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we've got more Tech earnings to discuss
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so much going on let's start with Mata
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whose shares jumped in extended trading
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Wednesday after the company Beat
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estimates of revenue and profit in the
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second quarter advertising Revenue 22%
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from a year earlier and the strength of
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that business seems to be offsetting
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concerned about heavy spending on AI
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which I think is necessary for them the
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AI spending will be increasing with meta
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uping its expected 2024 Capital
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expenditures to at least 37 billion
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we're done with the metaverse now we're
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spending the money on AI um meta shares
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did sync on AI spending news last
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quarter um the market seems more
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optimistic because they've got a really
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good business to get them there I guess
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um there's not still not a lot to show
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for these AI Investments and a lot of
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investors are worried about where the
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payoffs are um how long will investors
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wait to get a return from meta um and
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I'll just go through Microsoft earnings
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really quickly Microsoft was less
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they're less enthusiastic about those
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which were a m of bit of a mix bag
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overall sales and profit growth beat
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expectations in the latest quarter but
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revenue for the company's Cloud business
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roads 27% slightly below the prior
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quarter and analy expectation shares
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were down about 3% on Tuesday after the
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earnings report but rebounded for the
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most part the next day um so talk a
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little bit about that about the two
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companies
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thoughts there's just no denying it meta
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I
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mean meta their earnings were up their
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earnings per share were up 73% year on
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year their ad Impressions and average
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price per ad both increase 10% year on
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year I mean that's incredible the
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average price and the number of
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Impressions up 10% 3 and A4 billion
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daily active users so 40% of the planet
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is on a meta platform every day um the
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only thing that's giving anyone any
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pause and it depends how well they're
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positioned is they said they warned that
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capex growth for AI will grow
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significantly and they've said that the
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amount of compute needed to train llama
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4 will likely be almost 10 times more
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than we used to uh what was used to
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train uh llama 3 and people are sort of
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when they get a little insecure about
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this they immediately go to similar to
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what they did in 99 when they went to
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Cisco they go to the infrastructure
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place because if you look at the capex
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for the software layer Microsoft meta
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Google and Amazon their capex is up 31%
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but their revenue is only up 19 whereas
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the hardware layer you know where you go
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first Nvidia AMD arm their Capa is
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actually flat even maybe down 8%
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depending on how you calculate it but
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their revenue is up
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146% so it feels like a safer a safer
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play right now since reporting their
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earnings Microsoft and Google the
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software stack or part of the stack have
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declined 2 and 6% respectively when AMD
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reported it was up 8% but the the
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software layer although is that true
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meta was up but Microsoft was down but
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the thing that freaked everybody out on
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the Microsoft call was uh just their I
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think it was like they announced
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something like a 78% year-on-year
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increase in capex to 19 billion which is
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a staggering increase and get this the
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entire tech industry is in such a
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spending Street the capital expenditures
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of Amazon metam Microsoft and Google
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this year will be about $200 billion do
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that's double what the US government
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spends on homeland security I mean this
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is these numbers are just staggering
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they are they're staggering whether
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they're going to get the money back is a
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real question there's I think pretty
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much open AI is making money but who
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else is you know this this irritating VC
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I'm not even going to name them was was
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asking um I was having lunch with Sam
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Alman was asking like is any going to
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make money here essentially and I think
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everyone's worried about that is is this
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spending going to result in you know a
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growth that that that meets the amount
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of money they're spending I don't see
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they have another choice but to spend
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correct it's this is not the metaverse
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this is a really critical shift in
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Computing I don't know how they can't
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not invest this is I mean all systems
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are go here this is this is I mean as as
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much excitement as there was about the
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web even though the revenue is scanned
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relative to the investment it's
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dramatically greater than the revenue
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anyone getting from the web in the 90s
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so everybody is going Allin and also it
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plays to their strength in this in the
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sense that they already have a captive
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audience to to roll out AI applications
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to and also they've learned from the
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father that if you have the advantage of
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cheap Capital you leverage that
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advantage and you go hard at capex to
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try and pull away from everybody else so
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they're doing that they're like look our
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advantage is we have access to cheaper
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Capital because of our market cap and
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our PE so we are going to turn turn on
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the spending jots here's a fun stat 40%
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of S&P 500 companies discust AI in their
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earnings calls I mean for you know what
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is it only like 20% are tech companies
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so even non-tech companies are talking
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about Ai and their earnings calls that's
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up from 1% of them five years ago so
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this is this is a tital wave that is
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just sort of this is the tail wagging
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all dogs so money well spent or we don't
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know yet or impossible not to spend uh I
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think it's money very well spent for
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some players unfortunately existing
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players who are running away with it I
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do think there's a a jump on the band I
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I don't think I think a lot of analysts
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are going to say and I don't know if
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Nestle's doing this but I think a lot of
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analysts are going to say to some of
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these second tier or consumer
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companies okay rent Ai and spend money
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on it but you shouldn't be spending
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capex on it because I've heard about
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some companies are trying to develop
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their own llms and going very hard at
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this but the stat I've seen that just
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absolutely blew me away we tried to pull
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together there's some data on this is
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that if you look at the actual amount of
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Revenue that AI applications are
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generating right now you know open AI or
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chat gbt the subscription things like
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that it's about um $20 billion and it's
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inspired a market capitalization
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increase and this includes the amount of
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money that companies are spending on
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gpus but it's inspired a$3 trillion doll
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increase in market capitalization so
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right now the industry notionally is
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trading at 150 times revenues and that
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just does not feel sustainable that
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means the revenues these applications
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are garnering has to you know double
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every year for the foreseeable future
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which is a you know that's a big ask I
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don't see how they avoid this these
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spins I just don't see how they avoid
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them yeah it's an arms race they have to
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do it it's an arms race
