Bloomberg's Carol Massar and Tim Stenovec discuss the latest Big Tech earnings featuring Tesla, Meta and Microsoft. They speak with:
This is Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio.
It is Bloomberg BusinessWeek. I'm Tim Stenevek. That is Carol Masser, and we are following what's going on with all the companies that are reporting right now so far. In terms of the big companies that we're following this afternoon, Carol, we're looking at shares of Tesla, which are lower in the after hours. In addition to that, we're also looking at shares of Microsoft, which are following after their report.
Yeah. Absolutely, we've got Microsoft down almost four percent here in the aftermarket. As we said, some disappointment over maybe some of the numbers in the second quarter revenue sixty nine point sixty three billion estimate, estimate was sixty eight point nine two.
That's actually better.
Second quarter Azure revenue was at thirty one percent. The estimate was for gain of thirty one point eight percent. But the second quarter cloud revenue that missed estimate, and so that second quarter intelligent cloud revenue twenty five point fifty four billion dollars, the estimate was just a tad above that at twenty five point eighty nine billion. So again, maybe some concerns over that and expectations are high right now.
Okay, he doesn't ignore it, but he doesn't cover it like some of his colleagues. Man keep seeing his Bloomberg Intelligence senior technology analyst as we await meta earnings to cross. We're going to make him go a little out of his element and speak to Microsoft, because you can't ignore what's going on with Microsoft. Man, deep, give us an idea of what sticks out to you from this company.
I mean, look, the Intelligent Cloud number missed. Probably that has to do with, you know, a lower adoption of three sixty five co pilots. They've been touting that and the expectations had gone up. And look, it's one of those products where the ROI so far hasn't been there. The promise is there, and that's why they are emphasizing the Azure number. The thirteen billion dollar rund rate, one hundred and seventy five percent growth. Look, it's stellar by any comparisons. And from that perspective, the infrastructure side looks solid right now. It's the copilots and the application side where you're seeing some hesitation. And look, I think the native integration with open AI as long as it's there, it should help all their products. But there's more competition. I mean, Salesforce has been launching their agent so there is more competition in the application there now than there was before.
And the point is you will build it, but will they come? And that's what it's kind of like what they're waiting for.
Correct, Well, if you're asking enterprises to pay thirty dollars extra per user for that copilot feature, it better be good. I mean, that's the you know, the key takeaway is like, if you want to upsell such an expensive product has to have some level of productivity.
So remind everybody where Microsoft stands in terms of the lms, because you mentioned a company like Salesforce. Is a company like Salesforce building its own LLLM or they building an agent on top now an existing LLLM, maybe from Microsoft, maybe Lama from Meta, maybe chat GPT from open Ai or claud from.
mPire exactly, So they are not building their own LLLM. At the same time, they have gone big in their agent force concepts and they're saying AI agency is where they are doubling down on and they don't need to own an LLLM. So that's where I think with the open source saying, you know of deep seek and the fact that pricing is coming down, all that is positive for every application software provider, not just Salesforce, even word Day or SAP. They can integrate LLLM functionality now and we.
Saw software names certainly rally this week. Having said that, Microsoft has a specially unique exposure to open AI and chat Gypt in terms of the what thirteen fourteen.
Billion dollars or so that they have invested.
So does that put them on a certain level of vulnerability Perhaps, No.
Because they are benefiting from the infrastructure revenue that thirteen billion dollar rund rate. It's all Azure cloud consumption, nothing to do with the co pilots, just companies that are leveraging their infrastructure to run their cloud operations or deploy their applications. So that meter is still running, and it's running very fast. I mean, one hundred and seventy five percent growth just on infrastructure is very impressive. It's just the application side, the lift from copilot.
I think that's.
Where they'll probably see more competition and probably expectations were too high.
Well, speaking of expectations, we're expecting Meta platform shares with platforms earnings across very soon. We have no idea what those shares are going to do in the after hours revenue estimate coming in at close to forty seven billion dollars, what's the most important line item that you're looking at here?
So big Meta raised its capex right before we had this deep sixty five billion dollars.
Okay, was that before? Because that had to be on Mark Zuckerberger's radar.
It was, but still they chose to do it. Now the fact that this is really a positive development for open source, everyone is thinking Meta won't have to spend sixty to sixty five and they will take it back. So that capex number is still the key for me because Meta has been known for spending spending big on reality labs and now you know, building data centers.
Are you saying that there's a chance we could hear a pullback in that capex number and investors might cheer that Investors cheered the investment number on Friday. I was surprised to see that.
Not so soon, I think with the deep seek, the fact that you know, everyone is very excited about open source Meta coming out and saying we can monetize lama our model, which really no one will sure how are they going to monetize it? Suddenly, I think that's that becomes a very valuable proposition. And I think just his plans around how do they plan to monetize AI and really not going above sixty five billion, that's the other rest because you know, you could revise it further upward. At least, I think those fears have gone away, that they're sixty five is a cap.
We talk so much about AI.
I mean for Meta, it's still though, advertising, like something.
As simple as that is still such an important indicator. That's their business.
I mean, forty five point six of the forty seven billion dollars Carrol that's expected to be reported advertising, And.
I understand it all plays together, but still that's the metric.
Yeah, And the best way to compare is compare Google search revenue growth with Meta's you know, social media ad revenue growth. So Google Search is a two hundred billion dollar business growing at high single they did at best. Meta is close to one hundred and sixty billion, growing eighteen percent.
How does reality Labs how do Reality Labs products help meta platforms sell advertising better? Well?
So their bed is on that Meta AI, which for which they have six hundred million users now. And the form factor, their own form factor is the glasses that you can distill a model. And everyone is talking about distillation right now because that's what deep Seek showed us. That you can distill a larger model into a smaller model. Maybe that model can run on your glasses.
Okay, how does that help me sell it more ads?
Well, they will learn so much more about you as a person that they can show you a more personalized ad when you go to Instagram or Facebook. And that's where you know. Meta strength has always been the quality of their ads.
So still, at the end of the day, that's what it's all about.
Yeah, at least for now.
I just want to remind everybody. I'm looking at our live blog, which is waiting for Meta's fourth quarter earnings. Our Kurt Wagner says they usually drop a few minutes after the market close at four pm New York time. Still waiting on them, they say, He says, it's a bit of a rare delay. We usually have them, like we said, right after the market close, so we're waiting them. As soon as they come across. We're going to have men deep break them down. Also in studio is our own Caroline Hyde, who's co host of Bloomberg Technology on Bloomberg Television. And Caroline, we've also had Tesla earnings. We've been talking with Man Deep about Microsoft as we await Meta go where you are because it just feels like both Microsoft and Tests I've seen some pressure here in the act.
And also I don't know if you've broken down Service Now, but suddenly software became quite the thing of this week because we all suddenly freaked out about AI infrastructure and hardware. But with software going to be gaining from these Deep Seek revelations, Service now actually looking pretty lackluster. Outlook on the slower than have been anticipated. We were thinking AI was going to give it this massive bump. Overall fiscal year sales outlook fell short of those expectations. Subscription revenue going to be twelve point seven billion dollars twenty twenty five. Market want to see more, so their shares are dropping hard, and I think this is where we're going to have to hear more from Microsoft as well. Is the Open AI integrated offering not selling at the pace that they previoubly expected. I've heard from experts out there saying it's priced too high. Ultimately, at the moment, will Deep seek force open AI's own offering to get cheaper, Microsoft's offering to get cheaper, and therefore it becomes more ubiquitous.
We will start using it more. But ultimately they get more bang for the back in the long term.
Doesn't mean that these companies could potentially pull back some of the capeck they've already announced this year.
I think that was interesting in the and we talked about it when the numbers dropped. Amy Hoard the CFOs talking about the discipline.
Now, last year we were not talking about discipline. We were talking like.
Let's throw eighty billion dollars at this. We just heard another half a trillion being thrown at it from Oracle Soft Bank and open Ai. I think you'll start to hear this. This is why spending. This is return on AI spending.
Not quite a year of efficiency like we saw in you know, twenty twenty three, but now discipline spending.
When it comes to com we're just spending wisely on your data.
Just because you say it doesn't mean you're going to spend it ultimately too.
I do want to point out service now reports an additional three billion dollars for share a buyback with the stuff.
Yeah, but it's still down about nine percent here in the aftermarket. But men Deep come.
Back in because we were talking about, you know, the news we got this week from deep seek that the beneficiary seemed to be the software software providers. Not every software provider though, is the same, correct.
Well, I mean a company like Service now in theory, should benefit from lower LLM costs. I mean, all the software companies could arbitrage against the LM providers and say, if I have a cheaper open source option, I'm going to go with that because the quality of responses are very similar. So from that perspective, I mean, the news just came out, so obviously they didn't embrace open source before. And now a lot will change in the next three to six months, But for now, I think expectator to Caroline's point, expectations are high this quarter and a lot of these companies have touted AI agents in a big way, so the street wants to see their revenue and probably it's not showing up right now.
And I had a really interesting conversation with that expert who's helping integrate generative AI into enterprise offerings.
And here's the gap.
Right.
We've been talking.
Deeply, exuberantly about how it's going to make our productivity so much better. Ultimately, enterprises need to know that their models work and they need to stress test them. They need to have the right companies in there ensuring that well, when you're saying it's going to get you a better mortgage outcome, when you're looking at insurance inquiries, you're actually getting the right output.
Companies are trying.
To integrate it, but they've got to do this with some rules of the road, so it actually takes a bit of time.
Okay, speaking of rules to the road, perhaps a good segue to get to Tesla because shares are down about two point seven percent right now. It seems, Caroline like it was the adjusted EPs that came in shy of estimates seventy three cents per share versus estimates of seventy five cents per share. Is it about a lack of efficiency on the supply chain, on the product line? What is it?
Am they're saying they're not getting the manufacturing savings that they wanted to see efficiency.
Have they tried the blockchain?
Yeah?
Have they tried a blockchain.
Have they tried just making everyone have to come back into the office, but more I mean, you know it's been on that for a long time.
But more affordable models is where it's at.
This is a company that is having to compete from a price perspective in China in a big way. And look, we saw deliveries did not live up to expectations. So already they're not selling as money, they're having to reduce the costs. It's interesting they're seeing the automotive gross margin ex regulatory credits still at thirteen point six percent. This is a company that basically makes an awful lot of money that because other car manufacturers can't get the climate initiatives out there quickly enough.
I wonder if that'll dial back.
But ultimately they did say they achieved record deliveries in China in fourth quarter. I wonder how they manage to be able to just keep on competing there.
And no mention of robot taxis. I mean, the big bet was this administration should help expedite the rollout of Tesla robot taxis that's what investors are betting.
The letter they did say this is going to be the year of supervised fully self driving, but we're still waiting to see what the guidances from the federal government.
The cybercab is on track for twenty twenty six, so ultimately they're talking about still being wanting to.
Get that cybercab out there. In the meanwhile, we're having to see.
Whether or that cheaper price point new vehicle will happen. He's saying, new vehicles remain on track for the output start in the first half.
When where how I.
Just want to update.
Meta shares are just down about five tenths in the after hours, five tens of one percent.
Our Kurt Wagner and.
Our live blog says, the latest Meta or Facebook they ever posted earnings is for sixteen pm. We have now a new record because it's for twenty pm here on this Wednesday. He says, in all seriousness, this is definitely unusual. I've asked the company what is going on? Will report back if I get any news. I was trying to see if there was any interesting activity here in the aftermarket ahead of the actual results. But again it's just down a hair down about four tens of a percent, but still waiting on Meta's results.
I don't know manty if you follow them, right, they're usually up by now.
I mean it reminds me on when Nvidia, I think it was a few quarters back they were delayed and everyone was like, what's going on? And sometimes I think it's one of those situations where yeah, there isn't much to it.
It's just there is a delay and you just wait it out.
But look, I think in the case of Meta, I mean, there's so many things that I think investors are looking forward to. Especially there was a number around Reality Laps growing forty percent for twenty twenty four, right, I mean you look at the census expectations for this quarter, it's like three percent growth. Yeah, so I don't know how they grew forty percent for the full year.
Caroline, come on in here. Is that? Is that because the I don't know, the glasses exceeded expectations. Again, we're still waiting for these numbers across Reality Lads a tiny, tiny portion of the company's full revenue. I mean of tiny fraction, but an area where they're investing a lot and where they think there's a real future.
And people got very excited about the product. Did you see how often Ed Ludlow has been wearing hiss. I've heard they really did.
Blow people's minds as to how exciting the future could be of just the integration within your everyday where suddenly, you know, smart glasses became cool and thanks Raybound and a large part of that.
But Google glasses calling. They're saying, hey, we had this ten years ago, but it didn't stick, and what you want.
Is the zeitgeist.
Right, Sure, people might not buy that iteration, what about the next iteration. What about the fact that this is going to in some way be infused within your work life environment as well, and suddenly you'll be able to have forced meanes wherever you are, not just to I think it suddenly just showed the power more than anything of Mark Zuckerberg to interlace General to Bai everywhere. For me, the big standout has been the fact that I do use General to Bai within my Instagram.
What you do just out of curiosity my metter.
Ai psidekick and I ask it questions. I get it to like design what one should wear for an event. I give it pictures of my fridge and get it to recommend what I should be.
Do you follow it?
Do you use it? I mean, do you like, take these things and actually do something.
Yeah, yeah, yeah, definitely what they should cook sometimes the fashion sense, I like, take a little.
But to be clear, you could also use chat gpt from open Ai to do that or that.
I use what'sapp every day of my life to talk with my family.
So I don't subscribe to the expensive versions of I take the free version of not not for my personal agent to you know, to get me a flight to wherever, which I think is a really cool idea. And I think that shows the promise of agents. And you know, we hear salesforce talking about the promise of agents and stuff like that. But are you able to do for free with Lama what you could pay chat gpt to do? Is that an issue?
I have to say personally, I'm not running the two against each other, and I use chatchipt for other things. I'm using chatchipt to articulate what my O pair because we will have to rely while I'm at work on wonderful people looking after your children, how her weak should look, and.
I just speak into it dictated.
So I'm using different things at different points, but for me, I actually end up going towards the metal offerings A bit more.
Just because they are here.
We're seeing interesting an agreement from the Wall Street Journal talking about some Trump signing an agreement calling for Meta to pay some element to settle a suit.
So maybe there's some breaking.
News there, But I am I am using Meta AI just because it's already an app that I'm using when it's.
I just want to mention Microsoft is not down as much as it was earlier. It's now down about three quarters of one percentage point. Tesla is now down only about nine tens of a percentage point. I want to mention IBM because we are seeing this one rally in the aftermarket following its earnings. This one's up about eight percent here. IBM coming out with results kind of older tech, if you will, but jumping after fiscal year revenue growth outlook tops estimates. We mentioned service now, and we are seeing that one move in a big way. We've seen that move to the downside. Some concerns there. We do have, as you said, that headline crossing from the Wall Street Journal, Trump signs of settlement for Meta to pay twenty five million dollars to settle a suit. So perhaps that is why we might be waiting ultimately for Meta's results. Meta in the aftermarket right now is just down about one quarter of one percent. And I've been also looking at the Nasdaq E Mini one hundred, Nasdaq one hundred E mini futures pretty flat in the after market, and S and P five hundred e mini futures they're down about four tens of a percent, So just kind of rolling everything together to see kind of market reaction.
In Tesla though, hire now by about one percent.
That's why I'm saying, it's like kind of fascinating to see the bump up. You're right now up about one percent.
And I think what's interesting is remember in video you're talking tim earlier about the hit and video took the chairs a climbing now after hours because of Microsoft's long term CAPEX commitment. So maybe even though we don't get in video numbers until February the twenty sixth, Microsoft's already coming out standing by its capital expenditure commitment. If we get Meta committing to that sixty five billion dollars once and again, maybe we do start to see in video clowing back some of the loss that we've seen.
And a good reminder too that we still have a lot of details that we're waiting on about deep Seek and what exactly they were able to do with what.
So some investigations going on.
The investigation.
Microsoft got their ownings out on time and we're doing an investigation.
Room of engineers reportedly, so I want to bring you back in there.
Could it possibly be that there's a delay because of this settlement and they want to kind of like roll it all together.
That mountain looks too small to matter.
It doesn't matter.
Five million for Meta, it's like.
And that was under the over the Trump suspension to the use of Facebook and its family of apps.
Yeah, I just think about the stories we've been putting out.
They're paying billion dollar fines in the EU, so this is like a drop.
This is nothing.
I mean, it's kind of fascinating that to see that we're just kind of waiting for.
Tesla's on time, on time, better is late what a turnaround for and Test is now up.
About two point six percent in the aftermarket, So quite a turn around here, wow.
I Yeah, it is notable metas delay and we have got requests out for comment on what might be holding them up. But this is I feel there's going to be a lot of redrafting of messaging going on since Monday, And look what of very difficult the week to have your earnings on when you're trying to understand the competitive threat of deep Seek to Alarma model, which are both open source, but at the same time the way in which it could enhance their products. Everyone read deep Seek as a good thing for LLM, for Lama and open source lms, but maybe there is a question of ultimately, why should you be backing AI homegrown, open source versus competing versus China.
I mean, men, Deep do you think that the narrative like substantially should be different because of what we got on Monday from deep Seek, Like the conversation that we are having around AI in terms of the spend. Was it smart for us to kind of all of a sudden shift It felt like the narrative or time will tell whether again with there's so many questions still about the reality of what they did.
Yeah, I mean, look, last six months you've been talking about scaling laws non stop. It's like everything is how big are the data center is going to get? How long will the scaling laws hold? So from that perspective, I think this does put a question mark around the scaling laws. You know, how big does the LLM need to get to improve its reasoning? Well, a smaller LLM can give you a similar reasoning as open AIE latest model. And look, I think with llms, because it's so hard to understand everything about how these llms are trained, the data sources, the algorithmic improvements, it's still a black box. I mean, things are getting better in terms of the transparency, but in the end common people cannot interpret what's going on in terms of building these llms, and it's really hard to explain it to someone why an llm's quality is better than the competing LLM. It's just almost impossible because it's all vectorized map.
At the end of the day, do they become commodities?
Caroline, I think that has been the question for a while.
That will ultimately just move toggle between CHATCHBT, your meta offering, what Anthropic has been up to. That doesn't mean that you can't still see an awful lot of money having to be invested in these latest and greatest underlying foundational models. Whether eventually the money will accrue to the application layers, to the software layer.
Well, I do think there's a compelling case for Google to make that behind the scenes. If you're using an AI agent and you ask it to do something complicated, Google and actually Microsoft too with being has that search engine built in that can actually do that stuff, and perhaps they make money more.
Of integrated offering as well.
They have to have the foundational layer to then sell you the software application as well. But would you rather be a service now that just has the software margins rather than having to do the underlying investment. What's been so interesting has been that shift as well from investment coming ultimately from private sources.
What we've seen with the announcement.
Of AI infrastructure money coming to the US is high soft bank Oh thanks Ale, and the chips at like nowhere to be seen for the last few weeks of late.
Now what happens to projects targeate, I mean the whole timing of it, Meta raising their CAPEX projects target announcement and then deep Sea coming out. Just think of the sequence of events and they're not in sync with each other. So that's where you know, if you're trying to follow the big trend, it's not very clear what the big trend is right now in terms of scaling versus you know, how do you go about data center investments medium to long term?
And do you buy the inference argument though that was the argument of videos. You're still going to need all of our very expensive GPUs for inference, and we're still all ubiquitously using gender to AI more and more and more. Well, that's when the Jevins paradox comes in that Satia wants to learn to you more than the data centers with cloud.
Yeah, more than that. I think compute inherently is fungible. So if I'm using you know, certain chips for training now and I don't need to build a you know, million chip cluster, then I can use some of that compute for inferencing because it's the same GPU. So from that perspective, I do buy that argument that if AI is more pervasive and accessible, then I'll use more of that chip capacity for inferencing because everyone realizes there is ROI and you know, deploying the generator of AI.
I mean, this is the technological cycle at work, right, I mean, stuff comes out of the gate initially, it catches all of our tension. We've been obsessed with really kind of a very few companies over the last couple of years here. We are more than two years in on this right, it makes sense, you guys, Caroline Mande, that we're going to start seeing other companies come to the forefront.
There's going to be some competition. The model might be tweaked a little bit here.
Yeah, I mean, and look the commoditization. I do think you know the modes around, Oh, you've used this LLLM and you can never get out of that. It's so sticky. I think that is going away because now you can swap you know, API from one LLLM to another, and that should be doable. And companies will arbitrage, you know, against which is the cheapest model provider because it impacts your margins. I mean, look at the scale of some of these LM deployments. We're talking about billion users, so billion users are using a generative AI query. That's all API revenue that these companies are getting. And if I'm paying the highest price per API, that's going to hurt my margins. So I'm going to go with the cheapest option that's out there.
I mean, Caroline, when you think about like the conversations you have over and over, what changed so dramatically this week? Is it just kind of a rethink of these long held beliefs about AI.
And I think for lots of people it was felt that people acted before or they really knew, so it's just sell.
I've seen this headline.
I'm worried about the valuations of these companies anyway, and video was trading at forty one times. We see generally everyone elevated versus the Nasdaq get out then ask our questions. People started to come back to software after they asked those questions, and I thought, oh, maybe this could actually change the game and make things even more margin rich for these types of companies. But I think the question is still out of ultimately, what access did they have to end? In video, GPUs were ultimately they say that they got them totally legitimately, and in video would say the same. How much it is ultimately spark inferences the use and what does it mean in terms of ultimate and infrastructure investment. I think people for the short term, most analysts I speak to say, we're misticking by it, like we're not going to see a cap it's pulled back anytime soon.
Interesting stuff. We're gonna have to wait also to hear what David Sachs the ais are for the Trump administration has to say, all.
Right, I think we're going to let you go.
I'm really fearful to do that in both of you, because I know the minute you get out of your chair and walk it out in our studio. All right, But Mandy, we're going to let you go, and hopefully we'll maybe even bring you back a little bit later on. Mandy Seeing, of course, a key member of our technology team at our Bloomberg Intelligence unit we.
Are waiting Meta results.
Also a key member of our technology team here at Bloomberg News, of course, Caroline High So lucky for us, she's going to stick around. One of the co hosts of Bloomberg Technology. We do have another guest so that we want to bring into the conversation who really follows the tech sector very closely and invests in it.
Yeah, I want to bring in James Chalkmack. He's technology analyst at Clockwise Capital. Clockwise Capital is the Core Equity and Innovation ETF. The ticker is time. Biggest holdings are the companies we're talking about Meta, Amazon, Microsoft, and Apple, along with smaller companies including Palanteer, Spotify, and Netflix. The ETF up about thirty five percent over the last year, four percent year to date. So let's go through it and bring in James. He joins us from Miami this afternoon. James, good to have you as always with us. I want to start with your impression of Microsoft shares following after reporting slow in growth in the cloud unit. What sticks out to you?
Yeah, the big thing there with Microsoft is that the bogie was a couple of points higher than where they reported on Azure. The street was looking for around thirty three thirty four percent growth to keep the momentum in the stock going. They posted around thirty one thirty two, so it was a couple of points light. But the main thing is that the undercurrent the trends that you're seeing in productivity and the shift to the cloud and AI offerings continues. You know, you're still talking about three handle on that growth rate. So we'll see what they say on the call. As far as Capex is concerned, we do think that's going to start to come down here as we look into twenty twenty five. So I think I think it's gonna be all right. You know, we hold a position in it. We are underweight relative to the index for this very reason because though the run up, but overall, I think everything's okay with Microsoft.
I'm going to jump in because we are getting Amy Hood the CFO giving an interview with our own Bloomberg reporters saying that they.
Constrained in cloud capacity.
Remember we got that sort of shop move that open ai is going to be building out AI infrastructure with Oracle. Of course, they signed a deal with Oracle in the summer because Microsoft just can't build them quickly enough. Talking about the bookings rising sixty seven percent partly due to the open Ai commitments and commercial bookings were better than they forecast, they're still trying to talk about how much more percentage point add ai is giving.
Them to as you're more broadly.
All right, so James so remains constrained in cloud capacity from the Microsoft CEO.
What's your read on that?
Yeah, I mean they're going to have to keep building. I'm not suggesting that capex needs to stop. It's more just what is the growth rate of that spent. You know, you saw a massive investment tiers in twenty twenty three, twenty twenty four, and we think that that sprend will be growing at a slower clip.
Do you change in turn will help. Sorry, James, do you change your your holdings? Do you sell Microsoft?
Actually trimmed Microsoft into the quarter today. You know, we're now at three percent weight. It's around eight percent in the in the NAVASDAK, so we are underweight there. But I would say, you know, we.
Still want to hold it.
You know, you still want to be there. The company is incredibly important, but at the same time, we think that there's better opportunity elsewhere with companies that offer and stocks that offer better convexity.
Okay, so where does that money go? You trimmed your holding in Microsoft, where are you spending it? What are you buying?
So we're looking at a lot of software names right now. You know, with the disruption in the market that was caused by deep Seek, I don't think you can take that lightly. I think that you have to re examine kind of all of your assumptions top down. You know, from that, we we did cut Nividia before the market opened on Monday and cut that exposure, and we've been rotating to software names. We picked up Data Dog for example. You know, we think that race will continue to uh trend lower.
Uh.
You know this year obviously two estimates baked in, but I think that that trend will help a company like an I'll start, you know, we continue to like Spotify. We actually grossed up our metaposition heading into the quarter, so we'll see how that plays out. I don't know if the numbers are out yet.
No, we're still we're still awaiting meta.
I want to ask you something though, from our BI team, our Ana Agrana writing about Microsoft and says Microsoft's close relationship with open AI makes it better position than most of its software arrivals to capitalize that increased generative AI spending.
You agree with that.
I mean they're you know, they know a little bit about software certainly Microsoft.
Yeah, I'm not sure about the health of that relationship. To be honest with you.
Why so.
Well, I think that you know, deep seek certainly changes the game a little bit. I think that they'll increasingly have less reliance on on open AI and and as their costs come down, they'll continue to be able to you know, drive the inference and all the AI tools for their customers. So I'm not sure exactly how healthy that relationship is or how it will lay out. But at the end of the day, you know, Microsoft continues to be well positioned exsllically, I would say following Deep Seek, we came away in incrementally positive on meta on Microsoft and Amazon. So those are the three that we like following that news, and then we became incrementally negative on Nividia.
All right, hang on for a second.
We're talking with James CHOCKMOG partner and tech analyst Everrett clockwise Capital Caroline Hyde, co host of Bloomberg Technology, also in studio with us and just walking in our own anarag Rana. He is with our technology team with our Bloomberg Intelligence unit. He's a senior industry analyst writing. I am reading from the research he just put out on Microsoft. Microsoft now on AROG just down that eight tons of a percent, so it's definitely come off the lows that we saw earlier in the aftermarket.
So far tell us what we need to know.
Yeah, it's all the guidance on the conference call. We want to hear that that AZ your growth is going to pick up over the next twelve months. And I think that's really the biggest thing that we see now, that's assuming all the investments they have made in the data center side. Is picking up because I just saw the news go by what the CFO is saying that they're still supply constrained. Now, the supply constraint doesn't mean it had an impact on the current quarter growth, which is, you know, which was below the thirty one thirty two that they gave, or will it impact in the next quarter. I think that's the single biggest question right now.
So is it fair to say this is totally supply side.
And japin because we do have meta finalite please, And the fourth quarter revenue is beating expectations. Forty eight point three to nine billion is coming for fourth quarter, it was expected to be forty six point nine to eight billion, and they're pushing us forward to a guide of the first quarter to be thirty nine and a half to forty one point eight billion. That slightly shy of the midpoint where the expectations were for forty one point six billion.
So forecast a little bit light.
Fourth quarter at beats on Family of App revenue doing well. They're seeing Reality Labs operating loss of almost five billion, but the estimate was free for more than that, so I think you are seeing perhaps a slightly shy forecast, but they're seeing first quarter revenue of thirty nine and a half to forty one point eight billion, and the market wanted forty one point seven billion.
Stack bouncing around.
It was down five percent, it's now down about three point eight percent. Now it's down about five percent. It is bouncing around. Also some commentary in terms of the capex. We anticipate our full year twenty twenty five capital expenditures will be in the range of sixty to sixty five billion dollars, So a little bit more about that, which we just got news last week.
The company also says we're not providing a full year twenty twenty five revenue outlook. Is that a surprise to you, Caroline.
Yeah, Usually they are able to give clarity, And it's interesting that they're giving so much clarity on their capital expenditure, perhaps not clarity on forward revenue at the moment. Is that because they think it's just going to go through the room. Is that because they do feel that they can't give as much forward looking guidance at the moment.
But whether it's an.
FX perspective, cost and expenses, they're still dictating. But I'm just scrolling through the CFO and they expect first call to twenty five total revenue to be in that range, which reflects eight to fifteen percent year over year growth or eleven to eighteen percent on a constant currency basis. But we are not providing fully a twenty twenty five revenue outlook. We expect the investments we are making in our core business this year will give us an opportunity to continue delivering strong revenue growth through twenty twenty five.
Also saying the regulatory landscape in the European Union the United States could impact business. We do see the stock now just down about one percent. Again, the key that everybody seems to be focusing on is that first quarter sales forecast trailing at the midpoint, also saying fiscal year depreciation expends about two point nine billion dollars less than before, again bouncing around big time in the aftermark.
Yeah, I want to draw your attention to what's going on with Reality Labs, the company, saying that revenue coming in at one point oh eight billion dollars, shy of estimates of one point one to one billion dollars. I don't want to say there was a whisper number ahead of this Caroline, but folks were bullish on Reality Labs going into this. There was that report from Insider that came out earlier this week that talked about growth at growth in that unit. How are you, again, a very small portion but a very important part of the company, How are you looking into that number?
Yeah, I do think that overall the losses are big.
So you think the losses should be more of a focus than the revenue.
Well, I think revenue one point zero eight is slightly less than anticipated, but at least their operating loss is slightly less than expected. But I think there's going to be a lot of digestion of restructuring that's currently going on in that business, and the fact that they're shifting over to the overall unit COO and they're putting up some operational changes at play. But how much is Mark Zuckerberg going to speak to his commitment to this part of the business, how much he wants to invest in Reality Labs, how much of that sixty five billion dollar up to capex in AI is ultimately going to today it's a products.
All right, We're going to keep watching and reporting on Meta.
As we mentioned, stock is bopping around here in the aftermarkets, really a focus on the outlook. But it's right now we're looking at just a slight move to the upside of about one quarter one percent. I want to go back to Microsoft for just a moment because we have Anna rag Rana in here, another big one after the close which has been bouncing around to you, it's now only down about eight.
Tens of one percent.
The Bloomberg audience thinking about these earnings, the crazy week that's been in the tech community around AI.
What to be top of mind was top of mind for you?
I think the biggest question is, you know, they have a commercial booking number that just you know, was absolutely spectacular and it was driven by Azure commitments and the opening eye work that they are getting. But the question is do you can you fulfill that demand or you're going to go to third party providers to take care of it? And that's really what it is. I mean, frankly, at this point, more color in that, you know, the big commercial booking number would be helpful. And also about what what does Microsoft CEO think about all the things that are happening with deep seek, because he did tweet something very interesting that you know, if the costco goes down, the adoption rate improves, which is good. But at the same time, you know he has a very strong partnership with Opening Eye right another, So there's a lot. I think we will learn about the tech landscape in general from him, not just about Microsoft's clouds numbers. Now, frankly speaking, let's say, for the sake of argument, that they do misguidance for three Q. I think people will still give them a pass over the next several days. May not give them a pass tomorrow because the bookings number is so strong.
Another headline of Microsoft to add jobs and infrastructure, jen Ai and reality labs.
So that's matter right.
Oh did I say, oh Microsoft, they must have made a mistake.
Okay, so there is a headline.
We will we are going to keep covering that this is coming fast and furious. I do want to do a big thank you to Anna rog Rana for joining us. He is going to go off and listen to more of the call and as well as have more notes out for Bloomberg Intelligence. I'm putting pressure on you, unfortunately, I'm sorry. Thank you for stopping by usually in Chicago joining us here. I do want to get back to James Chockmack he's technology correction.
META, which makes sense because of Reality Lab.
Technology analyst at Clockwise Capital. We gave you a little break, James, to jump in and look at those META numbers as they were breaking just past four thirty five. What sticks out to you?
Yeah, I mean the big thing is the first quarter guide coming in a touch light. But the fourth quarter itself was solid pretty much across the board. So we'll have to decipher what exactly is going on in the first quarter guide on the call. But as it stands, if you look at four Q in a vacuum, you know, it seems like it's all systems go. But I just got to drill down.
A little bit more, all right, we want to get.
Why I think this stock is bouncing around so much. Down five to three.
Everything's bouncing around.
Meta is now down about two tents of a verse. That man keep saying, who follows metaphor us here at our Bloomberg.
Intelligence giving them a workout today.
Get your steps in, buddy, get your steps in. What's your reaction to the results?
Well, so one is obviously the guide for one Q is lower than consensus. The big number that sticks out to me is the total expense guide of one hundred and fourteen two hundred and nineteen billion. That is almost you know, eight billion higher than the consensus. So what that tells you is the gross margins are going down and plus the depreciation costs, the costs that they are spending on data centers, they have to depreciate those servers, right, that's going to eat into the margins. So we are talking about at least a four to five percent margin impact for twenty twenty five just from the data center costs, the depreciation costs, and so clearly there is a gross margin degradation happening here and the revenue growth is decelerating, which is what we are seeing in one queue. The Kapex guide is what they gave you know, on Friday, so no change in that, but clearly the data center expenses are eating into the.
Margins, which is something Gina Martin Adams has said, watch with all of the companies reporting, but the tech guys as well in terms of margins and seeing some pressure on margins.
We seem to be the case with Microsoft there. So that's the surprise here that Microsoft didn't call out, you know, that kind of a margin impact from depreciation expenses in their quarter, at least from the print that I saw, But clearly it is having an impact on matter.
When you dig into what the CFO has been saying as well, and ultimately she's talking about how the single largest driver of their expense growth that you speak to is going to be infrastructure costs. They say, hire operating expenses depreciation as well of those assets or those data centers more broadly, of the chips they have to keep buying again. But then they say, employee conversations with the second largest factor, as we add technical talent.
It's a good time priority that technical talent, right it.
Is you can go in charge a pretty penny if you've got a nice computer.
So what is that? How do you read into that? Does that mean that the folks who are the engineers doing the AI stuff? Yeah, say the helpful demand, who.
Is that areas of infrastructure monetization, So interestingly obviously monetizing their referable business reality labs, generative artificial intelligence as well as regulation and compliance. They are the hr GO gets for this particular year, and they are actually overall saying that headcount has ticked high at ten percent year of a year. Despite this efficiency mode they've been in.
There's also this note the majority of twenty twenty five capex to be directed to core business. What's the definition of metas core business? Is it the family of apps? The Instagrams and the WhatsApp And to say, okay, we're going to invest in that, so don't worry investors, We're spending money on the company, on the parts of our business that make money. Is that the message there?
I mean, Mandeep is your man to ask what's a core business?
But I'd say Reality Labs isn't it even though their company name is Meta.
Yeah. Look, I think overall they will be prudent when it comes to headcom growth. They may have to pay more for the AI talent, that's what they are alluding to. But at the same time they are continuing to lose money on Reality Labs. I would have expected, you know, that will be your offset. If you see margin degradation, you offset it in terms of Reality Labs losses.
You're not seeing that, So James chalk mark, this is still a company that you know to The message to investors is this is this is a company that makes money because we're opening Instagram and we're using reels and we're using the family of apps the core business. Right, that's their message. They don't want people to get worried that this is another you know, meta a foray into the metaverse.
No, I mean, I think the metaverse continues to be a long term vision for the company. But you know, in this kind of market, you can't be looking at things, you know, on a moonshots. Yeah, you have to be able to just focus on the quarter and focus on the year, and then most of some cases, you know, even just focus on the week. So you know, the duration that you evaluate these companies is becoming a lot shorter and shorter, so as a volatility increase is given the increase in uncertainty. So that being said, you know, for a company like Meta, yeah, that's exactly how I describe it and think about it. And those moonshots you know as a TVD but not part of the calculus as it stands today.
Hey, for those who care, and videos up about two point one percent here in the aftermarket, so we're seeing some movement there.
Meta not giving a full year.
Twenty twenty five revenue outlook mandep is that significant?
No, I think based on the one Q guide you can see currency as a headmin In fact, it's a three percent headmind, so quite significant. And the other thing I can point out in the print is six percent in pressure growth. That's the weakest they have had. So fourteen percent pricing growth that's a result of AI, so it's paying off in ad pricing, but six percent impressions growth. There are two reasons why it's decelerating. One is they're showing you less ads and to make a better experience. Other is people are spending less time. I mean, it's still the you know, they have three billion family users across their family of apps, but incrementally there that engagement growth is slowing down because they're not showing those ads on elections over election.
No, I'm just kidding.
It could very well be, you know, a slew of factors, but engagement growth is how impressions grow, and so six percent is the weakest they've had for a while.
Well, Caroline, our own Kurt Wagner pointing out that Meta's average price per ad increased by fourteen percent year over year. It increased ten percent year over year for the full year of twenty twenty four. Is it because the AI that they've the AA investments they've made are making those ads so much more targeted, better targeted, or.
Whether people just know that if you're going to be committing any capital anywhere in terms of marketing, it's a very good bet to be doing it on the Family of Apps. That met her off as it's interesting, We've had Mick Mac on the show, which is a company the tracks digital spend in particular and efficacy, and she came on and.
Said ash biograph.
Rachel came on and said, the beginning of this year, we have seen a big dive in the amount of money and marketing being committed to the likes of metas Family of Apps was her take, and the data which she was seeing in her theory was on the back of some of the politicization of Mark Zuckerberg of late, and indeed, therefore, without the assessment of some of the content and some of the fact checkers that are there anymore, people have started to shy away from committing their brands.
Onto that company.
Now that is Mick Mac's perspective, and we'll have to see whether it's be indicated through what is said on this particular part of the business. But as you say, if there's a slight pulling back in impressions, but the average prices are managing to go up. They're managing to remain incredibly important to the brands that do remain committed and charge more for it.
Going back to Meta and the business, and I think it's interesting coming off of a FED meeting today where certainly the FED chair was asked about policies coming out of the administration, regulatory or others. A little warning from our live blog when it comes to Meta metas CFO in the release, saying, in addition, we continue to monitor an active regulatory landscape, including legal and regulatory headwinds in the EEU and the US that could significantly impact our business and our financial results. James Chacmat, come on back in. I mean, let's not forget there are things that are overhanging some of these big tech companies like a Meta.
Yes, that's true, but that's the case always. You know, all of these companies constantly face regular stories scrutiny both here and abroad. But I think with the change in administration, some of that may alleviate here at least the state side. We'll see what happens overseas, but overall, I mean that's an overhang I think you constantly have to grapple with, so you know, it's it's something that kind of been meal into at.
This point, Caroline. Is the regulatory landscape in the US less worrisome for meta platforms now than it was a year ago? Given Mark Zuckerberg's relationship with Donald Trump, his visit Tomorrow Lago, his trip to Washington, d C. What he's saign the Joe Rogues podcast, great point, Dana White on the board.
I mean, they've just settled twenty five million dollars for kicking Trump off their family of apps previously, So maybe we'll see some culmination of what that previously no love lost will currently end up being. I think people had felt actually the realignment of Zuckerberg, whether that's from a fiduciary duty perspective or whether that's just actually where he feels in terms of personal persuasion, have ultimately will bear fruit when it comes to doing business. Look, we've seen from Oracle, from open Ai, from SoftBank, from you name it, Dubai, wealth magnates and real estate billionaires.
How do you do business in America? Now?
You go visit mar A Lago, you pay some money to attend ultimately the inauguration, and you see what deals can be done. And I think many would say that what Zuckoworg's been doing is in line with that.
I think the regulatory landscape from an M and.
A perspective becomes different with a new FTC, new ultimate overseeing of what happens with the SEC.
But I'm sure there's still some.
He's got some way to go to make up for some of the lines that were said last year of maybe he'll end up in jail because of Trump's irritation with past misdemeanors.
I'm only going to mention some of them because there's a ton of earnings out here after the close, But just to rehash, Microsoft down about one point six percently after markets, certainly off its loads of the earlier trade right after earnings. Tusla now up about three point four percent. It had been down about four or five percent.
Here.
IBM has rallied about eight percent after its earnings. We've been talking about Meta, it is up about one percent, and Nvidia, which doesn't report until late February, is up almost two percent in today's trade here in the aftermarket. James CHOCKMK it's been.
Quite a week.
You know.
One of the things when I think about big tech in particular is the environment for rates. And we had a FED decision, right and it seems like FED rate moves to the downside cuts seem to be putting off more and more this year here in twenty twenty five. How are you thinking about valuations and the rate environment and what that potentially needs for some of these names or is that not as important versus maybe hearing about their AI spend or other things.
Valuation is certainly a factor, you know, when it comes to rates. Now it's a big picture. When it comes to rates, we do think, you know, we perhaps have a more slightly more dobbish stance than some of the market. Well, we do kind of agree with Powell that the rates are likely trending towards zero, not zero, towards two percent inflation rates. So you know, we think that the market's currently expecting two rate cuts this year June and December. That's pretty probable scenario.
So that's good.
That being said, the stocks that were primarily focused on and weigh leaning into are the ones that have not only upside to estimates but also upside to their valuation. Multiple now across the big tax tech space, there's not that many of those, I'd say, with the exception of Meta really and to a certain extent Google or Alphabet. The other ones are pretty much in. Apple's up there, Microsoft's up there. You know, Tesla's certainly not cheap. So yeah, it's something that we have to be mindful of. We're there because you know, you have to benchmark yourself to a certain extent on the top ten names in the Nasdaq. But that's certainly not our oversize and we've.
Only got about a minute left here.
Does TikTok matter to the revenue guide for the future of Meta and just quickly.
Yeah, I mean I think TikTok matters to all of these companies. We'll see what happens, but it's certainly something to be mindful of, cognizant and follow extremely closely. You know, if it does come in two domestic hands, you know, that could change the calculus to a certain extent. So I think Meta will be fine regardless. You know, TikTok is obviously already here, but you know, what does that mean for the valuations and and whatnot? So my mind full of it, not worried about it right now, but definitely keeping an eye all.
Right, Well, we are keeping an eye on a lot of stuff, and we ain't done yet because it's still got We've got more stuff to come this week. Our thanks to our external guests and also of course our incredible in house team James Chackmok, thank you, first partner and technology Analystic Clockwise Capital.
They're in Miami.
Caroline Hyde, you rock covering so much about the tech community, and be sure to check her out on Bloomberg Technology on Bloomberg TV at eleven am Wall Street Time. She is one of the co hosts of Bloomberg Technology.
Yeah, just a big thank you to our Bloomberg Intelligence team too, both here in the studio today, Man Deep Saying covering all things Meta and Moran anurad Rana on Microsoft. Check out their notes. They're out now on the Bloomberg.
Terminal, and be sure to check out all of the write throughs on the stories and on the names that have been reporting here because they are moving in the aftermarket.
That's going to do it for Tim And we have a good and safe evening.