dark.
16:14
Ejaaz: They were kind of behind on the AI race. They don't have a frontier model.
16:16
Ejaaz: So we didn't know whether they could actually pull this off.
16:20
Ejaaz: And the data has shown that they can.
16:21
Ejaaz: They beat earnings per share by 53%, and their revenue is up 33% year over year,
16:27
Ejaaz: which is just categorically very impressive.
16:30
Ejaaz: And I think we're going to start to see more of these things happen with other
16:33
Ejaaz: such companies, Google being the most obvious one, where everyone thought AI
16:36
Ejaaz: was going to eat into their search revenue, and they're up 20% over the quarter.
16:40
Ejaaz: So overall, I think Meta, and it's not just an AI CapEx infra thing.
16:45
Ejaaz: It's also AI bleeding into every single other type of product category and also making them money.
16:51
Ejaaz: So the demand for this thing, for this technology is insatiable.
16:54
Ejaaz: And the lesson that I'm hearing from all these three companies that we've spoken
16:57
Ejaaz: about so far is there's not enough compute to go around.
17:00
Josh: Okay. So Ijoz, I'm hearing you say all these positive things about meta,
17:03
Josh: and then I'm looking at the stock today and it's down 9%. So clearly there's
17:07
Josh: a disconnect between the market and the numbers. And we've seen this before.
17:10
Josh: People sell on the news, even when it's good sometimes.
17:12
Josh: But do you have any ideas as to why this is happening?
17:16
Ejaaz: I think Meta's been getting a lot of hate, justifiably, because they've made
17:21
Ejaaz: a few different blunders.
17:23
Ejaaz: We mentioned on a previous episode that Zuck has.
17:25
Josh: Gone on an
17:25
Ejaaz: Acquisition spree and barely any of them have paid off. And his most recent,
17:29
Ejaaz: most successful one is now getting unwound and blocked by China.
17:32
Ejaaz: So it's not a good streak for him in general. But I think the market reaction
17:35
Ejaaz: is specifically because advertising in itself is more of a variable business
17:42
Ejaaz: versus something as hard to find as compute.
17:45
Ejaaz: You have recurring customers with compute, with AWS, with Google Cloud.
17:49
Ejaaz: You have contracts that you sign, long-term contracts with these enterprises,
17:52
Ejaaz: and you know they're going to keep coming back. With advertising,
17:54
Ejaaz: it's kind of like, do you think Google.
17:55
Josh: Is going to create
17:56
Ejaaz: A better AI search optimization system next quarter? Maybe.
17:59
Ejaaz: And I think the meta FUD is just oversold at this point. I think people are
18:03
Ejaaz: looking at it as a social media company versus an advertising business.
18:05
Ejaaz: And if I were a meta investor right now, I'd probably be adding on to my position.
18:10
Josh: Yeah, it may be helpful for people to reconsider these companies because a lot
18:13
Josh: of the times the way that they interface with these companies is through the consumer layer.
18:17
Josh: It's like on Amazon, you're interfacing with their Amazon mobile app.
18:20
Josh: On Meta, you're interfacing with Instagram or Facebook. But the reality is,
18:23
Josh: is that there's huge businesses built on the backs of these that is far larger
18:27
Josh: than the actual core business that you're interfacing with on a daily basis,
18:30
Josh: which is interesting. Now, Meadow was perhaps the biggest loser today,
18:34
Josh: just in terms of price performance.
18:35
Josh: The second biggest loser was Microsoft.
18:37
Josh: Now, Microsoft should surprise no one. They're having a little bit of a difficult
18:41
Josh: time when it comes to kind of being at the forefront of AI, but not in terms
18:46
Josh: of their cloud or their infrastructure.
18:48
Josh: Because like everyone else, they have more demand than they know what to do with.
18:51
Josh: They have incredibly high margins and they're doing really well,
18:55
Josh: pretty much across the board. They generated great numbers.
18:57
Josh: One of the things that I think surprised investors, perhaps the reason
19:00
Josh: why it's down today is because this capex number it grew
19:03
Josh: to 190 billion for the calendar year
19:06
Josh: of 2026 and that includes 25 percent boost
19:10
Josh: from previous estimates because of this higher component pricing
19:13
Josh: now for reference for framing that's more than the gdp of greece it's more in
19:16
Josh: the annual capex of boeing lockheed martin and general motors combined basically
19:21
Josh: the entire defense industry so it's a tremendous amount of spending on a business
19:26
Josh: that i think a lot of people are a little confused on They had some issues recently
19:29
Josh: with the Microsoft and opening a restructuring.
19:31
Josh: The partnership agreement that happened earlier this week, it sucks down a little
19:34
Josh: bit, but it seems overall, as long as Microsoft is leaning into their cloud
19:38
Josh: infrastructure, they're going to be okay.
19:40
Ejaaz: Yeah, I think I relatively agree. Okay, so the reason why I say relatively,
19:45
Ejaaz: their cloud business, Azure, is a beast. It's up 40%.
19:49
Ejaaz: They're printing money. They're just not printing as much money versus their
19:54
Ejaaz: competitors, which happened to release their same earnings report within the
19:57
Ejaaz: same 90 minutes. window, right? So AWS,
20:00
Ejaaz: blew them out the water. And they are like the biggest car business.
20:03
Ejaaz: So if you're a smaller car business, such as Microsoft Azure,
20:05
Ejaaz: you kind of want to be putting up bigger percentage increases. This wasn't the case.
20:09
Ejaaz: Google Cloud also crushed them as well. So comparatively, if you were looking
20:13
Ejaaz: at all three businesses, even though Microsoft's stat statistical increase is
20:18
Ejaaz: better, you're probably going to want to buy Amazon and Google over this.
20:22
Ejaaz: But that might also be an opportunity for you.
20:24
Ejaaz: The other reason, and I want to put my bear hat on for a second with Microsoft.
20:28
Ejaaz: Josh, what's the name of the AI leader at Microsoft?
20:31
Josh: Copilot?
20:32
Ejaaz: No, I mean the person that leads the AI team. Oh, I have no idea.
20:37
Ejaaz: Exactly. That's my point.
20:38
Josh: Not a clue.
20:39
Ejaaz: So the leader of AI at Microsoft, I believe his name is Mustafa Saleman,
20:46
Ejaaz: just has been sitting at the helm and not really delivering on the products that you would expect.
20:51
Ejaaz: And like Anthropic, OpenAI, and even Google have been absolutely running circles
20:56
Ejaaz: around them, right? So remember, Microsoft CoPilot and the OpenAI partnership
21:00
Ejaaz: were the earliest partnerships that you could make.
21:04
Ejaaz: Microsoft, best investor in the room here, put in $13 billion into OpenAI,
21:09
Ejaaz: and it is currently worth $132 billion, 27% stake in OpenAI.
21:14
Ejaaz: And even with that, what is it, a year and a half lead across any of the competitors,
21:20
Ejaaz: they still couldn't figure out how to make CoPilot a really good AI assistant.
21:23
Ejaaz: And the adoption rate for Copilot across all the enterprise customers,
21:27
Ejaaz: which by the way, they already have in a contract.
21:30
Ejaaz: People just didn't want to use it. They requested Claude.
21:33
Ejaaz: They requested ChatGPT directly. And you know what Microsoft has done in response,
21:37
Ejaaz: what Mustafa Salomon has done in response?
21:39
Ejaaz: He's created Microsoft Features,
21:43
Ejaaz: are backed by Claude and ChatGPT. And now their partnership is broken.
21:48
Ejaaz: Microsoft still has control over the IP, but what happens when that IP runs
21:51
Ejaaz: out in, what is it, three, four years time?
21:54
Ejaaz: What are they going to do then? They won't be a forefront. And I think people
21:56
Ejaaz: are projecting that bear case in the future and they're deciding just to go
22:00
Ejaaz: with a safer option, which is Google or Amazon. That seems right.
22:04
Josh: Yeah, Microsoft, they've really just kind of missed when it comes to adopting AI.
22:07
Josh: There's another earnings report that I'm very excited about that by the time
22:10
Josh: you're listening to this episode is out, which is Apple's.
22:13
Josh: I think that's going to be interesting to see how they're starting to navigate
22:15
Josh: this new paradigm shift where they're slowly moving into AI.
22:19
Josh: I know WWDC is coming in June. Hopefully, we get Apple Intelligence.
22:22
Josh: I mean, of all these companies, they're serving the infrastructure,
22:24
Josh: but in terms of where that infrastructure is actually served,
22:28
Josh: that's all on Apple devices. It's on all the MacBooks. It's on all the iPhones.
22:31
Josh: So that's going to be really interesting to see. I see a hyperscaler cloud growth
22:35
Josh: chart here. Do you want to talk about this for a sec?
22:37
Ejaaz: No, I just wanted to like, as we round up this segment, because I know there's
22:40
Ejaaz: like a lot of numbers here.
22:42
Ejaaz: There's a lot of percentages that we're peddling here. This chart kind of like
22:45
Ejaaz: lays it out pretty clearly what the thesis is and what has been proven in these earnings reports.
22:50
Ejaaz: AI-related profit is up massively.
22:54
Ejaaz: It largely comes out of infrastructure, margin, growth, and that specifically
22:58
Ejaaz: has come out of cloud businesses specifically.
23:02
Ejaaz: And who owns the biggest cloud businesses? It's Google, it's Amazon.
23:05
Ejaaz: And even though it's their littlest brother, It's also Microsoft Azure.
23:10
Ejaaz: And this chart I expect to see
23:11
Ejaaz: go up and to the right over the next couple of years at the very least.
23:15
Josh: And as long as there's free cash flow coming into these businesses,
23:19
Josh: it's fine that they spend it.
23:20
Josh: That money is going to find a home elsewhere and that's going to improve the
23:22
Josh: whole market. So I think as we wrap this up, you look at the PE ratios,
23:26
Josh: the price to earnings ratio.
23:27
Josh: This is basically how expensive a company is.
23:30
Josh: So price to earnings ratio, money comes in, a stock gets value.
23:33
Josh: This is the multiple at which the premium of how expensive it is.
23:37
Josh: So Meta is trading 16 times earnings. That means it's trading 16 times the forward's
23:42
Josh: projected earnings of the company.
23:44
Josh: On a relative basis that's pretty low we
23:47
Josh: have a comp for the dot-com bubble peak the pe ratio has
23:50
Josh: got fairly high microsoft set 73 times earnings
23:53
Josh: relative to 25 where we are now cisco was
23:56
Josh: over 200 times earnings and yahoo is over 800 times earnings now there are some
24:01
Josh: early signs of this spacex being one of them when i think about its pe ratio
24:05
Josh: i don't know what it is it's not public yet that's going to probably be close
24:09
Josh: to the microsoft cisco level but in terms of these core businesses that are running.
24:14
Josh: They're not priced very highly at all. This isn't bubble territory.
24:18
Josh: They're not going into debt. They are not spending what they can't afford.
24:22
Josh: They are just taking the revenue that they're earning from their customers and
24:25
Josh: they're deploying it to grow their businesses even larger.
24:29
Josh: So if you're asking, is there going to be a problem?
24:32
Josh: Are there shortcomings in the market coming soon? The answer is, I mean, maybe not.
24:37
Josh: Things can break. This is subject to change. I know there's a lot of underlying
24:41
Josh: things that may change the narrative here, but as of now, things seem pretty
24:44
Josh: solid and these earnest reports look awesome.
24:47
Ejaaz: My answer to the bubble question is, we're not in a bubble right now.
24:51
Ejaaz: As soon as these companies start taking a lot more debt and these P ratios skyrocket, then we are.
24:57
Ejaaz: Listen, it might happen suddenly once SpaceX IPOs, once OpenAI IPOs and capital
25:01
Ejaaz: gets sucked out of these companies, it remains to be seen.
25:04
Ejaaz: But for now, theoretically, we are not there.
25:07
Josh: But well, there's one thing. One last thing is like, so the thing that I'm looking
25:10
Josh: at is, so long as that incremental dollar spent on compute is still valuable
25:14
Josh: to the customer, then everything works.
25:16
Josh: It's like as long as the end user is finding value from these AI tools and services
25:20
Josh: and they're willing to pay for that, everything continues to work.
25:23
Josh: It's once that train stops, once Claude starts to become dumb,
25:27
Josh: once we run out of use cases for it, that's when we run into problems and we
25:30
Josh: haven't got there yet. So I'm feeling optimistic.
25:32
Ejaaz: It's really funny because you mentioned Claude, you mentioned ChatGBT.
25:36
Ejaaz: Those are the two products.
25:38
Ejaaz: Like if these two companies implode overnight, we are screwed.
25:43
Ejaaz: But the good news is not just regular consumers like you and I,
25:47
Ejaaz: but very high-powered enterprises that generate billions and billions of dollars
25:52
Ejaaz: every single year, find deep value in these products, and they're embedding
25:55
Ejaaz: it in every aspect of their business.
25:57
Ejaaz: So for now, directionally, we're heading in what I would say is a positive direction for all of this.
26:03
Ejaaz: I think that brings us to the end of the earnings. We have more to cover.
26:07
Ejaaz: Let's switch contexts a bit.
26:09
Ejaaz: So Josh, have you heard of something called Project Deal? Yeah.
26:13
Ejaaz: No, never heard of it.
26:14
Josh: Fill me in.
26:15
Ejaaz: Okay, so our girl Olivia Moore does a very good job of summarizing an experiment
26:19
Ejaaz: that the Anthropic team did for one week.
26:22
Ejaaz: They said, we created a classified marketplace for our employees in San Francisco.
26:26
Ejaaz: It's kind of like a Craigslist, but with a twist.
26:29
Ejaaz: All the deals that were conducted by AI models were acting on behalf of employees.
26:34
Ejaaz: So they spun up a bunch of AI agents, and you as a human couldn't list the item
26:38
Ejaaz: that you wanted to sell. You couldn't write the description.
26:40
Ejaaz: You couldn't pitch it. And you as a purchaser couldn't say, oh,
26:44
Ejaaz: I don't like the look of that.
26:45
Ejaaz: It had to be completely run autonomously by clawed AI agents.
26:49
Ejaaz: So they ran this experiment for a week and did the human exchange by the end of it.
26:53
Ejaaz: And it ended up generating $4,000 worth of purchases and sales across the entire platform.
26:59
Ejaaz: And the customer feedback from the employees themselves were,
27:01
Ejaaz: wow, I actually ended up with items that I really wanted.
27:03
Ejaaz: Like if you were a purchaser, you gave your agent a wishlist.
27:06
Ejaaz: And if you were a seller, you just listed an inventory of things that you had
27:09
Ejaaz: in your apartment and the swap was done after a week.
27:11
Ejaaz: I thought this was a pretty cool experiment for autonomously run businesses
27:15
Ejaaz: or e-commerce specifically that could happen in the future.
27:17
Josh: That's very cool. And also here's an answer to why the income will not stop
27:22
Josh: anytime soon, because think about how many tokens this requires in terms of agentic capabilities.
27:27
Josh: It's like, we started with the chatbots, you talk, it spits something out.
27:30
Josh: That was like, okay, but it didn't use that much tokens. Then we had chain of
27:33
Josh: thought where it actually generated tokens in order to create a better answer.
27:37
Josh: And now we have agents that leverage not only chain of thought,
27:40
Josh: but now are going off and performing all of these skill trees,
27:42
Josh: burning tons of tokens. Yes.
27:44
Josh: As this type of workflow becomes more powerful and delivers more value,
27:47
Josh: the amount of tokens that are required to generate go vertical.
27:50
Josh: And I think that's what we're seeing right now is not only is the demand for
27:53
Josh: AI going up, the demand for tokens is going astronomical with it because of
27:57
Josh: these workflows like this one, where I'm sure in order to get this done at this
28:01
Josh: quality, you consumed a tremendous amount of tokens.
28:04
Josh: And I think, again, this is probably another bullish use case.
28:06
Josh: Now, we have more news as it relates to Cursor.
28:08
Josh: Cursor releases their agent harness to the public. What's going on with Cursor?
28:12
Ejaaz: Yeah, okay. So I need to pause for a second and eat some humble pie because
28:16
Ejaaz: exactly a week and a half ago, I was crapping on Cursor.
28:20
Ejaaz: I basically said that they have no moat.
28:23
Ejaaz: They are, and I quote, an AI rapper that sits on top of the smarter models like Claude and Chad GPT.
28:29
Ejaaz: And, you know, Anthropic and OpenAI can basically eat their lunch at any given moment.
28:34
Ejaaz: I was wrong. So Cursor this week released a really cool product,
28:38
Ejaaz: which was their AI Agent Harness.
28:41
Ejaaz: Now, for those of you who don't know what an AI Agent Harness is,
28:43
Ejaaz: you have the main model, but the model in itself is good.
28:46
Ejaaz: But if you can mold it in a very specific way around a very particular use case,
28:51
Ejaaz: so that includes a bunch of very heavily detailed prompts.
28:54
Ejaaz: It includes setting up the right developer environment.
28:58
Ejaaz: It includes plugging in the right APIs and orchestrating all these things in
29:02
Ejaaz: a very meticulous way. That's known as the harness.
29:06
Ejaaz: That has grown to be as valuable as the model itself.
29:09
Ejaaz: In fact, there was an eval board that was put out this week because we had ChatGPT
29:13
Ejaaz: 5.5 come out and we had Claude Opus 4.7 come out.
29:17
Ejaaz: They tried adding the harness from Cursor on top of these models and guess what?
29:21
Ejaaz: They performed better than the actual models themselves. So now companies are
29:25
Ejaaz: like, well, I want this harness as well.
29:27
Ejaaz: And in fact, Sam Altman himself said this week that the harness and the model are equivocal.
29:33
Ejaaz: They're the same thing and are as valuable as each other. So Cursor decided
29:37
Ejaaz: to do the insane thing, which is.
29:39
Ejaaz: Release their harness as an API and charge people to sit on top of that.
29:43
Ejaaz: So in an instant, overnight, they created this moat that sits on top of these
29:46
Ejaaz: models, and they can now charge a premium for it. It was just a genius move by Cursor.
29:51
Ejaaz: I'm kind of embarrassed that I didn't see it play out in this way myself,
29:54
Ejaaz: but they basically have a product that they can sell that makes ChatGPT and
29:58
Ejaaz: Claude 10x better than it already is today. And that's pretty cool.
30:01
Josh: Well, you know who saw that is Elon and SpaceX XAI, which sounds like one of his children's names.
30:06
Josh: It's a mouthful, but they acquired the option to purchase cursor
30:10
Josh: what last week two weeks ago and imagine if that
30:13
Josh: model wasn't anthropic it wasn't open ai
30:15
Josh: but it was a grok model and now it can be
30:18
Josh: 10 to 20 times better in a harness run by cursor i
30:21
Josh: think that's probably what they're guiding towards so cursor seems now to be
30:24
Josh: a very important company a very important puzzle piece
30:27
Josh: and hopefully grok can take advantage of that when they either
30:30
Josh: work together or come to the acquisition later this
30:33
Josh: year now there is more news on the
30:36
Josh: front of ai generated content this one
30:39
Josh: being 11 labs now 11 labs for those who don't know is the
30:42
Josh: kind of frontier leading edge of audio ai
30:45
Josh: so that's things like ai voices voice cloning
30:49
Josh: and just recently music production so
30:52
Josh: they have a music platform website in which you can
30:55
Josh: actually sign your voice up to be used for music
30:59
Josh: generation and creation and they announced not only that
31:02
Josh: they created this new platform but also that they've paid out 11 million dollars
31:07
Josh: to creators through the 11 lives voice library so the question i asked myself
31:11
Josh: and i asked each other before i recorded is why have we not signed up our voices
31:14
Josh: for this creator program because my god 11 million dollars is a lot of money
31:18
Josh: it seems like a lot of the pushback around music generation
31:22
Josh: When it comes to ai in particular is that it's
31:25
Josh: not real and it takes away from real artists and i
31:28
Josh: think the reality is is that artists who publish on spotify make virtually
31:31
Josh: no money you get almost zero dollars even if you get
31:34
Josh: a billion plays whereas 11 labs they're paying out 11 million
31:37
Josh: dollars to a very small set of creators because they can actually earn and
31:40
Josh: participate in the upside of this ai generated music so in addition to the music
31:43
Josh: being incredibly well produced in some cases it also creates this really interesting
31:48
Josh: incentive economy around submitting your human vocals to be used for this music
31:54
Josh: production we have some samples of music maybe we should take a sec yeah give
31:57
Josh: it a listen go on josh pick
31:59
Ejaaz: A pick a track.
32:00
Josh: Let's see chrome candy sounds like fun okay here we go
32:13
Josh: Okay, I do immediately regret that decision.
32:16
Ejaaz: Okay, so out of all of that, I think we picked the most AI generated one.
32:20
Ejaaz: I do immediately regret that decision. I promise you some of these are actually pretty good.
32:24
Ejaaz: The thumbnail was a bit of a giveaway there. But yeah, to your point,
32:27
Ejaaz: there's a few reasons why I like this product.
32:29
Ejaaz: Number one, the biggest pushback from artists specifically against AI,
32:35
Ejaaz: and rightly so, is this is killing our business. We aren't able to make money.
32:39
Ejaaz: You're stealing our IP and just generating profits for free.
32:43
Ejaaz: This platform not only recognizes your IP, but feeds profits and money back to you.
32:49
Ejaaz: Now, typically in the music industry, it's very complicated.
32:52
Ejaaz: You need to have your IP owner, record label, all this kind of stuff.
32:57
Ejaaz: And it gets very contractually boring and tedious.
32:59
Ejaaz: This is one singular platform that is traceable across the technology itself
33:04
Ejaaz: that can license your voice for content that you haven't even created.
33:07
Ejaaz: It could be someone else, you and I, Josh, that come up with an idea to leverage
33:11
Ejaaz: someone's voice and create a banger tune that goes on to make millions of dollars.
33:14
Ejaaz: And you see money come through that and it's in a transparent way through this platform.
33:19
Ejaaz: So I think although this is a small infrastructure and platform right now,
33:23
Ejaaz: this could grow to be something massive.
33:25
Ejaaz: Imagine if Spotify used this infrastructure, you know, you'd end up with a bunch
33:28
Ejaaz: more happy artists that end up making more money on average.
33:32
Josh: Yeah it's pretty cool i like 11 labs i think they have an incredible
33:35
Josh: platform i like this new take on music generation i hope it
33:38
Josh: changes the sentiment around ai produced music how it can
33:40
Josh: be an actual tool that empowers creator more than it destroys
33:43
Josh: them uh we also have more news as it relates to
33:46
Josh: claude releases now the month of claude is kind
33:49
Josh: of over they slowed down on their daily releases but they did release something
33:52
Josh: just yesterday that we found interesting which is a new
33:55
Josh: series of connectors things like blender things like adobe
33:58
Josh: creative cloud ableton which is a music production software canva
34:02
Josh: sketchup a lot of new applications one of the most noteworthy ones
34:05
Josh: was blender which for those who aren't familiar blender is
34:08
Josh: a 3d modeling and rendering software that actually takes
34:11
Josh: really complicated files for rendering things like if
34:14
Josh: you ever wanted to produce a product it creates the 3d renderings of all the
34:18
Josh: intricacies of something like a keyboard all the keys all the switches the housing
34:22
Josh: for it and now it can work directly with claude i was really interested i wanted
34:27
Josh: to check out the adobe creative cloud because i'm a huge fan of creative cloud
34:29
Josh: and do a lot of work in that world.
34:32
Josh: Unfortunately, it's only just Adobe for creativity. It's a pretty lame app.
34:35
Josh: And then I started playing around with this more. And the reality is,
34:38
Josh: is that it's very slow when it does all of these things.
34:41
Josh: It takes a long time to think and work. And while it is powerful,
34:44
Josh: it's just painstakingly slow to actually get outputs and engage with these tools
34:48
Josh: right now. But it seems pretty interesting.
34:51
Josh: I would hate for it to make a mistake on like a 10,000 part rendering of some
34:56
Josh: complicated object and you don't know what it is. So it's high risk.
34:59
Josh: Use at your own discretion.
35:01
Josh: But I think it is noteworthy news for this week, at least.
35:04
Ejaaz: Okay, so for the final topic, Josh, I have a nomination for the worst AI product ever created.
35:11
Ejaaz: And I'm sad to say that it was created by one of the biggest companies that
35:15
Ejaaz: we just spoke about on the earnings reports. So thank God this isn't the moneymaker.
35:19
Ejaaz: So this is a new feature from Amazon, where when you go on their e-commerce
35:24
Ejaaz: business, the Amazon platform where you order toilet paper, like I mentioned
35:27
Ejaaz: earlier on, you now have a new AI feature which generates a podcast about the products.
35:34
Ejaaz: Two AI hosts discuss the product that you're viewing and takes your questions
35:38
Ejaaz: as if it's in a call-in show.
35:41
Ejaaz: So just to be clear, you press the button, right? This is like a demo here. I'm not going to play it.
35:46
Ejaaz: But like, you know, you're looking at, what is this? Home Care Pro Rapid Relief Rash Cream.
35:51
Ejaaz: And you can generate two AIs that like talk about the product.
35:55
Ejaaz: And if you have a question, you can type in the question and they answer it live.
35:59
Ejaaz: So as you're scrolling through the page i don't know why you would want to use
36:02
Ejaaz: this maybe i'm missing something i we are in the podcast game and even i hate
36:06
Ejaaz: this product with a visceral amount of myself josh can you help me unpack this
36:11
Ejaaz: like why would i want to use this.
36:12
Josh: Is this even real this seems like they're trolling like
36:15
Josh: is this even a real feature i'm like very skeptical but it's funny i mean previously
36:19
Josh: notebook lm which is google's program they did this they allowed you to kind
36:23
Josh: of insert any sort of research or idea into their program and then it would
36:27
Josh: generate you a podcast this seems to be doing a live call in q a based on people's
36:32
Josh: reviews and tough questions it's
36:35
Josh: I guess if anything, it's a testament to the cost of content coming down to
36:39
Josh: a level that is so marginal that Amazon is looking to implement it basically for free.
36:43
Josh: Is this necessary? Probably not. Are people going to use this?
36:46
Josh: Probably not. Is this real? I'm not even sure.
36:48
Josh: If anything, it's a really compelling demo. But yeah, I found it really funny
36:51
Josh: that, I mean, it's just a testament, again, to the cost of everything going
36:55
Josh: down, the accessibility of AI and the AI-ification of everything.
36:59
Josh: Not everything needs to have a podcast. Not everything needs AI.
37:02
Josh: I don't know. Funny story to end on. but i think that is everything this was
37:05
Josh: kind of long if you made it to the end yeah you've really you you've made it
37:09
Josh: you're up to date you know all the things that matter this week we had a few
37:12
Josh: other episodes this week that were pretty interesting if you missed one is on
37:15
Josh: that china deal with meta
37:16
Josh: one thing that wasn't covered in the earnings report is this meta
37:19
Josh: and manis acquisition issue where china actually blocked it
37:22
Josh: meanwhile the ceo of manis is a
37:25
Josh: vice president of meta and working at the offices currently so it's
37:28
Josh: a huge disaster we had an interview earlier this week where we spoke
37:31
Josh: with the guy who is responsible for usvc an easy way that you can invest in
37:35
Josh: anthropic spacex and open ai before it goes public that was pretty interesting
37:38
Josh: and we also covered sam albin and elon musk's trial now we don't have any updates
37:42
Josh: on that today we're going to be covering those in the coming weeks but yeah
37:46
Josh: thank you guys so much for watching you guys any final thoughts before we leave them for the weekend
37:49
Ejaaz: Oh no i think we've we've kept them here for a while but you are officially
37:53
Ejaaz: caught up to date with everything and anything going on with ai from everything
37:58
Ejaaz: from product releases to earnings reports to drama between Elon Musk and Sam
38:03
Ejaaz: Altman. We do grudges. We do everything on this show.
38:06
Ejaaz: So the point is we have extensive coverage. And if you aren't a subscriber,
38:10
Ejaaz: if you haven't rated the show, even if you hate us, leave us a comment, give us a rating.
38:14
Ejaaz: We would love to hear from you. It helps us out massively.
38:17
Ejaaz: And yeah, we will see you next week on the next one.
38:20
Josh: Thanks. Have a great weekend. See you guys.