July 30, 2025 • 30 mins
Watch Carol and Tim LIVE every day on YouTube: http://bit.ly/3vTiACF.
Federal Reserve Chair Jerome Powell said interest rates are in the right place to manage continued uncertainty around tariffs and inflation, tempering expectations for a rate cut in September.
“There are many, many uncertainties left to resolve,” Powell told reporters Wednesday following the central bank’s decision to once again keep rates unchanged. “It doesn’t feel like we are very close to the end of that process.”
The Federal Open Market Committee voted 9-2 to hold its benchmark federal funds rate in a range of 4.25%-4.5%, as they have at each of their meetings this year. Governors Christopher Waller and Michelle Bowman voted against the decision in favor of a quarter-point cut.
Meanwhile Meta Platforms Inc. topped projections for second-quarter sales and gave a stronger-than-expected forecast for the current period, a sign that the social media company’s advertising business is still growing quickly enough to support aggressive spending on artificial intelligence. The social media giant, which owns Instagram and Facebook, reported second-quarter revenue of $47.5 billion.
As for Microsoft Corp., it was another better-than-expected quarter for growth in its cloud business and the company said spending on AI infrastructure hit a record. The closely watched Azure cloud-computing unit posted a 39% rise in sales during Microsoft’s fiscal fourth quarter, the company said in a statement on Wednesday. Analysts projected 34% revenue growth.
Today's show features:
- Karen Veraa-Perry, Head of US iShares Fixed Income Strategy at BlackRock on the Federal Reserve’s rate decision
- Dan Ives, Global Head of Technology Research at Wedbush Securities, and Bloomberg Intelligence Global Head of Technology Research Mandeep Singh on Meta earnings
- Greg Halter, Director of Research at Carnegie Investment Counsel, and Bloomberg Intelligence Senior Technology Analyst Anurag Rana on Microsoft earnings
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:08):
This is Bloomberg business Week Daily reporting from the magazine
that helps global leaders stay ahead with insight on the people, companies,
and trends shaping today's complex economy. Plus global business, finance
and tech news as it happens. The Bloomberg Business Week
Daily Podcast with Carol Masser and Tim Steneveek on Bloomberg Radio.
Speaker 1 (00:32):
It is the fifth FOMC decision of the year, that's
for sure, and it was an interesting one. Got to say,
first of all, FED officials as expected, leaving interest rates unchange,
downgrading their view of the US economy. It's assigned policymakers
could be edging closer to lowering barring costs.
Speaker 3 (00:47):
But gotta say we moved around a bit in terms
of expectations.
Speaker 1 (00:51):
Governors Christopher Waller and Michelle Bowman voted against the decision
in favor of a quarter point cut.
Speaker 3 (00:57):
You kept pointing this out to me.
Speaker 4 (00:58):
Yeah, it's the first dub descent going back to nineteen
ninety three for the FED.
Speaker 3 (01:04):
So is that right in thirty years?
Speaker 4 (01:06):
Yeah, nineteen ninety three, So it's pretty wild. So one
thing that I noticed about what Jay Powell said We're
going to get to some of his comments in a second,
but I just want to He was asked what their
conversations were about the descents. He was like, I'm going
to let them speak about it in the coming days,
so you will hear from them. So stay tuned.
Speaker 1 (01:25):
Blackout period stops on Friday, so we're going to hear stuff.
Speaker 3 (01:29):
Hey, what we should point out?
Speaker 1 (01:30):
Man, It was kind of an interesting meeting at today's
press conference with reporters.
Speaker 5 (01:34):
Fetcher J.
Speaker 3 (01:34):
Powell covered a lot of.
Speaker 1 (01:35):
Ground, a lot of ground, and what he said was
one of the better meetings of the US Central Bank.
Speaker 6 (01:41):
Inflation has been running somewhat above our two percent longer
run objective. Recent indicators suggests that growth of economic activity
has moderated. The moderation in growth largely reflects a slow
down in consumer spending. Inflation has eased significantly from its
highs in mid twenty twenty two, but remains somewhat elevated.
Higher tariffs have begun to show through more clearly to
(02:01):
prices of some goods, but their overall effects on economic
activity and inflation remain to be seen. Basically, this was
quite a good meeting all around the table. We have
made no decisions about September.
Speaker 1 (02:12):
We don't do that in advance, as you just heard
a lot from the FED chair today, certainly in his
statement as well as the Q and A with reporters.
So it's made for an interesting trade because we definitely
have stocks off of our highs of the session. We've
seen rates bounce around as well, I think, initially moving
a little bit lower and then bouncing back up. So
(02:34):
there's a lot for investors and traders to take in
from this FED meeting.
Speaker 4 (02:38):
Yeah, there really is. Let's bring in Karen very Para,
managing director and head of I Shares US fixed income
strategy at Blackrocks. She joins us from San Francisco. It
is the world's largest asset manager, had twelve point five
to three trillion dollars in assets under management at the
end of the second quarter. Karen joins us once again
from San Francisco. Karen, did the FED get this right?
Speaker 5 (03:01):
I think so.
Speaker 7 (03:01):
So we were just like also watching the press conference
here on our trading desk, and I think that their
main message was we're keeping rates on hold because inflation
is still above target, and that would speak to really
keeping a little bit more restrictive. So I think this
is actually a good thing in the long run for
investors because they're still getting higher levels of interest rates,
(03:21):
they're able to reinvest and keep the fixed income asset
allocation on track. And so I think for a lot
of investors watching the FED, one of the things that
they should take note of is really is if these
inflation prints are going to continue to come in a
little hotter than they expect, maybe you should consider adding
some inflation links bonds to portfolios. So we're seeing that
being a big trend, people really refocusing on adding inflation
(03:43):
protection back in.
Speaker 3 (03:44):
I love that you went right there.
Speaker 1 (03:45):
I mean, anybody who's a bond investor, I mean at
this point has to coming off of this press conference,
with all the pressure that the FED chair has gotten
from the President of the United States, have to think that, Okay,
this guy is going to do his job no matter what.
Speaker 5 (04:01):
Yeah, I think that's right.
Speaker 7 (04:02):
I think we're just so focused here on the long
term trends and meeting to meeting, we're going to see
i'd say a lot of price action in the bond markets.
But I think it's really important to think long term
and whenever we're you know we're looking to the next meeting,
as you highlighted September seventeenth, there's still a chance they're
gonna cut at that meeting, but they've still got two.
Speaker 5 (04:21):
More on the calendar.
Speaker 7 (04:23):
And if we just take a look at the dot
plot from June, we saw a couple of governors. Two
governors favorite three cuts, and I think we now know
who they are, But then the other eight favored about
two cuts, and that's still what the bond market is
pricing in. So I think anybody looking at at the
short term focus, they can probably still use that as
a barometer.
Speaker 4 (04:40):
So you say there's a chance that they'll cut at
the September meeting, you don't think that's a done deal
at this point.
Speaker 5 (04:46):
It's hard to say.
Speaker 7 (04:47):
I think, especially Chairman Pal's comments during the press conference,
we're really telling is that they don't want to get
ahead of themselves. We actually got core PCE coming out tomorrow,
and that's also been trending about two point seven percent.
I think that's an important number to watch, and we're
seeing a lot of investors you are slowly starting to
move back into fixed income assets even with some of
(05:07):
the uncertainty here. There's still about seven trillion dollars sitting
in money market funds, earning those overnight rates, and then
we're slowly seeing people allocate back into more core fixed
income exposures, even international bonds, rather than just sit in cash.
And they're trying to get ahead of the FED meeting,
and that's what we're seeing money move towards.
Speaker 1 (05:25):
You know what's interesting too, Diane Swank and our FED
coverage earlier today, noting that we had an inflation print today,
reminding us where we saw inflation in both goods and services.
I am curious to throw on top of that tax
cuts targeted spending by the legislation that just passed in Congress,
(05:45):
expectations on more deregulation and AI making companies workers, if
you will, more productive. That sounds to me like it's
stimulative policies.
Speaker 7 (05:56):
I think that's really the trick is finding the balance
between some of the good data that we are getting
and some of the productivity gains.
Speaker 5 (06:03):
We've seen positive wage growth.
Speaker 7 (06:05):
I think there's been even though the GDP print came
out higher than expected, there was a lot of noise
in that, just with imports and exports. But I do
think the economy is pretty strong, and the Feds just
trying to get back to that neutral rate and figuring out.
Speaker 5 (06:17):
The timing of that is really the tough part. So
there's a lot of investigation.
Speaker 3 (06:22):
No, I get it, there's a lot. So is it
smarter in your view?
Speaker 1 (06:26):
And it sounds like this is where Jay Powell is
leaning to make sure that inflation they really do have
under control. You don't want to make the mistake of
cutting and then having to kind of backtrack and re
raise rates because of inflation taking higher.
Speaker 5 (06:41):
That's right. I think their weight and see approach is
going to be the playbook for the rest of the year.
Speaker 3 (06:46):
So no more rate cuts.
Speaker 7 (06:48):
No, I think they're just going to wait and see
what the data is telling them. So I mean, I
think personally we'll still get one or two cuts, probably
in the back half of the year. So that really
speaks to those October December meetings. The Fed did not
want to take September off the table either, so I
think they left a lot of optionality open during this meeting.
Speaker 4 (07:05):
What would make you change your mind about September over
the next month and say essentially that September will definitely
see a right cut.
Speaker 5 (07:13):
I think a couple of factors.
Speaker 7 (07:14):
If we see some of those inflation prints coming in
lower than expected in a meaningful way. I think if
the trade deals solidify and we get some teriff rates
that are not expected to be passed through with inflation,
because that's still the big uncertainty out there.
Speaker 4 (07:29):
And just to make sure I have this clear from you,
are you are you certain that the next move by
the Fed will be a cut and not necessarily an increase.
Speaker 5 (07:38):
I don't think it'll be an increase.
Speaker 7 (07:39):
I think that's that's not really what's being priced into
bond markets, and I think a lot of the discussion
around the cuts is really just trying to move it
back towards that neutral rate and not becoming more.
Speaker 4 (07:50):
The reason now, yeah, sorry to cut you off. We
only have about a minute left. The reason I'm interested
in that is because we haven't necessarily seen the effect
or the impact of tariffs make their way into numbers.
And what economists tell us is just wait, just wait,
just wait, it'll happen. But it hasn't happened. So if
that does happen, does that change the trajectory of the Fed?
Speaker 7 (08:09):
I think, if anything, it just keeps them on hold
for even longer because I think they're going to be
reluctant to do you have done a couple of cut
a few cuts already and then and then make it hike.
So I think it'll it'll really just come down to
the data and how quickly they can model that. And
I think that was something that was highlighted in the
press conference today.
Speaker 1 (08:26):
Just to wrap up, because we talked a little bit
about I think where you were finding either opportunities or
suggestion to investors. But going back to a FED that
and a FED share that understands is mandate, understands what
the FED ja our's job is, understands what the fomc's
job is, and the Federal Reserve in terms of monetary
policy and what global investors expect.
Speaker 3 (08:47):
Having said that.
Speaker 1 (08:48):
You feel pretty confident maybe going longer out in terms
of buying into the US treasury market and just quickly
that about thirty seconds.
Speaker 8 (08:56):
Yeah.
Speaker 7 (08:56):
I think rates remaining high are good for investors. I
think stepping out of cash if cash rates are projected
to come down, locking in some of those bond yields
are really good for investors. I think getting your duration
back towards called the three to seven year. Part of
the curve is probably prudent for a lot of investors
right now. Her overweight cash.
Speaker 1 (09:13):
Great stuff, Karen, thank you so much busy, We know
for you as well as for us, but really appreciate
you carving out some time for us. Karen Vera Perry,
she is head of US. I share his fixed income
strategy over at the massively.
Speaker 3 (09:27):
Black Rock. I mean, what are we talking about?
Speaker 4 (09:28):
Massively massive blacks twelve.
Speaker 1 (09:30):
Point fifty three trillion in assets under management that was
at the end of the second quarter.
Speaker 2 (09:35):
You're listening to the Bloomberg Business Weekdaily Podcast. Catch us
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Speaker 1 (09:49):
All right, everybody, we've got meta platforms, Microsoft, both aut
with earnings.
Speaker 3 (09:52):
Those are the big ones.
Speaker 1 (09:53):
There's a lot that are out there, but we want
to get to We've got great team coverage here at
Bloomberg and also some great outside voices, So let's get
to it. With Dan Ives, he's managing director and senior
equity analyst and global head of Technology research at Webbush Securities.
We're going to start with meta. Let's talk about it.
The stocks up about eight and a half percent of
year in the aftermarket. What do you like and what
(10:13):
don't you like? Do you not like anything?
Speaker 8 (10:15):
There's nothing not to lie.
Speaker 5 (10:17):
I like.
Speaker 8 (10:18):
Look it speaks to you go through this AI revolution.
Speaker 9 (10:23):
It's in this next stage of growth and all the
money that you're seeing these big tech players at BACS
now you're ultimately starting to see some of those differdence
get being And then about the advertising growth and of
what we saw with alphabet, what you see with meta
subscriber growth.
Speaker 8 (10:41):
I mean this it's goldilocks, you know for tech.
Speaker 4 (10:46):
How does meta harness AI to make money? Apart from
making its advertising more efficient, it's about.
Speaker 8 (10:54):
The billions of users.
Speaker 9 (10:55):
It's about going forward, how they're going to monetize AI.
Speaker 8 (11:00):
They're not just spending to spend.
Speaker 9 (11:03):
They're going to be able to monetize from an advertising perspective.
Speaker 8 (11:07):
When you think about the billions of users.
Speaker 4 (11:08):
They have, that's how do they do that?
Speaker 8 (11:10):
Though?
Speaker 9 (11:11):
Dan, and the reason Zuckerberg right now is what i
U is like a wartime CEO.
Speaker 8 (11:18):
It's the view that when you.
Speaker 9 (11:20):
Think about AI today, this is just the beginning. You're
gonna and you're going to have AI driven search, You're
going to have sort of the future.
Speaker 8 (11:31):
That Meta alphabet are going to play huge pieces in
the advertising piece.
Speaker 1 (11:40):
But I want to go so it's just advertising that
that's where they're going to make all their money back.
We know that they have been on such an aggressive
AI talent grab and you know Meta has so you.
Speaker 4 (11:51):
Need hundreds of millions of dollars. Yeah, like pay individuals.
Speaker 1 (11:56):
So there that's all gonna pay off the return on
in beginning.
Speaker 9 (12:00):
Okay, advertising advertising just to begin When you think about
full what I've used sort of like FULLYGI and it
was like the Holy graw. What Meta is trying to build?
What every big tech player is trying to build. Meta
is basically, we're going to create a whole nother.
Speaker 8 (12:19):
Company over the next decade. That's what they're spending on.
Speaker 4 (12:23):
This is what I'm still waiting for, like you know
Meta platforms. Look, no question, this was an incredible quarter.
The stock is up nine point three percent in the
after hours. Just to repeat the numbers. Second quarter earnings
per share a huge beat, seven dollars and fourteen cents.
The estim was for five dollars and eighty nine cents.
Second quarter revenue a huge beat, forty seven point five
(12:44):
billion dollars. The estimate was for forty four point eight
billion dollars. Third quarter revenue forty seven point five to
fifty point five billion, that's the outlook. The estimate was
for below that, at forty six point two billion. But
I want, Dan, want, I want to look with you
years out when the hardware that they're working on, that
they're spending billions of dollars on will start paying dividends.
(13:06):
What does that future look like for META users and
for Meta investors?
Speaker 9 (13:11):
And you have to think about it, like, what's the
future in terms of robotics, in terms of software, in
terms of how AI is going to play a role
in the every day of a consumer. I mean Meta
is thinking not in the next year, three, five, eight,
ten years out.
Speaker 1 (13:31):
I want to bring in man deep saying if I
may of our Bloomberg intelligence team.
Speaker 3 (13:34):
I don't know if it's too soon. I know you're
going through.
Speaker 1 (13:36):
All the numbers because I want to bring into the
conversation with Dan, good quarter killer quarter, How do you
see it for better?
Speaker 10 (13:43):
Yeah, I mean there is a sequential acceleration in ad
impressions as well as at pricing growth, and to my mind,
that is a sign of them applying AI to boost engagement. Obviously,
the user growth has been almost the same every quarter,
four to five percent, So the fact that impressions grew
eleven percent is a sign that people are spending more
(14:06):
time on their family of apps. And then the ad
pricing going up nine percent, that to me is the
real tailwind because that was the risky part Chinese advertisers
like Timu and Cheen pulling back because of the Deminimus
rule changes that didn't happen, that didn't show up in
the numbers. And look when it comes to applying AI,
(14:27):
I mean small advertisers are now connecting META to their
CRM systems and actually that is what's driving the ad
targeting and efficiency that wasn't the case before. That has
been enabled by JENII. So that's why you see that list.
Speaker 3 (14:42):
Do you agree with Dan?
Speaker 10 (14:43):
I think JENNYI use case is quite prominent. We keep
hearing about coding agents customer service. Here is the precise
use case for META, and that is what they are
showing in their ad pricing numbers.
Speaker 4 (14:57):
Dan, come on in I saw you you're saying something
that sounds.
Speaker 9 (15:00):
That sounds like a bullish Man Deep. I mean that's
like on the man Deep scale. That's that's pretty both.
Speaker 4 (15:09):
I like that. Hey, Dan, I noticed something striking today
when I opened up Instagram. I was searching for a
video from Mike Birbigli, a comedian who I really like.
And what I noticed when I was just I was
just looking for his profile. When I typed in his name,
what appeared was as an AI answer about a biography
of who he was. Information about him?
Speaker 3 (15:31):
Is the goal?
Speaker 4 (15:32):
What is the vision for Instagram? Is this going to
be metas super app?
Speaker 9 (15:37):
To some extent, they're basically creating a super app, I mean,
similar what you see in China, but an AI driven
super abb that's and you start to go through that,
you look in at a four digit stop.
Speaker 4 (15:50):
They tried to do this years ago with David Marcus
on the messenger side Man Deep. It didn't necessarily work.
It was supposed to be payments and and everything. Is
that still, in your view an area of growth for
the company here or is that strategy gone?
Speaker 10 (16:08):
I mean, right now it feels like they have a
lot of runway with ads and there is a clear
use case for JENNYI with ADS, I mean, they still
have to fix the model. So I think the advantage
that they have is really they are the best when
it comes to at targeting and with everything that's going on.
I mean, they have the surface area to apply GENAI.
(16:31):
But look when it comes to payments and other areas,
they still lack the diversification of a Microsoft or a Google.
It's still a one trick set. I mean, albeit a
twi dollar company, Yes, still dependent on ADS.
Speaker 5 (16:47):
Dan.
Speaker 1 (16:47):
You know, it's funny because I was thinking about that
because we you know, we talk about all of these
companies and I think about the hyperscalers like an alphabet.
We've talked about that a lot in Mandeep, about just
all of their different platforms and how much data that
gives them to make their model smarter and smart smarter.
I mean, Dan, is it going to be okay for
Meta to be kind of a one trick pony, even
if I mean it's a massive one trick pony.
Speaker 3 (17:08):
But is it enough?
Speaker 7 (17:10):
Well?
Speaker 9 (17:10):
I mean, like, look, I think if you think about
going to packing scale, of course I can vidio the
top Microsoft and you'll get these numbers just just unbelievable.
Speaker 8 (17:19):
In terms of you across the board. You look at Meta, Yeah.
Speaker 9 (17:23):
You call it one trick pony ish, but that's but
they're going to significantly expand that over the coming years.
Speaker 10 (17:32):
I mean, at least for now, there is no proof.
I feel they are under earning by twenty percent because
of all the losses in reality labs. The Street doesn't
care because their ad business is really going gangbusters. When
the ads slow down and the comps will get tougher
and there will be a point when ads will not
grow twenty percent, that's when I think the question will
(17:55):
be asked, why are they losing twenty billion dollars on
reality labs because it's not me making any money.
Speaker 4 (18:00):
When will it start making money?
Speaker 10 (18:02):
Dan?
Speaker 3 (18:03):
And does it matter?
Speaker 9 (18:04):
I mean, look, that's it's gonna be okay, it's gonna
be a while. But like the whole point is right now,
that's background noise, Like you know, there's like Street wants
them to continue to invest in vast builders further out
and at the end of the day that is going
to come into the fold. But you're not right now
in this arms race in Big Tac. You're a weezer
(18:27):
focused on who's going to be the winner, and that's
what we're seeing from Microsoft to Alphabet to Meta you
know obviously you know acrossbord.
Speaker 8 (18:35):
We'll see it with Amazon as well. Like it's an
arms race.
Speaker 10 (18:38):
I mean. The one other data point I would want
to bring in is token counts. So Google and Microsoft
have shared the GENII consumption, the token count We don't
know how much metas models are being used. Yes, there,
AT targeting is great, which is why AT pricing was
such a solid number this quarter. But at the end
(19:01):
of the day, if you're investing seventy billion dollars in Capex,
you want to see your model being used and the
open ser strategy work. We have no proof points of that.
So I still believe they have the most uphill task
in terms of showing ROI on the you know, the
Capex besides their family of apps. And that's still the case.
Speaker 4 (19:22):
Dan, I know you got to go, but thirty seconds,
last question for you, what's the one question you'd ask
Mark Zuckerberg tonight?
Speaker 9 (19:30):
Ookay, It's really about Capex trajectory, because I think that's
even though that was slow a bit, they're putting as
they continue to spend, you know what, that shows confidence
and as we saw on alpbet. That's what we've seen
in Microsoft, and that means it continues to be I
think it's the AI revolution, is the AI party. It's ten pm,
(19:50):
was nine pm, party goes to four am.
Speaker 1 (19:54):
Hey, listen, before you go, I know we said last question,
but not that we lie. But you know you here
in your dan Ives Microsoft you said that was also
a big, big, big killer report. I mean the stock
was just crazy in the aftermarket's up about six point
eight percent.
Speaker 9 (20:09):
Scotti Scheffer like results, right. I mean the point is
like massive beat on cloud. You see more and more
of these use cases, these hyperscalers, those are the best indicators.
That just shows where the next spending in AI is going.
And that's why right now, if you're a tag bear,
you're in hibernation mode in that cave and you can
find AI in the spreadsheet.
Speaker 3 (20:31):
Pretty crazy, pretty interesting. Hey listen, we know you're busy.
Speaker 1 (20:33):
We know you're bouncing around and got stuff to do,
but always got to get some time with your Danives
Managing director and senior equity analyst of at web Bush
Securities also Globe Ahead of Technology Research.
Speaker 3 (20:43):
What would be your number question?
Speaker 11 (20:45):
Though?
Speaker 3 (20:45):
Man deep to ask on the call.
Speaker 1 (20:47):
Because I think it's interesting what you said about the
information we get from Alphabet. Do they never answer those
questions in terms.
Speaker 10 (20:56):
Of do you have to come care the token Isaiah.
The reason why Alphabet and Microsoft are more upfront is
because they have a cloud business where they are monetizing
the consumption and that's what's driving the cloud revenue and
the AI portion of that. In the case of Alphabet,
they don't have a cloud business meta sorry Meta, yeah,
(21:18):
And so in their case, you know, it's all internal usage.
They don't rent their GPUs or the AI infrastructure to
anyone else. And if you are using internally, then I
mean the ecosystem doesn't know what kind of usage is
there for LAMA model.
Speaker 3 (21:37):
Like what it's costing right to juice what they're doing.
Speaker 10 (21:39):
You know what it's costing because they are spending you know,
seventy billion dollars in capex, But in terms of what
is the utilization because this kind of infrastructure depreciates very fast,
you're going to write it off in the next three years.
So granted you're using it internally and it's showing up
in the numbers this quarter, but if you are spending
(22:00):
this every year, then you want to show very high utilization,
especially because you're open sourcing your model, and if your
model is not getting adopted, then the open source rategy
isn't working.
Speaker 4 (22:12):
I just want to remind everybody where we've come in
the last few years with meta platforms. There was a
lot of talk in late twenty twenty two of leaving
this company for dead. When they made their pivot to
the metaverse, shares were trading at eighty eight dollars.
Speaker 3 (22:23):
Now it's back to the IPO. Oh sorry, yeah, I.
Speaker 4 (22:26):
Mean, but I mean even a recent history. Right, it's
up six hundred and eighty six percent since then. That
doesn't include the surge in the after hours, which if
it holds, will be a new record for meta platforms tomorrow.
Speaker 5 (22:38):
Yeah.
Speaker 10 (22:38):
And look, when people were you know, selling the stock
at eighty dollars, then they didn't really factor in you know,
meta's engagement. So what's really brought them back in such
a big way is people are still spending over an
hour and a half across their family of apps, so
that's sort of engaged. And look, that's where the real
(23:00):
risk comes in. So chat ChiPT now is about thirty
minutes across its daily active users, which is much smaller
than Meta. Meta has over three billion, and chat ChiPT
is still, you know, less than four or five hundred million,
so still much small, but they are taking share in
terms of engagement time. People are spending thirty minutes on
(23:22):
chat ChiPT. So as long as Meta keeps growing engagement,
I think they will keep growing earnings. And that's what
they're showing with their ad revenue.
Speaker 1 (23:31):
All Hell's Man deep Man, deep seeing of course, with
our Bloomberg Intelligence team. He is Bloomberg Intelligence Globalhead of
Technology Research. Be sure to check out his research on
the Bloomberg when it comes to Meta, so appreciate it.
Speaker 2 (23:44):
You're listening to the Bloomberg Business Weekdaily podcast. Catch us
live weekday afternoons from two to five pm Eastern. Listen
on Applecarplay and Android Auto with the Bloomberg Business app,
or watch us live on YouTube.
Speaker 1 (23:58):
And then we've also got Microsoft. That stock is up
about seven point nine percent here in the aftermarket, and
that one some really really strong numbers as well, quarterly
cloud sales profit exceeding expectations. They say they brought in
more than seventy five billion dollars in the past year.
Speaker 3 (24:16):
In terms of its cloud.
Speaker 1 (24:17):
Business as the company continues to commercialize AI services.
Speaker 4 (24:21):
Tim, We've got a great group of folks, a great
duo to talk Microsoft and more. I want to bring
in Greg Halter, director of research at the registered investment
advisor Carnegie Investment Counsel. They've got about six and a
half billion dollars in assets under management. I also want
to bring in Bloomberg Intelligence senior tech analyst anurog Rana.
He joins us from our Chicago bureau. Greg, Just for
(24:42):
some context, Microsoft is the largest holding. Is it the
largest individual holding for your group? Or is it because
it's an index funds. I just want to set the
stage before we get into the details.
Speaker 11 (24:56):
Thank you, Tim, and thanks for having me. We do
not count the dex fund holding positions in that number.
If you look at our latest thirteen filing, Microsoft is
the largest individual stockholding at Carnegie.
Speaker 1 (25:09):
All right, so Microsoft investors certainly like it. In the aftermarket.
As we mentioned Greg, the stock is definitely soaring up
about seven eight percent. Now as I speak, what jumps
out at you?
Speaker 11 (25:21):
I think the Azure growth thirty nine percent versus the
thirty four percent expected that is huge. I'll also point
out that their EPs beat of eight percent plus is
the best in seven quarters. Usually they do beat. I
think it's been now only three times four times over
the last forty five periods they have missed on earnings,
(25:44):
and this is a larger point of exceeding the estimate
that they've had in seven periods.
Speaker 3 (25:53):
All right, I want to bring it. You like it?
All right, Anna rag Grana, I want to bring you
in here. I'm not sure.
Speaker 1 (26:00):
I think we all went into this week with a
little trepidation over everything that was coming at investors, including
some of these big tech earnings. But this certainly investors
like what they got from the company, and certainly with
the outlook. What's your take here, what's important for investors
to learn off of this release?
Speaker 12 (26:17):
You know, I would go what our other guests said.
I mean, the acceleration in Azure is pretty impressive and
one of the things I think it's going to do.
It's case, it's going to tell people that all the
capex Microsoft is spending, you know, they're getting the benefit
of it on the other side of it, and they're
probably the first one to recognize a bigger, you know,
load of AI revenue coming in and you know, this
(26:38):
will pacify a lot of people out there that may
be worried that wired these companies spending so much on
AI infrastructure and you know, and where is the other
side of the equation. So I think it's a good
result not just for Microsoft, but the entire tech platform.
Speaker 1 (26:52):
Well, that's what I want to just follow Ana Argic.
You know, our preview of all of this was Microsoft
Meta investors are going to be scrutinizing over the AI
spending bench. So from Microsoft, clearly do you We are
clearly seeing the ROI when it comes to that AI spend.
Speaker 12 (27:05):
Yeah, both on the top side and you know, they
are doing extremely well on the expense management side, because
what happens is when you're seeing a rapid growth and Azure,
which has a relatively lower gross margin than the rest
of the Microsoft business, profitability does get dented with. In
addition to all the AI investments that they are making,
what they did this time was, you know, year over
(27:25):
year they kept their headcount flat. I mean that's a
huge boost to you could say profitability as well as productivity.
And you know, I think that's that's something for people
to take home.
Speaker 4 (27:36):
Also, Hey, Greg, I want to bring you back in
here looking at the Azure growth here. The company reported
better than expected growth in its cloud business, the Microsoft
saying it brought in more than seventy five billion dollars
in the past year. The company continues to commercialize AI services.
Give us your bull case on AI and Microsoft because essentially,
(27:57):
this company is deploying AI tools and it's betting that
these conversant chatbots and more powerful automation tools are going
to boost sales of Microsoft productivity software and cloud services.
Is that bet paying off right now?
Speaker 11 (28:12):
I don't know that you can say it's one hundred
percent paying off. The reaction to the stock indicates that
investors believe that it will. You know, this stock was
coming into the report at thirty four times earning, so
a lot has to go right, and it appears that
a lot is going right. So yes, you know, we've
(28:34):
done a look at their CAPEX and R and D
over the last ten twelve years or so. It's not
like this is new. It's just that the numbers are big.
I mean, the percentages are also fairly large, but they're
spending billions and billions on R and D. Of course,
now they can get the text benefits from that billions
of dollars, not just Microsoft, but others, and you would
(28:56):
hope that they're wisely investing in that R and D
for future profitable products and services.
Speaker 1 (29:04):
Hey, I do want to point out too that we
see Amazon shares up about two point seven percent here
in the after market, shares of alphabet Or down about
four tenths of a percent. But of course Amazon reporting
along with Apple tomorrow, Anna rog I don't know, is
there any any cause for concerns or things that you
want to question or would question with the c suite
(29:26):
following Microsoft's release here?
Speaker 12 (29:28):
No, I think I would talk about the headcount growth
for next year. You know, what are they baking because
it's been almost two years where they have added very
little headcount to the overall company size. And the big
question over there is is this something that we should
anticipate going forward, that you know, you're getting all this
cloud revenue, but you're not adding a lot more headcount,
Because I think that's slightly concerning, not I mean not
(29:50):
so much for Microsoft, but the rest of the tech industry,
because you know, somebody that is selling HR software or
sales software depends on companies hiding quite a bit because
it's a seat based model, and I think that's an area.
But that's not so much I would say Microsoft's problem,
but that the rest of the tech industry is issue.
Speaker 9 (30:08):
All right.
Speaker 3 (30:08):
Going to leave it there, folks, Thank you so much.
Speaker 1 (30:10):
Enter rog Rana, senior tech analyst with Bloomberg Intelligence out
there in Chicago, and Greg Halter are thanks to you
as well, director of research at the registered investment advisor
Carnegie Investment, with the latest on Microsoft and Meta.
Speaker 2 (30:24):
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(30:45):
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Speaker 2 (00:08):
This is Bloomberg business Week Daily reporting from the magazine
that helps global leaders stay ahead with insight on the people, companies,
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and tech news as it happens. The Bloomberg Business Week
Daily Podcast with Carol Masser and Tim Steneveek on Bloomberg Radio.
Speaker 1 (00:32):
It is the fifth FOMC decision of the year, that's
for sure, and it was an interesting one. Got to say,
first of all, FED officials as expected, leaving interest rates unchange,
downgrading their view of the US economy. It's assigned policymakers
could be edging closer to lowering barring costs.
Speaker 3 (00:47):
But gotta say we moved around a bit in terms
of expectations.
Speaker 1 (00:51):
Governors Christopher Waller and Michelle Bowman voted against the decision
in favor of a quarter point cut.
Speaker 3 (00:57):
You kept pointing this out to me.
Speaker 4 (00:58):
Yeah, it's the first dub descent going back to nineteen
ninety three for the FED.
Speaker 3 (01:04):
So is that right in thirty years?
Speaker 4 (01:06):
Yeah, nineteen ninety three, So it's pretty wild. So one
thing that I noticed about what Jay Powell said We're
going to get to some of his comments in a second,
but I just want to He was asked what their
conversations were about the descents. He was like, I'm going
to let them speak about it in the coming days,
so you will hear from them. So stay tuned.
Speaker 1 (01:25):
Blackout period stops on Friday, so we're going to hear stuff.
Speaker 3 (01:29):
Hey, what we should point out?
Speaker 1 (01:30):
Man, It was kind of an interesting meeting at today's
press conference with reporters.
Speaker 5 (01:34):
Fetcher J.
Speaker 3 (01:34):
Powell covered a lot of.
Speaker 1 (01:35):
Ground, a lot of ground, and what he said was
one of the better meetings of the US Central Bank.
Speaker 6 (01:41):
Inflation has been running somewhat above our two percent longer
run objective. Recent indicators suggests that growth of economic activity
has moderated. The moderation in growth largely reflects a slow
down in consumer spending. Inflation has eased significantly from its
highs in mid twenty twenty two, but remains somewhat elevated.
Higher tariffs have begun to show through more clearly to
(02:01):
prices of some goods, but their overall effects on economic
activity and inflation remain to be seen. Basically, this was
quite a good meeting all around the table. We have
made no decisions about September.
Speaker 1 (02:12):
We don't do that in advance, as you just heard
a lot from the FED chair today, certainly in his
statement as well as the Q and A with reporters.
So it's made for an interesting trade because we definitely
have stocks off of our highs of the session. We've
seen rates bounce around as well, I think, initially moving
a little bit lower and then bouncing back up. So
(02:34):
there's a lot for investors and traders to take in
from this FED meeting.
Speaker 4 (02:38):
Yeah, there really is. Let's bring in Karen very Para,
managing director and head of I Shares US fixed income
strategy at Blackrocks. She joins us from San Francisco. It
is the world's largest asset manager, had twelve point five
to three trillion dollars in assets under management at the
end of the second quarter. Karen joins us once again
from San Francisco. Karen, did the FED get this right?
Speaker 5 (03:01):
I think so.
Speaker 7 (03:01):
So we were just like also watching the press conference
here on our trading desk, and I think that their
main message was we're keeping rates on hold because inflation
is still above target, and that would speak to really
keeping a little bit more restrictive. So I think this
is actually a good thing in the long run for
investors because they're still getting higher levels of interest rates,
(03:21):
they're able to reinvest and keep the fixed income asset
allocation on track. And so I think for a lot
of investors watching the FED, one of the things that
they should take note of is really is if these
inflation prints are going to continue to come in a
little hotter than they expect, maybe you should consider adding
some inflation links bonds to portfolios. So we're seeing that
being a big trend, people really refocusing on adding inflation
(03:43):
protection back in.
Speaker 3 (03:44):
I love that you went right there.
Speaker 1 (03:45):
I mean, anybody who's a bond investor, I mean at
this point has to coming off of this press conference,
with all the pressure that the FED chair has gotten
from the President of the United States, have to think that, Okay,
this guy is going to do his job no matter what.
Speaker 5 (04:01):
Yeah, I think that's right.
Speaker 7 (04:02):
I think we're just so focused here on the long
term trends and meeting to meeting, we're going to see
i'd say a lot of price action in the bond markets.
But I think it's really important to think long term
and whenever we're you know we're looking to the next meeting,
as you highlighted September seventeenth, there's still a chance they're
gonna cut at that meeting, but they've still got two.
Speaker 5 (04:21):
More on the calendar.
Speaker 7 (04:23):
And if we just take a look at the dot
plot from June, we saw a couple of governors. Two
governors favorite three cuts, and I think we now know
who they are, But then the other eight favored about
two cuts, and that's still what the bond market is
pricing in. So I think anybody looking at at the
short term focus, they can probably still use that as
a barometer.
Speaker 4 (04:40):
So you say there's a chance that they'll cut at
the September meeting, you don't think that's a done deal
at this point.
Speaker 5 (04:46):
It's hard to say.
Speaker 7 (04:47):
I think, especially Chairman Pal's comments during the press conference,
we're really telling is that they don't want to get
ahead of themselves. We actually got core PCE coming out tomorrow,
and that's also been trending about two point seven percent.
I think that's an important number to watch, and we're
seeing a lot of investors you are slowly starting to
move back into fixed income assets even with some of
(05:07):
the uncertainty here. There's still about seven trillion dollars sitting
in money market funds, earning those overnight rates, and then
we're slowly seeing people allocate back into more core fixed
income exposures, even international bonds, rather than just sit in cash.
And they're trying to get ahead of the FED meeting,
and that's what we're seeing money move towards.
Speaker 1 (05:25):
You know what's interesting too, Diane Swank and our FED
coverage earlier today, noting that we had an inflation print today,
reminding us where we saw inflation in both goods and services.
I am curious to throw on top of that tax
cuts targeted spending by the legislation that just passed in Congress,
(05:45):
expectations on more deregulation and AI making companies workers, if
you will, more productive. That sounds to me like it's
stimulative policies.
Speaker 7 (05:56):
I think that's really the trick is finding the balance
between some of the good data that we are getting
and some of the productivity gains.
Speaker 5 (06:03):
We've seen positive wage growth.
Speaker 7 (06:05):
I think there's been even though the GDP print came
out higher than expected, there was a lot of noise
in that, just with imports and exports. But I do
think the economy is pretty strong, and the Feds just
trying to get back to that neutral rate and figuring out.
Speaker 5 (06:17):
The timing of that is really the tough part. So
there's a lot of investigation.
Speaker 3 (06:22):
No, I get it, there's a lot. So is it
smarter in your view?
Speaker 1 (06:26):
And it sounds like this is where Jay Powell is
leaning to make sure that inflation they really do have
under control. You don't want to make the mistake of
cutting and then having to kind of backtrack and re
raise rates because of inflation taking higher.
Speaker 5 (06:41):
That's right. I think their weight and see approach is
going to be the playbook for the rest of the year.
Speaker 3 (06:46):
So no more rate cuts.
Speaker 7 (06:48):
No, I think they're just going to wait and see
what the data is telling them. So I mean, I
think personally we'll still get one or two cuts, probably
in the back half of the year. So that really
speaks to those October December meetings. The Fed did not
want to take September off the table either, so I
think they left a lot of optionality open during this meeting.
Speaker 4 (07:05):
What would make you change your mind about September over
the next month and say essentially that September will definitely
see a right cut.
Speaker 5 (07:13):
I think a couple of factors.
Speaker 7 (07:14):
If we see some of those inflation prints coming in
lower than expected in a meaningful way. I think if
the trade deals solidify and we get some teriff rates
that are not expected to be passed through with inflation,
because that's still the big uncertainty out there.
Speaker 4 (07:29):
And just to make sure I have this clear from you,
are you are you certain that the next move by
the Fed will be a cut and not necessarily an increase.
Speaker 5 (07:38):
I don't think it'll be an increase.
Speaker 7 (07:39):
I think that's that's not really what's being priced into
bond markets, and I think a lot of the discussion
around the cuts is really just trying to move it
back towards that neutral rate and not becoming more.
Speaker 4 (07:50):
The reason now, yeah, sorry to cut you off. We
only have about a minute left. The reason I'm interested
in that is because we haven't necessarily seen the effect
or the impact of tariffs make their way into numbers.
And what economists tell us is just wait, just wait,
just wait, it'll happen. But it hasn't happened. So if
that does happen, does that change the trajectory of the Fed?
Speaker 7 (08:09):
I think, if anything, it just keeps them on hold
for even longer because I think they're going to be
reluctant to do you have done a couple of cut
a few cuts already and then and then make it hike.
So I think it'll it'll really just come down to
the data and how quickly they can model that. And
I think that was something that was highlighted in the
press conference today.
Speaker 1 (08:26):
Just to wrap up, because we talked a little bit
about I think where you were finding either opportunities or
suggestion to investors. But going back to a FED that
and a FED share that understands is mandate, understands what
the FED ja our's job is, understands what the fomc's
job is, and the Federal Reserve in terms of monetary
policy and what global investors expect.
Speaker 3 (08:47):
Having said that.
Speaker 1 (08:48):
You feel pretty confident maybe going longer out in terms
of buying into the US treasury market and just quickly
that about thirty seconds.
Speaker 8 (08:56):
Yeah.
Speaker 7 (08:56):
I think rates remaining high are good for investors. I
think stepping out of cash if cash rates are projected
to come down, locking in some of those bond yields
are really good for investors. I think getting your duration
back towards called the three to seven year. Part of
the curve is probably prudent for a lot of investors
right now. Her overweight cash.
Speaker 1 (09:13):
Great stuff, Karen, thank you so much busy, We know
for you as well as for us, but really appreciate
you carving out some time for us. Karen Vera Perry,
she is head of US. I share his fixed income
strategy over at the massively.
Speaker 3 (09:27):
Black Rock. I mean, what are we talking about?
Speaker 4 (09:28):
Massively massive blacks twelve.
Speaker 1 (09:30):
Point fifty three trillion in assets under management that was
at the end of the second quarter.
Speaker 2 (09:35):
You're listening to the Bloomberg Business Weekdaily Podcast. Catch us
live weekday afternoons from two to five pm Eastern. Listen
on Apple CarPlay and Android Auto with the Bloomberg Business app,
or watch us live on YouTube.
Speaker 1 (09:49):
All right, everybody, we've got meta platforms, Microsoft, both aut
with earnings.
Speaker 3 (09:52):
Those are the big ones.
Speaker 1 (09:53):
There's a lot that are out there, but we want
to get to We've got great team coverage here at
Bloomberg and also some great outside voices, So let's get
to it. With Dan Ives, he's managing director and senior
equity analyst and global head of Technology research at Webbush Securities.
We're going to start with meta. Let's talk about it.
The stocks up about eight and a half percent of
year in the aftermarket. What do you like and what
(10:13):
don't you like? Do you not like anything?
Speaker 8 (10:15):
There's nothing not to lie.
Speaker 5 (10:17):
I like.
Speaker 8 (10:18):
Look it speaks to you go through this AI revolution.
Speaker 9 (10:23):
It's in this next stage of growth and all the
money that you're seeing these big tech players at BACS
now you're ultimately starting to see some of those differdence
get being And then about the advertising growth and of
what we saw with alphabet, what you see with meta
subscriber growth.
Speaker 8 (10:41):
I mean this it's goldilocks, you know for tech.
Speaker 4 (10:46):
How does meta harness AI to make money? Apart from
making its advertising more efficient, it's about.
Speaker 8 (10:54):
The billions of users.
Speaker 9 (10:55):
It's about going forward, how they're going to monetize AI.
Speaker 8 (11:00):
They're not just spending to spend.
Speaker 9 (11:03):
They're going to be able to monetize from an advertising perspective.
Speaker 8 (11:07):
When you think about the billions of users.
Speaker 4 (11:08):
They have, that's how do they do that?
Speaker 8 (11:10):
Though?
Speaker 9 (11:11):
Dan, and the reason Zuckerberg right now is what i
U is like a wartime CEO.
Speaker 8 (11:18):
It's the view that when you.
Speaker 9 (11:20):
Think about AI today, this is just the beginning. You're
gonna and you're going to have AI driven search, You're
going to have sort of the future.
Speaker 8 (11:31):
That Meta alphabet are going to play huge pieces in
the advertising piece.
Speaker 1 (11:40):
But I want to go so it's just advertising that
that's where they're going to make all their money back.
We know that they have been on such an aggressive
AI talent grab and you know Meta has so you.
Speaker 4 (11:51):
Need hundreds of millions of dollars. Yeah, like pay individuals.
Speaker 1 (11:56):
So there that's all gonna pay off the return on
in beginning.
Speaker 9 (12:00):
Okay, advertising advertising just to begin When you think about
full what I've used sort of like FULLYGI and it
was like the Holy graw. What Meta is trying to build?
What every big tech player is trying to build. Meta
is basically, we're going to create a whole nother.
Speaker 8 (12:19):
Company over the next decade. That's what they're spending on.
Speaker 4 (12:23):
This is what I'm still waiting for, like you know
Meta platforms. Look, no question, this was an incredible quarter.
The stock is up nine point three percent in the
after hours. Just to repeat the numbers. Second quarter earnings
per share a huge beat, seven dollars and fourteen cents.
The estim was for five dollars and eighty nine cents.
Second quarter revenue a huge beat, forty seven point five
(12:44):
billion dollars. The estimate was for forty four point eight
billion dollars. Third quarter revenue forty seven point five to
fifty point five billion, that's the outlook. The estimate was
for below that, at forty six point two billion. But
I want, Dan, want, I want to look with you
years out when the hardware that they're working on, that
they're spending billions of dollars on will start paying dividends.
(13:06):
What does that future look like for META users and
for Meta investors?
Speaker 9 (13:11):
And you have to think about it, like, what's the
future in terms of robotics, in terms of software, in
terms of how AI is going to play a role
in the every day of a consumer. I mean Meta
is thinking not in the next year, three, five, eight,
ten years out.
Speaker 1 (13:31):
I want to bring in man deep saying if I
may of our Bloomberg intelligence team.
Speaker 3 (13:34):
I don't know if it's too soon. I know you're
going through.
Speaker 1 (13:36):
All the numbers because I want to bring into the
conversation with Dan, good quarter killer quarter, How do you
see it for better?
Speaker 10 (13:43):
Yeah, I mean there is a sequential acceleration in ad
impressions as well as at pricing growth, and to my mind,
that is a sign of them applying AI to boost engagement. Obviously,
the user growth has been almost the same every quarter,
four to five percent, So the fact that impressions grew
eleven percent is a sign that people are spending more
(14:06):
time on their family of apps. And then the ad
pricing going up nine percent, that to me is the
real tailwind because that was the risky part Chinese advertisers
like Timu and Cheen pulling back because of the Deminimus
rule changes that didn't happen, that didn't show up in
the numbers. And look when it comes to applying AI,
(14:27):
I mean small advertisers are now connecting META to their
CRM systems and actually that is what's driving the ad
targeting and efficiency that wasn't the case before. That has
been enabled by JENII. So that's why you see that list.
Speaker 3 (14:42):
Do you agree with Dan?
Speaker 10 (14:43):
I think JENNYI use case is quite prominent. We keep
hearing about coding agents customer service. Here is the precise
use case for META, and that is what they are
showing in their ad pricing numbers.
Speaker 4 (14:57):
Dan, come on in I saw you you're saying something
that sounds.
Speaker 9 (15:00):
That sounds like a bullish Man Deep. I mean that's
like on the man Deep scale. That's that's pretty both.
Speaker 4 (15:09):
I like that. Hey, Dan, I noticed something striking today
when I opened up Instagram. I was searching for a
video from Mike Birbigli, a comedian who I really like.
And what I noticed when I was just I was
just looking for his profile. When I typed in his name,
what appeared was as an AI answer about a biography
of who he was. Information about him?
Speaker 3 (15:31):
Is the goal?
Speaker 4 (15:32):
What is the vision for Instagram? Is this going to
be metas super app?
Speaker 9 (15:37):
To some extent, they're basically creating a super app, I mean,
similar what you see in China, but an AI driven
super abb that's and you start to go through that,
you look in at a four digit stop.
Speaker 4 (15:50):
They tried to do this years ago with David Marcus
on the messenger side Man Deep. It didn't necessarily work.
It was supposed to be payments and and everything. Is
that still, in your view an area of growth for
the company here or is that strategy gone?
Speaker 10 (16:08):
I mean, right now it feels like they have a
lot of runway with ads and there is a clear
use case for JENNYI with ADS, I mean, they still
have to fix the model. So I think the advantage
that they have is really they are the best when
it comes to at targeting and with everything that's going on.
I mean, they have the surface area to apply GENAI.
(16:31):
But look when it comes to payments and other areas,
they still lack the diversification of a Microsoft or a Google.
It's still a one trick set. I mean, albeit a
twi dollar company, Yes, still dependent on ADS.
Speaker 5 (16:47):
Dan.
Speaker 1 (16:47):
You know, it's funny because I was thinking about that
because we you know, we talk about all of these
companies and I think about the hyperscalers like an alphabet.
We've talked about that a lot in Mandeep, about just
all of their different platforms and how much data that
gives them to make their model smarter and smart smarter.
I mean, Dan, is it going to be okay for
Meta to be kind of a one trick pony, even
if I mean it's a massive one trick pony.
Speaker 3 (17:08):
But is it enough?
Speaker 7 (17:10):
Well?
Speaker 9 (17:10):
I mean, like, look, I think if you think about
going to packing scale, of course I can vidio the
top Microsoft and you'll get these numbers just just unbelievable.
Speaker 8 (17:19):
In terms of you across the board. You look at Meta, Yeah.
Speaker 9 (17:23):
You call it one trick pony ish, but that's but
they're going to significantly expand that over the coming years.
Speaker 10 (17:32):
I mean, at least for now, there is no proof.
I feel they are under earning by twenty percent because
of all the losses in reality labs. The Street doesn't
care because their ad business is really going gangbusters. When
the ads slow down and the comps will get tougher
and there will be a point when ads will not
grow twenty percent, that's when I think the question will
(17:55):
be asked, why are they losing twenty billion dollars on
reality labs because it's not me making any money.
Speaker 4 (18:00):
When will it start making money?
Speaker 10 (18:02):
Dan?
Speaker 3 (18:03):
And does it matter?
Speaker 9 (18:04):
I mean, look, that's it's gonna be okay, it's gonna
be a while. But like the whole point is right now,
that's background noise, Like you know, there's like Street wants
them to continue to invest in vast builders further out
and at the end of the day that is going
to come into the fold. But you're not right now
in this arms race in Big Tac. You're a weezer
(18:27):
focused on who's going to be the winner, and that's
what we're seeing from Microsoft to Alphabet to Meta you
know obviously you know acrossbord.
Speaker 8 (18:35):
We'll see it with Amazon as well. Like it's an
arms race.
Speaker 10 (18:38):
I mean. The one other data point I would want
to bring in is token counts. So Google and Microsoft
have shared the GENII consumption, the token count We don't
know how much metas models are being used. Yes, there,
AT targeting is great, which is why AT pricing was
such a solid number this quarter. But at the end
(19:01):
of the day, if you're investing seventy billion dollars in Capex,
you want to see your model being used and the
open ser strategy work. We have no proof points of that.
So I still believe they have the most uphill task
in terms of showing ROI on the you know, the
Capex besides their family of apps. And that's still the case.
Speaker 4 (19:22):
Dan, I know you got to go, but thirty seconds,
last question for you, what's the one question you'd ask
Mark Zuckerberg tonight?
Speaker 9 (19:30):
Ookay, It's really about Capex trajectory, because I think that's
even though that was slow a bit, they're putting as
they continue to spend, you know what, that shows confidence
and as we saw on alpbet. That's what we've seen
in Microsoft, and that means it continues to be I
think it's the AI revolution, is the AI party. It's ten pm,
(19:50):
was nine pm, party goes to four am.
Speaker 1 (19:54):
Hey, listen, before you go, I know we said last question,
but not that we lie. But you know you here
in your dan Ives Microsoft you said that was also
a big, big, big killer report. I mean the stock
was just crazy in the aftermarket's up about six point
eight percent.
Speaker 9 (20:09):
Scotti Scheffer like results, right. I mean the point is
like massive beat on cloud. You see more and more
of these use cases, these hyperscalers, those are the best indicators.
That just shows where the next spending in AI is going.
And that's why right now, if you're a tag bear,
you're in hibernation mode in that cave and you can
find AI in the spreadsheet.
Speaker 3 (20:31):
Pretty crazy, pretty interesting. Hey listen, we know you're busy.
Speaker 1 (20:33):
We know you're bouncing around and got stuff to do,
but always got to get some time with your Danives
Managing director and senior equity analyst of at web Bush
Securities also Globe Ahead of Technology Research.
Speaker 3 (20:43):
What would be your number question?
Speaker 11 (20:45):
Though?
Speaker 3 (20:45):
Man deep to ask on the call.
Speaker 1 (20:47):
Because I think it's interesting what you said about the
information we get from Alphabet. Do they never answer those
questions in terms.
Speaker 10 (20:56):
Of do you have to come care the token Isaiah.
The reason why Alphabet and Microsoft are more upfront is
because they have a cloud business where they are monetizing
the consumption and that's what's driving the cloud revenue and
the AI portion of that. In the case of Alphabet,
they don't have a cloud business meta sorry Meta, yeah,
(21:18):
And so in their case, you know, it's all internal usage.
They don't rent their GPUs or the AI infrastructure to
anyone else. And if you are using internally, then I
mean the ecosystem doesn't know what kind of usage is
there for LAMA model.
Speaker 3 (21:37):
Like what it's costing right to juice what they're doing.
Speaker 10 (21:39):
You know what it's costing because they are spending you know,
seventy billion dollars in capex, But in terms of what
is the utilization because this kind of infrastructure depreciates very fast,
you're going to write it off in the next three years.
So granted you're using it internally and it's showing up
in the numbers this quarter, but if you are spending
(22:00):
this every year, then you want to show very high utilization,
especially because you're open sourcing your model, and if your
model is not getting adopted, then the open source rategy
isn't working.
Speaker 4 (22:12):
I just want to remind everybody where we've come in
the last few years with meta platforms. There was a
lot of talk in late twenty twenty two of leaving
this company for dead. When they made their pivot to
the metaverse, shares were trading at eighty eight dollars.
Speaker 3 (22:23):
Now it's back to the IPO. Oh sorry, yeah, I.
Speaker 4 (22:26):
Mean, but I mean even a recent history. Right, it's
up six hundred and eighty six percent since then. That
doesn't include the surge in the after hours, which if
it holds, will be a new record for meta platforms tomorrow.
Speaker 5 (22:38):
Yeah.
Speaker 10 (22:38):
And look, when people were you know, selling the stock
at eighty dollars, then they didn't really factor in you know,
meta's engagement. So what's really brought them back in such
a big way is people are still spending over an
hour and a half across their family of apps, so
that's sort of engaged. And look, that's where the real
(23:00):
risk comes in. So chat ChiPT now is about thirty
minutes across its daily active users, which is much smaller
than Meta. Meta has over three billion, and chat ChiPT
is still, you know, less than four or five hundred million,
so still much small, but they are taking share in
terms of engagement time. People are spending thirty minutes on
(23:22):
chat ChiPT. So as long as Meta keeps growing engagement,
I think they will keep growing earnings. And that's what
they're showing with their ad revenue.
Speaker 1 (23:31):
All Hell's Man deep Man, deep seeing of course, with
our Bloomberg Intelligence team. He is Bloomberg Intelligence Globalhead of
Technology Research. Be sure to check out his research on
the Bloomberg when it comes to Meta, so appreciate it.
Speaker 2 (23:44):
You're listening to the Bloomberg Business Weekdaily podcast. Catch us
live weekday afternoons from two to five pm Eastern. Listen
on Applecarplay and Android Auto with the Bloomberg Business app,
or watch us live on YouTube.
Speaker 1 (23:58):
And then we've also got Microsoft. That stock is up
about seven point nine percent here in the aftermarket, and
that one some really really strong numbers as well, quarterly
cloud sales profit exceeding expectations. They say they brought in
more than seventy five billion dollars in the past year.
Speaker 3 (24:16):
In terms of its cloud.
Speaker 1 (24:17):
Business as the company continues to commercialize AI services.
Speaker 4 (24:21):
Tim, We've got a great group of folks, a great
duo to talk Microsoft and more. I want to bring
in Greg Halter, director of research at the registered investment
advisor Carnegie Investment Counsel. They've got about six and a
half billion dollars in assets under management. I also want
to bring in Bloomberg Intelligence senior tech analyst anurog Rana.
He joins us from our Chicago bureau. Greg, Just for
(24:42):
some context, Microsoft is the largest holding. Is it the
largest individual holding for your group? Or is it because
it's an index funds. I just want to set the
stage before we get into the details.
Speaker 11 (24:56):
Thank you, Tim, and thanks for having me. We do
not count the dex fund holding positions in that number.
If you look at our latest thirteen filing, Microsoft is
the largest individual stockholding at Carnegie.
Speaker 1 (25:09):
All right, so Microsoft investors certainly like it. In the aftermarket.
As we mentioned Greg, the stock is definitely soaring up
about seven eight percent. Now as I speak, what jumps
out at you?
Speaker 11 (25:21):
I think the Azure growth thirty nine percent versus the
thirty four percent expected that is huge. I'll also point
out that their EPs beat of eight percent plus is
the best in seven quarters. Usually they do beat. I
think it's been now only three times four times over
the last forty five periods they have missed on earnings,
(25:44):
and this is a larger point of exceeding the estimate
that they've had in seven periods.
Speaker 3 (25:53):
All right, I want to bring it. You like it?
All right, Anna rag Grana, I want to bring you
in here. I'm not sure.
Speaker 1 (26:00):
I think we all went into this week with a
little trepidation over everything that was coming at investors, including
some of these big tech earnings. But this certainly investors
like what they got from the company, and certainly with
the outlook. What's your take here, what's important for investors
to learn off of this release?
Speaker 12 (26:17):
You know, I would go what our other guests said.
I mean, the acceleration in Azure is pretty impressive and
one of the things I think it's going to do.
It's case, it's going to tell people that all the
capex Microsoft is spending, you know, they're getting the benefit
of it on the other side of it, and they're
probably the first one to recognize a bigger, you know,
load of AI revenue coming in and you know, this
(26:38):
will pacify a lot of people out there that may
be worried that wired these companies spending so much on
AI infrastructure and you know, and where is the other
side of the equation. So I think it's a good
result not just for Microsoft, but the entire tech platform.
Speaker 1 (26:52):
Well, that's what I want to just follow Ana Argic.
You know, our preview of all of this was Microsoft
Meta investors are going to be scrutinizing over the AI
spending bench. So from Microsoft, clearly do you We are
clearly seeing the ROI when it comes to that AI spend.
Speaker 12 (27:05):
Yeah, both on the top side and you know, they
are doing extremely well on the expense management side, because
what happens is when you're seeing a rapid growth and Azure,
which has a relatively lower gross margin than the rest
of the Microsoft business, profitability does get dented with. In
addition to all the AI investments that they are making,
what they did this time was, you know, year over
(27:25):
year they kept their headcount flat. I mean that's a
huge boost to you could say profitability as well as productivity.
And you know, I think that's that's something for people
to take home.
Speaker 4 (27:36):
Also, Hey, Greg, I want to bring you back in
here looking at the Azure growth here. The company reported
better than expected growth in its cloud business, the Microsoft
saying it brought in more than seventy five billion dollars
in the past year. The company continues to commercialize AI services.
Give us your bull case on AI and Microsoft because essentially,
(27:57):
this company is deploying AI tools and it's betting that
these conversant chatbots and more powerful automation tools are going
to boost sales of Microsoft productivity software and cloud services.
Is that bet paying off right now?
Speaker 11 (28:12):
I don't know that you can say it's one hundred
percent paying off. The reaction to the stock indicates that
investors believe that it will. You know, this stock was
coming into the report at thirty four times earning, so
a lot has to go right, and it appears that
a lot is going right. So yes, you know, we've
(28:34):
done a look at their CAPEX and R and D
over the last ten twelve years or so. It's not
like this is new. It's just that the numbers are big.
I mean, the percentages are also fairly large, but they're
spending billions and billions on R and D. Of course,
now they can get the text benefits from that billions
of dollars, not just Microsoft, but others, and you would
(28:56):
hope that they're wisely investing in that R and D
for future profitable products and services.
Speaker 1 (29:04):
Hey, I do want to point out too that we
see Amazon shares up about two point seven percent here
in the after market, shares of alphabet Or down about
four tenths of a percent. But of course Amazon reporting
along with Apple tomorrow, Anna rog I don't know, is
there any any cause for concerns or things that you
want to question or would question with the c suite
(29:26):
following Microsoft's release here?
Speaker 12 (29:28):
No, I think I would talk about the headcount growth
for next year. You know, what are they baking because
it's been almost two years where they have added very
little headcount to the overall company size. And the big
question over there is is this something that we should
anticipate going forward, that you know, you're getting all this
cloud revenue, but you're not adding a lot more headcount,
Because I think that's slightly concerning, not I mean not
(29:50):
so much for Microsoft, but the rest of the tech industry,
because you know, somebody that is selling HR software or
sales software depends on companies hiding quite a bit because
it's a seat based model, and I think that's an area.
But that's not so much I would say Microsoft's problem,
but that the rest of the tech industry is issue.
Speaker 9 (30:08):
All right.
Speaker 3 (30:08):
Going to leave it there, folks, Thank you so much.
Speaker 1 (30:10):
Enter rog Rana, senior tech analyst with Bloomberg Intelligence out
there in Chicago, and Greg Halter are thanks to you
as well, director of research at the registered investment advisor
Carnegie Investment, with the latest on Microsoft and Meta.
Speaker 2 (30:24):
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