Daybreak Special: Google, Microsoft Earnings with Gene Munster and Dan Ives

Bloomberg Audio Studios, Podcasts, radio news. You are listening to 0:00:08.080 --> 0:00:10.560 Bloomberg day Break. We want to get right back to 0:00:10.640 --> 0:00:14.400 the tech earning story. Microsoft and Google parent Alphabet are 0:00:14.440 --> 0:00:18.480 both on the rise this morning, delivering results for both 0:00:18.600 --> 0:00:22.880 companies that suggest investments in artificial intelligence and cloud computing 0:00:23.440 --> 0:00:26.040 are paying off. Now for more on these results. Are 0:00:26.200 --> 0:00:29.720 really pleased to be joined by Gene Munster, managing partner 0:00:29.760 --> 0:00:33.479 at Deepwater Asset Management, and Dan Ives in our studio 0:00:33.560 --> 0:00:37.040 this morning, the Interactive Broker Studio, senior equity research analyst 0:00:37.560 --> 0:00:41.959 at Webbush Securities, for a roundtable discussion on these results. 0:00:42.040 --> 0:00:44.360 It's great to have both of you back on with 0:00:44.479 --> 0:00:48.320 us this morning. Gene, I'll start off with you. Is 0:00:48.360 --> 0:00:50.360 the AI narrative back on track now? 0:00:52.800 --> 0:00:53.320 Absolutely? 0:00:53.400 --> 0:00:55.560 I think the only off track was what happened with 0:00:55.600 --> 0:00:57.480 interest rates, and I think it kind of spooks some 0:00:57.600 --> 0:01:01.840 tech investors. But this is a pretty unique dynamic We're 0:01:01.880 --> 0:01:05.080 seen not only in terms of the demand side, whether 0:01:05.120 --> 0:01:11.080 it's Nvidia or AMD, they're just breathtaking reacceleration, but also 0:01:11.920 --> 0:01:15.480 on the demand side for the actual products, not just building, 0:01:15.560 --> 0:01:18.640 but what we saw with Google Cloud and Azure growth 0:01:18.640 --> 0:01:22.480 thirty one percent versus thirty percent in December twenty nine percent. 0:01:23.319 --> 0:01:26.760 That is an acceleration by definition. The same thing is 0:01:26.800 --> 0:01:29.280 going on with Google Cloud. We'll wait to see next 0:01:29.280 --> 0:01:32.160 week from Amazon. But I think the big picture here 0:01:32.280 --> 0:01:36.679 is the building blocks of AI are coming nicely into place. 0:01:37.160 --> 0:01:39.319 We're still a year, two, three years out before the 0:01:39.360 --> 0:01:42.600 applications really take off, but this is I think still 0:01:42.600 --> 0:01:44.600 the first stage of a three to five year bowl 0:01:44.600 --> 0:01:48.360 market that's going to ultimately end in a bubble. Dan. 0:01:48.440 --> 0:01:51.560 I think I saw you on Bloomberg Television earlier this week, 0:01:51.560 --> 0:01:54.640 after we got the disappointing results from Meta platforms. You 0:01:54.680 --> 0:01:57.840 were saying, the knives are out between the bulls and 0:01:57.880 --> 0:02:01.360 the bears. Are we going to be on a continued 0:02:01.480 --> 0:02:06.680 dispersion between where some companies go with tech, like Microsoft 0:02:06.720 --> 0:02:09.640 and Alphabet, and where companies like Meta go with it. 0:02:10.360 --> 0:02:13.880 Yeah. Look, but when you look at Meta, they're spending 0:02:13.919 --> 0:02:16.760 like nineteen eightys rock stars, but where they spending on AI? 0:02:17.360 --> 0:02:20.440 And I think the AI revolution is here. I think 0:02:20.520 --> 0:02:24.520 gene As always did a phenomenal job summarizing if you 0:02:24.560 --> 0:02:27.680 look at these results last night, this was a drop 0:02:27.760 --> 0:02:32.680 to mic movement for AI from Alphabet from Microsoft. This 0:02:32.919 --> 0:02:36.600 nineteen ninety five moment is just starting, and that's why 0:02:36.600 --> 0:02:39.600 I think the bears for tech continue to go in 0:02:39.639 --> 0:02:41.359 their caves into hibernation mode. 0:02:42.320 --> 0:02:45.840 We are seeing from both these companies, though Gene, that 0:02:46.320 --> 0:02:49.120 they are expecting that they're going to have to continue 0:02:49.200 --> 0:02:53.920 ramping up spending on this technology. Could that potentially pose 0:02:54.080 --> 0:02:57.240 a headwind if we continue to see a ramp up 0:02:57.240 --> 0:02:58.000 in capex. 0:03:00.080 --> 0:03:03.120 Let's put the capex. The simple answer is investors need 0:03:03.160 --> 0:03:05.240 to get their heads around what this is going to 0:03:05.400 --> 0:03:08.520 cost for an investment phase and agree with Dan, this 0:03:08.600 --> 0:03:11.520 is the right move to be making these investments. Just 0:03:11.520 --> 0:03:14.320 to put some quick context on this, as Google's capec 0:03:14.320 --> 0:03:18.960 screw ninety one percent the year over year in the 0:03:19.040 --> 0:03:23.160 March quarter, the CAPEX number was twenty one percent higher 0:03:23.160 --> 0:03:25.920 than analysts were looking for for March, and yet the 0:03:25.960 --> 0:03:29.120 stock is up and the reason is last quarter they 0:03:29.160 --> 0:03:32.919 said three times to expect a significant acceleration capex. So 0:03:32.960 --> 0:03:36.040 they did a good job of explaining to investors and 0:03:36.160 --> 0:03:39.840 I think this is the absolute right move for these companies. 0:03:40.200 --> 0:03:47.240 A question I had for Dan is just ultimately, well, 0:03:47.280 --> 0:03:50.360 might well will Apple as they start to talk about 0:03:50.760 --> 0:03:55.080 their AI initiatives have some moment coming up, maybe on 0:03:55.200 --> 0:03:58.440 May second, where they start to talk more about their 0:03:58.480 --> 0:04:00.920 capex and how do you think are going to do that? 0:04:01.200 --> 0:04:04.520 I look, I think Gene summarises right now with Apple 0:04:05.320 --> 0:04:08.280 because the AI story is going to becoming a Coupertino 0:04:08.400 --> 0:04:10.440 and you know, g and I will both be you know, 0:04:10.840 --> 0:04:15.160 focused on WWDC. This is just the next phase now 0:04:15.200 --> 0:04:18.200 of Cooper Tina betting on AI, and that is going 0:04:18.279 --> 0:04:20.960 to create a ripple effect where we believe this is 0:04:21.000 --> 0:04:24.600 a trillion dollars of incremental spend over the next decade. 0:04:24.680 --> 0:04:28.080 Betting against that, in my opinion, it's like betting against 0:04:28.080 --> 0:04:31.120 the Knicks in his playoffs. 0:04:31.120 --> 0:04:33.320 Still the ways to go on both those counts though, 0:04:33.360 --> 0:04:37.480 But looking ahead to the whatever announcement we get from 0:04:37.480 --> 0:04:41.560 Apple next week, I mean, we saw the disappointment from 0:04:41.760 --> 0:04:45.760 Meta platforms. They're focused as well on some of the hardware, 0:04:45.920 --> 0:04:50.120 the Quest device and what that could mean in terms 0:04:50.160 --> 0:04:53.960 of applying artificial intelligence into that. How high is the 0:04:54.000 --> 0:04:56.560 bar for Apple to show that? You know, there's been 0:04:56.600 --> 0:05:00.480 so much question about whether they're actually implementing AI quickly 0:05:00.560 --> 0:05:04.080 enough to put it into their vision pro product. 0:05:04.160 --> 0:05:10.760 Dan look, and I think actually right now, expectations are 0:05:11.640 --> 0:05:14.240 very very low and extremely negative. I think New York 0:05:14.320 --> 0:05:17.760 City cab drivers, Parish and Apple. And that's why I 0:05:17.920 --> 0:05:21.400 love to hear Gene's view. My view is in terms 0:05:21.480 --> 0:05:24.440 of this renaissance of growth, it will be on the horizon. 0:05:24.440 --> 0:05:28.599 They're navigating challenges. But as AI's coming to the services 0:05:29.240 --> 0:05:33.039 as well as iPhone sixteen, that is not what I 0:05:33.160 --> 0:05:35.080 view as sort of a small moment. I think this 0:05:35.200 --> 0:05:37.640 could be a big moment. I like to get Gene's 0:05:37.680 --> 0:05:38.200 thoughts there. 0:05:39.400 --> 0:05:41.960 Yeah, I'm on the same page. I think investors are 0:05:42.040 --> 0:05:44.719 largely dismissive of what Apple's going to do in AI, 0:05:45.320 --> 0:05:49.440 and they've got just a wonderful opportunity ahead of them. 0:05:49.520 --> 0:05:54.240 Specifically related to this agent or personalized AI or Zuckerberg 0:05:54.279 --> 0:05:56.960 referred to it on the call as agentic AI, but 0:05:57.120 --> 0:06:01.480 because of Apple's forward view on privacy, I think that 0:06:01.520 --> 0:06:05.000 gives them an opportunity to build this next generation of 0:06:05.520 --> 0:06:08.920 AI agents that basically will get things done for you. 0:06:08.920 --> 0:06:12.560 We're not going to see that in a WWDC. Agree 0:06:12.600 --> 0:06:15.240 with Dan, that's going to be a big event for 0:06:15.440 --> 0:06:18.440 AI and Apple, but that will probably be more related 0:06:18.440 --> 0:06:21.920 to Syrians. Some improvements there. But I think this concept 0:06:21.920 --> 0:06:24.320 of agentic AI and what it can mean for Apple's 0:06:24.360 --> 0:06:29.080 business longer term is grossly underappreciated by investors. 0:06:29.440 --> 0:06:33.480 Speaking with Gene Munster, their deep water asset management managing partner, 0:06:33.480 --> 0:06:37.279 along with Dan Ives of Webbush Securities, the senior equity 0:06:37.320 --> 0:06:40.559 research analyst, in terms of what we saw guys from 0:06:40.839 --> 0:06:44.320 Microsoft and Alphabet, I mean there's a lot of focus 0:06:44.440 --> 0:06:48.080 as well on the enterprise customer. The application of this 0:06:48.160 --> 0:06:51.440 technology in the cloud is that where the growth is 0:06:51.480 --> 0:06:55.600 as opposed to some of these more consumer facing products 0:06:55.680 --> 0:06:58.360 like what Meta is offering in the Metaverse, or perhaps 0:06:58.520 --> 0:06:59.520 Vision Pro from Apple. 0:07:00.360 --> 0:07:02.200 I mean to me, it's all about the enterprise and 0:07:02.240 --> 0:07:05.760 in the near term, this AI revolution is playing out in 0:07:05.760 --> 0:07:08.599 front of our eyes, and now the second third fourth 0:07:08.600 --> 0:07:13.120 derivatives across software arrest attack we're seeing play out. Of course, 0:07:13.160 --> 0:07:16.320 it starts with the godfather of AI, Jensen Nvidia. But 0:07:16.400 --> 0:07:19.840 when when Redman and the Della talks, everyone listens, and 0:07:19.840 --> 0:07:22.400 that's why I think it was another drop to mic quarter, 0:07:22.760 --> 0:07:26.160 not just for Microsoft, but of course Alphabet now getting 0:07:26.200 --> 0:07:27.520 in on the AI party. 0:07:29.160 --> 0:07:31.560 So this sets us up as well for what we're 0:07:31.600 --> 0:07:35.440 going to get from Amazon next week in terms of 0:07:35.760 --> 0:07:40.600 their offerings in the cloud, Amazon Web Services, GENE. How 0:07:40.720 --> 0:07:43.840 high is the bar now for Amazon to deliver the 0:07:43.920 --> 0:07:46.720 kind of results that we did see from Microsoft and 0:07:46.880 --> 0:07:47.920 Alphabet last night. 0:07:48.640 --> 0:07:52.040 It's pretty high. I mean it's last quarter. They grew 0:07:52.120 --> 0:07:55.560 their AWS at thirteen percent. That compared to twelve percent 0:07:55.560 --> 0:07:58.440 in September, so they saw a slight uptick. Again, we're 0:07:58.480 --> 0:08:01.720 talking twenty nine thirty one one percent for average for 0:08:01.960 --> 0:08:05.880 Azure in Google Cloud. So AWS, even though they have 0:08:06.000 --> 0:08:08.880 leading market share, they've been losing share. They've got to 0:08:08.920 --> 0:08:12.680 show an acceleration. The street estimates are for fifteen percent 0:08:12.720 --> 0:08:16.840 growth in AWS, and I think they need to exceed 0:08:16.920 --> 0:08:21.600 that to kind of comfort investors that AAWS has a 0:08:21.640 --> 0:08:23.920 seat at the table. And the other piece to all 0:08:24.000 --> 0:08:26.840 this is, of course Google has what they're doing Gemini 0:08:26.880 --> 0:08:30.800 that helps feed GPC their cloud GCP, and separately, of 0:08:30.840 --> 0:08:34.319 course what Opening Eye is doing with Azure. All that benefits. 0:08:34.600 --> 0:08:37.520 But when it comes to AWS, they have a relationship 0:08:37.559 --> 0:08:41.120 with Anthropic, but they still just don't have that punch 0:08:41.240 --> 0:08:45.080 when it comes to really integrating AI. And so I 0:08:45.080 --> 0:08:49.360 think that investors they always scrutinize the AWS number. It's 0:08:49.360 --> 0:08:51.240 going to be hyper scrutinized next week. 0:08:51.720 --> 0:08:55.559 Gene. I'm glad you mentioned Gemini product because there was 0:08:55.600 --> 0:09:01.559 that stumble over how it depicts race of some people. 0:09:01.600 --> 0:09:05.239 They had to pull back on that, Dan. Did Microsoft 0:09:05.240 --> 0:09:07.319 get past that in terms? I'm sorry, did Google get 0:09:07.360 --> 0:09:10.240 past that in terms of what they're offering on Gemini. 0:09:09.920 --> 0:09:13.040 Look black eyed moments that they saw. They're past it, 0:09:13.080 --> 0:09:16.840 and I think this is the mood jo now returning 0:09:16.920 --> 0:09:19.840 to Google. I think you're really starting to see a 0:09:19.880 --> 0:09:22.640 new phase in terms of AI. But it comes down 0:09:22.720 --> 0:09:25.760 to in this AI party, they're no longer outside in 0:09:25.800 --> 0:09:28.960 the cold waiting online to get in. They're now in 0:09:29.040 --> 0:09:31.319 the party with nadellagens and a video. 0:09:31.760 --> 0:09:37.480 And speaking of Nadella and Microsoft, you recently, Dan raised 0:09:37.480 --> 0:09:40.520 your price target on Microsoft to five hundred. Are you 0:09:40.559 --> 0:09:43.400 thinking things might need to go up even further after 0:09:43.440 --> 0:09:44.080 these results? 0:09:44.200 --> 0:09:46.720 I think it's get out the popcorn movement. This is 0:09:46.920 --> 0:09:49.080 just getting started. I think a year from now to 0:09:49.120 --> 0:09:51.000 four trillion dollar markp. 0:09:51.520 --> 0:09:53.880 Where are you on that? Gene? I mean, the growth 0:09:53.920 --> 0:09:57.200 of these companies has been so staggering. I mean, just 0:09:57.280 --> 0:10:01.000 in this quarter they deliver for investors what's the runway 0:10:01.040 --> 0:10:02.880 for big tech over the next several years. 0:10:04.000 --> 0:10:06.320 I think you have to ask yourself the question, do 0:10:06.360 --> 0:10:09.960 you believe that AI can be transformative? And to what 0:10:10.120 --> 0:10:12.760 level you believe that? And you listen to Dan and 0:10:12.840 --> 0:10:16.080 I you can sense the optimism we have around this. 0:10:16.679 --> 0:10:19.400 If you have that level of optimism, these companies are 0:10:19.440 --> 0:10:22.280 going to continue to go higher because they have data, 0:10:22.320 --> 0:10:25.599 because they have infrastructure. The small companies aren't going to 0:10:25.640 --> 0:10:28.160 come out of nowhere. We do private investing, and it 0:10:28.240 --> 0:10:31.000 is really hard to compete with the big dogs. And 0:10:31.080 --> 0:10:33.600 so I think despite all the value the creation over 0:10:33.679 --> 0:10:35.960 last decade from some of these big companies, we're going 0:10:36.000 --> 0:10:39.240 to see a next wave because what's happening in AI 0:10:39.960 --> 0:10:44.679 puts what happened on mobile internet and PC. Those are 0:10:44.800 --> 0:10:48.200 small paradigm shifts relative to what's going on, and these 0:10:48.240 --> 0:10:49.520 companies got the pole position. 0:10:50.200 --> 0:10:51.520 I'm going to close this out with you. 0:10:51.720 --> 0:10:51.920 Dan. 0:10:52.600 --> 0:10:55.120 Of course, with this kind of growth, it raises the 0:10:55.200 --> 0:10:57.960 questions for a lot of critics about whether this technology 0:10:58.040 --> 0:11:01.000 is growing too fast, whether it could be dangerous. Your 0:11:01.000 --> 0:11:01.559 thoughts on. 0:11:01.559 --> 0:11:06.679 That look, I mean, I think even to really show 0:11:06.720 --> 0:11:10.160 how strong this technology is, you see it last night 0:11:10.200 --> 0:11:13.000 the technology is going ninety five miles an hour left 0:11:13.040 --> 0:11:16.280 lane or ferrari. The regulatory is in a beat up 0:11:16.320 --> 0:11:19.120 minivan going forty five miles an hour in a right 0:11:19.200 --> 0:11:21.920 land with no radio. The point is that it's going 0:11:22.000 --> 0:11:23.960 to be an issue, but it is not stop in 0:11:24.000 --> 0:11:26.840 this free train, and that's something that's going to be 0:11:26.840 --> 0:11:30.480 more self regulation. But to me, it's all about the growth. 0:11:30.559 --> 0:11:32.440 And I think when you look at last night, it 0:11:32.480 --> 0:11:34.280 was a droping mic moment for tech. 0:11:35.080 --> 0:11:38.240 And we are seeing that certainly reflected in the price 0:11:38.320 --> 0:11:42.360 action this morning. Both companies leading tech shares as a 0:11:42.400 --> 0:11:46.600 whole hire, with Microsoft leading the I'm sorry with Google 0:11:46.840 --> 0:11:50.040 parent Alphabet leading the way again of more than eleven 0:11:50.080 --> 0:11:53.679 and a half percent following results for the Google parent, 0:11:53.760 --> 0:11:57.240 and Microsoft is higher by nearly four percent as well 0:11:57.240 --> 0:11:59.600 this morning. Guys, both of you, thank you so much 0:12:00.160 --> 0:12:03.600 for giving us some insights on these earnings. Dan Ives 0:12:03.640 --> 0:12:07.080 senior equity research analyst at Webush Securities, along with Gene Munster, 0:12:07.160 --> 0:12:09.600 managing partner at Deepwater Asset Management