A Big Day for Tech Earnings | Bloomberg: The Close 1/29/2025
ROMAINE: WAIT AND SEE. THE FED HITS PAUSE. SCARLET: 10 MINUTES TO THE BELL. WAIT AND SEE WAS THE PHRASE ALONG WITH I AM NOT GOING TO COMMENT ON THAT. ROMAINE: THAT IS UP! UP TO BASIS POINTS ON THE DAY BUT THAT IS LOWER THAN WHERE WE WERE LAST FRIDAY -- UP TWO BASIS POINTS ON THE DAY BUT THAT IS LOWER THAN WHERE WE WERE LAST FRIDAY. SCARLET: THERE IS A LOT OF RHETORIC BUT NOT ACTION.
ROMAINE: JUST HOW MUCH THIS WILL MATTER MORE SO THAN JAY POWELL. MICROSOFT, META, TESLA WILL REPORT AFTER THE BELL. SCARLET: BEST PERFORMER AMONG THAT BUNCH, OVER THE PAST COUPLE MONTHS. META, UP 15% THIS YEAR. IT'S ALL IN ON THE LLAMA AI MODEL. ROMAINE: SOME NUMBERS MATTER LESS THAN COMMENTARY AROUND DEEPSEEK AND THE FUTURE OF AI. A LOT HAS CHANGED IN 72 HOURS.
WE WILL HAVE FULL COVERAGE. COUPLE HOURS AGO 2:00 P.M., JAY POWELL. JEROME: INFLATION REMAINS ELEVATED. IN SUPPORT OF OUR GOALS, THE FOMC DECIDED TO LEAVE OUR RATE UNCHANGED.
WITH OUR POLICY STANDS LESS RESTRICTIVE THAN IT HAD BEEN AND THE ECONOMY STRONG WE DO NOT NEED TO BE IN A HURRY TO ADJUST POLICY STANCE. POLICY AS WELL POSITIONED IN PURSUING BOTH SIDES OF OUR MANDATE. WE ARE IN A GOOD PLACE. YOUR POLICY IS WELL-POSITIONED ON THE ECONOMY IS IN A GOOD PLACE. ROMAINE: JAY POWELL, THE MASTER OF SAYING NOTHING. BETSY DUKE, FORMER FED GOVERNOR, FORMER CHAIR OF WELLS FARGO.
DID WE LEARN ANYTHING TODAY? BETSY: NO. IT'S HARD TO DO A PRESS CONFERENCE WHEN THERE'S NOTHING TO SAY. REPORTERS KEEP ASKING. THE CHAIRMAN KEPT SAYING NOTHING. ROMAINE: THE THEME FROM REPORTERS WAS NOT ABOUT MONETARY POLICY, IT WAS ABOUT WHITE HOUSE POLICY WHICH JAY POWELL DODGED. BETSY:
AND WILL CONTINUE TO DODGE. THIS IS THE FIRST OF SEVERAL WHERE YOU WILL SEE THE SAME THING. HARD TO IMAGINE THERE WILL BE DEFINITIVE MOVES. SEVERAL READINGS ON INFLATION
WOULD INDICATE THE FED SHOULD MOVE IN THE NEXT COUPLE MONTHS. IT WILL TAKE THAT TIME FOR THE ADMINISTRATION POLICY TO GET FULLY ARTICULATED, IMPLEMENTED AND TO DETERMINE THE EFFECT. I THINK IT WILL BE HARD TO HAVE ANYTHING DEFINITIVE IN TERMS OF WHAT THE FED SEES UNTIL JUNE. SCARLET: PRESIDENT TRUMP CALLING FOR LOWER RATES SAYING HE IS BETTER THAN JAY POWELL JUDGING WHERE THEY SHOULD BE.
DOES THIS CREATE PROBLEMS? BETSY: DON'T THINK SO. HE'S MADE IT CLEAR. THAT'S BEEN TRUE FOR CHAIRMEN BEFORE JAY AND JAY POWELL BELIEVES THE INDEPENDENCE OF THE FED IS KEY TO ITS EFFECTIVENESS. YOU WILL CONTINUE TO SEE HIM NOT COMMENT AND NOT BE CHANGED BY COMMENTARY. IT'S HARD FOR THE PRESIDENT TO IMPACT THE ENTIRE COMMITTEE. JAY IS SPEAKING FOR COMMITTEE, 19 INDIVIDUALS.
12 VOTING MEMBERS. SCARLET: THERE WAS A CHANGE IN THE SLATE OF MEMBERS FOR '25. WE HAVE CLARITY ON SOME EXECUTIVE ACTIONS. FREEZING OF BILLIONS IN FEDERAL LOANS, INCREASED DEPORTATIONS, PLANS TO GUT THE FEDERAL WORKFORCE. HOW WILL THIS SHOW UP IN THE LABOR MARKET? BETSY: IT'S HARD TO SAY.
EXECUTIVE ACTIONS HAVE TO WORK THROUGH THE COURTS. THE FIRST POLICY IS THE IDEA OF DEPORTATION. IT WILL SHOW UP NOT IN JUST WHO IS BEING DEPORTED BUT HOW DOES THAT AFFECT IMMIGRANTS WILLINGNESS TO SHOW UP TO WORK? ROMAINE: DURING THE FED SPECIAL, JEFF ROSENBERG TALKED ABOUT A FED THAT WAS FORECAST DEPENDENT TO ONE THAT WAS DATA DEPENDENT AND NOW ONE THAT HAS TO BE WHITE HOUSE POLICY DEPENDENT. THERE IS NO INCENTIVE FOR JAY
POWELL TO TALK ABOUT THIS. NO ONE INSIDE THE FOMC NOW IS THINKING ABOUT POLICY DECISIONS WITHOUT A CLOSE EYE ON THE WHITE HOUSE AND CONGRESS. BETSY: I DON'T THINK ANYBODY WOULD ARGUE THAT THIS WILL BE AN IMPACTFUL PRESIDENCY AND MOVE FAST WITH DRAMATIC ACTIONS. IN WHAT DIRECTION?
HOW MUCH WILL THEY BE SLOWED BY WORKING THROUGH THE COURT SYSTEM? OR ISSUES RELATED TO CONGRESS? IT WILL TAKE TIME TO SEE WHAT POLICIES ARE, HOW THEY STICK AND HOW QUICKLY THEY GET IMPLEMENTED. THERE IS NO DOUBT IT WILL BE THE MAJOR FACTOR ON THE ECONOMY FOR THE NEXT YEAR. SCARLET: WITH THE FED ON PAUSE UNTIL JUNE, HOW MUCH SHOULD INVESTORS REASSESS BANK EARNINGS? LENDING CLUB SHARES PLUNGING OVER GUIDANCE. THE CEO TALKED ABOUT THE TIMELINE FOR CUTS ARE BEING PUSHED OUT. DOES THIS EXTEND TO THE SECTOR? BETSY: DON'T THINK SO. WHEN RATES ARE STABLE, THAT'S GOOD FOR BANKING, WHICH IS THE SECTOR I KNOW BEST. THE MORTGAGE MARKET WILL HAVE TO
ADJUST SLOWLY TO THE LEVEL OF MORTGAGE RATES. ROMAINE: BETSY DUKE, THANK YOU. THE BIG FED MEETING, NOW TO A BIG SLATE OF EARNINGS SET TO DROP IN MINUTES. ANNOUNCER:
THE CLOSING BELL, CROSS-PLATFORM COVERAGE OF THE U.S. MARKET CLOSE. ROMAINE: TWO MINUTES FROM THE END OF THE DAY. CAROL AND TIM ARE IN THE RADIO BOOTH AND WE ARE JOINED IN THE TV JUDEO BY CAROLINE HYDE AND IT WILL BE ALL ABOUT TECHNOLOGY.
MICROSOFT AND TESLA ARE SET TO REPORT. IBM, LAM RESEARCH, THE BIG MARKET MOVES JUST UP AHEAD. CAROL: OUR FOCUS CHANGES FROM ONE BIG THING, SO MARKETS ARE IN A COOL SPACE, HAVING SAID YOU ARE RIGHT, IT'S ALL ABOUT WHAT WE GET FROM BIG TECH COMPANIES. THE AI SPEND, THERE WILL BE
QUESTIONS ON THAT. TIM: TRUMP ADMINISTRATION OFFICIALS ARE CONSIDERING EXPANDING RESTRICTIONS ON NVIDIA CHIP SALES. NVIDIA FELL 7%. THIS IS ON EVERYBODY'S MIND, ESPECIALLY INVESTORS WATCHING COMPANIES REPORT TODAY. SCARLET: I WONDER HOW MUCH TESLA WILL
MOVE? IT IS SO DIVORCED FROM THE NUMBER OF CARS IT SELLS. IT IS ALL ABOUT ELON MUSK AND HIS POLITICAL WILL. CAROLYN: IT WILL BE INTERESTING ACROSS SOCIAL MEDIA RELATED STOCKS. ROMAINE: TESLA DOWN 2%. APPLE AND META IN THE GREEN. THE DOW DOWN .3%. THE NASDAQ AND S&P DOWN, THE NASDAQ 100 DOWN, THE RUSSELL 2000 DOWN. CAROL:
IT'S IMPORTANT WE WENT THROUGH ROUNDABOUT MOVES OFF THE FED PRESSER. SCARLET: SECTORS ON THE DAY. SEVEN IN THE RED. EACH DOWN BY 1%. COMMUNICATIONS SERVICE, UTILITIES OR HIGHER. CAROL: ASML HOLDINGS, TOP GAINER AND THE NASDAQ 100, UP 4%. ROMAINE:
MICROSOFT CROSSING THE WIRE. $69.9 BILLION, TOP LINE REVENUE. PPS COMING IN AT $3.23 PER SHARE ON THE AZURE SIDE. CLOUD REVENUE UP 31%.
I AM GOING TO GET THEM CONFUSED TODAY. CAROLINE: THE COMMENTS COMING " WE ARE UNLOCKING THE ROI OF AI." DIALING BACK FROM THE PREVIOUS QUARTER, THIS IS WHERE THEY OFFER THEIR OPENAI INTEGRATED SERVICES. THEY ARE SPEAKING THE LINGO. BALANCING OPERATIONAL DISCIPLINE WITH CONTINUED INVESTMENTS IN CLOUD AND AI INFRASTRUCTURE. TIM: SHARES DOWN 4%.
SECOND QUARTER REVENUE ABOVE ESTIMATES. WE COULD SAY MEETING ESTIMATES. AZURE REVENUE SHY OF ESTIMATES AT 31%. CLOUD REVENUE MISSING. SCARLET: THEY HAVE COMMITTED $80 BILLION CAPEX THIS FISCAL YEAR. WILL IT CONTINUE ON HARDWARE OR MAYBE WORKLOADS GIVEN SUCCESS OF DEEPSEEK? CAROL: MICROSOFT AFTER HOURS DOWN 5.25%. THE BIG AI SPEND. AZURE REVENUE UP 31% IN-LINE. HEY I SURPASSED ANNUAL REVENUE
RUN RATE OF $13 MILLION. CAROLINE: 175% YEAR ON YEAR. IT SPEAKS TO HOW MUCH IS ALREADY PRICED IN. UNDERLINE EARNINGS GROWTH, IF OPENAI STARTS BEING FORCED TO BE CHEAPER, THAT WILL SPEAK TO MICROSOFT'S BUSINESS MODEL.
IF GENAI HAS TO RUSH TO THE BOTTOM, SUDDENLY THIS BECOMES CLEAR. ROMAINE: HOW COMFORTABLE ARE INVESTORS GOING TO BE WITH THAT SPEND? WESTERN DIGITAL, MEMORY MAKER MOVING LOWER. WEAKNESS ON THE GROSS MARGIN LEVEL. THIS WILL BE A BROADER CONVERSATION ABOUT SPENDING IN THE TECH SPACE, I THOUGHT INVESTORS WERE ALREADY UNCOMFORTABLE THIS WEEK. TIM:
THEN WE SAW WHAT META DID FRIDAY AFTER THE ANNOUNCEMENT FROM ZUCKERBERG. THE MARKET FINALLY REACTED TO DEEPSEEK. WE KNEW ABOUT IT WEEKS AGO. WE DIDN'T KNOW ABOUT R1. THIS SHOULDN'T BE NEWS TO THESE
COMPANIES. SCARLET: AMAZON DOESN'T REPORT TODAY, FOLLOWING MICROSOFT LOWER. AMAZON IS BIG IN THE CLOUD. TESLA HAS CROSSED. FOURTH-QUARTER ADJUSTED EPS $.73. LESS COST REDUCTION THAN EXPECTED. FOURTH-QUARTER EPS TRAILING CONSENSUS.
REVENUE $25 BILLION SHY OF THE ESTIMATE. FREE CASH FLOW, $2 BILLION. DOES THIS MATTER AT THE END OF THE DAY FOR THE STOCK? CAROLINE: DOES LESS COST REDUCTION SPEAK TO A LACK OF EFFICIENCY GOING ON FOR THE MAN WHO WAS HELMING EFFICIENCY? TIM: YOU SAID IT. [LAUGHTER] CAROLINE: THIS COMPANY WE KNEW WAS SEEING DIFFICULT DELIVERIES FOR Q, STILL THE MARKET WENT UP.
PEOPLE DON'T CARE ABOUT FUNDAMENTALS. WE HAVE TO SEE HOW THE MARKET IS REACTING. CYBERTRUCK ELIGIBLE FOR IRA CONSUMER LEFT.
THEY ARE STILL TALKING TAX CREDITS FOR CERTAIN CARS WHEN THIS IS TALKED ABOUT WITH THE NOW TRUMP PRESIDENCY. RECORD DELIVERIES IN CHINA. ROMAINE: GROSS MARGINS SLIGHTLY BELOW ESTIMATES. OPERATING INCOME, $1.58 BILLION, BIG MYTHS ON THE
BOTTOM LINE. CAROL: THE CYBER CAP SCHEDULE VOLUME PRODUCTION STARTING '26. EARLIER TODAY ON X, THEY TALKED ABOUT AUTONOMOUS VEHICLES, MOVING WITHOUT HUMAN INVOLVEMENT. CLOSER TO UNSUPERVISED FULL-SCALE FSD. A LOT OF THINGS AT PLAY HERE. NEW PRODUCTS, DEVELOPMENT.
WHAT CONTINUES TO MOVE THE REVENUE? TIM: BULLISH FOLKS THINK SELF-DRIVING WILL BE A KEY PART OF THAT. THEY THINK THIS WILL BE A SEMINAL YEAR IN TESLA'S HISTORY. IT WILL EVENTUALLY UNLOCK THE UNSUPERVISED OPTION FOR THE ROBOTAXI BUSINESS WHICH WE EXPECT TO LAUNCH IN PARTS OF THE U.S.. WHAT DO FEDERAL REGULATIONS LOOK LIKE AND WHERE AND WHEN CAN TESLA DO THIS? CAROL: MICROSOFT IS DOWN 3.5%.
THAT WILL DO IT. CONTINUE TO WATCH ACROSS THE BOARD, WE WILL BREAK DOWN EARNINGS AS THEY COME OUT. ROMAINE: DEEPER DIVE INTO EARNINGS, AFTER HOURS.
LAM RESEARCH AND LAS VEGAS SANDS ON BEAT. TWO DOWNSIDE, MICROSOFT AND TESLA BOTH LOWER. CAROLINE HYDE STICKING WITH US. MICROSOFT. BIG MYTHS ON CLOUD REVENUE -- BIG MISS ON CLOUD REVENUE. CAROLINE: MICROSOFT AI ADDED 13 POINTS TO AZURE REVENUE GROWTH VERSUS 12 QUARTER ON QUARTER. THEY ARE TALKING AI SPINNING THE WHEELS OVERALL.
THEY'RE NOT FIRING ON HIS MANY CYLINDERS. -- ON AS MANY CYLINDERS AS EXPECTED. IS IT THE OVERALL OFFERINGS ARE NOT SELLING ASAP? ROMAINE: A LOT OF OTHER EARNINGS COMING OUT. IBM CROSSING THE WIRE. $17 BILLION REVENUE, ON THE NOSE. FREE CASH FLOW ABOVE ESTIMATES. SOFTWARE REVENUE ON THE NOSE. YOUR COMMENTARY ON AI, GENAI BOOK NOW STANDS AT MORE THAN $5 BILLION. SCARLET: THE NUMBER EVERYONE WAS
WATCHING FOR. SOFTWARE IS WHAT PEOPLE WERE EXCITED ABOUT. GROWING AFTER THREE STRAIGHT QUARTERS. IT HAS GENAI. SO FAR IT'S BEEN CONSULTING. THAT PART HAS SEEN A SPEEDBUMP. CAROLINE: WE HAVE BEEN WORRIED ABOUT BUSINESS'S ABILITY TO SPEND FURTHER ON I.T.
BUT FOURTH-QUARTER CONSULTING REVENUE CAME IN SLIGHTLY SHY. THE BOOK IS $5 BILLION, WE THOUGHT IT WOULD BE $4 BILLION, THEY ARE TRYING TO SIGNAL THIS IS THEIR WINNING FORMULA. SOFTWARE SOLD THE SHARE PRICE LAST YEAR AND OUTPERFORMED FOR IBM GAINS SINCE 2009, NOW MANAGING TO SHOW CONSULTING WILL WIN AT THE SAME TIME AS THE SOFTWARE.
ROMAINE: YOU COVER THIS EVERY DAY. WE ARE WAITING ON META. META PREANNOUNCED. MAY BE SEVERE. MICROSOFT, THESE ARE NOT AWFUL NUMBERS. TESLA IS A DIFFERENT BAG. WHAT DO YOU WANT FROM META? CAROLINE: THAT THE RETURN ON AI IS HERE. THE ADVERTISING OFFERING. WE ARE USING META-AI PRODUCTS AS A CONSUMER, BUT THAT THE MARKETS ARE USING IT FOR PRECISION ADVERTISING.
OPEN SOURCE LLAMA, MAYBE THEY USE DEEPSEEK, THE EFFICIENCY IS THERE LONGER-TERM TO DRIVE MORE EFFICIENT AI OFFERINGS. ROMAINE: DID YOU TRY TO DOWNLOAD IT? CAROLINE: I DID AND I COULD NOT GET IN. SCARLET: WRONG NUMBER. CAROLINE: IS IT STILL WORKING FOR THOSE WHO DOWNLOADED IT? ROMAINE: I HAVE TRIED TO DOWNLOAD IT. I COULD NOT. CAROLINE:
HAVE YOU SEEN HOW EXPENSIVE PHONES WITH IT PRE-DOWNLOADED ON IT ARE ON EBAY? SCARLET: ONLY IF IT IS 13 YEARS OLD. META, CONSUMER PRODUCTS THAT RELY ON AI FEATURES. DO WE SEE THAT PAYOFF WITH GLASSES OUR PRODUCERS WALK AROUND WITH? CAROLINE: CERTAINLY. WE WILL HEAR ABOUT THE REORGANIZATION OF REALITY LABS.
THERE HAVE BEEN A LOT OF REPORTING OF REORGANIZING. THEY HAVE MANAGED TO INTEGRATE AI ACROSS PRODUCTS. THESE SHARES HAVE OUTPERFORMED. 15% UP THIS YEAR. META HAS MANAGED TO PROVE YOU ARE GETTING A ON AI INVESTMENT ALREADY. STICK WITH US. THE OPEN-SOURCE INTEGRATION. HE WILL HAVE TO SPEAK ABOUT WHY DEEPSEEK IS NOT A MASSIVE COMPETITOR BUT VINDICATES HIS LARGE LANGUAGE MODEL THAT IS OPEN-SOURCE. SCARLET: PERHAPS COMPLEMENTARY. CAROLINE HYDE THANK YOU. THE BIG EARNINGS.
ROMAINE: SERVICE NOW CROSSING THE WIRE, MISSED ON SUBSCRIPTION REVENUE, SENDING THE SHARES LOWER. TOP AND BOTTOM LINE NUMBERS WERE IN LINE. THE FORECAST GOING FORWARD, $12 BILLION TO $12.68 BILLION. THE COMPANY SAYING IT HAS EXPANDED PARTNERSHIPS IN AI SPACE WITH GOOGLE, ORACLE.
DEVELOPMENT COSTS REGARDS TO DEEPSEEK COULD BENEFIT THE COMPANY. SCARLET: MANY ANALYSTS HAVE INDICATED, WE SAW THE STOCK RISE MONDAY. BIG TECH EARNINGS, ROSS GERBER, CO-FOUNDER, PRESIDENT AND CEO OF GERBER KAWASAKI. YOU LOOK AT TESLA CAREFULLY. THE STOCK HAS MOVED INDEPENDENT OF WHAT THE COMPANY TOLD US ABOUT THE SALES OF EV'S. YOUR TAKE ON THE GROSS MARGIN
NUMBER FOURTH-QUARTER, AUTOMOTIVE GROSS MARGIN BACK OUT THE REGULATORY CREDIT WAS 13.6% -- ENOUGH TO MOVE THE STOCK FOR THOSE FUNDAMENTALLY FOCUSED ON TESLA? ROSS: THIS IS A BAD NUMBER. GROSS MARGINS DECLINE AFTER THE LAYOFFS LAST QUARTER WITH THE BENEFIT OF HIGHER MARGINS. NOW MARGINS CONTINUE TO DECLINE BECAUSE THEY ARE HAVING TROUBLE SELLING CARS. IT'S A GAME. THEY CAN MANUFACTURE MORE CARS THAN THEY ARE SELLING SO THEY HOLD BACK, THEN THEY HAVE TO DO EVERY DEMAND LEVER POSSIBLE TO GET RID OF VEHICLES. WE SEE IT IN NUMBERS.
I'M NOT SURPRISED. THEY DON'T ADVERTISE. THE ONLY ADVERTISING THEY HAVE IS ELON. SCARLET: HE IS PRETTY EFFECTIVE. ROSS: NOT FOR CARS. SCARLET: YES. DOES THE TIDE TURN ON MUSK? GAINS IN THE STOCK UP 55% SINCE THE ELECTION, 83% SINCE LAST EARNINGS, START TO DRIVE DOWN THE STOCK DIVORCED OF FUNDAMENTALS OF THE VEHICLE BUSINESS? ROSS: THE STOCK IS DOWN OVER THE LAST THREE YEARS.
WE HAVE NOT MADE MONEY IN TESLA. THEY WERE EXPECTED TO DO FOR DOLLARS AND EARNINGS, TRADED 100 TIMES EARNINGS IN '21, TODAY WE ARE AT $376 A SHARE, SO WHEN YOU LOOK AT TESLA'S FINANCIAL PERFORMANCE THE LAST THREE YEARS, IT'S BEEN HORRIBLE. THIS IS A GROWTH COMPANY AT A HUGE MULTIPLE NOT GROWING. WHAT WILL GET IT TO GROW? ROMAINE: BEYOND JUST BUILDING CARS, THERE WAS A MODEL INTO THE THESIS OF TESLA IT WAS MORE THAN A CAR COMPANY.
THE TECH, AI, BLAH BLAH BLAH, ALL THIS GAVE IT A HIGHER VALUATION RELATIVE TO GM OR FOR. IT IS STILL A TECH COMPANY. WHEN CAN WE SEE THEM LEVERAGE THAT INTO GROWTH? ROSS: NO QUESTION IT IS A TECH COMPANY. IT'S FOCUSES ON SOFTWARE AND DEVELOPING SOFTWARE FOR ROBOTS AND AUTONOMOUS VEHICLES. THEIR CORE BUSINESS IS SELLING
CARS AND ENERGY STORAGE AND CHARGING. THE MISSION IS TO ADVANCE SUSTAINABLE TRANSPORTATION AND ENERGY. THEY WERE DOING A WONDERFUL JOB BEFORE THEY PIVOTED INTO BUSINESSES WE ARE NOT SURE HOW THEY WILL BE, ROBOTICS AND CYBER CAPS. THAT IS NOT COMING ANYTIME SOON. WHERE DOES GROWTH COME FROM THE NEXT SEVERAL YEARS UNTIL THESE TECHNOLOGIES WORK? I USEFUL SELF-DRIVING EVERYDAY. NOW I SEE WAMOS DRIVING PERFECTLY FINE AND MY CAR CANNOT DO IT. I DON'T CARE HOW MANY TIMES HE
SAYS IT WILL WORK THIS YEAR. IT'S A BUNCH OF CRAPPY AT THIS POINT. IT DOESN'T WORK! IT STILL DOESN'T WORK! IT STILL WORKS GOOD, I LIKE IT, BUT IT IS DRIVER ASSIST. THAT
IS WHERE WE ARE AT STILL. ROMAINE: I WANT TO PIVOT TO THE BROADER TECH SPACE. MICROSOFT EARNINGS. AI SPEND. THEY CONTINUE TO BOOST CAPEX SPENDING IN THE COMING YEARS. TECH LEADERSHIP OVERALL, WHO'S THE LEADER? WHO DO YOU WANT TO SEE? ROSS: NVIDIA, THE LEADER OF LEADERS.
JENSEN IS A MONSTER. HIS AMBITION. AI INFRASTRUCTURE NEEDS TO BE BUILT, NVIDIA IS A CORE PLAYER. DOESN'T MATTER HOW MANY BS CHINESE APPS THEY RELEASE, IT WON'T CHANGE THE NEED FOR MASSIVE COMPUTER TO UPGRADE THE SYSTEMS WE HAVE, INCLUDING TESLA WHERE IT DOESN'T WORK. SIRI STILL DOESN'T WORK. MOST INTELLIGENT COMPUTING WE CONSIDER INTELLIGENT TODAY DOESN'T WORK WELL.
THERE IS SO MUCH OPPORTUNITY FOR INCREASE IN PRODUCTIVITY THROUGH THESE INVESTMENTS. SECONDED BY MICROSOFT. I THOUGHT THEIR NUMBERS WERE GOOD THIS QUARTER. WE HAVE HIGH VALUATIONS AND EXPECTATIONS OF THE MARKET TODAY. THAT'S WHY WE SEE THE SELLOFFS.
COMPANIES TRADING MULTIPLES HISTORICALLY HIGH. I WOULDN'T BE CONCERNED ABOUT BIG MOVES IN VOLATILITY. THE VALUATIONS ARE SO HIGH. SCARLET: WE ARE PRIMED FOR PULLBACK IN THE MARKET GIVEN VALUATIONS AND DEEPSEEK PROVIDED THE EXCUSE. ROSS: EXACTLY. NOT A BAD THING. THIS IS PART OF A BULL MARKET. YOU WANT TO HAVE TIMES OF
CONSOLIDATION SO INVESTORS LIKE ME CAN TAKE ADVANTAGE BUT ALSO THE WORST THING YOU COULD HAVE IS ONE THAT GOES STRAIGHT UP. EVENTUALLY IT GOES STRAIGHT DOWN. BULL MARKETS ULTIMATELY HAVE CORRECTIONS. THAT'S PART OF IT. WE ARE ENABLE MARKET. THE FED HAS AMMUNITION TO LOWER IN THE FUTURE IF THE ECONOMY SLOWS. WE ARE IN A GOOD SPOT FOR
INVESTORS. MICROSOFT AT 40 TIMES EARNINGS, YOU HAVE VOLATILITY. THERE'S NOT A LOT OF VALUES IN THE MARKET TODAY IN THE TECH SECTOR, THERE'S ONLY A FEW NAMES THAT SEEM CHEAP TO ME LIKE DELL. THE REST, ITS PREMIUM PRICES BECAUSE THESE ARE PREMIUM COMPANIES. ROMAINE: ROSS GERBER. TESLA SHARES LOWER AFTER HOURS AFTER FALLING SHORT. MICROSOFT MOVING LOWER BECAUSE
OF DISAPPOINTING NUMBERS. CAPEX SPEND WAS LOWER. MARGIN NUMBERS CAUSING CONCERN. MICROSOFT PLANS TO INCREASE CAPEX SPEND IN THE YEARS TO COME.
WHAT WAS YOUR MAIN TAKEAWAY FROM THIS EARNINGS RELEASE FROM MICROSOFT? >> MICROSOFT CONTINUES TO EXECUTE IN LINE WITH EXPECTATIONS. AZURE WAS 50 BASIS POINTS LIGHT. CAPEX WAS HIGHER. EPS BEAT. OVERALL, NUMBERS WERE IN LINE WITH WHAT WE EXPECTED. IT COMES DOWN TO THE GUIDANCE FROM STEPHANIE AND AMY.
THEY POINTED TO STRONG BOOKINGS WITH OPENAI. COMMERCIAL RPO WAS SOLID. CAN THEY REITERATE AZURE BACK HALF ACCELERATION HAS MORE FIRST PARTY CAPACITY ONLINE? AS LONG AS THEY DO THAT, STOCK WILL BE FINE. ROMAINE: ON THE AZURE, 30% GROWTH RATE FOR A COMPANY, THAT'S PHENOMENAL. WHEN DO WE GET TO THE POINT WHEN WE WORRY ABOUT TAPPING OUT? HAVE THEY REACHED WHAT THEY CAN REACH OR IS THERE MORE MARKET? RISHI: THERE'S A HUGE OPPORTUNITY.
PUT AI ASIDE. OVERALL CLOUD PENETRATION, WE ARE IN EARLY INNINGS. A LOT OF ON PREM NEEDS TO MIGRATE. ADOPTING ADJACENT SERVICES LIKE COSMOS, AZURE, SYNAPSE. THAT DRIVES THE OVERALL GROWTH NUMBER. THEN YOU LAYER ON AI. EARLY INNINGS ON THE CLOUD. WE ARE IN THE TOP OF THE FIRST
INNING ON AI. AZTEC EVOLVES, COST CURVE COMES DOWN AND AS NEW USE CASES COME ABOUT, MICROSOFT IS WELL-POSITIONED. THEY ARE IN A LEAGUE OF THEIR OWN ON AI SOFTWARE. SCARLET:
DEEPSEEK QUESTIONED THE FOUNDATIONAL ASSUMPTIONS. THEY PRAISED THE DEEPSEEK TECHNOLOGY AS DID OTHERS. WILL THE COMPANY NEED TO CHANGE PRICING OF COPILOT AND AI OFFERINGS NOW THAT DEEPSEEK HAS PROVEN IT CAN DO THE SAME THING CHEAPER? RISHI: THERE ARE OPEN-ENDED QUESTIONS AROUND DEEPSEEK. HOW IS THE TECH DEVELOPED? HOW REAL IS THAT NUMBER? OVERALL, COST CURVE COMING DOWN IS GOOD FOR MICROSOFT. THE OPENAI RELATIONSHIP.
ANYTHING THAT DRIVES COST OF GENAI, INFERENCING, FINE-TUNING DOWN IS GOOD FOR SOFTWARE BECAUSE IT MEANS YOU GET GREATER VOLUMES, LOWER BARRIERS TO ENTRY AND CREATE FLYWHEEL EFFECT. THE MORE PEOPLE USE THESE OFFERINGS, THE MORE THE INNOVATION, NET USE CASES COME ABOUT. WITH MICROSOFT, THEY ARE CLOSELY ALIGNED WITH OPENAI, ARCHITECTURALLY THINGS LIKE COPILOT ARE ARCHITECTURE TO BE LM NEUTRAL. YOU CAN CHOOSE WHICH ONE YOU WANT BEHIND THE SCENES. SCARLET: YOU HAVE THE OUTPERFORM RATING ON MICROSOFT. YOU ARE BULLISH.
ROSS GERBER CALLED SOME BIG TECH COMPANIES PREMIUM PRICES FOR PREMIUM COMPANIES. IS THERE A DISCOUNT PRICE FOR A DISCOUNT COMPANY IN THE SAME SPACE THAT MIGHT BE A BETTER BET IF YOU DON'T WANT TO START IN MICROSOFT? RISHI: ACROSS MY UNIVERSE, THERE ARE NOT TOO MANY COMPANIES THAT HAVE CAP EARNINGS TO THE LEVEL OF MICROSOFT THAT ARE WELL-POSITIONED AND AI. ONE WOULD BE INTUIT. THE AI ADOPTION CURVE STARTS AT CONSUMER, BEFORE S&P.
INTUIT IS WELL-POSITIONED. DISRUPTING SERVICES LIKE TAX PREP AND ACCOUNTING. ROMAINE: THE LONGER-TERM VISION -- ARE WE MAKING TOO MUCH OF THE AI PORTION? IT ALL GOES INTO THE CLOUD. THERE HAS TO BE SEPARATION BETWEEN THE AI HYPE AND WHAT HAS TRANSPIRED THE LAST COUPLE YEARS. RISHI: WE THINK ABOUT IT IN THAT MANNER. THIS WILL GET INTERLINKED. THE AI HALO EFFECT. BECAUSE OF MICROSOFT LEADERSHIP
POSITION WHICH IS UNDERAPPRECIATED BY THE INVESTOR COMMUNITY BUT THE CUSTOMER UNDERSTANDS, THAT DRIVES ADOPTION OF ADJACENT SERVICES. EVEN OFFICE. THAT ALLOWS THEM TO BE SHARED GAINERS IN THE SPACE. THEY FEED WELL INTO EACH OTHER. AI CAN BE CROSSED INTO THE
EXISTING MICROSOFT BASED AND MICROSOFT CAN CROSS THROUGH TO THE REST OF THEIR PORTFOLIO. MICROSOFT IS SO WELL-POSITIONED. IT'S A GIANT PORTFOLIO COMPANY WITH WEAPONS IN EVERY AREA. SCARLET: MICROSOFT HAS PAIRED ITS LOSSES AFTER HOURS AND IS DOWN 1.2%. WHAT WILL YOU BE LISTENING FOR? WHAT DO YOU WANT TO HEAR TODAY? RISHI: THREE THINGS. THE REITERATION OF ACCELERATION IN AZURE IN THE BACK HALF OF THE YEAR.
WE WANT TO SEE FIRST PARTY CAPACITY ONLINE AND MEETING THE AI DEMAND. TWO, A REITERATION OF MONDAY, ULTIMATELY DRIVING DOWN THE COST IS GOOD FOR MICROSOFT, SOFTWARE AND CUSTOMERS. THREE, UNDERSTANDING THE MULTIPLE MODALITY OF MICROSOFT. THEY ARE TIED TO OPENAI, THE MOST INNOVATIVE COMPANY.
MICROSOFT HAS OPTIONS OPEN AS THE TECH LANDSCAPE CHANGES AND ARE WELL-POSITIONED. SCARLET: THANK YOU. ROMAINE: TALK ABOUT HOW THESE COMPANIES ARE BENEFITING FROM AI. SERVICENOW, ONE OF THE BIGGEST CLOUD PROVIDERS WHICH IS DEEP IN AI. ON THE REVENUE SIDE, SHARES
MOVING LOWER. I CAUGHT UP WITH THE CEO, BILL MCDERMOTT, AND HE IS BULLISH ON THE FUTURE, TALKING ABOUT WHAT WE LEARNED FROM DEEPSEEK COULD BE A POSITIVE FOR COMPANIES LIKE HIS. AS COSTS COME DOWN, THAT COULD BENEFIT. HE TALKED ABOUT THE BROADER IDEA OF SEEING HEAVY AI SPEND BRITISH FROM HARDWARE AND INFRASTRUCTURE TO "THE IDEA HE HAS NEVER SEEN THIS TYPE OF TECHNOLOGY TRANSFORMATION." HE RAN SAP. HE HAS BEEN AROUND. "THIS IS THE FIRST TIME WE HAVE SEEN GLOBAL ALIGNMENT LIKE THIS." SCARLET: THE STOCK PRICE DOWN 10% AFTER
HOURS. THE VALUATION, THE STOCK TRADES AT ONE AND 61 TIME TO EARNINGS. THAT GIVES YOU A SENSE. ROSS GERBER, PREMIUM PRICING FOR PREMIUM COMPANIES.
THE SUBS DISAPPOINTED. SHARES OF META. WE ARE WAITING THOSE RESULTS. TYPICALLY THEY COME OUT AT 4:16 P.M. NEW YORK TIME. THAT'S THE LATEST THEY HAVE EVER REPORTED. WE ARE WELL PAST THAT. GOOD TO SPEAK WITH YOU. META, THE BIG WINNER OF THE MAG SEVEN NAMES THIS YEAR, UP 15% ON THE IDEA IT HAS MANAGED TO FOLD AI INTO CORE BUSINESS, BETTER THAN THE OTHER COMPANIES. WHAT ARE WE LIKELY TO HEAR
GIVEN THE DISAPPOINTMENTS FROM BIG TECH COMPANIES AND THE FACT THAT EXPECTATIONS ARE HIGH? >> THANK YOU. IT'S UNUSUAL THEY HAVE NOT REPORTED. WE ARE 30 MINUTES PAST THE CLOSE. THREE THINGS WILL BE TOP OF MINE FOR EVERYBODY. THE COST EFFICIENCY THAT THEY COULD POTENTIALLY REALIZE GIVEN WE HAVE THE EXAMPLE WITH DEEPSEEK LIKE LLAMA AND I BELIEVE EVERYONE AT META KNEW. THE PLATFORM CHANGES THEY MADE AROUND CENSORSHIP AND FACT CHECKING -- WILL THAT IMPACT ADVERTISING REVENUE? HOW HAS THAT IMPACTED THEIR ENGAGEMENT.
OVERALL, TRAJECTORY, $65 MILLION GUIDANCE THEY PREANNOUNCED BUT WHAT CAN WE MAKE OUT OF THAT. WHAT ABOUT '27? THEY COULD PROVIDE COMMENTARY. SCARLET: THAT CAPEX WAS PREANNOUNCED BEFORE DEEPSEEK. OPERATING CONSENSUS WILL BE A QUESTION. THERE WILL NO LONGER BE FACT CHECKING. WON'T THAT BE A BENEFIT ON THE EXPENSES FOR OPERATIONS? SHWETA: ABSOLUTELY.
THE STREET IS LOOKING FOR 111 MILLION DOLLARS ANNUAL TOTAL EXPENSES. INVESTORS ARE BRACING FOR A HIGHER COST GUIDE OF $170 MILLION. HEADCOUNT GROWTH, WHAT ARE THEY THINKING? THEY WERE LAYING OFF PEOPLE BASED ON PERFORMANCE BUT PLANNING TO BACKFILL THOSE ROLES. THEY WERE PLANNING TO PERHAPS GROW HEADCOUNT FOR AI ROLES. SCARLET: STANDBY. WE ARE WAITING ON META-RESULTS. WE WANT TO BRING IN OUR NEXT GUEST. ROMAINE: YOUR BROADER TAKE ON
INVESTMENT IN THIS SPACE. CAME INTO 2023 WITH INTEREST IN AI. I WONDER IF ANYTHING HAS CHANGED ? >> IT'S BEEN A BUSY WEEK. THIS IS A NEW TECH. WE'RE ARE IN THE EARLY DAYS OF INNOVATION.
COMPETITIVE LANDSCAPE FUELS INNOVATION SO WE WILL SEE COMPANIES COMPETE TO BE FASTER, EFFICIENT, COST-EFFECTIVE. ROMAINE: WHERE DO YOU FIND OPPORTUNITIES? WE FORGET THERE ARE SO MANY SEGMENTS TO THIS. KRISTIN: LET ME COMMENT ON RECENT NEWS.
THE MODELS COMING OUT THAT ARE MORE COST-EFFECTIVE, EFFICIENT, THAT WILL SOLVE SMALLER PROBLEMS. WE WILL CONTINUE TO CAI MODELS FROM COMPLEX LARGE MODELS THAT ARE HIGHLY SECURED TO MORE BROADLY DEPLOYED, ACCESSIBLE, CHEAPER AND MORE EFFICIENT. WE WILL CONTINUE TO HEAR DIFFERENT APPLICATIONS AND SEE THE INFRASTRUCTURE INVESTMENT COMPANIES, MUNICIPALITIES CONTINUE. SCARLET: WHAT THEMES DO YOU HOPE TO LEARN FROM WHEN YOU HEAR THE EARNINGS AS RELATES TO THEIR APPETITE FOR DEALMAKING? KRISTIN: WE CONTINUE TO SEE THE INVESTMENT IN CAPEX, WHETHER THE LARGE MODELS OR MOVING TO SMALLER SPECIALIZED EFFICIENT MODELS. THAT'S ONE PIECE. LOOKING FOR AN INCREASED APPETITE FROM A REGULATORY STANDPOINT FOR DEAL COMBOS. THE M&A WILL CONTINUE TO PICK
UP. LAST YEAR WE SAW INCREASE IN TECH M&A VOLUME OF 35%. THE DOLLAR VALUE IS DOWN 15%. THIS YEAR COULD BE THE RETURN OF MEGA TECH M&A. SCARLET: WE KEEP SAYING IT COULD BE THE RETURN. WE ARE WELL-POSITIONED. IS THE CHANGING GOVERNMENT PERSONNEL, REGULATORS, SUFFICIENT TO GIVE COMPANIES THE GREEN LIGHT TO PURSUE DEALS? IS EVERYONE WAITING FOR SPECIFIC MEASURES TO BE TAKEN? KRISTIN: WAS A LITTLE BIT OF DETAIL REQUIRED TO GIVE COMPANIES CONFIDENCE TO LAUNCH INTO BIG BUSINESS COMBOS. THEY HAVE INCREASED
MEANINGFULLY FROM OUR SIDE POST ELECTION, THE LAST FOUR MONTHS AROUND BIG DEALS. ROMAINE: HOW MUCH APPETITE FOR CROSS-BORDER DEALS GIVEN THE RHETORIC FROM THE ADMINISTRATION? FOREIGN COMPANIES HAVE SOMETHING TO OFFER. WOULD THERE BE APPETITE OR ALLOWANCE? KRISTIN: I WAS IN DAVOS. CONVERSATION WAS AROUND CROSS-BORDER, REGULATORY AND M&A ENVIRONMENT AND IF THE U.S.
HAS A LESS STRICT ENVIRONMENT FOR M&A, WILL EUROPE FOLLOW? WHAT HAPPENS WITH EUROPE, AS A CONTINENT TO REMAIN COMPETITIVE IN TECH. COULD BE THE EU COMING TOGETHER MORE, INCREASED SPEND, BUT A BIG PART WILL BE DEREGULATION. ROMAINE: WHAT DID YOU HEAR FROM NON-US INVESTORS WANTING TO BE PART OF WHAT IS HAPPENING IN THE U.S.? KRISTIN: WE WILL CONTINUE TO SEE THAT. GIVEN GROWTH IN AI IN U.S., WE SEE FOREIGN INVESTMENT COMING IN. SCARLET: M&A IN TECH, HOW MUCH IS
DEFENSIVE? COMPANIES MAKING SURE THEY DON'T GET SWEPT UNDER VERSUS THOSE LOOKING TO GAIN MARKET SHARE MORE? KRISTIN: BOTH. MOST CASES, WHAT CAN WE DO TO CONTINUE TO ACCELERATE INNOVATION? ON THE DEFENSIVE SIDE, ACTIVISM REMAINS A REAL THREAT AND A CATALYST FOR M&A IN TECH. 10% MARKET LAST YEAR OF PUBLIC COMPANIES HAD AN ACTIVIST. WE WILL SEE THAT. THAT WILL FUEL THE INVESTORS, SPINOUTS, SUBSIDIARY SPLITS. ROMAINE: WHY DO YOU THINK WE SAW THAT UPTICK IN ACTIVISTS? KRISTIN: HONESTLY, ANY MOVEMENT IN EXECUTION OR FAILURE OR CHANGES IN THE LAST COUPLE YEARS HAVE HAD THE INCREASE.
IT'S HARD TO FIND GROWTH ASSETS IN THE MARKETS NOW LIMITED. THERE IS MORE FOCUS ON PROFITABILITY. IF COMPANIES ARE NOT GETTING THERE QUICKLY, YOU SEE ACTIVISTS COME IN. ROMAINE: THE PROXY FIGHT. SCARLET: JOIN THE CLUB. WILL THERE BE FEWER COMPANIES TRYING TO GO PUBLIC BECAUSE THEY ARE NOT IN POSITION TO PRESS INVESTORS? KRISTIN: ACTUALLY, THE FIRST COMPANIES TO COME PUBLIC ON THE TECH SPACE WILL BE PRIVATE EQUITY BACKED. SUPER PROFITABLE BUSINESSES SITTING INSIDE FIRMS FOR SEVEN YEARS, WAITING.
BUT THE MARKET BEING HEALTHY, BUT TECH IPOS LAST YEAR PERFORMED ON AVERAGE UP 40% WHICH MEANS THE OVERALL AVERAGE. THERE IS A BID FROM THE INVESTOR SIDE AND NOW IT HAS BEEN LONG ENOUGH AND IT IS TIME TO SHOW MONETIZATION. ROMAINE: SUPPOSE THE MARKET DOESN'T HOLD. ARE PRIVATE CAPITAL GUYS STILL WILLING TO BE PATIENT IF CONDITIONS AREN'T CONDUCIVE TO BRINGING COMPANIES PUBLIC? KRISTIN: THE BEAUTY OF TAKING A COMPANY PUBLIC VERSUS SELLING HIS YOU ARE IN SOME CASES SELLING 10% OF THE SIZE OF THE BUSINESS,, THEN YOU HAVE THREE YEARS TO MONETIZE THE PUBLIC MARKET. YOU DON'T HAVE TO GET THE LAST DOLLAR AT THE TIME OF IPO. WE WILL SEE SOME STEADY GROWTH, SUPER PROFITABLE BUSINESSES.
THERE HAS BEEN A BID FOR COMPANIES THE LAST SEVERAL YEARS . NOW THERE IS WILLINGNESS FROM THE OTHER SIDE TO SHOW A PUBLIC MARK. SCARLET: THINGS ARE MOVING. KRISTIN, THANK YOU. KRISTIN: THANK YOU. SCARLET: FEELS LIKE A MILLION HOURS AGO
BUT THE MARKET CLOSED LOWER. THE WAVE OF BIG TECH EARNINGS. THERE WAS A FED ANNOUNCEMENT. THEY DIDN'T SAY MUCH. ROMAINE: THE MARKET MORE FOCUSED ON EARNINGS. WE ARE WAITING ON META. THAT WILL BE ONE OF THE STARS OF THE SHOW. AFTER HOURS, THERE WERE STOCKS MOVING THAT WILL HAVE AN IMPACT TOMORROW.
WHIRLPOOL DOWN 12%. LEVI STRAUSS DOWN 5%. LAS VEGAS SANDS OF 8%. IBM UP 8%. WHEN YOU TALK ABOUT NEWFANGLED AI, THEN YOU SEE 80-YEAR-OLD LARRY ELLISON THE WHITE HOUSE, ARE THEY BACK NOW. SCARLET: LEGACY TECH HAS FOUND A WAY BACK IN THE GAME. IT IS SHIFTING CUSTOMERS INTO REVENUE STREAMS. ROMAINE: IT'S ABOUT RELIABILITY. SOMETIMES WHEN YOU ARE SPENDING
THIS AMOUNT OF MONEY AND HAVING TO MOVE SO FAST, WHO ARE YOU GOING TO TAKE A CHANCE ON? SCARLET: A COMPANY WITH A REPUTATION THAT IT CONTINUES TO SERVE ITS CUSTOMERS. ROMAINE: META COMING IN AT A BEAT. EPS, WOW. OPERATING INCOME, A BEAT. FOR THE CURRENT QUARTER, REVENUE OF $39 BILLION TO $41 BILLION. KIND OF ON THE NOSE.
$65 MILLION. SCARLET: THE OUTLOOK FOR REVENUE, THE MIDPOINT OF THE RANGE, WAS $40 BILLION, LOWER THAN THE CONSENSUS ESTIMATE. THAT MIGHT BE ONE REASON. THERE'S A LOT OF FACTORS. META SAYS THEY ARE NOT PROVIDING A FULL YEAR GUIDANCE. THEY ARE ONLY GIVING THE FIRST
QUARTER OUTLOOK. THE STRONG U.S. DOLLAR CONTINUES TO BE SOMETHING WE LOOK AT. ROMAINE: THE COMPANY TALKING ABOUT THE REGULATORY LANDSCAPE AND THE COST OF EMPLOYEES. THIS COMPANY IS SPENDING MONEY, GENERATING CASH FLOW.
WHEN YOU LOOK AT WHERE THE RUN-UP IN THE STOCK HAS GONE, DOES THAT MAKE SENSE? SCARLET: UNUSUAL FOR META TO WAIT THIS LONG TO REPORT. FIRST QUARTER REVENUE GUIDANCE, MIDPOINT TRAILS THE AVERAGE ESTIMATE AND IT WILL NO LONGER OFFER FULL YEAR GUIDANCE. EARNINGS CAME OUT LATE. WHAT DOES THIS ADD UP TO? SHWETA: NOT SURE WHAT TO MAKE OF THE LATER EARNINGS RELEASE. THEY COULD HAVE HAVE A TECH GLITCH.
FOR Q1, IT CAME BELOW STREET. INVESTORS WERE EXPECTING $42 BILLION. MODESTLY LOWER. EXPECTATIONS WERE LOWER THAN THE STREET. FOR THE FULL-YEAR GUIDE, INVESTORS WERE BRACING FOR $170 MILLION AT THE HIGH END EVEN THOUGH THE STREET IS LOOKING FOR $111 MILLION. NOT MEANINGFUL.
I'M NOT SURPRISED THE STOCK IS DOWN. IT HAS HAD A RUN-UP. SCARLET: THEY EXPECT EMPLOYEE COMPENSATION TO BE THE SECOND LARGEST FACTOR ON EXPENSES. A LOT OF THAT IS ON TALENT. THE MAJORITY OF THE '25 CAPEX WILL BE DIRECTED AT CORE BUSINESS. IT WILL SPEND $65 BILLION. BOOK QUESTIONS DOES THAT RAISE FOR YOU? SHWETA: WITHIN CORE, WHERE ARE THEY SPENDING? DRIVING ENGAGEMENT? AI? PURELY HIRING? WHERE IS THAT SPEND TARGETED? HOW ARE THEY MEASURING ROI? THEY ARE ROI FOCUSED BUT WHAT CAN THEY TELL US THAT HELPS US FIGURE OUT THERE IS IMPROVING ROI GOING FORWARD? ROMAINE: MICROSOFT PLANS TO ADD JOBS. BROADER QUESTION, THE AMOUNT OF MONEY THESE COMPANIES ARE SPENDING. NOT SO MUCH THE RETURN FOR THEM BUT FOR THEIR USERS, ULTIMATELY THAT WILL BE THE DETERMINANT HOW LONG THIS CONTINUES.
THERE'S A DIFFERENCE BETWEEN CONSUMER FACING STUFF AND ENTERPRISE BUT DO YOU SEE A LIGHT AT THE END OF THE TUNNEL WHERE WE SEE A GREATER ADOPTION AND MORE IMPORTANTLY PEOPLE PAYING MONEY? SHWETA: WE MAY BE COMING CLOSE BECAUSE DEEPSEEK IS AN EXAMPLE OF THEM MAKING IT WORK WITH MUCH LOWER COST. WE HAVE AN EXAMPLE OF THAT. I WOULD BE SURPRISED IF META CONTINUES TO INVEST IN CAPEX AT THIS TRAJECTORY. I HIGHLY DOUBT IT WILL BE THAT TYPE OF GROWTH RATE IN '27. WE SHOULD EXCEPT DECELERATION ON THAT FRONT.
ON THE USER EXPERIENCE SIDE, WE ARE SEEING IMPROVEMENT IN TERMS OF TIME SPEND. THERE ARE ONLY SO MANY PEOPLE ON EARTH. THEY HAVE 3 BILLION PEOPLE ON THEIR APPS. TIME SPEND IS GROWING. ENGAGEMENT IS GROWING. PRODUCT CHANGES AROUND TARGETING, THEY SEEM TO BE WORKING. AS LONG AS THAT HAPPENS, IMPLICATION IS ROI FOR ADVERTISERS IS IMPROVING AND PRICING OF THAT SHOULD HOLD UP. THAT DRIVES REVENUE.
FINAL POINT, REVENUE GROWTH IS STILL MIDTEENS FOR A BUSINESS THIS BIG. WITH 70% PENETRATION DIGITAL ADVERTISING, CAN THIS COMPANY CONTINUE TO GROW? THESE ARE BIG NUMBERS. WE THINK THEY CAN BECAUSE SEARCH IS ANOTHER BUCKET WHERE THEY COULD BE GAINING SHARE FROM GOING FORWARD. ROMAINE:
QUICK CORRECTION. I SEVEN MICROSOFT WORD ADD INFRASTRUCTURE TO THEIR AI. I SHOULD HAVE SAID META. LEADERSHIP NOW AT META. ZUCKERBERG HAS BEEN AT THE HELM SINCE INCEPTION. HE IS STILL YOUNG. HOW CONFIDENT SHOULD INVESTORS BE IN HIS STEWARDSHIP CONSIDERING THE PIVOTS TO METAVERSE AND A BIG PUSH INTO AI? SHWETA: TO HIS CREDIT, HE HAS TAKEN STEPS TO EARN CREDIBILITY AND RESPECT FROM THE INVESTOR COMMUNITY AT LEAST FROM OUR VIEW, WHETHER IT IS PULLING BACK, EFFICIENCY, SHIFTING THE FOCUS, SHIFTING GEARS TO AI FROM REALITY LABS.
ALL THE CHANGES THEY MADE ARGUABLY HAVE WORKED WELL. WE SEE THAT BEING REFLECTED IN THE STOCK ICE. I'M NOT SURE IF THE INVESTMENT COMMITTEE WANTS HIM TO LEAVE. HE'S DONE A PHENOMENAL JOB. I COULD SEE CHANGES ON THE LEADERSHIP FRONT. WE HEARD FROM THEM ON REALITY
LABS. DAN REED WILL BE STEPPING AWAY. I DON'T SEE ZUCKERBERG LEAVING. ROMAINE: WE WILL LET YOU GET TO THAT CONFERENCE CALL.
BIG PLAYERS IN THE AI SPACE, THE HULLABALOO AROUND THE SPENDING, WHATEVER THE HECK DEEPSEEK IS DOING, THERE ARE STILL QUESTIONS ON DOES THIS STUFF WORK? DOES IT DO WHAT IT IS INTENDED TO DO? OUR NEXT GUEST LEFT GOOGLE IN 2020 AMID CONCERNS ABOUT COMPANY ETHICS ON AI. SHE IS A FOUNDER AND EXECUTIVE DIRECTOR OF THE DISTRIBUTED AI INSTITUTE. ONE OF THE MOST INFLUENTIAL RESEARCH PAPERS ON LARGE LANGUAGE MODELS, MORE IMPORTANTLY ON THE RELIABILITY OF THEM WAS PUBLISHED BY HER YEARS AGO. TINA, THANKS. WE GET CAUGHT UP ON THE PROMISE OF AI AND THESE MODELS WHETHER THE INSTITUTIONAL STUFF, THE CONSUMER STUFF. I DON'T KNOW HOW GOOD THIS STUFF IS. YOU LEFT GOOGLE BECAUSE YOU RAISED QUESTIONS ABOUT THE TYPE OF DATA GOING IN AND WHETHER WE WERE GETTING SOMETHING RELIABLE OR GARBAGE.
HAS ANYTHING CHANGED IN THE LAST FIVE YEARS? TINA: NO. I DON'T BLAME YOU FOR NOT KNOWING WHETHER THESE THINGS WORK. I THINK THE ACADEMICS WHO SHOULD BE INFORMING THE PUBLIC ARE NOT DOING THE JOBS.
ACADEMICS SHOULD BE MAKING CLAIMS SUBSTANTIATED. ON THE OTHER HAND, WE SEE THINGS WITH DEEPSEEK, THERE WERE CLAIMS ABOUT REASONING CAPABILITIES. WE ARE NOT SURE. SOME BENCHMARKS, PEOPLE HAVE SHOWN IT IS UNCLEAR IF HIGH-PERFORMANCE ON A BENCHMARK MEANS THESE MODELS ARE DOING REASONING. THERE ARE MISLEADING CLAIMS CURRENTLY.
THE ONLY THING THAT CHANGED IS EVERY SINGLE ONE OF THE WARNINGS WE HAD IN OUR PAPER, WHICH IS WIRE WAS FIRED FROM GOOGLE, HAVE COME TRUE. WE ARE NOW SEEING COMPANIES SAYING, ABANDONING CARBON NEUTRALITY GOALS, NOW TALKING ABOUT GOING INTO NUCLEAR POWER. WE ARE TALKING ABOUT INVESTORS SAYING THERE SHOULD BE NO COPYRIGHT RESTRICTIONS BECAUSE, MARC ANDREESSEN SAID SOMETHING AKIN TO THE ENTIRE HUMAN CORPUS NEEDS TO BE USED TO TRAIN THESE MODELS. I AM ASKING THE SAME QUESTION NOW. WHY ARE WE GOING FOR SIZE? WHY DO WE NEED THE LARGEST MODELS, THE MOST NUMBER OF GPU'S, THE BIGGEST DATA? ROMAINE: THE ANSWER IS MONEY. YOU KNOW THAT.
THE IDEA THESE MODELS ARE GOOD AT PARROTING, NOT NECESSARILY COMPREHENDING. YOU BEING FIRED. YOU WERE NOT THE ONLY PERSON IN THAT POSITION TO LEAVE AROUND THAT TIME. I WONDER WHO IS WATCHING THE STORE? OPENAI GOT RID OF IT PHTHISIS -- ETHICISTS. IS THERE ANY FORMAL GOVERNMENT
REGULATION IN THE U.S.? IT WAS KEEPING AN EYE ON THIS? TIMNIT: IT'S UNFORTUNATE. I SOMETIMES SAY I AM LEARNING ABOUT HOW PROPAGANDA WORKS. IT'S KIND OF FEAR OF MISSING
OUT. EVERYONE WANTS TO BE IN ON THE RACE RATHER THAN TAKING A STEP BACK AND CRITICALLY THINKING ABOUT WHAT CLAIMS ARE TRUE VERSUS NOT AND WHETHER OR NOT THE PATH WE ARE TAKING IS GOOD FOR INNOVATION? ONE OF THE THINGS THAT COPY EXCITED ABOUT COMPUTER SCIENCE WAS THE IDEA, CHALLENGE THAT WHAT WE THINK ABOUT IS HOW TO MINIMIZE RESOURCES. HOW CAN YOU DO A TASK WITH MINIMAL MEMORY, ENERGY USE, ETC.? WHEREAS THE CURRENT PARADIGM SEEMS TO BE IF WE ASSUME WE HAVE UNLIMITED RESOURCES, WHETHER GPU'S OR DATA OR ANYTHING, WHAT CAN WE ACHIEVE, WHICH IS A LESS INTERESTING QUESTION. THAT LEAVES OUT A LOT OF PEOPLE WHO DON'T HAVE THE MEANS TO CONTRIBUTE TO THIS RESEARCH. WE SEE WITH DEEPSEEK, IT REMAINS TO BE SEEN THE EXTENT TO WHICH THEIR CLAIMS ON LOWER COST FOR TRAINING OUR TRUE BECAUSE THEY ONLY GIVE US PART OF THE STORY, WHICH IS IMPORTANT TO NOTE. IT ALSO SAYS WHEN YOU INNOVATE
MORE UNDER CONSTRAINTS AND IT IS MORE INTERESTING TO THINK ABOUT HOW MINIMAL RESOURCES COULD I USE TO ACHIEVE A TASK, WHICH IS THE RESEARCH I AM INTERESTED IN PERSONALLY. SCARLET: INTERESTING WAY OF LOOKING AT IT. I'M GLAD YOU BRING UP THAT EXPERIENCE. DO YOU THINK BIG TECH COMPANIES, THE HUNDREDS OF BILLIONS THEY ARE SPENDING TO BUILD OUT AI DATA CENTERS, ARE THEY USING A TON OF RESOURCES BECAUSE THEY CAN AND THAT IS THE SIMPLE REASON? TIMNIT: THE QUESTION I ASKED AT GOOGLE -- THEY WERE FIXATED ON BUILDING THE LARGEST MODELS. IT WAS UNCLEAR WHY. AT THE TIME OPENAI HAD THE LARGEST MODELS.
IF YOU WANT TO GO FOR THE LARGEST SIZE OF ANY KIND, IT HAS TO COME WITH THE TASK. WHAT WILL YOU ACHIEVE? UNFORTUNATELY, THERE ARE PSEUDO-LAWS, NOT NECESSARILY SCIENTIFIC. PEOPLE SAY SCALING LAWS, THAT'S NOT A LAW LIKE GRAVITY THAT YOU MODEL IMPROVE.
THERE ARE ALL THESE WORDS THAT ARE USED LIKE EMERGENCY, ASSUMING A MODEL HAS ALL OF A SUDDEN LEARNED CAPABILITIES IT WAS NOT TRAINED FOR. NOT SCIENTIFIC TERMS. UNFORTUNATELY, THIS IS WHERE SCIENTISTS AND ACADEMICS COULD HAVE DONE A BETTER JOB GROUNDING THE PUBLIC IN WHAT REALITY IS. BECAUSE WE ARE NOT DOING THAT, IT IS HARD TO UNDERSTAND WHAT THE CAPABILITIES ARE. I BELIEVE IT IS A RACE TO THE BOTTOM. IF OPENAI SAYS THEY USE 10,000 GPU'S, ELON MUSK HAS TO SAY WE WILL USE 100,000. SCARLET:
NO ONE CAN WIN THAT RACE EVEN WITH UNLIMITED RESOURCES. BOTTOM LINE, DEEPSEEK, WHAT IS THE SINGLE MOST IMPORTANT ISSUE THE EMERGENCE RAISES FROM AI SAFETY PERSPECTIVES? TIMNIT: ME PERSONALLY, THE SINGLE ISSUE IS UNCOVERING THE HYPE, DEBUNKING THE IDEA THAT YOU NEED THE LARGEST EVERYTHING, THE MOST EXPENSIVE THINGS, UNLIMITED DATA AND RESOURCES, IN ORDER TO CREATE CERTAIN MODELS. WHAT WORRIES ME IS THIS IS FURTHER GOING TO BE USED TO SAY THE U.S. HAS TO WIN THE RACE AGAINST CHINA AND THEREFORE COMPANIES IN THE U.S.
SHOULD FACE NO RESTRICTIONS WHICH MEANS MORE DATA THEFT AND ABSOLUTELY NO OVERSIGHT INTO WHAT MODELS ARE PRODUCING. ROMAINE: APPRECIATE YOU TAKING TIME, ONE OF THE BEST MINDS IN SCIENCE. WE HAVE TECH EARNINGS. A DIVERGENCE HERE. NVIDIA UP. THEY ARE GETTING A BOOST. IBM IS GETTING A BOOST. TESLA AS
WELL. SCARLET: ALL OF THIS COULD CHANGE WHEN THE EARNINGS CALLS BEGIN IN EARNEST AND WE HEAR THE QUESTIONS POSED TO THE CEOS. ROMAINE: THE SOFTWARE COMPANIES, DOING MUCH MORE OF THAT SPEND. MICROSOFT DOWN. LEADING A LOT OF THE OTHER COMPANIES LOWER. SALESFORCE DRIFTING LOWER.
SCARLET: SERVICENOW WAS SEEN AS A BENEFICIARY OF DEEPSEEK. ROMAINE: APPRECIATE YOU JOINING US ON THE CLOSE. WE WILL BE BACK TOMORROW. APPLE REPORTS AFTER THE BELL.
2025-02-01 21:59
